What the Courts Are Saying: A Contract’s Notice Provisions Are Strictly Enforced in Ohio

Reprinted from the Winter 2012 BrickerConstructionLaw.com Newsletter
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In a recent case, the Ohio Court of Claims strictly enforced a contract’s notice provisions against a contractor when the contractor failed to provide notice of its claim within the time required by the contract. The purpose behind contractual notice provisions is to provide the owner with sufficient notice of issues on the project so that the owner can take measures to minimize or eliminate the impact that such issues have on the schedule and cost of the project. Failure to provide proper contractual notice to the owner prejudices the owner and, as we see from this case, prevents the contractor from recovering costs for alleged delays.

In Tritonservices, Inc. v. University of Cincinnati, Ohio Court of Claims, Case No. 2009-02324, unreported, an HVAC contractor found itself behind schedule and having funds withheld from its pay applications as liquidated damages. The contractor attempted to recover additional costs associated with alleged delays resulting from asbestos abatement, another contractor’s work, and the management of the project schedule. In addition, the contractor attempted to have the owner rescind liquidated damages.

From the start of the project, there was a lag between the HVAC contractor’s completion date and the other contractors’ completion date because the award of the HVAC contractor’s contract occurred later than the other contractors’. To provide a common completion date for all contractors on the project, the project manager and the HVAC contractor executed a change order to compensate the contractor for the later completion date.

The change order, however, also accounted for time associated with the discovery of asbestos during the project. At trial, the HVAC contractor argued that the change order did not include compensation for delays relating to the asbestos. The court, however, found that this was not the case.

The express language of the change order provided that it included acceleration necessary due to the abatement of the asbestos. The contractor’s representative admitted that he signed the change order, but claimed he did so without reading it because the pricing summary the contractor submitted ahead of the change order did not contain anything regarding the asbestos issue. The court, however, pointed out that the owner’s project manager sent the change order to two representatives of the contractor in an email reiterating that the change order included acceleration associated with the asbestos abatement.

A change order is a valid amendment to the contract. Where a party to a contract signs a change order, that party is contractually foreclosed from seeking additional compensation for items within the scope of the change order. The court of claims held that the contractor was not entitled to compensation because the language of the change order specifically accounted for acceleration in the work necessary to make up for delays caused by asbestos abatement.

The contractor also argued that it suffered losses in productivity because of unexpected delays associated with ceiling demolition performed by another contractor and the owner’s management of the schedule. During the project, the contractor discussed the possibility of compensation for the delays. In response, the owner’s project manager told the contractor that it would have to submit a claim in accordance with the procedures in the contract.

The contractor ultimately submitted a loss of productivity claim for costs associated with delays, acceleration, and working out-of-sequence — part of which were related to the asbestos discovered during construction. Acting within the requirements of the contract, the architect prepared its analysis and recommendation of the contractor’s claim. As a result of the analysis, the architect recommended that the claim be denied because the contractor did not submit the claim within the time period required by the contract and the contractor did not properly substantiate the claim according to the dispute resolution procedures in the parties’ contract. The project manager ultimately denied the contractor’s claim.

One of the fundamental provisions in the parties’ contract was the provision that required the contractor to provide the owner with notice of its claim. According to the contract, the contractor was required to submit notice of its claim in writing within 10 days of the event giving rise to the claim. The contract provided that notice was required to “permit the timely and appropriate evaluation of the claim, determination of responsibility and opportunity for mitigation.” The contract further provided that a failure to provide timely notice results in the contractor waiving its claims. The court stated that this provision is a clear and unambiguous provision that is valid. As a result of the contractor submitting its claim past the 10 day notice period, the contractor’s claims were waived.

The contractor attempted to skirt the issue of proper written notice by claiming the owner had actual notice through the contractor’s reports that were submitted daily and the contractor’s complaints during meetings to discuss the project schedule. The court provided that even if the contractor submitted its daily reports every day that they were generated, daily reports do not satisfy the contract’s notice requirements — this is even the case where the daily report form specifically requests that the contractor provide information related to delays in its work and to identify the parties responsible for the delays.

In the alternative, the contractor argued that the owner waived the dispute resolution process because it failed to comply with the time requirements set forth in the contract for resolving claims. The court was not convinced with this argument.

Essentially what the contractor was arguing was that an implied waiver, or waiver by estoppel, existed. Waiver by estoppel exists where the conduct of a party is inconsistent with the party’s intent to claim a right, which misleads and prejudices the other party. The effect of such conduct is that the party that claims the right is prevented from doing so.

The court, however, provided that the owner did not conduct itself inconsistently with its intent to follow the contract’s dispute resolution procedures. In fact, the project manager actually insisted upon following the contract’s claim submittal procedures when it informed the contractor that it would have to file a claim according to the contract terms.

The contractor also attempted to have the court rescind the liquidated damages. The contractor claimed that the liquidated damages were the result of the owner’s failure to properly manage the project schedule.

Again, the court was not convinced by the contractor’s argument. An original baseline schedule was signed, and therefore accepted, by all the contractors. The HVAC contractor even signed an updated baseline schedule. At no time did the schedule’s completion date change, and at no time did the contractor make a valid request for an extension of the contract time. Because the contractor did not request an extension of time or prove that the owner was responsible for the delay, the owner properly applied liquidated damages against the contractor for failing to complete the project according to the contract’s schedule.