The risks to contractors and subcontractors on construction projects have increased exponentially in recent years, and we don’t see them slowing down with the rising costs of construction. Contractors are being forced to agree to extremely abbreviated project schedules and higher liquidated damages penalties than ever before. Combined with supply-chain disruptions and material shortages this can spell disaster for the unsuspecting contractor or subcontractor.
To protect themselves, contractors and subcontractors should ensure that everyone in the chain of command understands the contract requirements for preserving claims for change orders and time extensions. Most contracts include notice provisions for a variety of circumstances that specifically state that, if the contractor (or subcontractor) fails to provide timely notice, it waives any claim for additional time or money. These provisions are being enforced by the courts to prevent contractors from recovering additional compensation for obvious changes or items not contemplated by the original contract. Courts have even enforced these provisions to preclude contractors from receiving an extension of time for obvious owner-caused delays, ultimately resulting in excessive liquidated damages being imposed against the contractor.
We suggest that at the outset of the project the contractor create a chart of important contract deadlines, and discuss with its project-management team protocols for compliance (i.e., who is primarily in charge with compliance, who will be in charge with overseeing compliance?). A sample chart outlining some contract requirements we have come across is shown below:
|Contract Time Begins||List Contract Start Date|
|Unforeseen Conditions||Notice within 3 calendar days of first observance.
Contractor must additionally submit a full claim within 7 days of adverse determination by the Owner.
|Claims for Additional Time||Notice within 48 hours of event causing or commencement of delay, whichever occurs first.
Supporting data supplied to owner within 15 days of occurrence.
|Claims for additional compensation||Notice within 48 hours of event giving rise to claim for additional compensation.
Supporting data to be supplied within 15 days of occurrence
|Response to Adverse Work Directive||Notice to be submitted within 48 hours after receipt of work directive
Support to be supplied within 15 days of receipt of work directive.
|Completion Date if no Extensions||List Contract Completion Date|
Note that within a restrictive contract such as this, there are numerous administrative hurdles that need to be complied with to avoid a waiver of its claim. Consider the following situation: a forward-looking contractor submits an RFI for work it does not intend to start for months in the future. The response to the RFI makes numerous changes to correct plan conflicts, which will cause a change to the critical path and to various subcontract scopes. The contractor must turn around notice within 48 hours or else it could waive all claims for additional time and money. Then, within 15 days of the RFI response, the contractor needs to produce a revised contract schedule showing the changes to the critical path resulting from the changes, and it needs to obtain pricing from all impacted subcontractors and submit to the owner. Let’s say the owner than rejects the claim and issues a work directive that requires the contractor to commence the additional work with no provision for a time extension or additional compensation. Upon receipt of such work directive, the contractor is required to again notify the owner that it disagrees with the decision within 48 days or it is deemed to have accepted the “no-time, no-money” work directive. The contractor must again submit its supporting information within 15 days of the adverse work directive. In total, the above example provides four separate opportunities for the contractor to miss out on or waive an otherwise supported claim for additional time or money. This ultimately will result in the owner getting something for free, or imposing liquidated damages against the unsuspecting contractor that fails to comply with the notice provisions.
Even if there is doubt that a claim will result, we recommend that contractors play it safe and provide the initial notice required under the contract that it may seek additional compensation or time as a result of an unforeseen condition or change requested by the owner. If the contractor later determines that a claim is not required, the contractor can simply withdraw the notice or not submit the full claim documentation. Also, in many circumstances it is either impossible or unrealistic to provide a comprehensive claim within 15 days of an occurrence. In those cases, we recommend the contractor provide as much information as it can within the deadline, clearly indicate in its claim that it is continuing to gather information and support for its claim, state that it reserves all rights with respect to the change or unforeseen condition, and then timely present any additional support regarding the additional time or money that it is entitled to. Preserving claims in this manner will ultimately serve to protect the contractor at project closeout and during future negotiations with the owner.
Bruce E. Loren and Kyle W. Ohlenschlaeger of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Mr. Ohlenschlaeger focuses his practice on construction law and a wide range of commercial litigation disputes. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. The firm’s construction clients include owners/developers, general contractors, specialty contractors in every trade, suppliers and professional architects and engineers. Mr. Loren and Mr. Ohlenschlaeger can be reached at email@example.com or firstname.lastname@example.org or 561-615-5701.