In the previous editions of “Getting Paid” we discussed contract “red flags” dealing with situations where proposed contract terms require close attention, renegotiation or perhaps walking away from the prospect of entering into a particular project. This edition presumes that contract terms have been accepted by both sides and a form of contract or subcontract has been signed by both sides. When an effort to assure proper contract terms problems may still arise during the course of a project and will be compounded directly or indirectly by the failure of the parties to abide by the specific contract terms that they entered. This may be a result of failing to read the contract terms, thinking that these terms are simply “boilerplate;” failure to understand the contract terms; a misplaced effort to informally resolve issues in the field which at a later date creates problems; or any number of other factors.  

Contract terms, even those that are looked at as simple “boilerplate” are in a contract for a purpose. They define the relationship of the parties, they define rights and obligations of the parties and they define procedures that are to be employed by the parties to enforce those rights or obligations. In a later dispute, a mediator, arbitrator or court will look to whether or not the parties followed the procedures that they had contractually agreed to. If they did not, valuable rights may be lost, obligations that were not intended to be accepted may be imposed and what was deemed “simple boilerplate” may ultimately control the outcome of the dispute. 

If you have taken your time at the point of initial contracting to read and understand the contract terms and to negotiate certain terms, it makes little sense to proceed through the course of the contract ignoring those terms. While careful attention should be given to each and every contract term (again it would not be there if it was not intended to perform some function) particular concern and attention must be given to the following categories of contract terms.  It is incumbent on the parties to comply with those terms if they wish to protect themselves and/or enforce rights to which they are entitled under the contract.  

A.  Contractor Notice Provisions: Whether a contract is a standardized AIA, AGC or other form document or whether it is customized for a particular project, it will include a number of provisions regarding the giving of notice. It will identify when notices are to be given, to whom they are to be given, the form of the notice and may identify what the content of the notice should be. Failure to give a written notice may relieve the other party of responsibilities, may constitute a waiver or release of your invocation of rights under the contract or may result in your accepting and assuming certain obligations which you never intended to assume. Careful attention must be given to the notice provisions and your field personnel as well as your office personnel need to follow the notice requirements. Notice provisions exist through out the contract but some of the more common requirements include the following: 

§         A contractor’s notice to the owner of unforeseen site conditions

§         A contractor’s notice to the owner of changes in the work

§         A contractor’s notice to the owner of design errors, omissions or discrepancies

§         A contractor’s notice to the owner of an intent to file a claim for increased costs

§         A contractor’s notice to the owner of a request for time extension

§         A contractor’s notice to the owner of interferences with its work by separate contractors or other parties

§         A contractor’s notice to the owner of its intent to terminate or suspend performance  

 The above referenced notices apply similarly to contractor/subcontractor notices as well as to instances where the notices are being provided to or by the architect, construction manager or other owner representative.  To try to limit problems associated with Notice requirements, the following steps are recommended: 

§         Review and make a check list of when written notice must be provided

§         Include the timing of notice requirements on the checklist

§         Develop an internal calendar or tickler on when Notices are given and when responses , if any, are required

§         Where a notice is issued, but goes unanswered, send at least one written follow-up

§         Train both office and field personnel of the need to comply with written notice provisions

§         Where inadequate time exists to issue a formal notice prior to performance of work, at least issue a written confirmation of the event

§         Maintain supporting records of events including written notices, written confirmations, references from meeting minutes, time and material records of cost increases/changes

§         Make sure that the written notices are factual, neutral and non-inflammatory in language and cite to the particular contract provision upon which the notice is issued

 B.     Responding to Owner Actions:  Similar to the above, the Owner or contractor above you will have its own Notice requirements preceding or following given events. 

 Additionally, it may issue notices, directives or instructions which require action or response by you.  These may include:

 §       Owner’s notice to the contractor for payment withholding

§         Owners notice to the contractor to correct rejected work

§         Owner’s notice to the contractor for contractor’s default or neglect to  carry out work and owner’s right to carry out the work

§         Owner’s notice to the contractor to stop the work

§         Owner’s notice to the contractor of rejected work

§         Owner’s notice to the contractor for termination for convenience

§         Owner’s notice to the contractor for termination for cause

§         Owner’s notice to the contractor for suspension

§         Owner’s notice to the contractor as a work directive

§         Owner’s notice to contractor’s surety 

Failure to respond in action or in writing to such communications may result in the unintentional waiver of contract rights. If as an example, you are advised of “rejected work”, a verbal statement of disagreement followed by performance of the demanded corrective work and then a billing for the same months later or as part of litigation may be ineffective in protecting your rights to compensation.  Further, silence can be seen as acquiescence.  You must remain alert and diligent in assessing when you are being requested to perform work or alter existing work contrary to, or at odds with your specific contract responsibilities.  Even if there is no immediate impact on compensation or schedule, any request to alter the scope of your contract work needs to be memorialized and responded to, even if it is a simple confirmation that you have been asked to do “X” instead of “Y” and are doing so.  At a later date, a question may arise about whether and/or why something was done that is not specifically consistent with plans and specifications and you may need to show that what is in place was at the directive of the owner, architect or others above you. While there may be occasions where emergent conditions require a waiver or suspension of some of the formalities of the contract, those instances should be the exception as opposed to the rule.  Some preventative measures include: 

§        Maintain not only a checklist for affirmative Notices as described above, but also of timing for responses

§        Send a written confirmation of every change or directive given in the field

§        Periodically review the above writings to see if you need to update or supplement a particular written confirmation (i.e. – the original confirmation identified that you were told to do “X” as opposed to “Y”, but this not has presented some costs or complications which need to be identified)

§        When you receive a notice or directive from the owner, architect or your customer, review the contract terms regarding the particular notice to determine whether a response is needed, timing of a response and content of a response.

§        Again – make sure that both field and office personnel are aware of what is occurring and what the formal requirements are.

Many contractors and subcontractors either do not like to spend their time doing letter-writing, or fear that they will poison the relationship if they are constantly issuing letters and claims.  Failure to do so, however, may run contrary to contract requirements or may result in a silent void in response to an otherwise costly directive from above.  In either event, rights may be lost, new and unexpected obligations assumed, and the ability to be paid for work performed jeopardized.

You have been dealt a hand of cards when you signed the contract. On the basis of your pre-contractual negotiations, you may in fact have been able to arrange so that you were dealt certain cards. You are now in a game where the contract terms represent the rules of the game. All that remains is for you to play the hand that you have been dealt. Your failure to do that may result in your losing and forfeiting some of the very cards that you fought so hard to receive, while you watch the bets in the middle of the table be swept away.

                                                                                                                         CURETON CLARK, P.C.

                                        James H. Landgraf, Esq.