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OP-ED: Washington’s Strict Compliance Standard is Now Stricter

November 27, 2018

Overview

Less than two months ago, in Nova Contracting Inc. v. City of Olympia, the Washington (state) Supreme Court reaffirmed its long-held requirement that construction contractors must strictly comply with written notice requirements in construction contracts; otherwise, they waive their claim for additional compensation – even if the owner had actual knowledge of the change.

This is nothing new for those who have been working in the Washington construction industry. For the past 15 years (since Mike M. Johnson Inc. v. County of Spokane in 2003), Washington courts have required strict compliance with notice requirements. The Nova court, however, took it a step further by extending the strict compliance standard to apply to expectancy and consequential damages, and not just the cost to perform the additional work. This creates numerous issues, including mountains of paperwork and the requirement that contractors give notice before they even realize there is a claim.

In Nova, the general contractor (Nova) was awarded a contract by the city of Olympia to replace a deteriorating culvert along a creek. The contract incorporated the Washington State Department of Transportation standard specifications (in fact, many Washington public agencies incorporate the WSDOT standard specifications). Under the contract, Nova had 45 days from the notice to proceed to complete the work. Before it had even been authorized to proceed, however, Nova provided submittals to the city for approval – Nova was not authorized to mobilize on site without its submittals being approved.

On Aug. 11, 2013, the city issued a notice to proceed letter to Nova (which started the 45-day countdown to project completion). The following week, the city denied Nova’s submittals. Nova amended and reissued its submittals to the city, which were again denied. On Sept. 4, the city issued a notice of default letter to Nova demanding that Nova cure its performance of the work, including provision of sufficient submittals. Upon receipt of the notice of default, Nova reissued its third batch of submittals and mobilized on-site. Shortly thereafter, the city issued a stop work notice.

On Sept. 9, 2013, Nova filed its formal written notice of protest under the WSDOT standard specifications. On Sept. 18, Nova informed the city that it could not complete the project within the 45-day deadline. Thus, on Sept. 24, the city terminated Nova’s contract for default. Nova filed a written protest against the city’s notice of default and filed a claim for damages on Sept. 30.

WSDOT’s specification section 1-04.5 (the pertinent provision) provides that if the contractor “disagree(s) with anything required in a change order, another written order, or an oral order from the (city) engineer, including any direction, instruction, or determination by the engineer, the contractor shall … immediately give a signed written notice of protest to the project engineer.” If the contractor fails to give notice, it “waives any additional entitlement and accepts from the engineer any written or oral order (including directions, instructions, interpretations, and determinations).”

The court held that, because Nova failed to give immediate written notice after the city rejected its submittals, Nova waived its claim for any damages. Thus, even though Nova probably did not realize that it was being damaged after the first round of submittals was rejected, it should have nevertheless “immediately” notified the city in writing of the protest.

This holding creates an even bigger mountain of paperwork for contractors and owners alike. Contractors working in Washington need to be even more diligent in making sure they strictly comply with the notice requirements and give immediate notice “in writing” for not just claims but also minor disagreements, such as rejections of submittals. Essentially, contractors need to double down on their efforts to make sure that they can get paid for changed work.

Unlike their counterparts in Washington, Oregon courts have refused to strictly enforce construction contract notice provisions. Instead, Oregon courts will hold that actual notice is adequate when the written notice of protest is “a mere formality.” Yet, I have seen instances where owners and developers in Oregon try to strictly enforce notice requirements by rejecting change orders because the contractor did not submit a “formal” notice. Recently, I saw a contracting manager for an Oregon public agency reject a proposed change order because it was submitted one hour and three minutes late. It could be just a matter of time before Oregon looks at adopting a similar standard as Washington.

Bottom line: all contractors, regardless of which state they work in, should thoroughly review and understand the notice provisions of their contracts. Private contracts should try to negotiate more workable notice provisions. If questions arise regarding the logistics of the notice provision (sometimes, it is impossible to comply with a very harsh notice requirement), contractors should consult with their attorneys.

Column first appeared in the Daily Journal of Commerce on November 27, 2018.

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