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Government Contractors Beware: Failure To Comply With Contractual Notice And Reporting Provisions Can Cost You Money

  • Posted on: Aug 4 2017

Notice and reporting requirements in public contracts are common in public works projects. They provide public agencies with timely notice of deviations from budgeted expenditures or of any supposed malfeasance, and allow them to take early steps to avoid extra or unnecessary expense, make any necessary adjustments, mitigate damages and avoid the waste of public funds. A.H.A. Gen. Constr. v. New York City Hous. Auth., 92 N.Y.2d 20, 33-34 (1998).  Such provisions are important both to the public treasury and to the integrity of the bidding process.

Because of these public policy considerations, expressly agreed-upon notice provisions “must be literally performed.” Phoenix Signal & Elec. Corp. v. New York State Thruway Auth., 90 A.D.3d 1394, 1396-1397 (3d Dept. 2011) (internal quotation marks and citation omitted). Failure to strictly comply with such provisions is a condition precedent to recovery and constitutes waiver of a claim for additional compensation. A.H.A. Gen. Constr., 92 N.Y.2d at 30-31; see also Kingsley Arms, Inc. v. Sano Rubin Constr. Co., Inc., 16 A.D.3d 813, 814 (3d Dept. 2005).

Recently, in Ridley Electric Company, Inc. v. Dormitory Authority of The State of New York, a public contractor had its case dismissed because it failed to comply with the notice and reporting requirements in its contract with the State. Ridley Elec. Co., Inc. v. Dormitory Auth. of The State of New York, 2017 NY Slip Op 05907 (3d Dept. July 17, 2017).

Ridley Electric Company, Inc. v. Dormitory Authority of The State of New York

Background

In May 2006, the plaintiff, Ridley Electric Company (“Ridley”) entered into a contract with the defendant, the Dormitory Authority of The State of New York (the “Authority”), to act as the prime contractor for electrical work in the construction of the New York State Veteran’s Home. Due to certain issues related to the ceiling design, Ridley had difficulty completing the work. To assist Ridley in resolving the issues, the Authority made various adjustments to the project. Ridley substantially completed its work by September 2008, and the entire project was substantially completed by October 2008.

In March 2009, Ridley requested additional compensation for the “extra work” that it allegedly performed related to the ceiling and other specified problems. In February 2010, the Authority advised Ridley that following a preliminary review, it had concluded that Ridley was due some additional funds for labor costs incurred in performing the extra work related to the ceiling, but denied Ridley’s other claims. Change orders allowing the proposed additional funds were attached to the February 2010 correspondence. Ridley refused to sign these work orders, and instead submitted two proposed change orders requesting additional sums. In response, the Authority again issued change orders for the original sum.

Thereafter, Ridley commenced an action for, inter alia, breach of contract, seeking damages representing the unpaid contract balance and delay damages.

Ridley claimed that it performed extra work, by having to install cable trays and run wires inside them in ceiling spaces that were too small to accommodate them, and by performing certain cleanup work. Ridley maintained that it became aware of the ceiling issue soon after work commenced in May 2007, and that the Authority advised it in writing in April 2008 that the cleanup work fell within the scope of the contract. Notably, Ridley conceded that it did not provide the Authority with timely notice of these claims as required by the contract (it filed the claims after the project had been substantially completed, almost two years after construction commenced), but contended that the Authority knew that it was performing extra work and waived the notice and reporting requirements by offering to make partial payment in response to its belated request.

The Authority answered and asserted affirmative defenses claiming, among other things, that Ridley had failed to comply with the notice and reporting requirements in the contract.  These requirements provided, in pertinent part, that if a contractor believes it has been ordered to perform a task that should be considered extra work within the meaning of the contract, the contractor must notify the Authority of its extra work claim by filing a written notice within the time period specified in the contract. Failure to comply with the notice and reporting requirements was deemed to be “[a] conclusive and binding determination on the part of the [c]ontractor that [the work in question] does not involve extra work and is not contrary to the terms and provisions of the [c]ontract” and, also, “[a] waiver . . . of all claims for additional compensation or damages as a result of [the work].”

Ridley moved for summary judgment as to liability, and the Authority cross-moved for summary judgment to dismiss the complaint. The motion court denied Ridley’s motion, granted the Authority’s cross motion, and dismissed the complaint. Ridley appealed.

The Court’s Decision

On the issue of waiver (that is, the Authority’s cross motion), the Court affirmed the motion court’s ruling to dismiss the complaint, finding that Ridley “failed to comply with the notice and reporting requirements of the contract.” In so doing, the Court rejected Ridley’s argument that the Authority’s actual knowledge of the ceiling issues “suffice[d] to excuse lack of compliance with [the] strict contractual notice requirement … at issue here.” (Citations omitted.)

The Court also rejected Ridley’s contention that the Authority waived the notice requirements by offering partial compensation for the extra work related to the ceiling issue in February 2010. An offer to make partial payment did not suffice, said the Court, to waive the Authority’s rights under the notice and reporting requirements in the contract. Such a waiver, noted the Court, “must be explicit, unmistakable, and unambiguous.” (Citation and internal quotation marks omitted.)

In any event, the terms of the contract itself contradicted any notion that the Authority’s partial payment constituted a waiver of the notice and reporting requirements:

Here, review of the pertinent documents reveals multiple provisions contradicting the claim that partial payment constitutes a waiver of the notice and reporting requirements. The parties” contract gives defendant the general authority to order extra work and compensate contractors through change orders, as it did here, “[w]ithout invalidating the [c]ontract,” and further provides that “[a]ny partial payment made shall not be construed as a waiver of the right of [defendant] to require the fulfillment of all the terms of the [c]ontract” (emphasis added). Further, the change orders by which defendant tendered payment to plaintiff provide that “[defendant] reserves its rights to rely on and enforce the terms of the [c]ontract . . . in connection with this change” and that “[n]either this change order nor any extension of time for performance granted hereunder constitutes an admission by [defendant] that it is responsible for any delays or hindrances to [w]ork under the [c]ontract.” In view of these express reservations, and in the absence of any statement to the contrary, defendant’s willingness to compensate plaintiff for a limited amount of extra work cannot be construed as an express and unequivocal manifestation of its intent to waive reliance upon the contract’s notice and reporting requirements as to the extra work claim as a whole.

Citations omitted.

Takeaway

Contracts that contain notice and reporting provisions are conditions precedent to any recovery for breach of contract. As such, no party can prevail on a breach of contract claim if that party has failed to perform a specified condition precedent. As Ridley demonstrates, failure to strictly comply with such provisions constitutes a waiver of the claim for relief.

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