By: Alexander A. Miuccio Published: August 2015

Contractor's Failure to Comply with Notice and Written Authorization Requirements Does Not Ban Extra Work Claims

Where contracts require written notice of claims and written authorization for extra work, courts generally hold that such provisions are enforceable against the contractor. Courts also generally preclude claims where a contractor signs a mechanic’s lien waiver. In the recent case of Peter Scalamandre & Sons, Inc. v FC 80 Dekalb Associates, LLC, however, an appellate court affirmed the lower court’s decision and allowed the contractor to proceed with its extra work and delay claims even though the contractor failed to comply with the contractual requirements for written notice of claims and written authorization for extra work or change orders.  The court also ruled that mechanic’s lien waiver was not a waiver to further payment for extra work.

Background

FC 80 Dekalb is the owner of a 34-story apartment building in Brooklyn. The owner contracted with Scalamandre to furnish and install the concrete superstructure for the building. According to the scope of work provisions incorporated into the contract, the concrete was to be reinforced with 3,000,000 pounds of rebars. The unit price for setting the rebars, including material and labor, was established at $1.92 per pound. Scalamandre agreed to perform the concrete superstructure work for the price of $27,100,000.

Following the commencement of Scalamandre’s work, it became apparent that the building would require a substantial quantity of rebars in excess of the 3,000,000 pounds called for. Scalamandre expressed its concerns to Dekalb over the amount of rebars required. Scalamandre ultimately purchased and installed 4,489,122 pounds of rebars into the final structure.

Scalamandre filed a mechanic’s lien on Dekalb’s property in the sum of $3,494,555, representing the fair and reasonable value of extra and additional work it performed, including the installation of the excess rebars. Scalamandre further sought to recover damages in the amount of $4,631,161 for Dekalb’s alleged interrupting, delaying and disrupting of its work on the project. Scalamandre sued the owner to foreclose its mechanic’s lien and recover these sums.

In opposition to Scalamandre’s motion for summary judgment and in support of its own cross-motion, Dekalb claimed that Scalamandre waived its claims by failing to comply with the notice of claim procedures set forth in Article 8 of the General Conditions of the contract, and by executing a mechanic’s lien waiver.

Decision

The lower court recognized the general principle of law that contractual conditions precedent to the filing of a claim are enforced. However, the court found that there was no such condition precedent in the Scalamandre/Dekalb contract, noting that claims for additional compensation or delays based on changes in the work were addressed under the provisions of Article 4, and that Scalamandre’s claims were based on changes in the work which would be handled pursuant to that Article 4. The court further noted that there was nothing in Article 8 which indicated that the failure to give proper notice with regard to claims for changes in the work were subject to waiver since the waiver explicitly applies to "other claims for additional compensation for construction or services claimed to be outside the scope of this Agreement."

As for the requirement that change orders be authorized in writing, the court acknowledged that “[u]nder New York law, oral directions to perform extra work may modify or eliminate contract provisions requiring written authorization. . . A provision in the contract which requires that there be written authorization for extra work can be waived”. The court held the since Scalamandre was required to perform work in accordance with the shop drawings, etc., a jury could rationally find that the owner’s approval of shop drawings reflecting extra work was an approval of the extra work, itself, thus obviating the need for a formal written authorization. 

Finally, as for the mechanic’s lien waiver, the court noted that the contract required that such waivers be submitted as a part of the application process for monthly progress payments, and that the contract required that the lien waiver form set forth a list of all open claims. Based on Scalamandre’s setting forth a list of open claims which included its extra work, the lower court held that the “boilerplate” language found in the lien waiver did not preclude Scalamandre’s ability to recover for the extra work it specifically excepted from the waiver.

On appeal, the appellate court affirmed the lower court’s decision, largely following the reasoning of the lower court. In doing so, however, the appellate court added that substantial compliance with notice requirements will be found where there is sufficient correspondence between the parties to give the owner actual notice of the claims asserted.

Comment

Although courts generally enforce contract provisions requiring written notice of claims and written change order approval, these provisions may not be enforced where the acts and conduct of the parties show that written authorization for change orders were not always required or where the evidence shows that the contractor expected to be paid for the extra work, without complying with the formal notice.  This case also followed case law that mechanic’s lien waivers containing release language are not intended to waive claims where the contractor’s applications for payment listed the pending change orders.

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