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By: Thomas H. Welby Gregory J. Spaun Published: June 2021

Another Valid Claim is Buried in the Graveyard of Lack of Contractual Notice

We have written on more than one occasion about how a construction contract is meant to define the relationship between the parties, and that absent a provision which violates public policy (pay-if-paid, pre-emptive lien waivers, indemnification of a party for its own negligence, etc.), the contract will be enforced as written. The provisions of these contracts which seems to be invoked most frequently are the provisions for delivering notice of claims to the owner for extra, additional, or even delay compensation. In the recent case of APS Contractors, Inc. v New York City Housing Authority, an appellate court again showed us the importance of strict compliance with these contractual notice of claim provisions.  

Background

In May of 2014, APS Contractors entered into a contract the New York City Housing Authority where APS was to be NYCHA’s general contractor for a façade and roofing project at the Pink Houses in Brooklyn. The contract contained a provision, at Section 32(a), requiring the contractor to file a notice of intention to file a claim within 20 days after such claim arose, or else such claim was waived.

On April 28, 2017, the Certificate of Final Acceptance was issued, and on May 9, 2017, APS submitted a document that it denominated “Verified and Itemized Statement and Notice of Claim”, which asserted three claims, as follows: $1,416,543 for additional work for lead abatement and painting at the railings; $512,727.50 for additional work for temporary roofing; and $114,020 for additional work in removing certain concrete patching. No payment was made on this claim, and APS commenced its lawsuit to recover on these claims on May 17, 2018.

NYCHA ultimately moved to dismiss APS’s lawsuit, citing to Section 32(a) of the contract. NYCHA argued that APS had knowledge of the lead abatement claim on April 20, 2016, the date on which NYCHA advised that it would be calculating APS’s compensation in a manner different than that proffered by APS. Similarly, NYCHA argued that APS had knowledge of the temporary roofing claim on January 16, 2016, when NYCHA first rejected its request for additional compensation, claiming that temporary roofing was included in the contract. Likewise, as to the concrete repair claim, NYCHA argued that APS had knowledge as early as May 11, 2016, the date on which NYCHA indicated that would not provide APS with additional compensation for this work. APS argued that voluminous email correspondence adequately advised NYCHA of the fact that APS was making claim for these additional monies, and that this correspondence otherwise satisfied the requirements of the contract.

Decision

The motion court denied NYCHA’s motion as it related to the lead abatement claim, finding that the significant amount of email correspondence apprized NYCHA of APS’s intent to file a claim within the contractual deadline, and provided the requisite information. However, the court granted NYCHA’s motion as it related to the other two claims, finding that there was no similar chain of correspondence that would have apprized NYCHA that APS would be making a claim for those sums.

On appeal, the appellate court reversed the motion court and dismissed the complaint, finding that the motion court had erred in finding the email correspondence satisfied the notice of claim requirement. In doing so, the appellate court held that the contract was specific that the notice of claim had to be denominated as such, had to contain certain specified information, and had to be clear that APS intended to pursue the claim for compensation. The appellate court found that the email correspondence met none of these requirements.

Comment

APS is yet another reminder that in most circumstances, contractual conditions precedent will be strictly enforced. Here, what appeared to be over $2 million in valid claims for extra and additional work ended up dismissed for a simple failure to follow contractual formalities. While APS’s claims ended up buried in the graveyard of inadequate notice, this did not need to happen.

It goes without saying that contractors would be well advised to follow such contractual conditions precedent to the letter so that you are not in the position of having to later argue, like APS, that cobbled together correspondence constitutes the notice required by the contract. Often, and unfortunately, by the time the contractor recognizes that it is up against a deadline to submit a notice of claim, that deadline may have already passed. Your project people must learn to recognize the actions and correspondence from the Owner that trigger the Notice stop watch.  In that regard, contractors should examine their contracts with experienced construction counsel so that they can—at the outset of the job—have a checklist of what to submit when a claim arises, and the deadline for doing so.

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