Most construction contracts with an agreed upon base price will provide for adjustment of the schedule and price if the contractor performs work that is additional to the scope originally agreed upon. Such adjustments, which are often crucial to the contractor making a profit on a job, typically place notice requirements on the contractor, especially on public projects. The contractor’s failure to precisely follow these notice requirements, which can be burdensome in terms of time requirements and substance, can be fatal to the contractor’s extra work claim.
The importance of following contractual notice requirements for extra work is highlighted by a recent decision of The New York Appellate Division, Third Department, in the case of Ridley Electric Company, Inc. v. DASNY1 Ridley entered into a contract with the Dormitory Authority of the State of New York (“DASNY”) to be the prime contractor on a New York State public project for construction of the New York State Veteran’s Home (the “Project”). During Ridley’s performance of its work, issues arose relating to the design of the Project ceiling, causing DASNY to make various adjustments on the Project so Ridley could complete its work. Ridley substantially completed its contract work, including work Ridley considered extra, by September of 2008. In March of 2009, Ridley requested payment for the alleged extra work it performed relating not only to the ceiling issue, but also to cleanup work it performed. In February of 2010, DASNY responded to Ridley’s request, agreeing Ridley was due compensation for certain extra work, but solely relating to the ceiling issue. DASNY also provided proposed change orders for the extra work relating to the ceiling issue. Ridley refused to execute DASNY’s proposed change orders because of pricing issues, and it set forth proposed change orders of its own. DASNY refused to execute the change orders proposed by Ridley.
Based on this disagreement, Ridley sued DASNY in Supreme Court for breach of contract seeking its contract balance and delay damages. DASNY asserted a defense based on Ridley’s failure to follow the contractual notice requirements. The contract between Ridley and DASNY provided that DASNY could order Ridley to perform extra work and would use change orders to adjust the contract price accordingly. It also provided that if Ridley believed it was ordered to perform work that was extra, Ridley had to notify DASNY of this claim in writing within 15 days of being ordered to perform allegedly extra work, and follow up by submitting an estimate of anticipated cost within 30 days. The contract further provided that Ridley’s failure to comply with these requirements would constitute “a conclusive and binding determination on the part of the contractor that the work in question does not involve extra work…and, also, a waiver… of all claims for additional compensation or damages as a result of the work.”. During motion practice, Supreme Court found that Ridley had failed to follow the extra work notice and reporting requirements, and it dismissed Ridley’s complaint.
Ridley appealed to the Appellate Division, Third Department. Ridley conceded that it did not comply with the contractual extra work notice and reporting requirements, but argued that the Supreme Court erred in dismissing its complaint as DASNY: (1) knew Ridley was performing extra work; and (2) waived its defense of the notice requirements by acknowledging Ridley was entitled to extra compensation in its March 2009 correspondence. The Third Department affirmed the Supreme Court, citing Ridley’s failure to comply with the notice requirement by making its claims in March of 2009, long after the notice period in the contract expired. The Court also specified the importance of notice requirements in keeping owners aware of budget updates, especially on public projects where there is an important interest in avoiding the waste of public funds. Based on this important interest, the Third Department required that the notice requirements “must be literally performed”, dooming Ridley’s claim to extra compensation in connection with both the ceiling and clean up work.
Importantly, the Court found that even though DASNY had admitted that it was aware of Ridley’s entitlement to compensation for extra work related to the ceiling issue, without proper notice of its extra work claim being made, Ridley had no viable claim. It also rejected Ridley’s point that the March 2009 letter constituted a waiver of the extra work notice requirement. In doing so, the Court noted a waiver can only be accomplished through an “explicit, unmistakable and unambiguous” act. It also pointed to contract provisions which provided that certain actions by DASNY, such as ordering extra work, issuing change orders, and making partial payments could not be construed as waivers of contract terms.
TAKEWAY: Contractors can often end up in contracts that place onerous requirements on the contractor in connection with claims for extra work. These provisions are enforceable limitations on the rights of the contractor, and are strictly enforced especially, on public projects. Accordingly, it is important that contractors note what notice requirements exist for extra work claims (and other contingencies) when negotiating contracts, and must remain aware of these requirements during performance of the work. If in doubt, contact your construction attorney to help you preserve your claims.
1 Ridley Elec. Co., Inc. v Dormitory Auth. of State, 152 AD3d 1129 [3d Dept 2017]