Many contractors are unaware of the procedural pitfalls that lie beneath them when they are submitting a claim for non-payment. What happens when a contractor fails to provide timely notice of its claim, or somehow else fails to conform to the claims process set forth in the contract? The claim becomes subject to dismissal. The issue of untimely notice was again analyzed in the New York State Courts recently by the Appellate Division, First Department in the case titled Lanmark Group, Inc., v. New York City School Construction Authority, (148 AD3d 603).
In Lanmark, the plaintiff was Lanmark Group, Inc., a contractor hired by the SCA to do work on the exterior masonry, parapets, roof, and paved areas at PS 204(K) in Brooklyn. After work began, the SCA also asked Lanmark to remove existing back up brick from the school, and install some door jambs, frames, saddles and hinges. Lanmark claimed this work was additional work outside of the original scope. The parties disputed the scope of work called for in the original contract; specifically how much brick had to be removed, and how much was outside the original scope.
On October 27, 2014, Lanmark sent a letter to the SCA requesting clarification of the scope of the extra work, and it added that it disagreed with the architect’s definition of the scope of work. The next day, the SCA responded stating it could not specify the quantities of brick to be removed. Then on December 1, 2014, Lanmark sent a cost estimate in the amount of $891,231.44 for the removal of 6,800 sq. ft. of brick that it claims was not in the original scope. The SCA responded with an offer of $120,406; however, it did not indicate whether the offer was based on Lanmark’s estimate (6,800 sq. ft.) or the architect’s scope definition (3,890 sq. ft.). After some discussion, on February 24, 2015, SCA issued a unilateral change order for $120,406. In doing so, the SCA clarified that the amount was for the removal of 6,800 sq. ft. of brick. On April 6, 2015, Lanmark filed notice of claim for the brick removal. Lanmark then commenced work on the brick removal, which was completed on July 31, 2015.
Lanmark commenced a lawsuit on December 1, 2015 to collect on the balance of its claim. The SCA filed a motion to dismiss the complaint on the grounds that Lanmark did not provide timely notice required by Public Authorities Law §1744(2). That statute requires that any action against the SCA based in contract requires: 1) notice of claim to be filed with the SCA within three months of accrual; and 2) that the action be commenced within 1 year. The issue before the Court was simple: when did Lanmark’s claim accrue? The SCA argued that the claim accrued on December 1, 2014, the date when Lanmark submitted its cost estimate. This would mean the time to file a notice of claim would expire on March 1, 2015, thus making Lanmark’s filing on April 6th untimely. Lanmark argued that the claim did not accrue until the brick work was substantially completed on July 15, 2015, rendering its April 6th filing timely.
The lower court (Supreme Court, New York County), agreed with Lanmark and denied the SCA’s motion. It cited a Court of Appeals case (CSA Constr. Corp. v. New York City School Constr. Auth., 5 NY3d 189, 192 ), which held that “a contractor’s claim accrues when damages are ascertainable” which, although the date will vary based on facts and circumstances, “generally has been recognized that damages are ascertainable once the work is substantially completed or a detailed invoice of the work performed is submitted”. The appellate court upheld the decision, holding that the “[Lanmark]’s notice of claim was timely served, because it was filed before the [SCA] executed a certificate of completion.” In addition, the Court held that Lanmark’s submission of a cost estimate did not trigger the running of the three-month notice period, as it was not a detailed invoice for final payment for work completed.
Many contractors are unaware of numerous notice requirements applicable to their claims, whether required by contract or by statute. Contractors should be cognizant of both contractual notice provisions and statutes requiring the filing of a notice of claim prior to initiating a lawsuit. Contractors should also have an understanding as to when their claim accrues. Failure to understand these timing and notice issues can lead contractors to unwittingly create procedural defects in their claims. Reliable legal advice from experienced construction counsel can help contractors avoid these potential pitfalls and bring them one step closer to obtaining a favorable result on their claims.