Talk is Cheap – Promises to Pay Are a Poor Substitute for Adherence to Contractual Notice Provisions
Construction and Procurement Newsletter Q2 2014
A recent Wyoming case – JEM Contracting, Inc. v. Morrison – Maierle, Inc. – serves as a reminder to contractors and subcontractors of the importance of following the contractual requirements for notice when differing site conditions are discovered. As the contractor in that case learned, failure to comply can serve as a waiver of such claims even when the upstream party makes subsequent promises of compensation for the cost and delays associated with the differing conditions.
JEM Contracting (“JEM”) entered into contracts with two Wyoming counties to perform construction services to improve 3.6 miles of a road which traveled through both counties. The counties hired Morrison-Maierle, Inc. (“MMI”) to provide engineering services and serve as the owner’s representative on the project. There was no direct contractual relationship between JEM and MMI.
JEM began work on June 21, 2010. That same day JEM verbally reported to MMI’s on-site representative that it had discovered a differing site condition that would increase time and costs due to the additional work required to pulverize the existing road. JEM’s contract included a provision regarding the procedure for asserting differing conditions claims:
Contractor shall notify the [counties] and [MMI] in writing about differing subsurface or physical conditions within 5 days of discovery and before disturbing the subsurface as stated above. No claim for an adjustment in the contract price or contract times … will be valid for differing subsurface or physical conditions if procedures of this paragraph 4.03 are not followed.
JEM did not provide written notice of the differing condition until 18 days later, on July 9. The two parties met that same day to discuss the issue. JEM alleged in court that at this meeting MMI told JEM that it would be paid for the increased costs if JEM could find savings on the remainder of the project so that it could complete the work within the contract price. When JEM later submitted its claim formally, however, both MMI and the counties rejected it. JEM brought suit against both shortly thereafter.
JEM alleged that it had relied on MMI’s statements to its detriment and that it was induced to continue working due to these statements. The trial court rejected JEM’s arguments due to JEM’s inability to show harm from MMI’s representations because JEM’s contract required it to continue performance during a dispute. JEM appealed and eventually the matter arrived before the Wyoming Supreme Court. Wyoming’s highest court initially noted that the lower court had failed to fully consider the types of harms that could have resulted from MMI’s representations – namely the reduced profit JEM suffering in cutting other areas of work in order to stay within the contract price. Even still, the court said, JEM had clearly failed to assert its claim in writing within the five days required by Paragraph 4.03. The Wyoming Supreme Court found that JEM’s inability to prove that MMI’s representations on July 9 caused JEM any harm was irrelevant, as JEM had already waived its right to such claims when the five day time limit expired.
Differing conditions are common on projects, as are exchanges like the one that occurred between JEM and MMI on June 21, 2010. JEM likely had good intentions for not following up its verbal notice with a letter, perhaps because it did not want to ‘rock the boat’ early on in its performance of work. However, as this case showed, once a dispute arises good intentions are a poor substitute for compliance with the requirements of the contract.