Burn Notice: Why Strict Compliance with Notice Requirements is Critical

Construction and Procurement Law News, Q1 2016

Client Alert

Compliance with notice provisions in contracts is often a threshold question for courts when evaluating contract claims. In Contractors Edge, Inc. v. City of Mankato, the Minnesota Court of Appeals addressed such a circumstance with respect to a road extension project in the City of Mankato, MN. The City contracted with Contractor’s Edge (“CEI”) on the extension project for, among other items, construction of the road, drainage facilities, and a drainage ditch known as a “bio swale.” A dispute arose over the location specified in the contract for the stock pile where excavated materials could be stored. The contract specified that a stock pile would be one half mile away from the project, but, upon starting the work, CEI discovered that the driving distance was more than a half mile, which increased its hauling costs. CEI requested a change order for the increased hauling costs, and the City initially granted this change.

However, the City later rescinded the change order arguing that the straight line distance between the stock pile and the project was actually less than one half mile, and the contract did not specify that the distance referred to “driving” distance. The City’s and CEI’s contract required a party to submit written notice of any claim within a prescribed time period and to include with the notice “the amount or extent of the Claim, with supporting data.” The contract further provided that the “responsibility to substantiate a Claim shall rest with the party making the Claim.”

Shortly after the City rescinded the change order and within the time limits prescribed by the contract, CEI submitted a “notice of claim” which sought payment for the extra hauling costs, but did not provide detailed evidence supporting the claim in terms of itemized costs and labor hours. CEI’s claim was rejected prompting it to file a lawsuit in Minnesota District Court to recover the increased hauling costs. The City then moved for summary judgment against CEI, and the district court granted the motion determining that CEI’s “notice of claim” did not provide “supporting data” for the claim as required by the parties’ contract. CEI appealed, and the Minnesota Court of Appeals affirmed the district court’s decision.

In affirming the decision of the lower court, the court of appeals noted that, while a party may be granted some lenience relative to the form of its notice, it is not the case that “anything goes.” Provision of “supporting data” was a requirement of written notice under the contract causing CEI’s “notice of claim” to be facially deficient. Further, because CEI, as the claiming party, was responsible for substantiating the claim, the absence of “supporting data” in the form of itemized costs, labor hours, wages, etc. made CEI’s notice ineffective.

The result in Contractors Edge is a good reminder for all participants in the construction industry to pay attention to and follow contractual requirements. Although notice in this case was timely, it was not sufficient because of other requirements laid out in the disputes clause of the contract. The risk of non-payment of what might otherwise be deemed a legitimate claim is too great to ignore any contractual notice requirement. A party should not rely on the leniency of the other party, or, ultimately, of a judge or arbitrator to preserve such claims.