By {{Article.AuthorName}} | {{Article.PublicationDate.slice(6, -2) | date:'EEEE, MMMM d, y'}}
{{TotalFavorites}} Favorite{{TotalFavorites>1? 's' : ''}}
Here’s a familiar scenario: A contractor is closing out a successful public or private project. Subcontractors have demobilized and moved on. The firm has completed the punchlist, submitted warranties and only has one more item on its to-do list: resolving a dispute with the owner that arose during construction.

Contractors can preserve their claim rights and increase their odds of recovering on their claims in five simple ways.

1. Submit Timely and Proper Notice
Contractors should always provide timely and proper written notice of all potential claims regardless of their specific contractual requirements. Recent trends show that contracts (prime and subcontracts) frequently include stringent notice provisions that require a prescribed form to communicate alleged claims arising from, among other things, changes, changed or unforeseen conditions, and directives to perform extra work. Further, these provisions usually require contractors to submit that notice within a short time of the date they learned (or should have learned) of the underlying event.

Contractors must comply with these provisions to the best of their ability under the circumstances. Some jurisdictions may excuse a contractor’s obligation to provide notice if the owner knew or should have known about the claim, but some do not even if the owner actually knows about the contractor’s claim.

Providing timely and proper notice lends credibility to the contractor and the claim that may allow the contractor to resolve the claim quickly and cost effectively. If not, proper and timely notice makes a good first impression if contractors have to resolve their claims long after they have arisen.

Contractors should do the following before and during construction: 
  • know the applicable contractual and statutory notice requirements; 
  • include notice provisions in lower-tier contracts that allow for compliance with the contract’s notice provisions; 
  • make sure all project team members know the notice requirements; 
  • prepare a template “notice letter” that conforms to the contract’s applicable requirements; and 
  • give notice with necessary reservations of rights and update their notice/reservations as conditions change.
2. Reserve Claim Rights When Executing Modifications
Contractors may unintentionally waive claim rights by executing contract modifications with broad or global claim waivers or releases. As such, contractors should carefully review all proposed modifications to make sure they do not waive or release claims that should be preserved for future resolution. In fact, contractors should make it clear that they have not resolved all aspects of a change or claim through a modification and expressly reserve their rights to pursue all unresolved issues, such as cumulative impacts, at a later date.

Government agencies recently have shown a willingness to include extremely broad waiver language in contract modifications and have placed the onus on contractors to expressly carve out exceptions to preserve their claims.

Contractors should do the following when executing contract modifications:
  • carefully prepare and review proposed modifications;
  • state the scope of the modification affirmatively and explicitly (i.e., what it does and does not cover); 
  • reserve all necessary rights (e.g., unanticipated and unforeseen impacts, delays and cumulative impacts); and 
  • if an owner will not correctly limit the modification, request a unilateral modification and notify the owner that the firm is performing work or signing modification under protest and reserving all rights.
3. Reserve Claim Rights When Getting Paid
Many contracts require contractors to furnish claim releases and lien waivers contemporaneously in exchange for partial and final payments. Contractors sometimes sign and submit those releases and waivers without thinking about their potential long-term impacts because they need to ensure project cash flow. Unfortunately, judges and arbitrators enforce clear and unambiguous release and waiver provisions that bar contractors from submitting claims at a later date.

Contractors should do the following when submitting payment documents and signing accompanying releases:
  • carefully review each lien waiver and release (partial and final);
  • limit the scope of a partial release to the work actually performed and the corresponding payment;
  • expressly identify the claims that fall outside of the release and reserve the company’s rights to pursue those claims at a later date; and 
  • expressly incorporate proposed change and claim logs into the releases.
4. Submit Time Impact Analyses
Contractors that have to extend their performance on a project incur direct and indirect costs. Those indirect costs (typically extended general conditions) can, and often do, dwarf the direct costs associated with extended performance. Therefore, contractors should submit a Time Impact Analysis (TIA) with their claim notice or as soon as possible.

This serves two purposes. First, some contracts (enforced by courts) require contractors on public and private projects to submit a TIA or the equivalent as part of their notice obligation. Second, the TIA shows the owner that the contractor has a compensable claim for delay or disruption and has spent the time and money to document and quantify its claim properly.

Contractors should do the following:
  • prepare timely and comprehensive monthly updates to the project schedule, including float and input from major lower-tier contractors; 
  • prepare timely and comprehensive TIAs that include non-critical-path float and input from major subcontractors; and 
  • update TIAs as necessary throughout the project and until payment.
5. Remember Mechanic’s Liens And Bond Claims
Contractors have two significant pieces of leverage to obtain payment on their claims because they can file a petition for a mechanic’s lien on a private/commercial project or a payment bond claim and then file suit to enforce the claim. But many contractors often unknowingly waive that right when signing contracts or payment applications/releases.

For instance, in some jurisdictions such as Virginia, contractors can contractually waive their right to file a mechanic’s lien as
long as the waiver is clear and in exchange for valuable consideration. On the other hand, in other jurisdictions such as Maryland, contractors cannot contractually waive their right to file liens but may nevertheless waive their lien rights during the project on a pro-rata or progress-payment basis.

Contractors should do the following:
  • know and understand their rights to file liens or payment bond claims;
  • review contracts, payment applications and releases carefully to ensure they are not inadvertently waiving claims;
  • provide timely and proper notice required for lien petitions and bond claims; and 
  • timely file lien petitions and bond claims.
Contractors must perform all of their contractual obligations while protecting all of their contractual rights. This is especially important when it comes to getting paid—regardless of whether contractors seek payment for the base contract, extra work or claims. Contractors must know their obligations and rights to recover for extra work and potential claims before beginning work, and then must continually focus on those obligations and rights until final payment.

Contractors that do so will undoubtedly increase their odds of getting paid for extra work and claims and may even do so without having to resort to time-consuming and costly litigation or arbitration. And if not, contractors will have maximized potential recovery in any venue for resolving their claims. 

John T. Bergin is senior counsel and Daniel P. Broderick is an associate in the Washington, D.C., office of Thompson Hine. For more information, email john.bergin@thompsonhine.com or daniel.broderick@thompsonhine.com.

 Comments ({{Comments.length}})

  • {{comment.Name}}


    {{comment.DateCreated.slice(6, -2) | date: 'MMM d, y h:mm:ss a'}}

Leave a comment

Required! Not valid email!