Originally posted Friday, 18 January 2013

Written by John Sier

Many people may think that the contract requirements may not survive termination, but that is not always the case, especially as it may pertain to notice provisions for claims. In Realm, Inc v City of Olympia, the City terminated the contractor for convenience in September 2008, and the contractor submitted its claim to the City in December 2008. Since the contractor refused to sign the final change order for an amount less than its full claim, the City unilaterally issued the change order and tendered the check to the contractor, who in turn cashed the check. Shortly thereafter, the contractor sued the City for the balance of its claim. The trial court dismissed the contractor’s claim for failure to comply with the notice of claim requirements in the contract even after termination.

In affirming the trial court, the Washington Court of Appeals found that the contract required timely notice by the contractor of any disputes regarding the cost associated with termination and payment for actual work under the contract. While the contractor submitted its claim for costs on termination, the contractor never provided notice of a dispute relating to any amount due under the contract. Likewise, the contractor never protested the unilateral change order, which was specifically described and authorized under the contract terms. Because the notice provisions pertained to claims during construction and at termination, the requirement for notice of claims survived the termination of the contract. Notice is a very powerful requirement, whether demanded of the Owner or the contractor. Termination alone may not extinguish that obligation, and this is particularly true when dealing with sureties. All parties to a construction project should be well aware of the various notice requirements, including any mandated form of notice, because failure to comply with notice requirements can be an effective defense.

John Sier, with the firm of Kitch Drutchas Wagner Valitutti & Sherborook in Detroit, Michigan, is Associate Counsel to COAA.