It is not news that contractors confront project delays for a host of reasons on a daily basis. Most contractors know the importance of informing the building owner of any delay and the likely increase in costs. The question is, how are you communicating this message? An Ohio appellate court recently held that by failing to comply with contractual notice requirements, a contractor waived its right to bring claims associated with the contract.
In IPS Electric Services, LLC v. University of Toledo, Case No. 15AP-207, 2016-Ohio-361, the University of Toledo (UT) hired IPS Electric Services (IPS) on Sept. 19, 2012 to perform electrical work on existing buildings and within remodeled building space at the UT Health Science Campus. Problems impacted the completion of the project, and on numerous occasions IPS communicated the issues to the project manager for UT. The first correspondence from IPS on Dec. 24, 2012, indicated that additional manpower and resources were needed to meet the revised completion dates. IPS also communicated that a late delivery of air handling units and slow responses for requests for information from UT resulted in delay to overhead duct work and installation of wall studs.
IPS then sent a more detailed letter on Jan. 22, 2013 indicating that the previously asserted claims resulted in $110,000 of incurred costs and new claims arose that cost IPS $230,000 in additional costs. IPS sued UT for breach of contract and the university asserted that IPS has failed to meet the claims requirements under the “Dispute Resolution” sections of the parties’ contract. These provisions provided that a failure by IPS to properly, initiate, substantiate or certify claims arising from the contract would result in an irrevocable waiver of those claims. The court ruled in favor of UT and IPS appealed.
IPS asserted that it could not meet procedural requirements because it did not know the extent of the damages until the project was completed. The court ruled in favor of the university, stating that IPS did not need to know the total extent of the damages to comply with contractual notice requirements and make the university aware of the claims.
It is important to note that simply communicating delays and issues is not enough to protect contractors. Claim requirements must be followed and sent to owners in a timely manner to ensure the final claim can be filed and pursued.
Have a question on the contents of this blog or how Skoda Minotti’s Real Estate and Construction Group can help your organization? Contact Nick Ward, senior staff accountant, at Skoda Minotti at email@example.com or call 440-605-7246.