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Washington Supreme Court Upholds Validity of Contractual
Protest and Notice Requirements in Construction Contracts
By John
Parnass
[Nov. 2003]
On October 23,
2003, the Washington State Supreme Court handed down its decision
in Mike M. Johnson, Inc. v. County of Spokane, and effectively
closed a long simmering debate on a major issue of Washington construction
law: whether contractual claim procedures (i.e., notice clauses,
contractual protest mechanisms, etc.) are to be strictly enforced
or not.
In a 5-4 vote,
the Supreme Court held that such mandatory provisions are to be
enforced as written, subject only to the defense that compliance
has been waived by the benefited party. As a result, the Supreme
Court held that the plaintiff contractor's claim for extra compensation
must be denied on procedural grounds without reaching the merits
of the claim.
In light of
this holding, the focus will shift to the specific language in the
contract. Parties seeking to take advantage of this holding (or
to avoid its strict effect) are well advised to review their contracts
carefully. In practical terms, the holding means that the traditional
contractor practice of writing a letter to the owner expressing
concerns over changes and purporting to "reserve" the
right to seek extra compensation later is not enough when the contract
requires more. To retain its rights, the contractor (or subcontractor,
as the case may be) will need to submit whatever protest or claim
documentation is required to be submitted by the contract within
the specified deadline.
The dispute
grew out of a sewer project in Spokane County. The contract was
awarded to Mike M. Johnson, Inc. ("Contractor") and the
contract was made subject to Washington State Department of Transportation’s
Standard Specifications for Road, Bridge and Municipal Construction
("WSDOT Specifications"). The WSDOT Specifications contained
a requirement that the Contractor file a written protest within
15 calendar days for claims of additional compensation, time extensions
and changed conditions. The WSDOT Specifications also provided that
failure to follow the mandatory claim procedures would constitute
a complete waiver of any claims for protested work.
In the lawsuit,
the Contractor claimed that a road improvement project in its construction
site caused interferences (and consequent delays) because of utility
conflicts. The Contractor sent the owner a letter advising of this
delay but did not file a written protest as required under the WSDOT
Specifications. The Contractor sent additional subsequent letters
alerting the County to cost and time impacts but at no time complied
with the strict requirements of the WSDOT Specifications for prosecution
of a claim.
Ultimately,
the Contractor sued the County for additional compensation. The
County moved for summary judgment and the trial court granted the
motion on the basis that the Contractor failed to comply with the
contractual protest and notice procedures.
On
appeal before the Supreme Court, the Contractor argued that because
the owner had “actual notice” of the Contractor’s
protest or claim, it was excused from complying with the mandatory
protesting claim procedures. Relying on a 1965 decision known as
Bignold, the Contractor argued that Washington law recognized
an “actual notice” exception to strict enforcement of
contractual notice provisions. The Supreme Court rejected this argument:
“Contractor’s general notice to the County that it expected
additional compensation did not amount to claims under the contract,
nor did it excuse [Contractor] from complying with the contractual
claim procedures.” As the Court definitively stated: “We
hold that 'actual notice' is not an exception to contract compliance.”
The
only exception, according to the Court, is in the instance where
the party benefited by the clause (typically the owner, but also
a general contractor in respect to subcontractor claims) waives
its compliance. At the same time, the Court made clear that proving
waiver will be a difficult task. The Supreme Court analyzed the
evidence and found that the Contractor failed to prove unequivocal
acts of conduct evidencing an intent to waive on the part of the
owner. As a result, the Contractor’s claim was dismissed without
any recovery at all and without reaching the merits of its claim.
Published by DWT's Real
Estate & Land Use Department
Any questions about this Advisory should be directed to:
John
Parnass, Seattle, (206) 628-7749, johnparnass@dwt.com
This Real Estate and Land Use Advisory is
a publication of the Real Estate and Land Use Department of Davis
Wright Tremaine LLP. Our purpose in publishing this Advisory is
to inform our clients and friends of recent developments in real
estate, land use, and construction law. It is not intended, nor
should it be used, as a substitute for specific legal advice as
legal counsel may only be given in response to inquiries regarding
particular situations.
Copyright © 2003, Davis Wright
Tremaine LLP.
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