Advisory Bulletins
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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