December 29, 2016

Construction Contracts: Notice to Owner in Oregon & Washington



This article originally appeared in the December 26, 2016, edition of the Daily Journal of Commerce

Most construction contracts contain some sort of notice provision that specifies the contractually required method and timing for notice from one party to the other. Many notice provisions require notice in writing and within a certain period of time of a “triggering” event. For example, in a public works construction contract, the notice provision may require the contractor to provide the government written notice of a claim for compensation for extra work within 21 days of the occurrence of the event giving rise to the claim. For projects in the Pacific Northwest, whether or not such a provision is strictly enforced—that is, whether a contractor losses the right to get paid on its claim if it fails to provide timely written notice—depends on what law governs the contract. For private projects and state and local government projects, the contract may be governed by Oregon or Washington law.


In Oregon, the courts have refused to strictly enforce notice provisions, and hold that actual notice (i.e.making the owner aware of the issue by any form of communication) is sufficient when written notice would be “a mere formality.” Oregon courts look to the underlying purpose of the notice requirement, the facts of the case, and if the purpose is satisfied by actual notice. Because of this, failure to provide the required notice may not be fatal. For example, if a contractor encounters a differing site condition on a public works project, actual notice would likely be sufficient if the contracting agency is made aware through actual notice of the differing site condition. Actual notice would provide the agency an opportunity to inspect the condition and the need for additional work and participate in any alternative plan for the work. The courts can determine that the actual notice satisfied the goals of written notice and allow the case to go to trial.


Conversely, Washington courts require strict compliance with contractual notice provisions, regardless of actual notice. With some limited exceptions, courts will dismiss a case in which a contractor prosecutes a claim for which it failed to provide notice pursuant to the terms of the contract. For example, a recent case held that a claim is waived by failure to give written notice only if the contract includes clear language that failure to comply with notice requirements is a waiver. On the other hand, in the seminal Washington Supreme Court case on this issue, Mike M. Johnson, Inc. v. County of Spokane, the contracting agency had actual notice of the contractor’s claim, but the court found that the agency had not waived strict compliance with the notice provision and ruled in favor of the agency.


Finally, federal government projects have a different standard—actual notice is sufficient, provided that the government has suffered no prejudice from lack of written notice. In other words, the federal standard on notice is similar to Oregon’s standard but requires a different kind of proof. Under federal cases, the government has actual notice if it is aware or should be aware of the facts giving rise to the claim. The more important element under the federal standard is whether the government suffered prejudice resulting from the contractor’s failure to provide written notice. Continuing with the example above, if the government is not informed of a differing site condition until after project completion, it will argue that had it received proper notice, it would have formed an alternative work plan, which would have cost less.


Thus, when entering into a contract, it is important to determine what law governs the contract. For public projects, this is generally simple—the law of jurisdiction in which the agency letting the contract is located controls the contract. For example, an Oregon Department of Transportation paving project is generally controlled by Oregon law, a Washington Department of Transportation paving project is generally controlled by Washington law, and a United States Department of Transportation paving project is controlled by federal law. For private projects in Oregon, determination is simple as well—Oregon law provides that for a construction project located in Oregon, the contract is governed by Oregon law. However, in Washington there is no such prohibition on choice of law provisions in private construction contracts; therefore, the parties may choose what law governs their contract. For example, parties to a contract for a private construction project located in Washington may agree that the contract will be governed by the laws of Oregon. In that case, Oregon’s more liberal law on notice will apply. Such a choice of law would be beneficial to a contractor, but may be detrimental to an unwary owner, in that actual notice of a contractor’s claim for additional compensation may be sufficient, whereas it would not be if the contract was governed by Washington law.


For contractors, the best course is to identify notice provisions in advance and strictly comply with them, regardless of whether the governing law requires strict compliance or not. Failure to strictly comply in Washington can be fatal to a claim, whereas under Oregon and federal law, the consequences are potentially less dire. For owners, Washington law provides an effective shield against claims for which the contractor did not provide notice strictly complying with the contractual notice provision, but Oregon law potentially exposes those owners to more risk. Thus, the question of what law governs your contract is an important one, affecting the rights of both owners and contractors, and one that should be answered at the outset of a contractual relationship.


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