This article originally appeared in the December 25, 2017 edition of the DJC Oregon.
Have you ever filed a construction contract after signature, only to have it surface in the event of a contract dispute, the terms unfamiliar to all except the principal and signatory on the document?
One of the only constants in construction is change – from unexpected events and delays to new change requests. If your goal is to deliver a profitable project, there are several critical legal concepts that everyone on your team, from project managers to tradesmen, should know and practice.
The first and most important concept is notice. Say, for example, other trades performing work out of the agreed sequence consistently delay your team. The schedule is compressed, per usual, and extra tradespeople are required to keep your scope on schedule. You expect the owner knows you are eventually going to add the incremental cost to the project in the form of a claim. However, this assumption may cost you.
Why is this important? Notice is required for any claim by you or your subcontractors for seeking extra time or money on a project. Oregon has a more relaxed standard in which “actual” notice generally suffices, but construction management best practices still require that the contractual notice process is strictly followed nonetheless, which will generally define, (a) the form of notice; and (b) the deadline for submitting the notice.
In short, an owner must be aware of potential claims and people on the ground are generally the first to encounter problems. If your on-site employees are not aware of the need to provide timely notice, you may miss opportunities to recover additional costs, ultimately affecting project profitability.
Differing Site Conditions:
The second concept is related to differing site conditions. For example, your team may be digging and encounter sandy soil as opposed to clay, requiring more work than you originally planned. If your team continues the work and decides to notify the owner after the fact of the increase in time and money, you may have waived your right to the additional claim.
If you encounter something unexpected and materially different in the site conditions from what was originally described in the drawings or specifications, the owner has the right to decide what to do about it prior to you taking action that will cause additional expense. As a contractor, you have to stop work, immediately give related notice as discussed previously, and let the owner know about the differing site conditions in order to let them determine how to mitigate the issue, prior to continuing work. Even when time is critical, and the schedule is tight, it is important for the crew to ensure the owner is aware of the differing conditions prior to proceeding.
Waiver and Estoppel:
In an environment where subcontractors are encouraged to work collaboratively with general contractors and owners to solve problems, causal agreements made in the field can have legal consequences or potentially waive a right to a future claim. Two terms your team should be familiar with are waiver and estoppel. While estoppel may prevent a party from asserting a right altogether, waiver is the unilateral abandonment of a right. If someone on your team says he or she will take care of a potential problem, or if he or she agrees to a modification without adhering to the change order process, that may waive a right to bill the owner for that additional work.
For example, say your team is erecting rebar on a project and the formwork crew ahead of you is slow, causing a delay in your work. The owner notices the delay, and if you say, “don’t worry about it, we have other things we can do” – you may have waived the right to claim the impact of the delay.
Instead, the individual should make sure those claims are preserved. Tradespeople should be encouraged to be agreeable and collaborate to solve problems, but they also should be aware that agreements in the field could waive rights. If there is an impact on your productivity, it has an impact on your bottom line, and it is in your best interest to preserve it.
It never hurts to over communicate. Take the time to explain these legal concepts and discuss the importance with your team early and often. Set expectations and give simple guidelines to follow or templates for all to use in the event that unexpected changes, differing site conditions, and delays cause impacts in projects, as they so often do.
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