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August 1st, 2016
construction
NEW YORK APPELLATE COURT REVERSES $209,000.00 AWARD TO SUBCONTRACTOR DUE TO THE SUBCONTRACTOR’S FAILURE TO COMPLY WITH NOTICE REQUIREMENT IN THE CONSTRUCTION CONTRACT

  In Schindler v. Tully Construction Co., 139 A.D.3d 930 (May 18, 2016), the New York Supreme Court, Appellate Division, reversed a trial court’s award of $209,000.00 in delay damages in favor of a subcontractor on a public contract in a nonjury trial.  The Appellate Court concluded the subcontractor did not strictly comply with a condition precedent notice provision in the construction contract, which constituted a waiver of any and all claims for delay damages against the general contractor. 

            In 2000, Defendant Tully Construction, the general contractor (the “General Contractor”), entered into a construction contract with the City of New York Department of Sanitation (the “City”) to construct a garage.  In August, 2013, the General Contractor entered into a subcontract with Plaintiff Schindler Elevator Corporation (the “Subcontractor”) to furnish and install five (5) elevators for the garage project.  The subcontract incorporated by reference the primary construction contract between the General Contractor and the City.  

Article 11 of the construction contract required a contractor who was claiming to have sustained damages due to delay to submit “within forty-five (45) Days from the time such damages are first incurred, and every thirty (30) Days thereafter for as long as such damages are incurred, verified statements of the details and amounts of such damages, together with documentary evidence of such damages.”  It also provided a failure to “strictly comply with the requirements of Article [11]…shall be deemed a conclusive waiver by the Contractor” of any claim for delay damages.  

            In 2010, the Subcontractor sued the General Contractor to recover damages incurred as a result of the General Contractor’s delays in the performance of its work on the garage project. The General Contractor argued the Subcontractor waived its claim for delay damages by failing to strictly comply with the notice requirement because the Subcontractor’s emails notifying the General Contractor of the alleged damages did not contain verified statements of the amount of the delay damages or documentary evidence in support of the damages.  The trial court rejected the General Contractor’s argument and awarded $209,235.36 in delay damages to the Subcontractor.  

 

            The New York Appellate Court reversed, holding the Complaint should have been dismissed, and awarded costs to the General Contractor.  The Court concluded that a subcontractor’s failure to strictly comply with a condition precedent notice provision in the construction contract constitutes a waiver of the delay damages claim.  The Court stated, “[c]ontrary to the plaintiffs’ contentions, the defendant’s knowledge of the delay and the claims did not relieve the plaintiff of its obligation to serve a proper notice of claim, and the defendant’s alleged breach of the subcontract did not excuse the plaintiff from complying with the notice requirements under the circumstances of this case.”  

 

 

            Depending on the law in a specific state, “strict compliance” and “substantial compliance” may compel different results.  For example, some courts have held that an owner’s actual knowledge of the events giving rise to the claims is sufficient notice, even though a contractor did not strictly comply with the notice requirements.  In some states, however, any departure from strict compliance with a particular provision in the construction contract by a contractor or subcontractor could potentially bar claims that would otherwise be enforceable.  To avoid a result like Schindler, it is crucial for contractors and subcontractors to pay close attention to the notice requirements in a construction contract and be cognizant of that state’s laws on strict or substantial compliance with those provisions.   

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