By Nicole E. Wolfe of Smith Currie & Hancock LLP
Originally published March 11, 2024
A recent unpublished opinion by Division One of the Washington Court of Appeals reiterates that contractors must strictly comply with notice and claim procedures in the contract. If not, the contractor potentially faces severe consequences, including a waiver of its claims.
In February 2014, the City of Snoqualmie (the “City”) advertised construction bids for a public works contract for improvements to downtown Snoqualmie, including installation of a new water main, storm drainage system, undergrounding of power, cable, and phone lines, and roadway paving. The City awarded the contract to C.A. Carey Corporation (“Carey”).
The contract incorporated the 2012 WSDOT publication “Standard Specifications for Road, Bridge and Municipal Construction,” which provided the general terms of the contract between the City and Carey. The requirements included mandatory notice, protest, and claim procedures that must be followed when a contractor seeks additional time or payment on the project.
The City issued 16 change orders, which increased the amount of time for Carey to complete the project and provided for additional compensation. However, Carey did not agree with most of the adjustments and attempted to protest nine of the change orders. The specific provisions of the contract laid out the procedure Carey was to follow in order to protest change orders. Specifically, section 1-04.5 stated:
A change order that is not protested as provided in this [s]ection shall be full payment and final settlement of all claims for [c]ontract time and for all costs of any kind, including costs of delays, related to any [w]ork either covered or affected by the change. By not protesting as this [s]ection provides, the [c]ontractor also waives any additional entitlement and accepts from the [e]ngineer any written or oral order (including directions, instructions, interpretations, and determinations).
The contract further provided that in order to protest the engineer’s determination, the contractor must immediately give a signed written notice or protest and then supplement the written protest within 14 days with a written statement and supporting documents providing, among other things, the estimated dollar cost of the protested work and a detailed breakdown showing how that estimate was determined, as well as an analysis of the progress schedule showing the schedule change or disruption.
The contract also included a section titled “Time Limitation and Jurisdiction”, which provided that any claims or causes of action that the contractor had against the State of Washington arising from the contract must be brought within 180 calendar days from the date of final acceptance. This section further provided that the claims or causes of action must be brought before the Superior Court of Thurston County and that failure to bring suit within this timeframe constituted a complete bar to the claims or causes of action. Immediately preceding this section was a contract provision requiring that formal claims must be submitted with the final contract voucher certification, and failure to do so would result in a waiver of those claims.
Carey provided signed written notice of protest of nine of the change orders. Carey also provided written supplements to the protests. However, the supplements did not include all the contractually required information. For one, while some of Carey’s supplements provided an estimated cost, they did not contain a “detailed breakdown showing how that estimate was determined.” Further, some of them also did not provide the “analysis of the progress scheduled showing the schedule change or disruption” as required by the contract, but instead more generally stated that Carey was analyzing the schedule impacts from the change but could not provide specific schedule impacts at that time.
In May 2017, Carey filed a complaint against the City for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of the implied warranty of design. Carey alleged that the City failed to acknowledge known defects in project design, failed to pay for increased construction costs, and failed to award additional contract time required by numerous design changes. That same day, Carey also sent the City an omnibus claim, seeking additional time and damages. The City argued the omnibus claim was untimely, waived, and ultimately barred as Carey failed to comply with notice and protest requirements. The City also filed an answer and counterclaim, asserting that Carey had breached the contract by failing to timely and/or properly perform its work.
In September 2019, both parties moved for summary judgment. The trial court found that Carey failed to comply with the conditions precedent to litigation by failing to comply with the mandatory notice, protest, and claim provisions. As a result, the trial court concluded Carey’s claims were waived.
Carey appealed, arguing, among other things, that the trial court erred by applying a strict compliance standard when assessing whether Carey complied with the standard specifications. Carey contended that Washington courts use a substantial compliance standard, not a strict compliance standard, to decide whether the contractor’s notices, protests, and claims satisfied the contract’s requirements. The Court of Appeals disagreed, citing Mike M. Johnson, Inc. v. County of Spokane, 150 Wn.2d 375 (2003), which upheld the principle that procedural requirements in a contract are enforceable unless either (1) there is a waiver by the benefiting party, or (2) the parties modify the contract. The Court of Appeals further noted “[i]n Mike M. Johnson [150 Wn.2d at 387-88], the court explained that contractors are required to comply with the mandatory protest and claim procedures even when the owner has actual notice of the protest or claim.”
When analyzing the cases cited by Carey in support of a “substantial compliance” standard, the Court of Appeals found that these cases actually supported a “strict compliance” standard. The Court of Appeals held, “As these cases make clear, contractors must follow the specific requirements of the notice, protest, and claim provisions in order to preserve their contractual claims for litigation.” Carey’s claims, the Court of Appeals reasoned, were consequently waived unless Carey strictly complied with the procedural requirements outlined in the contract.
When assessing Carey’s omnibus claim, the Court of Appeals found that the section of the contract that Carey relied on, which provided that claims or causes of action shall be brought within 180 days from the date of final acceptance, concerned only litigation claims, not administrative claims. The contract section preceding this section, which the Court of Appeals found to be applicable to Carey’s omnibus claim, provided that formal claims had to be submitted with the final contract voucher, and failure to do so operated as a waiver of the contractor’s claims. Because Carey failed to submit its omnibus claim with the final contract voucher certification as required by the contract, the Court of Appeals found that Carey’s omnibus claim was also waived. In doing so, the Court of Appeals found that the contract language was unambiguous and noted the “importance of diligent compliance with the notice, protest, and claim provisions” both during contract performance and when submitting claims before contract termination.
In determining whether Carey waived its claims by not strictly complying with the contract provisions, the Washington Court of Appeals considered a brief of amici curiae filed by the Associated General Contractors of Washington and National Utility Contractors Association of Washington in support of Carey, proposing a rule of substantial compliance based on impossibility. The proposed rule stated, “when a contractor substantially complies with the contract’s requirements, in a good faith effort to strictly comply, and under the circumstances strict compliance was not possible, its claim may potentially survive summary judgment.” The Court of Appeals declined to adopt this rule, finding it inapplicable in this case, noting that “[w]hile it is conceivable that circumstances could arise where there is no waiver yet strict compliance is rendered impossible, the record before us does not present any impossibility of compliance and thus we have no reason to consider the merits of such a rule here.” The Court of Appeals, however, did not preclude contractors from using impossibility of compliance as a way of getting around the strict compliance rule should the facts support it.
In conclusion, the Court of Appeals agreed with the trial court that Carey waived the right to pursue its claims because it failed to strictly comply with the mandatory notice, protest, and claim provisions.
This case demonstrates how important it is for contractors to pay very close attention to the notice and claim procedures clauses and to strictly comply with the provisions therein or potentially face a waiver of their claims. Substantial compliance with these provisions is not enough. Depending on the contract language, contractors may have to be ready to provide a detailed analysis of the progress schedule showing the schedule change or disruption and timely provide estimates of the dollar cost of the protested work as well as a detailed break-down to support these cost estimates.
Nicole E. Wolfe is an attorney with Smith Currie and focuses her practice on construction litigation and government contracts work. She advocates for general contractors and subcontractors on a variety of issues, including insurance coverage, bid protests, and claims before the Armed Services Board of Contract Appeals and the Civilian Board of Contract Appeals. She can be reached at newolfe@smithcurrie.com or 206.623.3427.