Global Claims – Are They Worth The Paper They Are Written On?

Clive Holloway | FTI Consulting

This article considers the following questions: What is a global claim? How and why do global claims arise? What are the strengths and weaknesses of a global claim? In what situations are global claims appropriate? and can global claims succeed?

What Is a Global Claim?

As an accomplished construction professional expert with over 45 years of experience, who has worked exclusively in the field of planning and programming, and in the analysis of delay, and in dealing with time related issues on construction projects, it is the author’s understanding that global claims arise where contractors do not attempt to establish and link the cause and effect of the delay for each specific event that has occurred on the construction project. Instead, contractors group together all of the delay events and present the claim as a ‘total cost claim’ or ‘global claim’ typically where the actual costs that are alleged to have been incurred are claimed in total, less tender budget costs. And, by submitting ‘total cost claims’ or ‘global claims’, contractors are effectively attempting to convert Lump-Sum Fixed Price Contracts into Cost-Plus Contracts, usually without any valid contractual basis for doing so.

In the author’s experience, typically the starting point for the preparation of a claim by contractors is to collate it globally in the first instance, then to subsequently particularise it with details as the claim is developed. However, all too often contractors do not seek to further particularise claims with details, and so they remain global in nature.

How And Why Do The Global Claims Arise?

As noted above, all too often contractors stop at the global stage of the development of a claim and so present claims to employers in a global format. This is sometimes done so as not to draw attention to the contractor’s own default and culpable delay, in an attempt to recover all of the contractor’s costs and losses resulting from all of the delay (and disruption) events, regardless of whether such events are excusable and/or compensable.

Contractors might do this in order to attempt to conceal inherent shortcomings and insufficiencies with their tender programme and/or bid price. For example, inadequate tender allowances, or overly competitive rates in the Bills of Quantities (BoQ) resulting from intrinsic deficiencies in the tender and general ‘under-bidding’ of the project from the outset.

Contractors are tempted to take advantage of the claims process, by seeking to recover the shortfall in their tender bid pricing, by submitting global claims, which are poorly particularised and often inflated or exaggerated, and so have little chance of success when subjected to scrutiny.

This global approach is often presented by merely claiming the difference between the planned and actual man-hours, resources, costs and the like, which does not take account of, nor make any adjustment for, any culpability on the part of the contractor.

Global claims are often premised on unparticularised assertions, and in the author’s experience, in the review of many global claims submitted by contractors, examples typically include:

  • The need to re-rate the items in the BoQ on the pretext that the work carried out has changed dramatically from what was measured and priced at tender stage;
  • That the design of the works was incomplete, inaccurate and contained errors which had to be corrected;
  • That the work scope significantly changed, varied, increased, and that the additional works were substantial;
  • That there was negligible ability to mitigate the delay; and
  • That the actual site conditions encountered were worse than expected.

The above list is by no means exhaustive, but illustrates the common, generalised, and often un-substantiated assertions that are made against the employer and its consultants.

What Are The Strengths And Weaknesses of a Global Claim?

A global claim is usually advanced on the pretext that each and every event collectively caused all of the delay and/or disruption that was experienced on the project, and that all such delay events are both excusable and compensable.

Such an approach infers that the contractor ‘has done nothing wrong’ and therein is the underlying and fundamental weakness of the typical global claim.

In the author’s experience, it is usual for contractors to argue that the global costs and losses incurred by the contractor (and often also its sub-contractors), predominantly relate to the alleged disruption and the resulting loss of productivity.

In other words, that the execution of the works required significantly more labour resources than was planned or priced in the tender bid.

In this respect, contractors often assert that the planned output rates on which the tender bid was priced, were not achievable due to various unparticularised reasons and generalised complaints set out in the contractor’s claim submission.

This ‘broad-brush’ approach is usually adopted because otherwise it would take considerable time and effort on the part of the contractor to fully establish causation and the resulting impact of each and every event on the contractor’s programme and costs.

Contractors are invariably reluctant to attempt to distinguish how much of the reduced productivity was caused by employer responsible events (excusable) and how much was due to contractor responsible events (inexcusable), such as tender inefficiencies, optimistic or aggressive planned activity durations, inadequate resource allocation, poor workmanship, use of unskilled resources, and the like.

If these contractor-responsible events (inexcusable), which might have occurred concurrently with the legitimate excusable events, are taken into account, then this would be likely to significantly reduce the quantum of the contractor’s global claim.

Given the above, it is perhaps not surprising that contractors are reluctant to properly separate or apportion costs and losses between excusable events and inexcusable events.

In the author’s experience, global claims are usually prepared retrospectively after the works are complete by external claims consultants who will not have any first-hand knowledge of the events, but instead rely on historical site records, to the extent that such records exist and can be retrieved.

This often means that the consultants, when preparing the claim, have no real idea of what actually transpired, why events occurred, when or where the events took place, or which events were responsible for causing the delay and/or disruption. Therefore, the consultants merely collate and list as many general and unspecific complaints as possible with the objective of globally claiming that the contractor spent more time and money to complete the work than had been originally allowed in its tender. This is the typical ‘total cost’ claim.

In the author’s experience, the failure by the contractor to raise complaints contemporaneously is usually indicative that the global claim is an afterthought, sometimes raised years after the events occurred, and so will lack the required supporting evidence, and is unlikely to be credible. The advancement of such global claims is invariably an indication of a weak, exaggerated, or a non-existent case.

Whilst it is acknowledged that the validity of claims has to be considered based on the specific contract conditions, for the most part, global claims are unlikely to be contractually compliant and therefore are more likely to be rejected by both contract administrators and arbitral tribunals for want of particularisation.

In summary, the principal failing of the ‘actual less planned’ global approach is that contractors are inclined to ignore the many reasons why the works took longer and cost more to complete, and so do not account for their own culpability for delay, disruption and the resulting additional costs.

Global claims are often prone to fail as soon as they are issued, and the author understands that, some may consider that global claims should not be allowed, whereas others consider they might be allowed, if certain conditions are met, as explained further below.

In What Situations Are Global Claims Appropriate?

As a pre-requisite for a global claim to succeed, the author understands that the contractor must eliminate from the causes of the costs and losses, all matters that are not the responsibility of the employer. However, that position might be mitigated by three key considerations:1

  • It may be possible to identify a causal link between specific events for which the employer is responsible, together with particular items of a related delay, cost or loss. By such an approach, parts of the claim can be extracted from the overall global claim and separately allocated to specific individual events.
  • If an event, or events, for which the employer is responsible are considered as the dominant or primary cause of the delay, cost or loss, that would be sufficient to establish liability, notwithstanding the existence of other causes that are, to some extent concurrent, or secondary events.
  • Even if events for which the employer is not responsible are the dominant cause of the delay, cost or loss, it may be possible to apportion the delay, cost or loss between the causes for which the employer is responsible and the other causes. This apportionment is likely to be more readily achieved where the delay, cost or loss was being calculated by reference to delay in the works, as the cost and loss could be apportioned on the basis of the time during which each of the causes was operative, or the responsibility could be divided on an equal basis.

However, it must be noted that where a concurrent cause of delay is the contractor’s responsibility, it is usually appropriate to deny the contractor any cost recovery for such period of default.

This undoubtedly places greater incentive on contractors to avoid apportionment where they can, and instead aim to demonstrate that the employer events upon which they rely, are the dominant causes of the delay, cost or loss.

It is recognised that delay and disruption to the contractor’s works, can be considerably complex, however, dependant on the circumstances, apportionment might still be possible, albeit this would probably be carried out in a somewhat ‘rough and ready’ manner.

What Does The Contract Say?

In the Author’s experience, it is understood that, under most construction contracts the contractor has the burden of proving that the relevant delay events actually occurred, that they are the responsibility of the employer, and that the cost and loss that was suffered, was in the amount claimed.

The contractor must also establish and demonstrate the causal linkage between the relevant delay events and the costs and losses claimed.

Typically, in accordance with the terms of the contract, the contractor has the obligation to prove that the costs and losses flowed from the delay and/or disruption.

However, global claims, by their very nature do not adhere to this process, as they do not adduce sufficiently particularised evidence to prove the essential elements required of the claim, to satisfy the contract.

In other words, the connections between the matters that contractors complain of, and the consequences, in terms of time and money, are not fully particularised, or are often not particularised at all.

In general terms, there is limited opportunity to submit global claims under most forms of contract, which restrict the submission of global or total time and cost claims on the basis that there is usually a requirement for contractors to link the relevant events giving rise to the alleged delay and/or disruption to the resultant time and cost effects, with the further requirement for contractors to properly address and particularise their claims accordingly.

Despite this, contractors will often aver that it is impossible and/or impracticable to sub-divide the effects of each of the individual excusable events that they allege caused delay and/or disruption, for which they claim recompense.

Invariably, contractors do not attempt to identify and isolate individual elements of the delay caused by excusable events so that the associated costs and losses can be assessed accordingly.

It is appreciated that on more complex projects, delay and/or disruption may occur continuously and concurrently, whereby the works are impacted and affected by a combination of both excusable and inexcusable events, the consequences of which are subject to a complicated interaction, which results in a cumulative and combined delaying effect.

As such, understandably, it is difficult to assess and evaluate the costs and losses caused by any of the individual delay and/or disruption events in isolation.

Since, by their nature, global claims do not articulate the precise case to be met, it can be particularly difficult, or in some cases impossible, for an employer to unravel the issues and their impacts in order to properly evaluate the claim.

Contractors often do not set out their claims clearly with the requisite level of particularisation, despite it usually being a stipulated requirement of the contract for the contractor to keep sufficiently detailed records of the causal events and the resulting delay and/or disruption suffered.

The issuance of a global claim is not in itself proof and/or evidence of a contractual entitlement, and so contractors will still have to convince employers that the costs and losses claimed were entirely caused by events for which the employer is contractually liable. Based on the author’s experience there are usually many other inexcusable (or neutral) reasons that explain why, the works took longer than planned and why the contractor’s costs exceed its tender price.

Can a Global Claim Succeed?

The author understands that global claims can legitimately be put forward by contractors where it is impossible and/or impracticable to breakdown and/or sub-divide the loss claimed between the various relevant delay and/or disruption events.

A global claim is also likely to be permissible when there is no material causative factor for which the contractor is liable, that is, if there are no contractor defaults or culpable delay events that need to be considered and the delay is entirely due to excusable and compensable events, the liability for which rests with the employer.

However, where it is evident that a global claim incorporates both contractor and employer events, the author understands that it will be necessary to identify, separate, remove and account for each of the events, in order for the claim to succeed.

It is suggested by the author that the advancing of claims in a global format is a high-risk strategy, however the author, based on his experience, is of the opinion that, the following criteria (as a minimum) for the consideration of global claims should be met:

  • The nature of the delay and disruption/disturbance to the works should mean that there is no viable alternative method of analysis/presentation;
  • The original planned programme must be demonstrably feasible; and
  • There should be no concurrent contractor culpable causes of delay.

For a global claim to be credible, the author, based on his experience, is of the opinion that, the following conditions need to be satisfied:

  • The contractor should not be responsible for the losses, the increased costs, or the delay claimed;
  • The employer should be responsible for all of the losses, the increased costs and the delays; and
  • It should be impossible to identify positive links between the causes of delay and disruption, and loss and/or expense claimed.

In Summary

It seems that global claims are not completely ‘out-lawed’ as there may be certain situations, albeit limited, where global claims can be satisfactorily compiled and presented to enable their success, at least in part.

However, there are strict rules that should be followed when embarking on this risky approach and care must be taken in their preparation and quantification to ensure the right steps are adopted, so as to ensure that such an approach is acceptable.

With respect to the over-arching question posed by this article-whether global claims are worth the paper they are written on-it seems that under certain circumstances, where it is particularly difficult to unravel the complex interaction of numerous delay and disruption events, it is recognised that there may be situations where global claims might have a degree of success, one being the application of apportionment of the claimed costs to employer and contractor causal events, even where this is only a ‘rough and ready’ exercise.

Footnote

1: Ref. Case Law: John Doyle Construction Limited v Laing Management (Scotland) Limited, Inner House Court of Session, 11 June 2004, Lord Drummond Young


When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Subsequent Purchaser can Assert Claims for Construction Defects

David Adelstein | Florida Construction Legal Updates

Can a subsequent purchaser pursue construction defect claims relating to the original construction of the property?  This was the threshold issue on a motion for summary judgment by a drywall manufacturer against a subsequent purchaser of a home in Karpel v. Knauf Gips KG, 2022 WL 4366946 (S.D. Fla. 2022).  This matter deals with the defective Chinese drywall that was installed in homes years ago.  The plaintiffs, which were subsequent purchasers of a home, sued the manufacturer of the defective drywall for various theories including negligence, negligence per se, strict liability, breach of express and/or implied warranty, private nuisance, unjust enrichment, and Florida’s Deceptive and Unfair Trade Practices Act.

The trial court noted, from the onset, that Florida does NOT have a subsequent purchaser rule that prohibits subsequent purchasers from asserting construction defect claims. With this consideration in mind, the trial court went through the claims the plaintiff, as a subsequent purchaser, asserted against the manufacturer to determine whether they were viable claims as a matter of law.

Negligence Claim

The trial court found that a subsequent purchaser could sue in negligence.  “Florida courts have long allowed subsequent purchasers to sue for negligence including in construction defect litigation.”  Karpel, supra, at *2.

Negligence Per Se and Strict Liability Claims

The trial court held that the plaintiff’s negligence per se and strict liability claims were duplicative. Both could not stand; for this reason, the court entered summary judgment as to the duplicative negligence per se claim. “Strict liability means negligence as a matter of law or negligence per se, the effect of which is to remove the burden from the user of proving specific acts of negligence.” Karpel, supra, at *3 (quotation and citation omitted).

A subsequent purchaser could pursue a strict liability claim against a manufacturer.  “[A] manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.”  Karpel, supra, at *4 (quotation and citation omitted).

Even Section 402A of the Second Restatement of Torts, adopted by Florida’s Supreme Court, provides: “(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” Karpel, supra, at *4.

There are, however, limits on strict liability.

First, Florida disallows recovery in tort where plaintiffs only claim economic losses such as ‘damages for inadequate value, costs of repair, and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property.” Karpel, supra, at *4 (citation omitted).

Second, Florida courts will disallow recovery for strict liability where the purchaser was subject to the common law doctrine of caveat emptor.”  Karpel, supra, at *4.

Thus, a subsequent purchaser’s strict liability claim could be pursued against a manufacturer provided such damages are not barred by the economic loss rule or the doctrine of caveat emptor (which applies to commercial property and property purchased at judicial auction sales).  Karpel, supra, at *4.

Breach of Implied Warranty

The trial court found that a subsequent purchaser could NOT sue a manufacturer for breach of implied warranty.  “[I]t is abundantly clear that in cases like these, where no contractual relationship between a subsequent purchaser and a manufacturer exists, the former’s recourse is a claim for strict liability.” Karpel, supra, at *4.

Breach of Express Warranty

While a contractual relationship is typically required for breach of express warranty, this requirement is relaxed if the express warranty is intended to benefit subsequent purchasers.  “A manufacturer’s liability for breach of an express warranty derives from, and is measured by, the terms of that warranty.”  Karpel, supra, at *4 (quotations and citation omitted).  However, in this case, plaintiff’s breach of express warranty claim failed because the plaintiff never introduced any express warranty into the record.

Private Nuisance

The trial court held that the subsequent purchaser could NOT pursue a private nuisance claim against the manufacturer.   To sustain a private nuisance claim, the plaintiff must prove that the defendant’s maintenance of the nuisance was the proximate cause of the plaintiff’s damages.  Karpel, supra, at *8.  “The Plaintiffs’ ownership and current control over the drywall conclusively forecloses them from arguing that the Defendants actively “maintain” the ‘nuisance’ they complain of.”  Id.

Unjust Enrichment

The trial court held that the subsequent purchaser could NOT pursue an unjust enrichment claim against the manufacturer.  An unjust enrichment claim requires the plaintiff to prove that the plaintiff conferred a direct benefit on the defendant. “The Plaintiffs conferred no direct benefit on the Defendant.” Karpel, supra, at *8 (finding that plaintiffs, as subsequent purchasers, obtained their homes from previous owners so the plaintiffs conferred no direct financial benefit on the manufacturer).

Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA)

The trial court found that a subsequent purchaser could theortetically pursue a FDUTPA claim. “Because the law is clear that a plaintiff need not have actually relied on the purported deceptive or unfair practice, the Court’s analysis need not go further….The Plaintiffs’ status as subsequent purchasers does not foreclose them from arguing that the Defendants’ practices violated FDUTPA.”  Karpel, supra, at *9.

However, the trial court noted that actual damages under FDUTPA may implicate the economic loss rule because actual damages under the statute “are the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.”  Karpel, supra, at *9 (quotation and citation omitted). For this reason, the court ordered the plaintiff and defendant to submit supplemental briefing because if the economic loss rule is implicated, the FDUTPA claim will fail (due to the same limitations relating to the strict liability claim).


When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

What Are The Different Kinds Of Construction Claims?

KPPB Law

The process of completing new construction requires communication and adaptability from all involved parties. However, when a project fails to adhere to the agreed upon scope, price or details, both contractors and owners may have the grounds to pursue legal action against the other.

Helping you to navigate such claims, whether you are the plaintiff or the defendant, is in the purview of a legal professional. The following are the most common types of construction claims and how they arise.

How Construction Is Fertile Ground For Legal Action

Most construction projects have many moving parts and if these parts come into conflict, legal action can arise. This could happen because parties misunderstood each other, didn’t complete a task on time, went over budget or there was a breakdown in communication.

The timeline can be one of the most contentious parts of a construction contract. Sometimes, missing deadlines is unavoidable due to acts of God or other uncontrollable events. Other times, poor planning or change orders leave the project unfinished by the time that the task should have been completed. No matter the cause, failure to adhere to the timeline established in the original agreement is a common sticking point between parties.

Materials acquisition may pose an issue. For example, contractors may not order the materials they need in time, making them unable to start the project as anticipated. Supply chain issues can also cause shipping delays; even if the product was ordered in a timely manner, the job may not start right away.

Sometimes, the wrong items are ordered; contractors may not discover until they start work that they don’t have the materials they expected or that the materials do not work for the intended purpose. Similarly, the wrong materials are delivered entirely, or they are delivered in the wrong quantity.

If a builder exceeds the allocated budget, or the owner requests changes that do not adhere to the previously agreed upon expense limit, this can result in conflict. A lot of money is changing hands during these projects, often between multiple parties, which can lead to uncertainty and disagreements. When an owner does not receive what was promised and agreed to in the initial contract, they can sue the contractor(s) involved in the project.

Many of the legal consequences that arise are a result of a breakdown of communication between all parties. Architects, engineers, owners, general contractors and subcontractors are some of the more typically involved parties; disputes can arise between any two or more of these parties or all parties. In general, contractors are responsible for resolving issues between themselves and their subcontractors.

Keeping goals on time, on budget and on track is also about managing expectations. Contractors can encounter challenges in any of these areas and more. A more detailed look at some of the most common claims in construction include:

When The Completion Date Is Delayed

When the completion of a project exceeds the timeline, the owner may pursue a remedy. The timeline should be clearly delineated in the original contract, in conjunction with any extenuating circumstances (such as acts of God) that could impact when legal action is acceptable.

In general, even if the cause was unforeseen events, a delayed completion date can result in a legal claim. Permit issues, defective materials and weather or natural disasters may not be the fault of the contractor, but they may still delay the completion of a project and result in lost income or damages for the owner.

However, in some instances, a project is not finished on time due to direct negligence by the contractors in charge of the project. This could include their failure to work in a timely manner or properly plan the scope of the project. They may also fall short in other areas such as the quality of their work, in which case the owner may ask that they reconstruct sections to a proper standard.

The extra time spent correcting mistakes could delay the completion date, and even if they do successfully complete the project up to adequate standards, the contractor may still be liable for their failure to abide by the initial timeline.

Of course, all of this exists in conjunction with change orders, or other amendments to the original contract that change the scope of the work. If the owner decides before a project is complete that they would like more or different work performed, they can submit a change order. Alterations to the contract brought about by change orders can cause tension between parties, especially if the new changes are expected to fit into the preexisting timeline.

When The Price Changes

Prices on a contract can change over time due to a variety of factors. Most often, this is a shift due to changes in material costs, change orders (as mentioned previously), other unforeseen conditions or even the owner or contractor wanting to change the price.

Material costs can be particularly problematic for properly planning a construction task. While it is fairly simple to identify the cost of materials during an initial order, the problems usually arise if more materials are later required. Contractors may find that the price of the material has increased, the identical material is no longer available or shipping is more expensive.

Unforeseen conditions are another big culprit behind price changes in construction projects. Most often, these appear within the site itself. An example of this would be if the contractor started to build and discovered unsuitable soil conditions. This would change the scope of the project in a way that was not predicted and may result in higher costs to accommodate.

When The Property Is Damaged

Contractors may occasionally cause damage that creates a legal situation. Damage to the owner’s property may occur during construction, such as by hitting underground lines (sewer, internet, etc.) that must then be replaced. The contractor may claim that the area was not properly marked and claim the damage was an accident, while the owner may be asking for the contractor to pay for these damages which creates a legal dispute.

Owners have the right to specify any areas that they do not want to have changed or disturbed. For example, an owner may state that they want a specific tree to be preserved throughout construction. If a contractor cuts down or severely damages that tree, it may qualify as property damage from which the owner can seek legal remedy.

Contractors are not the only parties directly at fault; subcontractors can also cause damage. In this situation, it is the contractor who is typically responsible for subcontractor damage. Subcontractors may carry specific insurance to protect against this; however, with all of the involved parties, legal claims can quickly become complex.

Possible Secondary Claims

While the above scenarios represent the most common construction claims, other construction issues can also arise. This is why it is important to work with a legal professional during the contract drafting phase, to ensure such potential issues are addressed in advance:

  • Contractor pollution: If a builder pollutes the area (such as by dumping chemicals into the ground), the owner may sue for damages.
  • Defects in the construction: No matter which contractor is completing a project, the finished work must adhere to a minimum reasonable standard of quality. Construction must be finished according to the level of skill that is typical for that trade. Additionally, the contractor is required to exercise a reasonable degree of care, skill, and ability under similar conditions and like surrounding circumstances as is ordinarily employed by others in the same profession. If a contractor does not adhere to these standards and creates defective work, the contractor may be liable for damages, or be required to correct the work.
  • Failure to comply with code: Every type of construction project must adhere to local municipal codes for how the building is expected to be constructed. This includes placing the main water shutoff valve in a certain protected location, ensuring there are enough exits and more. It is the responsibility of the contractor to stay current with changing codes and regulations and abide by them as required. If a building receives a code violation as a result of the contractor’s work, the landowner may make a claim to recover those damages and fix the problem.
  • Failure to comply with plans and specifications: Most often, disagreements in this area will arise when a contractor does not comply with the details that the owner specified. This may include building the structure differently than the original plan or to different size specifications. If a building does not include amenities that were incorporated into a contract, this could be another fertile ground for legal action. If an owner believes that their contractor did not abide by the plans the parties agreed upon, they can file a legal claim to be provided with construction that meets the plans and specifications that were promised.

Trust The Professionals To Help You Navigate A Legal Claim During A Construction Project

Many issues can arise during a construction project, regardless of the size or scope, giving both the owner and the contractor the right to pursue a claim against the other. Materials may change cost, a number of issues could arise that impact the completion date or the workmanship may not adhere to the specifications that were agreed upon from the beginning of the project.


When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

An Inverse Condemnation Claim Arising From A Public Project’s General Construction Activities Requires A Unique, Peculiar, And Substantial Impact To Property

Jillian Friess Leivas | Nossaman

When public projects are being constructed, surrounding property owners typically experience construction impacts, such as noise, dust, fumes, vibration, and road detours. Typically, absent a physical taking of property, those construction impacts are not compensable under an inverse condemnation claim unless the property owner experiences a direct, substantial, and peculiar impact. While this has generally been the law in California for quite some time, a recent published California Court of Appeal decision, Today’s IV, Inc. v. Los Angeles County Metropolitan Transportation Authority, No. B306197 (2022 Cal.App. LEXIS 840), highlights the uphill battle a property owner faces just to survive the pleading stage of alleging an inverse condemnation cause of action.

Background

Los Angeles County Metropolitan Transportation Authority (Metro) was constructing the Regional Connector Transit Project, an underground subway, which would directly link the tracks of three Metro rail lines. A portion of the project runs along and under Flower Street, including between 4th and 5th Streets. The Westin Bonaventure Hotel and Suites (Bonaventure) is located between Flower and Figueroa Streets and is bounded on the north and south by 4th Street and 5th Street. The Bonaventure’s only access to its parking garage and loading dock are via Flower Street. Further, the Bonaventure’s primary guest/invitee drop-off and pick-up point is located on Flower Street as well. Neighboring properties are primarily office buildings.

Most of the project was to be constructed via an underground tunnel boring machine, which is far less disruptive to surface traffic and adjacent land uses than the alternative method – cut and cover. However, the portion of the project along Flower Street was to be constructed via cut and cover because (1) the soil was unsuitable and unstable, with a high subsidence risk, (2) the shallowness of the tunnel at that point, and (3) the presence of hundreds of underground tiebacks along the tunnel route.

The property owner and the Bonaventure claimed to suffer impacts from the construction. The property owner brought an inverse condemnation claim against Metro because it believed that there was unnecessary and substantial damage that directly and specially affected the hotel, and that the damage was far disproportionate to and excessive when compared to the harm suffered by any other property in the area.

Trial Court

Focusing only on the inverse condemnation claims, the property owner argued the claims were based on (1) the use of a cut-and-cover construction method, instead of a tunnel boring machine, (2) construction work during nights and weekends (which was particularly harmful to the hotel), (3) violation of certain noise limits, and (4) interference with access to the hotel. Metro filed a demurrer and argued the property owner failed to state facts sufficient to constitute a cause of action for inverse condemnation. The trial court found no liability for inverse condemnation and sustained the demurrer.

Court of Appeal

The Court of Appeal affirmed the demurrer and the finding of no liability for inverse condemnation. The inverse condemnation cause of action failed because the construction did not significantly impair access and did not cause excessive noise and dust. In order for there to be a claim for inverse condemnation in this situation, the property owner would have had to show that the property suffered from an intangible intrusion burdening the property in a way that is direct, substantial, and peculiar to the property itself. In the present case, the property owner argued that the impairment of access and excessive noise and dust constituted these types of intrusions. The court determined that the inconvenience to hotel guests due to construction detours and work was not enough to be a compensable deprivation of access; such work was reasonable and temporary, and the property owner did not plead sufficient facts (length of time, frequently of detours, difficulty, etc.) to survive a demurrer. As for noise and dust, the property owner did not sufficiently plead that the intrusion suffered by the hotel was unique, special, or peculiar in comparison with other property owners in the area. Further, the fact that the property owner operated a hotel in an area primarily occupied with office buildings does not mean that the hotel suffered peculiar intrusions that other neighboring properties did not. As a result, the demurrer was sustained.

Conclusion

In order for a claim of inverse condemnation to survive a demurrer, a plaintiff must sufficiently plead allegations that demonstrate the property suffered a “taking or damaging.” Where the claim is based on an intangible intrusion, the damage suffered must be unique, special, or peculiar. This case highlights that simply operating a different use on the property with particular sensitivity to construction (e.g., hotel use versus office use) is not, in and of itself, sufficient to demonstrate a unique or peculiar substantial impact.


When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

You Are on Notice: Failure to Comply With Contractual Notice Provisions Can Be Fatal to Your Claim

Jenifer B. Minsky | ConsensusDocs

Imagine your firm is the construction manager on a multi-million-dollar project. At the end of the project you are five million dollars out-of-pocket. You have a stack of claims for additional and extended work which led to the overrun, payment for which will easily cover the shortfall. However, the owner refuses to compensate you until you can satisfactorily answer their inquiry: “Where are the notices that are expressly required under the terms of the contract?” You had a good relationship with the owner’s field representative who was aware you were performing the work and understood that your company was compiling claims. The once cooperative owner, now suffering financial restraints of their own, is resolute in their refusal leaving you no choice but to expend substantial sums of money to litigate the claims, the success of which is far from assured. 

What Contract Language Can Be A Trap For An Unwary Contractor?

While courts are generally hesitant to order a forfeiture and some courts disfavor condition precedents, a judge’s hands may be tied by particular contract language requiring the strict enforcement of notice requirements. Such provisions may include: (1) an explicit clause that there be precise compliance with notice requirements; (2) express  consequences for noncompliance (e.g., if the required notice is not provided the claim will be waived, forfeited or abandoned); (3) a statement that the notice requirements are a condition precedent to recovery; (4) language such as “if,” “provided that,” “or else” or “on condition that” (e.g., the owner shall review the claim, “provided such claim” was received within the applicable notice period) or (5) prohibition of any waiver of the notice requirement. To the extent the notice provision includes such language, a contractor can be without recourse even when the owner has actual knowledge of the claims or cannot show prejudice by the lack of notice.

In one particularly egregious federal case against the City of New York case, a contractor’s claims for approximately $16 million were dismissed solely as a result of the contractor’s failure to strictly comply with contractual notice requirements, even though the owner had actual notice of the claims.[1] The contract at issue obligated the owner to make an equitable adjustment in the contract price if they issued a change order which caused the contractor to incur additional costs or increased the contract time. It also required that the contractor, as a prerequisite to claiming an equitable adjustment, submit a written statement of the general nature and monetary extent of each claim within thirty (30) days of receipt of a change order. After the parties were unable to agree on a lump sum for numerous change orders the contractor sued. The court examined the documents that the contractor claimed constituted the required notice and found most were untimely and none adequately informed the City of “the monetary extent” of the damages claimed. It ultimately rejected the contractor’s claims on the grounds that the court could not ignore the parties’ contractual agreement that the contractor “comply strictly” with the notice requirements of the Changes Clause.

In another New York case, a masonry subcontractor was denied over $3 million in claims, a nearly 50% increase in their subcontract price, because they failed to provide notice of acts or omissions causing delay within five (5) days.[2] The court found the requirement to be a condition precedent to recovery of delay damages because the contract specifically provided that the failure to comply would constitute a waiver of the subcontractor’s damages claim.

Indeed, courts in numerous states have rejected claims for additional time or money when the contractor has failed to strictly comply with notice requirements under similar circumstances. For instance, in cases before the Washington State Supreme Court and the Court of Appeals of Minnesota[3], contractors lost claims for additional expenses or time because the contracts stated that by failing to follow the contractual notice procedures, the contractor waived any claim for additional work or time. The courts rejected the contractors’ arguments that the owners’ actual notice excused them from strict compliance with the notice provisions.

Even if a court might ultimately accept an argument that strict compliance with the notice requirements was unnecessary despite the language of the agreement, or because the owner had actual notice of the claims or was otherwise not prejudiced by the lack of required notice, success may require an expenditure of years and potentially millions of dollars litigating the matter.

How Can a Contractor Avoid a Loss Due to Noncompliance?

The answer to this question is simple in theory, but not necessarily in practice. You, as the contractor, must strictly comply with each one of the potentially significant notice and reporting requirements in your contract. For instance, a construction contract often includes different notice requirements for adjustments to the contract sum as opposed to the project schedule, including distinctly different time frames for providing notice and various reporting and follow-up obligations. For instance, you may need to give initial written notice of a claim within days of discovery or knowledge of same and then follow-up within a certain amount of time with a written supplement to the notice of claim. Just by way of example, the ConsensusDocs 200 Standard Prime Agreement and General Conditions provides at Section 8.4:

CHANGES NOTICE Except as provided in §6.3.2 and §6.4 for any claim for an increase in the Contract Price or the Contract Time, Constructor shall give Owner written notice of the claim within fourteen (14) Days after the occurrence giving rise to the claim or within fourteen (14) Days after Constructor first recognizes the condition giving rise to the claim, whichever is later. Except in an emergency, notice shall be given before proceeding with the Work. Thereafter, Constructor shall submit written documentation of its claim, including appropriate supporting documentation, within twenty-one (21) Days after giving notice, unless the Parties mutually agree upon a longer period of time. Owner shall respond in writing denying or approving Constructor’s claim no later than fourteen (14) Days after receipt of Constructor’s claim. Owner’s failure to so respond shall be deemed a denial of the claim. Any change in the Contract Price or the Contract Time resulting from such claim shall be authorized by Change Order.

In addition, recovery for certain types of work, such as that related to the discovery of hazardous materials or differing site conditions, often has additional requirements, including notice immediately upon encountering the materials and prior to making a notice of claim. In addition to notice of changes and claims, the vast majority of construction contracts also require notices for approvals, routine events, information and disputes, each of which may also have specific reporting requirements and which can have serious consequences for noncompliance.

While compliance may be difficult, it is far simpler and less costly than litigating the issue after the owner refuses to honor your claims. This can only be accomplished by a thorough review and understanding of each notice provision before the first shovel enters the ground and constant monitoring during the project to ensure that notice is being timely sent. In order to assist contractors with this task Peckar & Abramson has developed ProjectNotice®  3.0, a fully web based  interactive tool in which attorneys that are well versed in construction law and construction administration and have an in-depth knowledge of your specific contract requirements, prepare, in advance, the notice letters required under your contract and provide instructions as to when and how to send each of the letters. With ProjectNotice 3.0® you can house all your own project documents on a dedicated website, accessible from almost anywhere, and utilize numerous features that make working with those documents and communicating among members of your project team significantly faster and easier. Contractual compliance is achieved efficiently, minimizing the time your project staff spends on project administration and reducing your company’s potential exposure due to missed notice deadlines. 


[1] Perini Corp. v. City of New York, 182 F.3d 901 (2d Cir. 1999)

[2] Morelli Masons, Inc. v. Peter Scalamandre & Sons, Inc., 294 A.D.2d 113, 742 N.Y.S.2d 6 (2002)

[3] Mike M. Johnson, Inc. v. Cnty. of Spokane, 150 Wash. 2d 375, 78 P.3d 161, 169 (2003); GEH Const., Inc. v. Suburban Hennepin Reg’l Park Dist., No. CX-98-1675, 1999 WL 171502, at *3 (Minn. Ct. App. Mar. 30, 1999)


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