Construction Contracts: Claim Time Limits

Advise & Consult, Inc. | August 21, 2015

Time is a major factor in all of our lives.  How much time we are at work?  How much time before the next big deadline?  In some instances we even measure distance in time – How long will it take me to get from point A to point B?  Construction contracts are no different, and in many circumstances are a determining factor certain outcomes due to these time limit clauses.   A common clause will give a certain amount of time for the affected party to give notice to the other party of the intent to file a claim.  The draftee of the contract needs to be careful on what amount of time is predetermined in the contract.  If the time specified in the contract is too short of a time period, the contract may end up being voided as it may be seen as too rigid.

As Benton T. Wheatley mentions in his recent article:

A typical clause containing a time limit for claims is as follows: In the event the Subcontractor’s work is delayed, disrupted, damaged or rendered more expensive by the Owner, Contractor or other subcontractors, the Subcontractor, as its sole and exclusive remedy may, upon written request made to the Contractor, obtain time extensions and/or an increase in the Subcontract price to the extent of any amounts and time extensions that the Contractor believes is justified or, actually receives from the Owner or from the responsible subcontractors for such delays, disruptions, damages or added expense. As a condition precedent to any relief, the Subcontractor must give the Contractor written notice of delay, disruption, damage and/or added expense to the Subcontractor’s work within five days after the subcontractor first knew or should have known of such event or in compliance with the requirements of the Prime Contract, whichever is shorter.

While the clause above addresses the contractor/subcontractor relationship, similar restrictions are found in most owner/contractor agreements as well. The clause clearly prohibits any sort of claim that is not made within a five-day period after the events giving rise to the claim are discovered by the affected party. While the clause is silent about the practical effect of the claim bar, the logical conclusion is that if a claim is barred for lack of timeliness, then an aggrieved party no longer can sue to recover on the claim. If that is in fact true, then a limit of five days for claims presentation does, in fact, seem onerous. The Texas legislature addressed this issue:

Sec. 16.071. NOTICE REQUIREMENTS. (a) A contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.

First, all parties to contracts should check with competent local counsel to see if the law of that jurisdiction has any similar provision like Section 16.071 above. Second, from a practical perspective, a prohibition on claims time limits like the 90 days above may well be as impractical as requiring that claims be made within five days. If a party knows that actions attributable to it are causing claims, that party may have numerous other ways it can accomplish its goals without causing the impact that provides the basis for a claim on the part of another. However, with each day that goes by, those options may diminish.

In order to find a balance, first consider a clause like the following:

Nothing herein to the contrary, Subcontractor will have at least ninety (90) days to give notice of a claim for damages as a condition precedent to sue on this Subcontract, subject to the contractual claim and alternative dispute resolution processes set forth herein. However, where Subcontractor knew or should have known of the events giving rise to such claim in a period of less than ninety (90) days and did not give such notice, such a failure may be a defense to any or all damages arising from such claim.

Drafting your provision like this will put the claimant on notice that time is important in filing any claim, but no claims are specifically barred.  It also preserves the right to a defense due to a delay in any claim.  The key is to find balance between providing the opportunity for the aggrieved party a reasonable amount of time to recognize and file a claim, and for the opposite party to be made aware that the other party has filed a claim and is made aware of the facts and reasons that the party made that decision and then allow them to make the appropriate action to address the grievance.

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