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A general contractor may be foreclosed from recovering
additional costs from an owner due to design defects if the
general contractor fails to provide timely written notice of
the claim as required by the contract. This point is illustrated
in the case of Starks Mechanical, Inc. v. New Albany-Floyd
County Consolidated School Corporation, 854 N.E.2d
936 (Ind. Ct. App. 2006).
In this case, a general contractor entered into a contract with
an owner to provide mechanical and plumbing services in
connection with the expansion and renovation of a middle
school in Indiana. After the parties entered into the contract,
the general contractor discovered numerous defects in the
design documents provided by the owner.
Initially, the general contractor submitted a Request for Information
(“RFI”) to the construction manager as notice of
the design defects and the resulting
delays on the project. As construction
on the project progressed, the general
contractor continued to submit RFIs
to the construction manager which
provided notice of further design defects
and delays on the project. The
owner instructed the general contractor
to proceed with construction and
to correct any design defects. The
general contractor responded by hiring
an engineer to review the design
documents and recommend changes.
The general contractor did not include
the engineering and redesign costs in the numerous RFIs it
submitted to the construction manager.
Almost two years later and as construction on the project
neared completion, the general contractor submitted a
change order request and payment application to the construction
manager; the general contractor sought additional
payment for the engineering and redesign costs for the first
time. The owner denied the general contractor’s change order
request. As a result, the owner filed a declaratory judgment
action to determine whether or not the general contractor
was entitled to an additional payment given the general
contractor’s failure to provide timely notice of its claim as
required by the contract.
The general contractor asserted that it was entitled to additional
payment despite the contractual notice provisions because
it was seeking delay damages rather than additional
costs under the contract. Unlike claims for additional costs,
delay damages were not subject to the notice requirements
of the contract.
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The court ruled in favor of the owner and found that the
general contractor was foreclosed from recovering engineering
and redesign costs because the general contractor failed
to provide timely notice as required by the contract. The
court observed that the contract contained express language
equating the treatment of claims for delay damages to the
treatment of all other claims. Further, the court noted that
the contract expressly required that claims for delay damages
be made in accordance with the notice provisions governing
all other types of claims.
The court recognized that the general contractor incurred
substantial costs because of the defects in the design documents
and the owner’s insistence that the contractor resolve
any problems and proceed with construction as scheduled.
However, the court found that in order to preserve its right
to seek additional compensation for these costs, the general
contractor was required to submit a claim within fourteen
days of discovery of the defects/delays and to submit
weekly updates thereafter.
The court noted that the general contractor
first became aware of the defects
in the design documents less than one
month after it entered into the contract
with the owner. Although the general
contractor submitted numerous RFIs,
none of the RFIs provided the owner
with notice of the general contractor’s
intent to make a claim for additional
compensation. Accordingly, the court
ruled in favor of the owner; the court
found that the general contractor’s
claim was foreclosed as untimely because
the general contractor waited
nearly two years following the discovery of the defects in
the design documents to submit a request for additional
payment as required by the contract.
Starks Mechanical is yet another reminder that contractors
should pay special attention to the notice provisions in their
contracts when making claims for additional compensation.
Such provisions should be followed to the letter.
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