Prime Contract Notice Provision

Notice requirements for construction payment claims can make or break a party’s attempt at recovery. Sometimes  notice requirements are relaxed, such as this claim under Tennessee Prompt Payment statutes. Other times strict compliance is required.  In this New York case, Schindler Elevator Co. v. Tully Construction Co., a strict notice provision between the general contractor and New York’s Department of Sanitation kept a subcontractor from recovering delay damages from the general contractor because the notice provision was “incorporated” into the sub’s contract.

The Case

Tully Construction contracted with the city of New York Department of Sanitation (the City) to construct a parking garage. Tully then hired Schindler Elevator Co. to install elevators for a parking garage in a public project with the city of New York Department of Sanitation (the City). Delays occurred during the life of the project, causing substantial extra costs to Schindler as well as other subcontractors and suppliers. As a result, Schindler filed a breach of contract claim against Tully.

At the trial level, Schindler prevailed. Using letters and emails, Schindler proved that Tully had actual notice that damages had been sustained by Schindler as a result of the delays. Tully appealed, and the trial court’s holding was reversed.

In Tully’s contract with the City, strict notice requirements were present – in the event of delay, a contractor needed to submit notice to the City

“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.”

According to the appellate court, this provision was incorporated into the subcontract. The court reasoned that because Tully had an express notice provision with the City, and because that provision was incorporated into the subcontract, Schindler was required to follow the specific notice procedures outlined above. The appellate court found that because those terms were incorporated, the letters and emails by which the trial court concluded that Tully was actually aware of damages did not comply with notice requirements. In other words, because Schindler failed to follow the notice requirements, the emails and letters were irrelevant.

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Schindler should have made a bond claim

While its courts have strictly construed contractual provisions on public projects, New York appeared to be lenient on notice requirements for mechanics liens just months earlier. Public projects may not be subject to mechanics liens, but contractors are required to provide payment bonds to give subcontractors and suppliers recourse for nonpayment. This beckons the question: why didn’t Schindler make a surety bond claim? Had New York’s Little Miller Act come into play, Schindler would have been more likely to recover. This is especially true considering the state does not require preliminary notice for bond claims. Further, the actual receipt of a bond claim can overcome the statutorily required method (personal service or registered mail). The state’s notice requirements are actually pretty lenient when claims are made under the Little Miller Act.

For more on the state’s Little Miller Act, here are our New York Public Project FAQs and the New York Little Miller Act Statute.

Takeaway

Strict enforcement of contractual or statutory provisions is nothing new to the construction industry. Even tiny mistakes can prove fatal to claims. For that reason, Schindler should have made itself aware of the notice requirements that Tully had agreed to before allowing those requirements to be incorporated into its contract. However all indications are that the terms of the notice provision were not actually included in Schindler’s contract with Tully, but merely incorporated into the contract via reference/ a flow-down provision. Further, the express notice provision applied to Tully’s claims against the City, while Schindler’s claims were not against the City but against Tully. In any event, New York Contractors should take notice, as the state’s courts appear to very strictly enforce contracts for New York public projects.

Summary
Notice Provision In Prime Contract Prevents Subcontractor's Breach Claim
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Notice Provision In Prime Contract Prevents Subcontractor's Breach Claim
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A contractual notice provision between a general contractor and the city was incorporated into a subcontract, which made the sub's breach claim unsuccessful.
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