Be Careful How You Treat Time Limits

MOST CONTRACTS IN use these days in the construction industry contain clauses that have time limits in them to take action to give notice of claims, for example, or to cure a default. It is not uncommon for the parties to find that it is in their interests, for one reason or another, to not always strictly enforce these deadlines. Even though an owner can terminate a contractor for default on 10 days

MOST CONTRACTS IN use these days in the construction industry contain clauses that have time limits in them to take action — to give notice of claims, for example, or to cure a default. It is not uncommon for the parties to find that it is in their interests, for one reason or another, to not always strictly enforce these deadlines.

Even though an owner can terminate a contractor for default on 10 days’ notice, for example, it may not be in the owner’s interests to do this. If it can get the contractor’s attention with its threat to terminate, it may be better for the owner to give the contractor more time.

Similarly, there are often situations in which it isn’t possible to comply with a deadline — such as a requirement to submit all cost information for a claim within 10 days of notice of the claim, where it will take longer than 10 days to do the additional work. A requirement that all shop drawings have to be submitted within 15 days of notice to proceed, and reviewed and returned within another 15 days, may also not work in the particular circumstances of a job.

What happens if the parties don’t enforce the time limits as written? It is just as likely that one party will be as unhappy with the result as the other.

An example is in a recent New York court decision. In Axa Global Risks U.S. Insurance Co. v. Sweet Associates Inc., 755 N.Y.S. 2d 759 (App. Div. 2003), a general contractor, Sweet, had given its sub, Atlantic, notice of default with 15 days to cure. After a meeting, Sweet withdrew its notice of default but reserved the right to reinstate it on three days’ notice.

Apparently, that meeting didn’t put the job back on track, as Sweet had to send default notices two more times, in each case giving Atlantic three days to cure. When Atlantic once again failed to fix its problems, Sweet finally pulled the plug, terminated Atlantic and called on Atlantic’s surety (Axa) to complete the work, which it did.

Axa then sued Sweet, alleging that the termination was wrongful in the first place, on the ground that Sweet hadn’t given Atlantic the formal 15-day notice prior to finally terminating for default.

Although the trial court agreed with Axa, Sweet appealed and the court of appeals later reversed the decision. While the court agreed that the contract stated that there had to be a 15-day written notice to cure, it went on to say that both parties have the right to change that requirement if they want to.

One party can claim the other has waived a right, but of course the party that is making the argument may have a tough time proving it. It has to be established by “affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage.” (755 N.Y.S.2d at 760.)

Based on the facts stated above, the court of appeals sent the case back to the trial court for trial as to whether the right to 15-days’ notice had been waived by the subcontractor.

In this case, the subcontractor and its surety were the ones who were disadvantaged by the waiver (getting only three days to cure a default instead of 15). Just as often, an owner or contractor will find that it has difficulty avoiding claims because it did not consistently enforce time limits on notice of changes, delays, etc.

If one claim is accepted and resolved even though the contract time limits were not followed, the parties might find that this could be enough evidence for a court to use to decide that all similar time limits have been thrown out.

While it may have been a good decision on Atlantic’s part to agree to shorter notice — since the alternative may have been an immediate termination — Atlantic and its surety should have given it some thought.

If you find yourself in a position of being asked to waive a time limit that is good for you, you might try to get the other side’s agreement that it is a one-time-only waiver. Even without that party’s consent, you can try to make clear — in writing — that this is a one-time waiver and all other rights are reserved.

Another trade-off might be that you get some other term in exchange for it (such as that the shortened time notice has to be faxed to a particular person, so that it gets to the right person immediately).

Only two things are for sure here: You won’t know what you can get unless you ask, and you won’t ask if you don’t think of it.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/421-4800, e-mail to [email protected].

TAGS: Law