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Construction Contract Notice of Protest Provisions: What to Expect From Washington Courts

by | Feb 28, 2020 | Commercial Real Estate

It is standard practice to include a notice of protest provision in a public works construction project.  Typically the language of the provision will come from the Washington State Department of Transportation’s Standard Specifications for Road, Bridge, and Municipal Construction and will require the contractor to notify the agency “immediately” and in writing if it disagrees with “anything required in a change order, another written order, or an oral order from the Engineer, including any direction, instruction, interpretation, or determination by the Engineer.”  The standard provision also provides that a failure to comply with the protest procedures “completely waives any claims for protested work.”  Washington courts have repeatedly upheld notice of protest provisions, sometimes referred to as notice of disputes clauses, requiring strict compliance with their terms and finding waiver even where the owner had actual knowledge of the contractor’s claim.

“Washington’s Supreme Court has stated that if a notice of protest provision in a construction contract requires written notice, then such notice is mandatory and actual notice will not suffice. ”

Written Notice is Mandatory; Actual Notice is Not Enough

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Washington’s Supreme Court has stated on several occasions that if a notice of protest provision requires written notice, then such notice is mandatory and actual notice will not suffice.  In other words, even if the owner had actual knowledge of the change, any claim for additional compensation is waived unless the contractor strictly complied with the written notice requirements.  In a 2018 case, Nova Contracting v. City of Olympia, the contractor argued that it was not required to file a written protest after each rejected batch of submittals because it filed a claim for breach of the covenant of good faith and fair dealing based on the rejections, thereby giving the City actual notice of its protest.  The Court disagreed, stating that because the claim is based entirely on the City’s allegedly improper rejection of its submittals, and Nova did not file a written protest immediately, it waived any claims for protested work.

The Nova decision follows other cases in which this state’s highest court has required strict compliance with notice of disputes provisions.   In Mike M. Johnson, Inc. v. County of Spokane, the Court rejected an “actual notice” exception and held that the contractor’s claims for equitable adjustment due to design changes mid-performance were barred because contractual notice had not been given. In American Safety Cas. Ins. Co. v. City of Olympia, the Court ruled that a public works contractor waived its claims for increased compensation by not timely following the contract’s disputes process.

Requirement Not Limited by Implied Covenant of Good Faith and Fair Dealing

The contractor in the Nova case argued that the notice of protest provision did not apply to its claim for breach of the covenant of good faith and fair dealing because such a claim sounds in equity. However, the court rejected the premise of this argument, stating that breach of the covenant sounds in contract, not equity. The court reiterated that the contractor, by failing to comply with provision, waived “any claims for protested Work,” including a claim that the City’s improper rejection of its submittals violated the implied covenant. In addition, the Court in Nova held that the written notice requirement also applies to claims for expectancy and consequential damages.

Waiver of the Notice of Protest Provision by the Municipality is Possible

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Washington courts have stated that if the party in whose favor the provision acts waives the protection, the notice requirement may not be enforced. That said, unequivocal evidence of an intent to waive must be shown, and this is a tough standard to satisfy. In the American Safety case, the Supreme Court held that an owner’s agreeing to enter into negotiations, without more, does not constitute an implied waiver of contractual rights.

Quantum Meruit Recovery is Still Available for Work Outside the Contract

The Court of Appeals has held, in General Construction Company v. Public Utility District No. 2 of Grant County, that for work outside of the contract, quantum meruit (as much as deserved) applies and entitles the contractor to compensation.  Relying on the Supreme Court’s decision in Bignold v. King County, the Court of Appeals stated that this is a supplemental means of recovery when the contract is not applicable.  But what work qualifies as being “outside” the contract remains a contentious issue.  Contractors should not assume that a court will agree that the work for which they claim additional money or time is extra-contractual.

The Takeaway: Give Immediate Written Notice of any Potential Claims

Providing written notice of any claim related to protested work – whether or not you intend to pursue it – including claims for expectation and consequential damages, as well as claims for cost of work performed, will give you important peace of mind, as well as ensuring that the court does not throw out your valid claim for a procedural failure to comply with the notice of protest provision in your contract.  Although the strict compliance standard requires contractors to provide new cost figures and revised construction schedules usually within fourteen days of giving notice and then on an ongoing basis should the protest continue, the alternative — later finding out that even though they followed the owner’s instructions, the contractor cannot bring a claim for the changed work because they failed to comply with the contract’s notice provision — is far worse.

Unless and until the state legislature steps in, Washington contractors are bound by the strict compliance standard.  Although the Mike M. Johnson case contains a lengthy dissent (calling it unjust and out of step with Washington law to deny a contractor fair compensation where the owner had actual notice but the contractor did not also comply with “highly technical claims procedures”), and some commentators have advocated for a prejudicial standard instead (which would make it consistent with federal law), there is no sign of a change in the Washington courts.

How I Can Help

I represent contractors, property developers, and municipalities in all aspects of Construction Law, including bid protests, bond claims, contractor disputes, design contracts, design defects, government contracts, lien claims, payment disputes, and subcontractor disputes.  If you need assistance with a construction matter, I welcome you to contact me at (509) 662-2452 or email H. Lee Lewis.