Compliance With Contractual Notice Provisions

A recent decision of New York City Office Of Administrative Trials And Hearings (“OATH”) highlights the significance of compliance with each and every provision of a construction contract. Ferreira Construction Co., Inc. v. Dep’t of Transportation, OATH Index No. 1619/12 (Nov. 16, 2012), involved a public contract to reconstruct a pedestrian bridge in Manhattan at East 78th Street and the FDR Drive. The New York City Department of Transportation (“DOT”) contract contained a contractor initiated value engineering change (“CIVEC”) provision that gave the contractor an incentive to propose innovations by allowing for an award to the contractor of 50% of the cost savings if the proposal was accepted by DOT. The dispute concerned the application of the CIVEC clause. The contractor claimed that its accepted proposal under the CIVEC clause saved DOT $252,320.50, and that it was entitled to 50% of the savings of $126,160.25. DOT claimed that the proposal saved the agency only $93,011.50, and that the contractor was entitled to only $46,505.75 additional compensation.

The Contract Dispute Resolution Board (“CDRB”) dismissed the contractor’s CIVEC claim on three independent grounds: (1) the contractor’s claim was time-barred because the contractor did not file its notice of dispute within 30 days of the determination with which it disagreed, as required by the contract and New York City Procurement Policy Board Rules (“PPB Rules”); (2) the claim was waived when the contractor submitted a request for an extension of time without reserving the claim as required by the contract; and (3) the CIVEC claim must be denied on the merits because the contractor’s method of calculating the cost savings was erroneous and DOT’s calculation was correct.

The CDRB held that the time provided for in the contract and the PPB Rules to submit a written notice of dispute to the agency head may not be overlooked. The contract and PPB Rule §4-09(d)(1) required the contractor to submit the notice of dispute to the agency head “within thirty days of receiving written notice of the determination or action that is the subject of the dispute.” The contractor’s failure to do so mandated dismissal of the its CIVEC claim. The CDRB further held that discussions between DOT and the contractor regarding the dispute did not toll the 30-day period.

The CDRB also ruled that even if the contractor’s CIVEC claim was not time-barred, it was waived it when the contractor applied for extension of time and failed to reserve the disputed claim. The contract required the contractor to reserve any potential claims in the application for an extension of time and specifically provided that failure to reserve a claim constituted a waiver. The contractor expressly reserved a number of other claims, but did not mention the CIVEC claim on its time extension application. The CDRB noted that “New York courts have consistently enforced waiver of claims in connection with extensions of time,” and held that the contractor’s failure to identify and reserve its CIVEC claim in its time extension application was a waiver of the claim.

The CDRB also ruled that that CIVEC claim could be dismissed solely on the merits because the contractor’s calculations were wrong. Notwithstanding that it is always important to know your math, the CDRB’s decision is a reminder that under New York law contractual notice provisions are regularly enforced to the detriment of contractors and subcontractors.