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Washington court enforces notice provision in private construction contract to reject subcontractor’s multi-million dollar claim

Washington court enforces notice provision in private construction contract to reject subcontractor’s multi-million dollar claim. (Wendy Rosenstein / Ahlers Cressman & Slight PLLC)

The recent unpublished case, Cascade Civil Construction, LLC v. Jackson Dean Construction, Inc., et al.,[1] provides a legal justification for contractors to require a directive or change order in advance of performing changed work—thereby preventing the party who requested the changed work from later arguing that notice provisions were not complied with.

In the case, Jackson Dean, the prime contractor, hired Cascade to perform excavation work on a project to build a new Costco Corporate headquarters. Due to the Covid-19 pandemic and other issues, Jackson Dean directed resequencing, which required Cascade to perform excavation concurrent to dewatering. Jackson Dean also required deeper-than-planned excavation under one of the buildings.

These changes “created a dramatically different set of work for Cascade,” at significant expense. After Cascade performed the work, it submitted change orders for the cost of the extra work, alleging it was owed $1.5 million in additional compensation above the contract price. However, Jackson Dean claimed that Cascade waived its right to its claim because it failed to provide adequate notice and obtain approval before performing the work based on the following change order provision:
4.1 Change Orders. [Jackson Dean] may, without notice to [Cascade]’s surety, if any, and without invalidating this Subcontract, order in writing extra Work or make changes by altering, adding to or deducting from the work and the Subcontract Price and/or time shall be adjusted as mutually agreed. [Cascade] shall have no claims for additional payment for extras or changes unless the extra or changed Work, and any time extension requested in connection with the change, have been approved in writing by both [Jackson Dean] and [Cascade] prior to the extra or changed Work being performed. This provision shall be strictly enforced.” (Emphasis added).

Cascade, on the other hand, argued that it did not need to provide notice for changes Jackson Dean ordered. Based on the admitted lack of notice, the trial court dismissed Cascade’s claims and Cascade appealed.

Unconvinced by Cascade’s argument that it was not required to provide notice, the Court of Appeals, Division I, held for Jackson Dean, determining that Cascade had waived its right to above-contract-price compensation due to its failure to either obtain a change order or provide notice under the contract. The Court also noted that Cascade’s argument that the directive by Jackson Dean was a “construction change directive” (that could potentially relieve Cascade of its notice obligations) could not be reconciled with the record, as there was no written document in the record containing the directive—only testimony as part of the summary judgment proceeding.

Moreover, the Court emphasized that Cascade did not argue that it complied or even substantially complied with the notice provisions—only that the notice provision in the contract did not apply. In doing so, the Court distinguished Weber Construction, Inc. v. Spokane County, 124 Wn. App. 29, 35, 98 P.3d 60 (2004). In Weber Construction, a road contractor encountered boulders in the work area that were unsuitable for the work to proceed. Id. at 34. The contractor notified the County of its impacts but could not provide a cost estimate, “asking where it should dispose of the unusable boulders.” Id. at 35. In a second letter, the contractor again explained, “it could not make a cost estimate because the County had not told Weber where to dispose of the boulders.” Id. There, the Court of Appeals held there was a question of fact for trial on whether the County waived the right to demand compliance with the notice provisions because the County knew the contractor was aware of the requirement to provide a dollar cost estimate and was attempting to meet it, but the county failed to give the contractor specific information the contractor had requested. Id. at 35-36. Here, the Court rejected Cascade’s argument that strict compliance with notice requirements was waived based on the lack of argument or evidence from Cascade that it provided any notice—i.e., there can be no substantial performance if the contractor provides no facts or testimony supporting an attempt to comply.

Comment: Ultimately, it appears the Court relied heavily on the specific facts (or lack thereof) in upholding the summary judgment ruling. Based on this ruling and others, it is critical that a party facing a change, increased costs, delays, or a dispute review the contract provisions applicable to their project and consult with an attorney. As demonstrated by this case, each notice dispute is inherently dependent on the specific contract provisions and set of facts applicable to the dispute at issue, and it is important for parties to proceed with caution, especially given the increasing prevalence of project owners or upper tier contractors seeking to dismiss claims early in litigation based on technical deficiencies rather than based on the merits of the claim. For further discussion on notice issues, please see Construction Contract Draconian Notice Provisions: Is Prejudice Still the Issue? and Part 2: Construction Contract Draconian Notice Provisions – Is Prejudice Still the Issue?

Contractors, however, may be able to utilize this Court’s holding to proactively protect themselves from the consequence suffered by Cascade. If a contractor will be at risk of an owner arguing that it need not pay a contractor for changed work performed without a change order, then a contractor may be able to take the reasonable position of insisting it is not required to perform changed work until it has a change order or construction change directive to perform the changed work (note that the contract must contain a similar clause to the Jackson Dean/Cascade subcontract). It is nonsensical to both force a contractor to perform changed work without a change order while also refusing to pay unless a change order was issued. Although most contracts contain a clause that requires a contractor to continue to perform notwithstanding a dispute, that does not mean a contractor cannot raise the issue and insist on a change order or written directive. This would also flush out the issue for all parties and allow for earlier resolution on the merits rather than on procedure, potentially eliminating a later notice argument. Again, however, in all instances, the contract provisions applicable to the project should be reviewed in detail and an attorney should be consulted.

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