5.3.1.2.5 Strict Adherence to Claim Procedure

• Jurisdiction: Arizona

It is not unusual for a contractor to perform extra or additional work without a written change order as required by the terms of the construction contract. When the owner requests additional or extra change work, and fails or refuses to sign a change order, the contractor is faced with a real dilemma. If he proceeds with the requested work, can he recover when faced with the obstacle of the lack of a written change order as expressly required by the construction contract?

The Arizona courts recognize that, as with all provisions in a contract, the provisions requiring that all change orders or extra work be first approved or authorized in writing can be modified by mutual assent of the parties, or voided on waiver or estoppel theories.^[42]

Virtually every construction contract contains provisions requiring that written notice be given of a claim for additional or extra work not subject to a written change order as a condition precedent to the contractor’s right to payment for the change work. For example, AIA Document A201, Article 15.1.2 (2007) has such a customary notice requirement:

§ 15.1.2 NOTICE OF CLAIMS

Claims by either the Owner or Contractor must be initiated by written notice to the other party and to the Initial Decision Maker with a copy sent to the Architect, if the Architect is not serving as the Initial Decision Maker. Claims by either party must be initiated within 21 days after occurrence of the event giving rise to such Claim or within 21 after the claimant first recognizes the condition giving rise to the Claim, whichever is later.^[43]

Strict adherence to or enforcement of the notice requirement for additional compensation for extra work was rejected by the Arizona Supreme Court in New Pueblo Constructors, Inc. v. State,^[44] where the public contract law of the Federal Courts of Claims and the Boards of Contract Appeal was adopted in the absence of Arizona law to the contrary. Where the owner has actual knowledge of the charge for extra work, and where no prejudice to the owner by the lack of formal notice is shown, the contractor’s failure to give the notice as required in the contract does not bar the claim.^[45] Moreover, an implied waiver of the formal notice provision has been found where the owner considers the contractor’s extra claim on the merits.^[46]

However, a number of cases reflect that many courts will strictly enforce the claim notice requirement absent circumstances evidencing waiver of the notice clause. Illustrative of the point is the decision in Allgood Elec. Co. v. Martin K. Eby Constr. Co.,^[47] where the court strictly enforced the subcontract agreement requirement of written notification of any damage claim, followed by submittal of a timely accounting of such claim.^[48]

Courts and commentators often discuss such requirements as “two-tiered” notice provisions, while others use the term “two-tiered’ to describe the situation where a subcontractor is required to furnish notice to the contractor, who is then required to provide notice to the owner (i.e., “pass-through” claims)¾thus the two “tiers”. For clarity in this chapter, we will refer to notice provisions that require two notices (i.e, first of a claim and second the documentation/support) from the same party as “two-stage” notice provisions; notice provisions that involve parties at different levels (i.e., subcontractor to contractor then contractor to owner) will be referred to as “two-tiered”¾reflecting the normal usage in construction recognizing contractors and subcontractors as being on different contractual “tiers” for a variety of purposes. Note that many cases may involve both “two-stage” and “two-tiered” notice requirements.

Associated Mech. Contractors. v. Martin K. Eby Constr. Co.,^[49] involved a two-stage notice provision applied in a two-tier situation. In Eby, § 11 of the subcontract provided that the subcontractor (Associated) must notify the general contractor (Eby) of any claim for delay damages within 10 days of the commencement of the...