Daily Decisions: Contractor Must Comply with Contractual Pre-Claim Requirements Before Suing City

The Court of Appeals in Realm, Inc. v. City of Olympia (Division 2, March 13, 2012) (published May 8, 2012), concluded that because Realm had not complied with its contractual pre-suit notice requirements, it had waived its ability to sue the City of Olympia following Olympia’s termination of the parties’ contract.

Realm contracted with Olympia in June 2008 to build a fish passage tunnel. Sadly, the opinion does not describe the need for this tunnel or anything else about the tunnel. And what is a fish passage tunnel anyway? Well, luckily, this website here seems to have some good information about fish tunnels in general. Enjoy!

But okay, back to the case. Apparently, Olympia was not happy with Realm’s work. It terminated the contract for public convenience in September 2008. Realm submitted a claim for $1.1 million — the asserted value of work it had performed. Olympia audited the claim and determined that, actually, it only owed $535,000. Realm refused to sign a change order reflecting Olympia’s revised amount. So Olympia just issue the change order itself, along with a check for $535,000.

Realm cashed the check, but then decided to sue the City for the difference. Well, that was a mistake. The contract between Olympia and Realm had very detailed “notice” and claim provisions. A lawsuit against Olympia “is authorized only if the issue is not resolved by the formal notice procedures” in the contract. And compliance with the claim resolution procedures is “a condition precedent to the Contractor’s right to seek claim resolution through . . . litigation.”

Here, there is no dispute that Realm did not comply — or attempt to comply — with the notice provisions of the contract. What Realm needed to do was (1) give signed notice of protest, and then (b) within 15 days supplement that notice with additional information, including (i) provisions of the contract that support the protest, (ii) the nature and circumstances of the protest, and (iii) the cost of the protested work and the basis for that cost estimate. Moreover, the contract provides that if Realm does not challenge a change order as provided by the contract’s notice provisions, then Realm is deemed to have accepted the change order.

So Realm, having not followed the procedures, is out of luck here. The Court, however, left the door open for a future case in which the contractor might make a good faith effort to comply with the notice provisions but fail to technically comply. In such a case perhaps suit would not be barred. But the Court observed that Realm’s actions were a far cry from such a good faith attempt. Realm did nothing. Its claim is therefore barred by the terms of the contract.

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One thought on “Daily Decisions: Contractor Must Comply with Contractual Pre-Claim Requirements Before Suing City

  1. Pingback: [Tuesday] Monday [Afternoon] Morning Mash-up: May 15, 2012 | Ziff Blog

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