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Waiver in Construction Contracts

by: JD Holzheauser
JD Holzheauser
JD Holzheauser
No one wants to waive their rights. Contractors certainly don’t. But waiver is a common concept in contract law. Contracting parties can waive rights afforded a contract or statute. That makes waiver an important issue for both parties to a construction contract. This article will briefly cover waiver and best practices for contract administration.

A Texas court would define waiver as the intentional relinquishment of a known right or as intentional conduct inconsistent with claiming that right. Notice that both definitions include the word intentional. That means that your actions with respect to waiver have to be intentional.

Lien releases provide a good example of waiver by active conduct. It is common for subcontractors and contractors to sign and include a conditional waiver and release of lien rights in a payment application or invoice for a progress payment for work performed on or materials delivered to a project. Sometimes owners ask for a list of pending change orders that will not be included in the release. If a contractor omits pending change orders from that list, is that a waiver of those claims?

Another good example of waiver by active conduct can potentially be found in change orders or payment applications. Pay close attention to the language in your change orders and payment applications before signing them. These documents commonly include waivers. For example, a draft change order may include the cost of a scope. But does it include time associated with the change? If it does and you don’t address that time extension, you could be waiving your right to claim the additional time needed. If the change order states that additional time is needed, you may have exposed yourself to a claim by the other party for delay or liquidated damages.

Let’s turn to waiver by inactive conduct. This can happen in several ways on a project. For example, contracts commonly allow a contractor or subcontractor to assert a claim for additional time and/or money in certain circumstances. These clauses frequently include notice provisions. They may include a requirement that notice of the event giving a right to the claim be presented to the other party within a certain amount of time. Imagine a contractor encountering an unforeseen condition in the exercise of its work. Contracts often say that notice should be given before disturbing that work.

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If the contractor waits three months to send notice, the owner may argue waiver. This argument will be stronger if the delay has prevented the owner from observing the conditions. In other words, the owner may deny or reject the claim because of the contractor’s inactive conduct in the form of not sending written notice as required by the contract.

In practice, it is rarely as cut and dry as this example. The contractor may take advantage of the doctrine of constructive notice, which is the argument that despite the lack of actual notice, the other party knew about the issues and actually knew about the facts.

Another example of waiver by inactive conduct could be subcontractors not sending their notices of non-payment to the contractor and owner by the deadlines set in the Texas lien law. And in the context of required notices to preserve lien rights, constructive notice isn’t likely to help the lien claimant.

These types of things happen often. Maybe the party required to send notice forgot. Maybe they did not want to upset the other party because they are hoping for more work in the future, or because of some other rationale that seems acceptable at the time. Or maybe the party is receiving reassurances that all claims will be handled together at a later date and there is no need to start the claims process right now. Whatever the reasons, if you have a notice requirement in your contract or that is required by law for some event or issue and you do not meet that notice requirement, you are opening yourself up to a claim by the other party that you have waived your rights.

Unfortunately, there is no sure-fire way to avoid conflicts in construction contracting. However, there are some best practices that you can apply to help mitigate issues with waiver. One is simple - read the contract (one of my colleagues emphasizes this by reminding clients “RTFC! – Read the Contract!”). Identify all of the instances in the contract where you are required to take some action in order to secure a right provided in the contract. In addition, if applicable, learn the lien and bond notice requirements. Consider the notice requirements that another party may have. Note the triggering event, the required response, and the time frame in which the response must occur. But it does not stop there. Everyone on the project should know the importance of providing notice when notice is required and be aware of events that might lead to a notice requirement. But in the end, one person should be in charge of providing notice when required.

Another best practice is to comply with the contractual notice provision. It may require delivery by hand, by certified mail, or some other specific delivery service. We recently reviewed a contract that gave the option to send the notice by fax, which seems a bit outdated.

A question I commonly hear is whether an email is written notice. The answer is that it depends. You should comply with the contract requirements. A best practice here, if some other delivery method is not required or you do not have the mailing address, would be to attach a written letter and other criteria to an email. For notices required for lien or bond claims that have to be sent via certified mail or other trackable third-party carrier, I send duplicate notice by the required method and first-class mail. This is a belt and suspenders approach. If the certified or third-party carrier notice is not deliverable because there is no one to sign for or accept the notice letter, you arguably have proof that you used the correct address through the first-class method because that letter was not returned as undeliverable.

Notices need not be confrontational or controversial. They should be neutral and state the facts (what, where, when, why, and how), meet the substantive criteria for the notice (the facts and any back up required to be in the notice), and be sent to the other party via the required service. Lastly, provide your employees with the tools and support necessary to accomplish these goals. Planning to comply with contract requirements will typically streamline resolution of the dispute without the distraction of waiver arguments.

JD Holzheauser is a Senior Counsel at Peckar & Abramson, P.C. He can be reached at jholzheauser@pecklaw.com and 512.236.0009

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