Chapter 18
Deadlines and Limitations
Summary:
Legal notice requirements in private and public contracts are discussed in this chapter. Strict adherence to claim notice requirements is required to forestall a waiver of the claim rights. Notice of delay is discussed and that the courts strictly construe any delay of the required notice, especially if such delay prejudices the other party so that its impact can be ascertained. Statutory notice requirements are discussed. Contract claims in public works projects and Alternative Dispute Resolution are explored, in addition to miscellaneous statutes of limitations that may apply.
§ 18.1 Contract Provisions
The following is a summary of the legal notice requirements governing claims most often encountered in private and public contracts. A notice of claim must be provided to the public entity by the entity that is filing the claim. While many contractors feel notice clauses are just an attempt to place one more hurdle in the path of valid claims, the intent of such clauses is to provide the public agency an opportunity to address the potential claim by eliminating the cause of the claim, deleting troublesome scope of work items, or reducing the impact of delays. Notice clauses also allow the agency to begin to build a record in order to defend itself from the claim.
In those instances where the contractor has not given the required notice of potential delay and claims, the courts have often denied the contractor the relief to which it would otherwise be entitled. Therefore, the contractor must strictly adhere to the claim notice requirements to prevent a waiver of its claim rights. A careful reading of all notice provisions at the outset of the claim review process will reveal all applicable notice provisions. Most construction contracts contain provisions requiring a contractor to give prompt notice of a claim to enable public agency staff to take appropriate protective measures.
This notice is typically termed “notice of delay.” Certain courts have strictly construed such notice of delay clauses, barring claims for time extensions or delay damages to contractors who fail to give timely notice. However, in the view of more liberal courts, failure to comply with notice clauses should not cause a forfeiture of the claim if the public agency is not prejudiced. The determination of prejudice may turn on whether the public agency did, in fact, have notice of the claim, so it could minimize the impact on the contractor and begin to collect data on the claimed increase in costs.
Many contracts require the contractor to provide immediate notice when any unanticipated or concealed condition is encountered during the course of the work. These clauses allow the public agency to inspect concealed conditions and, in certain cases, issue design modifications or change orders that may tend to minimize project disruption.
Disputed work is often the heart of a claim. Standard specifications generally require daily reports to the engineer on all labor, materials and equipment involved for any extra work claimed by the contractor.
Requests for an appeal are another important issue. Project agreements tend to empower the engineer, architect, or other agent of the public agency to initially determine the validity of a contractor’s claim. If the contractor wishes to contest such an entity’s decision, certain clauses may require an immediate request for appeal be filed by the contractor.
A notice of termination for default (or convenience) may be required, as well, by the terms of the contract documents. In extremely difficult situations, where the contractor is in material default on the contract or where the public agency is unable to perform, the affected party may be forced to give notice of termination for default. Events that may call for a notice of termination include an agency’s inability to provide job site access, an agency’s failure to make the agreed progress payments, or a contractor’s failure to maintain the required contractor’s license.
Termination clauses typically require a series of termination notices, allowing a grace period during which the noticed party can cure the default. It cannot be emphasized enough that initiating termination for default is a serious matter. Improper compliance with the notice provisions for termination could result in the public agency becoming the defaulting party.
Lastly, the arbitration clause of a contract may require some type of notice. The procedures for triggering arbitration are normally contained in the arbitration clause.
Failure to initiate arbitration means the architect’s decision becomes binding on matters of dispute between the public agency and the contractor. The time under the State Contract Act for initiating arbitration has been reduced to 90 days, Public Contract Code § 10240.1 (amended in 1998, previously 180 days). See Section 19.2 for further discussion regarding arbitration.
§18.2 Statutory Notice Requirements
In addition to the notice requirements provided in the contract itself, the State Contract Act,308 the Public Contract Code, the California Civil Code, and the California Code of Civil Procedure set forth notice and filing requirements needed to preserve the validity of the contractor’s claim. The procedures outlined pertain to bond claims, stop notice rights, and mechanic’s lien rights if private property is involved. See below for further discussion regarding applicable statutory provisions.
§ 18.3 Other Public Works Statutes
Other California codes contain requirements for filing claims on public works projects. One of the few provisions that relate to all public agencies — state or local — is Public Contract Code § 9201, which empowers each public entity to “compromise or otherwise settle any claim relating to a contract at any time.” Other than § 9201, the contracting rules for the various local agencies differ significantly from those for state contracts.
The State Contract Act generally requires arbitration for disputes once the administrative remedies provided in the contract have been exhausted.309 The existence of a clause for administrative remedies again points out the importance of a detailed analysis of all notice clauses in the contract. The time under the State Contract Act for initiating arbitration has been reduced to within 90 days of the final written decision by the state agency on the claim, Public Contract Code § 10240.1 (amended 1998). Excepted from this time limit are state issues regarding audit, latent defect, warranty, or guaranty claims.
The Public Contract Code has a separate chapter that must be consulted for guidance for each kind of local agency. To promote uniformity, the local public agency can adopt arbitration provisions used by the state.310 In addition, it is recommended that the contractor always present a statutory claim against the local agency under Government Code § 910, et seq. Otherwise, the claim will likely be barred, even if the contractor has complied with contract notice of claim provisions.
§ 18.4 Additional Statutes of Limitations
The California Code of Civil Procedure contains a number of additional limitation periods for filing various types of lawsuits by or against construction managers, A/E’s, contractors, subcontractors and suppliers.
Listed below are the more frequently encountered statutes of limitations in California:
10 years Repose Statute - Latent Defects (Code of Civil Procedure § 337.15)
4 years Repose Statute - Patent Defects (Code of Civil Procedure § 337.1)
4 years Breach of Written Contract (Code of Civil Procedure § 337)
4 years Rescind Written Contract (Code of Civil Procedure § 337(c))
3 years Relief from Fraud or Mistake (Code of Civil Procedure § 338)
3 years Damage to Real Property (Code of Civil Procedure § 338)
2 years Breach of Oral Contract (Code of Civil Procedure § 339)
2 years Personal Injury & Death (Code of Civil Procedure § 335.1)
90 days Administrative Mandamus (Code of Civil Procedure § 1094.6)
It should be noted that Statutes of Repose are not the shortest limitations periods that may apply.
In this regard, Code of Civil Procedure § 337 states the following:
“Within four years: (1) an action upon any contract, or obligation or liability founded upon an instrument in writing, except as provided in Section 336(a) (an action upon any bonds, notes or debentures issued by a corporation) of this Code…”
Also, though not generally applicable, the “Oral Contract” statute is:
“Within two years: (1) an action upon a contract, obligation or liability not founded upon an instrument in writing...”
Thus, for general use, we must keep in mind that to bring a breach of contract action, it must be done within four years from the breach. This, of course, begets the next question as to when the breach occurs. In this regard, Code of Civil Procedure § 337 states that an action based upon rescission of a contract that is in writing must be filed within four years. The code specifically states that the time begins to run from the date upon which the facts that entitled the aggrieved party to rescind occurred. Thus, there may be more than one breach of any given contract.
As indicated under Chapter 17 entitled “Claims Analysis,” it is important to document all of the acts and inactions which may or may not be tantamount to a breach so that the applicable date can be ascertained. For safety’s sake, one should always utilize the earliest possible date to protect oneself from the running of the statute of limitations. Although homeowners have some protections under SB 800, the general rule is that the parties may contract for a shorter statute of limitations for design and construction work. See Brisbane Lodging, L.P. v. Webcor Builders, Inc. (2013) 216 Cal.App.4th 1249.
The analysis of the start and stop of these limitations provisions is often very technical. In Nelson v. Gorian & Assocs. (1998) 61 Cal.App.4th 93, the Court held that Code of Civil Procedure § 337.15 (10-year statute of limitation for latent defects) begins to run as a bar to an action for soils subsidence when the work of the improvement, i.e., the grading of the specific lot, was finished, as opposed to a notice of completion for the entire tract. There are other cases stating the statute of limitations for design professionals begins to run upon the completion of the plans and specifications, rather than the construction of the improvement itself.
§ 18.5 Tort Claims Issues
Contractors filing a tort claim on a public works project must comply with Government Code §§ 900-996.6, which set forth the required claim procedures against public entities. An action involving a contract with a state agency must be filed within the time period specified in Public Contract Code § 19100.311
It is strongly recommended that a timely government claim be filed whenever a contractor seeks relief beyond the normal change order process or when negotiations stall. As a technical matter, the Public Contract Code indicates that a Government Code claim need not be filed on a state contract claim as long as the Public Contract Code claim requirements are fulfilled.312
In Schaefer Dixon Associates v. Santa Ana Watershed Project Authority (1996) 48 Cal.App.4th 524, the Court found that a government claim was required and barred the claim as untimely. Since the Public Contract Code focuses on contract claims rather than the tort claims covered by the Government Code, and since many construction claims involve tort claims as well, it is appropriate to file a Government Code § 900, et seq., claim as a precaution.
In the case of Arntz Builders v. City of Berkeley (2008) 166 Cal.App.4th 276, the court was again asked whether a formal presentation of a Government Code Claim is required in instances where the construction contract contains provisions governing the dispute resolution process. The court held that a claims procedure established by agreement pursuant to Government Code § 930.2 controls the claims to which it is related in instances where the contract did not expressly require presentation of a statutory claim in addition to contract claims process.
Once again, the prudent contractor will submit the government claim — at the right time, to the correct officer, and with the required statement of claim. The tact taken will depend upon the nature of the filing, to whom and when the claim is filed, and the appropriate strategy for claim submission are technical legal issues requiring a careful legal review.
Legal action on the claim must be commenced within six months after the final decision of the agency, the determination of rights by the hearing officer, or the accrual of the cause of action if there are no applicable claim procedures in the contract.313 However, the claim may be filed up to two years after the accrual of the cause of action if the agency does not respond at all. Since there is little hope that a contractor client will know of every piece of paper that has come into his office on a project, a better rule of thumb is to file within the six month statute.
Practice Pointer: Always read the statute itself when calendaring these deadlines!
A claim involving a contract with a local agency must amount to no more than $375,000 in order for Public Contract Code §§ 20104-20104.6 to be applicable. The requirements for submission of a claim to a local agency are set forth in Public Contract Code § 20104.2.
As discussed above, an unsuccessful bidder may have an action for damages against the local entity if the unsuccessful bidder suffered bid preparation or other damages resulting from its bid not being accepted.
The foregoing is not meant to be an all-inclusive list of applicable notice provisions or statutes of limitations. It is provided for illustrative purposes only. Each claim situation involves specific requirements.
§ 18.6 Statutes of Repose
The statutes that provide the construction industry with the most substantive protection are the special construction industry “statutes of repose.”314 They bar claims asserted more than four or ten years after substantial completion for patent or latent deficiencies, respectively.
However, the claim may be barred much earlier by government claims statutes or ordinary statutes of limitations. Thus, the four and ten-year statutes of repose may never come into play if the claim is already barred by the two, three or four-year statutes of limitations for specific remedies.
Additional protection is extended to trades and professions, such as architecture and engineering, such that “substantial completion” means when the trades people and professionals finish their work before the substantial completion of the entire improvement work.315 These statutes have been generally upheld against constitutional attack on grounds of equal protection.316