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Specifications Do Not Limit Size of Recovery but Do Bar Some Bases for Claims, Oklahoma Supreme Court Rules
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November 20, 2006
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Thelen Reid Brown Raysman & Steiner LLP
A contractor agreed to build nine bridges on the turnpikes around Tulsa for the Oklahoma Transportation Authority at a price just over $3.8 million. Partly because of another contractor's failure to finish predecessor work on schedule, the authority was late in authorizing the contractor's work to begin and suspended work for five months during the project. The contractor completed the bridge project a year later than provided in the schedule it submitted and the authority approved.
The contract included the authority's 1999 Standard Specifications for Turnpike Construction, which specified nonbinding procedures for claim settlement. During the project, the contractor notified the authority of its intent to make a claim for additional time and money on the basis of unreasonable suspension of the work by the authority. In accordance with the specifications, the contractor submitted a claim for $655,040 to the authority's chief engineer upon completion of its work. The engineer denied the contractor's claim. The contractor unsuccessfully submitted its claim to the deputy director and then to mediation. Thereafter, the contractor sued the authority in Oklahoma County District Court for breach of contract.
At a pretrial conference, the contractor increased the amount of its claim to more than $1 million and added claims for 1) changes in the character of work caused by interference, disruption and lack of coordination; and 2) delay in work.
The authority objected to the increase on grounds that the specifications precluded the contractor from seeking damages in the District Court greater those sought in its claim to the authority. The authority also argued that submitting a notice of claim was a condition precedent to establishing liability against it, precluding the additional claims for relief. The contractor responded that the limit on damages advanced by the authority violated the Oklahoma Constitution and that the increase was for equipment costs that could not be calculated until the contractor received accurate project documentation from the authority.
The District Court held that the contractor was obligated to present all of its claims to the authority and that any claim not presented to the authority was waived. Under this holding, the contractor could not change the bases for the relief it sought or the amount of a claim in a subsequent judicial proceeding from what was presented to the authority. The District Court certified its order for immediate interlocutory appeal to the Oklahoma Supreme Court.
The Oklahoma Supreme Court reviewed the notice requirements and claims review procedures in the specifications and found the language to be unambiguous. Based on a plain reading of the specifications, the court rejected the authority's argument that timely written notice was a condition precedent to its liability in court and instead held that the provision was only a jurisdictional requirement to invoke the claims review procedures. M.J. Lee Construction Co. v. Oklahoma Transportation Authority, 2005 OK 87, 125 P.3d 1205 (Okla. 2005).
Further, the court reasoned that any construction of the notice requirements as a condition precedent to the authority's liability in court would be null and void under Oklahoma Constitution, Article 12, §9. The constitutional bar applied because the court characterized the specifications as an adhesion ("take it or leave it") contract rather than state agency regulations or state laws. Accordingly, the court held that the specifications did not limit the amount of damages that may be awarded by the District Court to the amount claimed before the authority.
As for the bases upon which the contractor could seek relief in District Court, the Supreme Court found that the specifications required separate notices of claims for each basis upon which additional compensation was sought. The court noted that a separate notice for each claim was reasonable because it allowed for early evaluation of the claim by the engineer and helped the authority avoid abuse in expenditure of public highway funds by controlling cost increases.
Based on the record before it, the court concluded that the contractor had given a timely notice of claim to the authority, as provided by the specifications, only for unreasonable suspension of work. The contractor failed to give notice of and preserve its claims on any other basis, including delay and change in character of work. Therefore, the Supreme Court held the contractor was allowed to pursue in District Court its claim for suspension of work, with no arbitrary limit on the amount sought, while its other claims for delay in work and change in character of work were barred for failure to give notice in accordance with the specifications.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2006 Thelen Reid Brown Raysman & Steiner LLP
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