Contract Notice and Recognition (Part 1)

Most major Engineer Procure Construct [EPC], Lump Sum Turnkey [LSTK] and Construction contracts contain requirements or provisions for Notice.  Simplistically, notice is the act of informing another party to the contract that an important event has (has not) occurred.  These events tend to be related to negative consequences.

In this discussion, I will use two key references:

Bramble introduces the subject as follows (focus is on delay):

Notice to the appropriate contract representative that an excusable delay has occurred is important.  From the owner’s perspective it is extremely important because the owner may have no knowledge of the events that affect the contractor’s performance.  Even if the owner has knowledge of the events, it may be ignorant of their effect on the contractor’s performance.  Notice will allow the owner an opportunity to remedy the problem, mitigate the damages, or plan for the consequences.  Further, the owner may take steps to document the validity of the claim and the effect on the contractor. [Bramble p2-28]

Pickavance addresses the rationale as follows (focus is on delay):

5.12 Without notice, D [developer, owner, or similar] may have no knowledge of the event which has affected or is likely to affect C’s [contractor’s] performance.  Even if D has knowledge of the circumstances giving rise to an entitlement to an extension of time, without C’s advice, it may be ignorant of its impact on C’s progress.  One of the principal effects of a notice of delay to progress or disruption can be expected to be that both the CA [contract administrator] and D may give some thought as to how instructions could be given so as to reduce the effects of the event of which complaint is made.  [Pickavance p140]

Many contracts require that notice be given within a specified period (e.g. 10 days, 21 days).  With such a defined (and arguably short) time period, several points are important.  Perhaps the most important is the commencement or start date of the notice period.  Several possibilities exist.  One start concept is the date that an event occurs.  This ambitious and (potentially) problematic concept, coupled with a short notice period (say 10 days) can be extremely difficult to completely unrealistic in the context of project execution.

Pickavance addresses THE COMMENCEMENT OF THE PERIOD OF NOTICE in paragraphs 5.49-5.51.  In this regard (and always the case), the parties need to obtain the specifics from their contract language.

Another arrangement could be that the period starts at the time of recognition.  This more relaxed approach allows the party that is obliged to provide notice time to recognize the event or possibly see the results.  Some call this recognition.

Using recognition as a concept, the party must consider when they recognized or should have recognized the event or its results.  As you can see, the matter becomes increasingly complicated.

Where is the lesson here?

All parties need to have in place proper and legitimate mechanisms for detecting events and/or results (sometimes call impacts).  These plans and procedures should be addressed in the Project Execution Plan [PEP], Risk Management Plan (often within PEP), or project / job procedures.  It is not constructive to have an implementation procedure that calls for writing letters (or other documents) on an intensive basis.  Letter writing factories tend to aggravate and not resolve an issue.  Sound managerial judgment is needed.

Of course, this is a managerial perspective.

Project planning and management teams need legal advice from a competent source that understands the contract, applicable law, case law (if any) and other key legal aspects of this subject.  The solution requires an integrated planning, management and legal approach.

The references and resources I discussed above represent a starting point for understanding notice requirements as well as implementation approaches.  Actual analyses are complicated and require consideration of many factors.  In subsequent posts, I will elaborate on some of these considerations and factors.  Careful and thoughtful analyses are required in order to achieve fair and equitable compensation (money, time and other considerations) to the contractor(s) in situations where changed work / variations, delays, disruption and other events are significant.

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