Contract Notice and Recognition (Part 2)

LinkedIn Group: Contract Risk Management — Construction Industry Discussion: Methods of Ensuring Compliance

This recent Discussion was initiated by me, George McLaughlin. I posed the following question:

What methods or procedures are most effective to ensure compliance with contract Notice requirements (if any)?

Most contracts contain Notice requirements of various sorts. Notice regarding variations / changed work can be reasonably straightforward. Notice regarding delay (by others) and disruption (by others) can be considerably more challenging. Of course, the challenges include form or method of notice as well as the onset of recognition of the delay or disruption. Another complication is the acceptability of constructive notice under applicable law. Please present some views on this topic.

In the ensuing commentary, I found valuable insights in the following posts.  The first selection addresses a managerial or organizational perspective.

L.H. Chin • my method to deal with onset recognition of delay & disruption; notices etc etc is to set up a central monitoring unit in the HQ Claims/Commercial Department. The central monitoring unit will comprise of Commercial Managers on the ratio of 1 Commercial Manager to 5 – 8 contracts depending on the size of each contract.

These Commercial Managers will monitor all the correspondence between all stakeholders and the site construction staff on a daily basis. The moment they see a need to issue any essential contractual letters (i.e. notices; reminders; recording of certain events/facts etc etc); they will draft the necessary correspondence to the site staff for official issue.

Best part of my method is that these Commercial Managers need not be on site but off site at HQ. Also one commercial manager can handle more than 1 contract/project at any one time saving manpower numbers and time costs. They will only visit the sites as and when necessary saving travelling costs and valuable time lost – due to travel to view correspondence at site when such processes can be carried out online via the web.

Efficiency of Contract Risks Management in my view is actually dependent on a very simple requirement. This is the availability and retrieval of all daily correspondence that occurs between the contract/project stakeholders on a “as and when basis” and of course include the immediate drafting of cleverly crafted contractual letters when the need requires.

And if this could be carried out at HQ via the web; so much the better. You can even have effective control over the happenings of contracts in another country thousands of miles away!!!!!

The opposite organizational accountability perspective is to assign recognition and notice responsibilities to the project or construction manager.  This view is presented in the following comment.

Bruce Hanawalt • I find that having the project manager “own” the notice times is (as described in the contract) more effective with less “drops/misses”. Notice periods are deemed crucial for each and every event. Miss the Notice time and the courts are inclined to throw out any claims or disputes.

Bruce continues… When I assign project managers to identify Notice timelines or change, claims, dispute clauses, etc., I insist they catalogue the notice times and time stamp the notice. I act as an oversight Construction manager and review the notices. It is the office that sends or approves with a format that complies with the contract (pre-written form document).  Any “sticky points” or negotiated aspects are normally above the pay grade of the project managers and I personally become involved or turn it over to legal if we can’t reach a resolution. The catalogue is set-up as a tree (similar to a company hierarchy diagram)

Organizational dynamics and interactions are another consideration.  Removing notice requirements from the project or construction manager can avoid potential conflicts while still preserving the contractual rights and remedies.  Some organizations prefer the use of a commercial project manager.  The following comments are germane to this point.

Chetan Kavdia Organizational aspects do play an important role in drafting notices:
a)  An independent review of project risk by a commercial manager and draft proposal that will put company’s interest above individuals. Seldom PMs would like to issue contractual notices as they may be deterrent to sound customer relations.
b)  It is a sound strategy to negotiate claims with customers to have PMs as a customer friendly mediator while commercial manager discusses his laundry list.
c)  Situations such as long due payments, customer default etc may call for notice seeking suspension/termination by a commercial manager. PM would still like to negotiate a continuing proposition and hold the notice till a catastrophe eventually becomes inevitable.
d)  Commercial manager sitting onsite reporting to a PM will only add to project cost as he may not be allowed to operate independently.

As a project/construction/contracts/business manager and similar, it is imperative that you define your project execution approach as it relates to notice and recognition (actually, recognition and notice).  The project execution planning, including staffing plan and related execution strategy, must reflect the realities of many factors.  Rationalize the project team’s accountability and responsibilities to their skill sets and the intended relationship with other parties.  Keep in mind that these same considerations relate to many project interfaces (owner/developer/employer to prime contractor; prime contractor to subcontractor; and others).

Good luck and have fun with notice and recognition.

This M&M blog-discussion based on LinkedIn excerpts is offered to share and stimulate insightful thinking. This is not intended to diminish the complete LinkedIn group discussion.

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