Timely and Untimely Notice of Claims – What’s the Difference?
New York passed a law on June 18, 2016, affecting the right of a public authority to bar a claim due to untimely notice. Richard Dyer of Duane Morris has written a summary. The law appears intended to address the situation where contractors have lost out on meritorious claims due to untimely notice, coupled with common contract language prohibiting recovery when the notice is late.
Untimely notice of a contractor claim is a sore spot with project owners. Lack of timely notice can reduce or even eliminate opportunities to address the underlying issue giving rise to the claim, and allow for a different, or lower-cost, outcome. On the other hand, many a contractor has lost out on a legitimate claim from failing to give timely or proper notice, and many an owner has taken advantage of improper or late notice to bar a valid claim.
Timely notice of a claim serves an important purpose, one aspect of which is the ability to mitigate the situation. Given the problem, there may be more than one solution, and the owner may want to consider alternatives. Lack of timely notice can frustrate those options. But there are occasions when the contractor’s failure to provide notice timely is unintentional or careless, and not the result of a deliberate attempt to surprise the owner. The NY law takes a big step in the direction of helping contractors who have temporarily dropped the ball.
But there is one problem: the law says that the owner’s “actual knowledge of the events in question shall preclude a claim of material prejudice due to lack of any required notice.” Knowing about events does not always translate into knowing that those events will give rise to a claim. And if the owner does not know, or have reason to know, that the events in question will result in a contractor claim, the lack of timely notice is still a problem. The NY law, intended to provide relief to contractors who would lose out on legitimate claims for failure of timely notice, may have swung the pendulum too far in the other direction.
A prejudice standard on late notice can set the right tone. If untimely notice affects the owner’s ability to consider alternatives, or affects the overall cost, then the contractor should suffer the consequences. If untimely notice has no practical impact on the situation, then the failure to send notice in time should not bar a proper claim. Time will tell whether the new NY law strikes the right balance.