A Guide to Notices of Non-Compliance

What are notices of non-compliance?

A notice of non-compliance occurs when one party fails to uphold obligations within a contract. In construction, contracts can be complex and require certain flexibilities for changes that arise during the project due to unforeseen conditions. The master contract in any construction project outlines how to handle change orders, unexpected events, safety regulations, and other rules for completing the job in question. Many contracts require written notice within a specific time frame to describe the details of change orders or delays in construction. As a result, courts only allow claims of non-compliance when contractors follow the terms to the letter. In the best-case scenario, courts and property owners use contractual information to keep a project in working order. Yet, some parties might use a single contractual term to win thousands in a court case.

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Maintaining relationships with subcontractors and contractors in the construction industry is difficult but necessary. When you find yourself in that situation, one of the best things you can do is contact a lawyer. However, proactive tracking and management can avoid some non-compliance issues.

Flashtract is one tool that can help avoid these sticky situations by tracking documentation, progress, and compliance all in one place. It even integrates seamlessly with existing ERP software, ensuring you can see and communicate construction documentation and billing in one spot.

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Whether you use software or rely on manual processes, learning more about notices of non-compliance and their uses in construction can help you avoid costly mistakes.

When are these notices used?

A notice of non-compliance is a formal letter or form describing why the contractor can’t meet specific terms outlined in the master contract. Contractors can change the agreement by defining a new situation. Then, both parties will negotiate to accommodate these unforeseen problems. In a busy construction environment, the earliest notifications of such changes often occur over the phone or other means of informal conversation. However, many contracts require written notice within a specific time frame. To cover all their bases, contractors should follow the initial notice with a formal letter described in the contract.

Examples of non-compliance notices

However, sometimes project owners or managers deny the notice of non-compliance. In that situation, the parties often end up in court to find a legal resolution. Most often, the deciding factor in such claim denials surrounds the language in the master contract and whether contractors provided sufficient information to request changes that increased the cost of a job. A study of recent rulings reveals that the court will typically rule in favor of the language expressed in the content. However, exceptions do exist.

• A 2016 supreme court ruling in New York reversed a subcontractor’s award of more than $200,000 in the case of Schindler v. Tully Construction Co., a subcontractor failed to provide verified statements of the amount of delay damages and necessary documentary evidence outlined in the contract. As a result, the appeals court reversed the trial court’s award of delay damages.
• A 2019 Texas Court of Appeals ruling, in the case of James Const. Group v. Westlake Chemical Corp., upheld the ruling that “substantial compliance” with the contract’s written provision would allow Westlake to collect from James Construction. The initial agreement stated that before termination, the subcontractor must provide written notice of any serious safety violations. However, a jury determined that oral notices substantially complied with the contract’s notice provision. The courts upheld the decision during the appeal.
• A 2020 Kentucky Court of Appeals ruling affirmed a trial court’s decision dismissing a contractor’s differing site conditions claim on a sewer replacement project in the case of TSI Construction, Inc. v. Louisville and Jefferson County Metropolitan Sewer District. Upon beginning work in 2016, the contractor discovered that the layer of bedrock beneath the site was at a shallower depth than shown in the geotechnical report. The contractor claimed they notified the owner of the issue during weekly meetings. However, the contractor didn’t send written notice until 2018, when the project was complete. The contract required a formal written claim within 30 days of the initial notice. Accordingly, the court ruled that the contractor waived the right to the claim.

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Whether you agree with the rulings in these cases, the verdicts remain the same. In the first case, the appeals court noted that the City knew the delays and how they impacted the contractors. Yet it was the contract language that reversed the decision. The contractor should have kept careful track of what notice they were required to give and lost damages due to not following the agreement.

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So, how can you avoid drama around notices of non-compliance?

In any construction project, you want to avoid dealing with notices of non-compliance and the challenges that come along with them. Unfortunately, unforeseen circumstances can arise on any job. This is why it’s critical to keep careful documentation of your communications. Additionally, you should always carefully review what compliance requirements are in a contract. Managing and tracking compliance effectively can avoid headaches and even lawsuits in the future.

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If you’re frequently losing track of compliance documents, or missing required notices, investing in software like Flashtract can improve your process. Rather than spending hours hunting down emails and formal notices, we allow you to track compliance right in the application- and see all the necessary documents in one spot. Flashtract keeps all your records in one place, enabling you to set approvals and notification requirements across your projects. We’re giving you control over your documentation process to avoid costly lawsuits.

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