In construction, incorporating a “prime contract” by reference into a subcontract is commonplace. Recently the Courts have broadly construed such “incorporation” provisions, often to the detriment of subcontractors.
In Schindler Elevator Corp. v. Tully Const. Co, Inc., 139 A.D.3d 930 (1st Dept. 2016) the Plaintiff Schindler Elevator Corp. (“Schindler”) entered into a subcontract with the Defendant Tully Construction Co., Inc. (“Tully”) to provide five elevators for the City of New York Department of Sanitation (“DOS”). The subcontract incorporated by reference the “Prime Contract” between Tully and DOS. The Prime Contract had a condition precedent-type notice provision which required “a contractor claiming to be sustaining delay damages to submit, ‘within forty-five (45) Days from the time such damages are first incurred, and every thirty (30) days thereafter for as long as such damages are incurred, verified statements of the details and amounts of such damages, together with documentary evidence of such damages.’” The Prime Contract went on to state that a failure “to strictly comply with the requirements … shall be deemed a conclusive waiver by the Contractor of any and all claims for damages for delay arising from such condition.”
While after trial, the trial Court found in favor of Schindler relying upon the letters and emails of “actual notice” of the delays and the claim, on appeal, the First Department reversed the trial Court’s decision and found that “actual knowledge of the delay and the claims did not relieve the plaintiff of its obligation to serve a proper notice of claim.” The First Department rejected Schindler’s letters and emails as sufficient “since they did not contain verified statements of the amount of delay damages allegedly sustained by the plaintiff and were unsupported by documentary evidence.” Essentially, “substantial performance” is not enough when a condition precedent-type notice provision is incorporated by reference in a subcontract.
Parties to construction contracts should not only be cognizant of the claim provisions in its subcontract, but should also review and understand any other document that is incorporated by reference to that subcontract.