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Knowing the Waters – Public Works Contracting

By Frank Chmelik of Chmelik Sitkin & Davis P.S. – January 2019

This month, we take a bit of a technical dive into the issue of public works contracting and a fall 2018 decision of the Washington Supreme Court in Nova Contracting, Inc. v. City of Olympia.[1]  This is a “good news case” for port districts and other governments that issue public works contracts.  Credit to Gerry O’Keefe at the WPPA for suggesting this topic.

First, a bit of the public works contracting process.  Municipal governments, including port districts, hire contractors to perform public works construction projects.  The public works contracts typically specify a process and timeline for the contractor to provide “notice” to the municipal government in advance of any claim for increased costs resulting from changes to the work, time delays, mistakes or omissions in the plans or unanticipated site conditions.  The public works contracts also typically require the contractor file a timely “protest” to a municipal government’s decision on the contract’s claim thereby reserving the resolution for a later time.

Let’s take an example.  A port district issues a public works contract for a new $1 million warehouse building to be built in six months.  One month in, the port district issues a change order to upgrade the warehouse door with a statement that the port district prices the change at $10,000 and no additional time.  The contractor says nothing and installs the upgraded door.  After the door is installed, the contractor provides “notice” that the door actual costs $50,000, and ordering and installing the upgraded door actually added one month to the project.  The port district denies the increase to $50,000 and the increased time.  The contractor says nothing. Two months later, the project is finished.  Now the contractor files a claim for $40,000 and another $20,000 because the project took an additional month to complete.  I am describing a situation where the contractor missed both the “notice” deadline and the “protest” deadline.

Under a Washington Supreme Court case from 2003 – Mike M. Johnson, Inc. v. County of Spokane[2], the contractor loses because it had to strictly comply with the notice and protest provisions in order to make a claim – in our example, the contractor did not file a timely claim and did not protest the port’s decision.  The reasoning behind this 2003 decision is sound.  The port district must be told in advance of the increased costs or increased time claim so that the port district has the opportunity to decide in advance if it really wants the upgraded door.  Once it decides that it wants the door and will only pay $10,000, the port district must be told in advance that the contractor is protesting the decision so again it can decide if it wants the door, knowing that the issue of cost and time is open for further resolution.  If the contractor waits until the project is complete to raise the issue, there is nothing the port district could do to avoid the increased cost or time or the fight.  Unfortunately, since 2003, a number of courts have declined to apply this standard citing the harsh result that can befall a contractor that failed to strictly comply with the “notice and protest provisions”.   Returning to our example, if the door really did cost $50,000 and really did extend the project by one month, the contract would be out the increased dollars because it did not strictly follow the “notice and protest” procedures, and the port district would get a $50,000 door for $10,000 – that is a harsh result for the contractor.

Well along comes the City of Olympia which, in 2013, lets a contract to Nova Contracting, Inc. to replace a deteriorating cement culvert along Woodland Creek in Olympia.  Problems ensue with the project from the beginning, and Nova complains to the City that many details were missing from the plans, and that it would need more money and more time to complete the project.  The City denied the claim for more money and more time and eventually terminates Nova from the project.  Nova did not “protest” the City’s decisions in the time and manner provided in the contract.  Nova sued for damages.   The trial court dismissed Nova’s claim.  Division III of the Court of Appeals found for Nova noting that the City may have violated the inherent contractual duty of “good faith and fair dealing”, sending the matter back to the trial court for a trial. The City appealed to the Washington Supreme Court, and last fall in Nova Contracting, Inc. v. City of Olympia, in a unanimous decision, the supreme court dismissed all of Nova’s claims and reiterated that “Mike M. Johnson’s rule of strict compliance” is the law – a “good news” decision for municipal governments.

The take-aways here are important for port districts to avoid unanticipated expense in public works projects.

  • Check your public works contracts to make sure the “notice and protest” provisions are clear. Many municipal governments use the “notice and protest” provisions in the WASDOT book entitled Standard Specifications for Road, Bridge and Municipal Construction.
  • Understand, these “notice and protest” provisions must be strictly applied by both the port and the contractor. In this regard, follow the “notice and protest” provisions all the time and every time. Never tell a contractor “that’s ok, do the work now, don’t bother with the paperwork, we will figure it out later”.  Such statements are invitations to future litigation.
  • To be fair, it may occasionally be appropriate to waive these provisions, but do so carefully and in a written agreement with the contractor.

[1] 191 Wn.2d 789 (2018).

[2] 150 Wn. 2d 375 (2003).