United States: Doing Business With The NYC SCA: Absence Of Notice Of Direction Does Not Preclude Claim

The processing of change orders by many New York public agencies can be challenging. This is particularly so with the NYC School Construction Authority (SCA).

For example, when it comes to extra or additional work, SCA personnel often informally direct the work to be performed either verbally at the project level or in meeting minutes or by email. However, this procedure often degenerates into an adversarial demand to perform, threats of back charges, or even threat of default and a premature calling upon a contractor's surety.

The "disputed work" provision of the standard SCA contract appears to leave the contractor with little alternative but to promptly perform the disputed work in the hopes of being fairly compensated later. Inconsistently, however, the SCA contract speaks of the contractor's need for a written Notice of Direction (NOD) in order to pursue a claim.

The problem with this is fundamental. NODs are rarely issued contemporaneously with the SCA's directive to perform disputed work. They are often issued well after the work has already been performed. In an unfair "Catch 22," therefore, a claim for the disputed work will be deemed waived if an NOD was not issued at the outset of the work.

Does the public owner actually have the right to compel performance of disputed work before issuing an NOD? The SCA believed so.

Under Article 8 ("Claims for Extra Work"), Section 8.01 (B) of the standard SCA Contract General Conditions, a contractor must obtain an NOD from the SCA in order to file a claim for compensation for any disputed work. However, Section 8.01 (A) would seem to support the SCA's position that a contractor must immediately respond to any order of the SCA, even without the issuance of an NOD.

However, in a recent New York appellate court decision, this was reconciled by the court finding that the disputed work provision of the SCA contract requires the issuance by the SCA of a formal NOD before a contractor could be terminated for refusing to perform disputed work.

In this case (handled by Rob Fryman), a general contractor had entered into a contract with the SCA for the modernization of a school, which included replacement of the existing roofing system. After much of the roofing work had already been completed, the SCA determined that extensive areas of the new roof were installed improperly and directed the general contractor to remove and replace these areas of the roof. The direction from the SCA came in the form of a 72-hour notice by which the SCA threatened to have the work performed by an emergency contractor if the contractor did not proceed immediately, in which case the SCA would back charge the general contractor for all costs.

The general contractor disagreed with the SCA's contentions that the roof was installed improperly. However, it provided the SCA's 72-hour notice, together with its own order, to its subcontractor to commence the work ordered by the SCA. However, the subcontractor refused to perform until the general contractor provided a change order for payment of the disputed work. Caught between the SCA's insistence that it proceed and the subcontractor's refusal to perform the disputed work, without a change order, the general contractor terminated the subcontractor for default and engaged another roofing subcontractor to correct and complete the subcontractor's scope of work. The subcontractor sued the general contractor and its labor and material payment bond surety for wrongful termination.

As the subcontract between the general contractor and its subcontractor expressly incorporated the contract provisions between the SCA and the general contractor (i.e., in the prime contract), and, since the subcontract imposed upon the subcontractor the same obligations that the general contractor owed to the SCA, it also conferred upon the general contractor the same rights and remedies provided to the SCA under the prime contract. Thus, the appellate court interpreted the SCA's own "disputed work provision" to ascertain whether the subcontractor was properly terminated for refusing to perform the disputed work in the absence of an NOD. In this recent case the appellate court did not think so.

There is no mention in Section 8.01 (A) (the SCA's "disputed work" provision) of the need for an NOD to trigger the contractor's obligation to perform disputed work. It only states that the contractor shall "promptly comply with the SCA's direction to perform the Work...and...proceed diligently with respect to any...disputed matter." However, the appellate court focused instead on the second paragraph of Article 8, Section 8.01 (B), which sets out the contractor's need for an NOD in order to pursue a claim. The Court found that the subcontractor:

was justified in refusing to continue performing work that it deemed outside the scope of the contract, absent a notice of direction (NOD) from the SCA, or in this case, the general contractor. This would have fairly protected the subcontractor's right to claim additional compensation for that work.

This decision is the first of which we are aware to establish that the SCA must first issue an NOD in order to compel performance of disputed work. It could be a "game-changer." Even if the SCA attempted to modify the language of its contract in an attempt to avoid this "ray of fairness" from seeping into the administration of its projects, the court's decision, based on fundamental fairness and sound logic, should survive.

MH&H Commentary:

In view of this significant appellate decision, to preserve your claim rights, we recommend that you always issue a clear, written demand for a formal NOD before commencing disputed work ordered by the SCA.

Refusing a public owner's order to proceed with disputed work is never an easy issue to address, whether at the field or home office level. However, this appellate court recognized the fundamental inconsistency of requiring the contractor to proceed with the disputed work immediately, without an NOD, while requiring that an NOD must have been issued for a claim to be later pursued. The prospect of a contractor being without any recourse in the absence of an NOD, after the ordered work was satisfactorily performed, was simply unacceptable to the appellate court. We agree.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions