In the construction industry, enforcing a “prime contract” by reference into a subcontract is usual. The Courts 
recently have broadly constructed 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.”
However, the trial court, found in favor of Schindler based on the emails and letters of “actual notice” of the claims and the delays, on appeal, the First Department reversed the trial Court’s judgement and it was 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 Schindler’s emails and letters were rejected by the First Department as sufficient as “they did not contain verified statements of the amount of delay damages allegedly sustained by the plaintiff and were unsupported by documentary evidence.” Most importantly, “substantial performance” is not enough when a condition precedent-type notice provision is incorporated by reference in a subcontract.
Every party in a construction contract must not only be cognizant of the claim provisions in its subcontract; however, it should also analyze and understand other documents which is incorporated by reference to that subcontract.
To examine the issues, risks and challenges related to subcontractor delay claims, join a Live Webinar by expert speaker James G. Zack, Jr. The information and guidance in this session will help attendees avoid legal disputes related to such claims. Attendees will also be able understand the value of pre-planning activities when it comes to avoiding causing impact and delay to subcontractors.
