Project Delayed? Avoid Sending Generic Claim Letters in Times Like These

April 1, 2020Alerts

Does it make sense, strategically, to send out a form letter now making a claim for more time and more money as a contractor?

As a result of government shutdowns across many states, some contractors have resorted to sending out aggressive letters asserting claims for more time and money. Frequently, these letters are not preceded by a courtesy telephone call from the contractor to the client. In my opinion, this approach is strategically flawed.

First, every contractor and every owner should know that the relationship between the parties is critical to the success of the project that is currently underway.  Picking up the phone to make a call before sending any letter is advised. In that call, both sides can lay the groundwork for further discussion and strategic planning. After all, once the shutdown is over, they will need a plan for restart. Few contracts specifically address what that plan is and how the plan should be adjusted during the early stages of the start up. Having the discussion early, in advance of sending a letter, is a good sign of commitment on the part of a contractor to the owner and implicitly and explicitly reaffirms the partnership between the parties.

If a contractor, contractually or otherwise, deems it appropriate to send a letter, it should strike the right tone. The tone should convey the unfortunate circumstances  everyone is facing at the moment, which simply could not have been predicted even a month ago. Further, the tone can demonstrate, among other things, that everybody is making every effort to mitigate internal and external costs. 

The letter should convey the importance of keeping communications open. Finally, the letter, if anything, should state the possibility that additional time and possibly additional funds may be needed, depending upon the circumstances. However, if the letter is framed as simply a classic “claim letter,” the response may well be less than constructive. 

One of the challenges with sending a letter at this point in time, is that most contractors will not have sufficient information to know the nature and extent of a claim.  Not knowing the nature and extent of the claim may undermine the contractor’s credibility going forward on the project and, if necessary, during any dispute resolution process. After all, if a contractor has more than ample float in the schedule, a request for more time may not be supported. 

If, on the other hand, the contractor strikes the right tone in the letter and still achieves the substantive goal of preserving any contractual rights and remedies, an open and honest dialogue can begin. The contractor and owner can make preparations for when the project restarts. Both safety measures and anticipated new measures can be discussed. Typical logistical issues can also be addressed. Depending upon the circumstances, logistical hurdles that existed before the shutdown may no longer exist. Additionally, the parties can plan for the likelihood of needing to address and adjust at some point after the start up with additional measures for the project.

As an owner, the best response to a claim letter that does not strike the right tone, in my opinion, is to pick up the phone and simply have that crucial conversation.  The owner can then follow up with a responsive letter striking the right tone while meeting the desired goal of reserving its rights and its remedies under the contract.