Q: Our firm is always looking to improve its services, as well as avoid any potential litigation. As part of an annual firm-wide review, we explore different options to avoid claims and litigation. Do you have any suggestions to keep our claims out of court?

A: There is no question that it takes a significant amount of time and money to resolve disputes when it comes to design and construction projects. It is particularly frustrating and expensive if these disputes have to be resolved through the court system. There are a number of tools at your disposal that you can utilize to resolve problems short of having to file a lawsuit.

To avoid court-related litigation, parties typically engage in a process called Alternative Dispute Resolution (ADR). This can include mediation (which is non-binding) and binding mediation or binding arbitration (which are both intended to be binding and final). Most readers are probably familiar with these processes, and in fact incorporate such ADR options into their contract documents, typically setting forth a dollar value threshold of the amount in controversy as to whether a matter will be mediated or arbitrated. Basically, any two parties to any dispute or contract can agree to virtually any process to resolve their dispute as long as it is a legal method. In other words, you cannot have a deadly duel to settle a legal dispute.

On the larger or higher-dollar projects, to the extent that you have input, your firm may want to consider introducing the idea and implementation of a dispute resolution board or individual. Like mediators or arbitrators, dispute resolution board members are individuals that are neutral construction- and design-knowledgeable individuals who are mutually selected prior to project commencement by the major participants in the project. The advantage of using such a mechanism is that the knowledgeable neutrals are employed to provide advice or formal advisory opinions and recommendations on how to handle disputes relating to construction or design problems before they develop into litigation.

The drawback for any of these methods is their cost. Typically, the parties have to finance the cost of these private, knowledgeable construction and design neutrals and they can get quite expensive, depending on the number of disputes and the complexity of the dispute. The practicing engineer should consider at least mediation prior to any dispute escalating to formal introduction into the court system.

Q: Our typical consulting contract for engineering services requires that we receive written notice from our client or consultant regarding any potential claims they have during the course of the work. We recently completed a project and a couple of months later, our consultant made a claim. We had no previous notice. We do not believe the claim has any merit since we did not receive the notice as required by the contract. Is this a valid position?

A: Notice provisions and compliance with the same are always a tricky area. What seems clear on its face in a contract, as agreed between the parties, does not always work out to be what one party expects. In a typical scenario, when the claim is made, the party that claims notice was not timely asserts the contract notice clause as an absolute defense because the clause requires notice, but was not followed in all particulars. While on the surface, this would seem a reasonable position, courts are much more flexible with notice because the law disfavors parties forfeiting any rights or compensation because of failure to follow mere formalities. Oftentimes it is substance over form.

Notwithstanding the above, courts have upheld different types of clauses requiring notice. The courts look to the facts and the language of the clause requiring notice. If the contract is absolutely clear as to written notice and the party truly did not have timely notice, but received notice after the fact—such as the scenario here—courts have upheld those clauses and denied claims. What the courts look for is some type of actual notice, which can be in writing as required by a contract or "constructive" notice. What is important is the content of the notice. Even though complaints are verbal, they may not specifically cite actual damages or circumstances. On the other hand, such verbal notices, whether documented or not, can be sufficient. The courts are going to look to the circumstances surrounding the notice and the method and information imparted. The engineer, in order to protect himself, should specify clearly in the contract what type of notice is required and the specific substance of the notice required to be included. Detail is important here. For if the notice lacks important, detailed information required, the party asserting the lack of notice is more likely to prevail.

Michael J. Baker, Esq., is a partner in the Cerritos, Calif.-based law firm of Atkinson, Andelson, Loya, Ruud & Romo. He is an expert in design and construction contracts, mediation, and litigation. Please send him your legal questions via e-mail at mbaker@gostructural.com.