Indiana Court Holds Subcontractor Subject to Prime Contract Claim Notice Requirement via Flow-Down Provision – Its Claims Were Presented Too Late

Weigand Construction Co., Inc. v. Stephens Fabrication, Inc.
2010 Ind. App. LEXIS 1109 (Ind. Ct. App. June 25, 2010)

Ball State University (BSU) contracted with Weigand Construction Co. (“Weigand) to act as the general contractor for its Music Instruction Building project. Weigand subcontracted the structural steel work to Stephens Fabrication, Inc. (“Stephens”). Stephens was to manufacture the steel, perform certain engineering and prepare shop drawings. Stephens contracted with sub-subcontractors, Argo and Wilson, to perform the engineering and prepare the shop drawings.

Weigand’s contract with Stephens contained a “flow-down provision”, which provided that the terms and conditions of the Weigand-BSU contract also applied to Stephens. The Weigand-BSU contract (which, pursuant to the flow-down provision, also applied to Stephens) provided that if a party sought additional payment, such claims “must be initiated within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.”

In June of 2002, BSU’s architect made several changes to the Project’s steel design. Stephens received the revised drawings from Weigand on June 13, 2002, and sent them to its detailing subcontractor, Wilson. Wilson met with Argo on July 11, 2002 and discussed that the revisions would require substantial changes to their calculations and that certain connection plates would need to be enlarged. According to Stephens, Wilson and Argo did not communicate these concerns to it at that time. Nine months later, on April 22, 2003, Stephens orally informed Weigand that the design changes would cause extra work and expense. However, Stephens did not provide a written claim for the extra work until May 28, 2003. Weigand, in turn, submitted Stephens’s claim to BSU. BSU rejected the claim, determining that it was untimely because it failed to comply with the notice provision regarding claims.

Stephens filed a complaint against Weigand claiming it was owed $161,124.61 for the extra work. Weigand moved for summary judgment, arguing that Stephens’s claim for payment was untimely. Stephens filed a cross-motion for summary judgment. The trial court granted Stephens’s motion for summary judgment.

The appellate court reversed. The Court noted that, all of the revised drawings by June 20, 2002 and although its subcontractors knew by July 11, 2002 that the revisions constituted a significant change to Stephens’s portion of the work, Stephens did not inform Weigand that it was requesting additional payment until April 22, 2003, and it did not submit written notice of its intent to make a claim until May 28, 2003. Thus, Stephens waited 11 months from the time it received the revisions, and 10 months from the time its subcontractors realized the implications of those revisions to submit a claim – far beyond the 21 days required by the contract.

The Court rejected Stephens’s argument that its subcontractors did not communicate the changes in scope to it until April 2003, so it did not realize until that time that additional costs would be required. Moreover, the court noted that, at the very latest Stephens was actually aware on April 22, 2003 that it would be making a claim for additional costs, yet it waited 34 days to provide the written claim to Weigand. The Court held that, even giving Stephens every benefit of the doubt, Stephens recognized the condition giving rise to the claim by April 22, 2003, and it failed to submit written notice of that claim within 21 days. As such, its claim was untimely. The Court also held that Stephens’s claim was untimely, on the basis that it was submitted after its subcontractors had already completed a portion of the work, in violation of the claim provision, which provided that notice be given prior to executing the work. Finally, the Court rejected Stephens’s argument that Weigand had waived compliance with the waiver provision by directing Stephens to comply with the contract and agreeing to submit Stephens’s claim to BSU.

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