When in Doubt, Send the Letter: A Contractor's Guide to Winning Construction Claims

Introduction

Imagine this: you’re a paving contractor on a project. The contract documents clearly state you’ll find plenty of local stone perfect for the road's underlayment. You bid the job based on this information. But when you start digging, you don't find rock—you find mud. Unusable, costly mud. Your project grinds to a halt. The owner, instead of helping, terminates your contract for default and sends you a bill for $3 million to cover finishing the job with another company.

This isn't a hypothetical nightmare; it was the reality for one contractor. He was facing a career-ending liability. But the contractor understood his rights. He had given proper, timely notice when he discovered the conditions were different from what the contract promised. He fought the wrongful termination and, in a stunning reversal, not only defeated the $3 million charge but was awarded $3 million for his own costs and damages. He turned a massive liability into a massive asset.

This story highlights a common reality in construction: countless contractors leave millions of dollars on the table every year. They absorb costs for owner-caused delays, defective designs, and constant interference. Why? Often, it's out of a fear of "making the owner mad" or simply not knowing their contractual rights. This passivity is a costly mistake. Proactive identification and timely, formal notification are the absolute bedrock of successful claim recovery.

This blog will serve as your foundational guide to adopting this profitable mindset. We will deconstruct the essential legal principles every contractor must understand to protect their bottom line. You will learn:

The single most important action you can take to protect your rights (and it's simpler than you think).
How to identify "constructive changes"—the hidden claims lurking in defective designs, ambiguous specs, and owner interference.
The key differences between claim types, from differing site conditions to acceleration.
The steps required to not only establish your right to a claim but also prove the financial damages you're owed.

A Note on Context: The principles discussed are based on common law systems, primarily rooted in the construction landscape of the United States. We will, however, provide comparative notes from other jurisdictions, such as the United Kingdom, to provide a broader context. While the general concepts are often similar, the specific legal doctrines and contractual application can differ.

Furthermore, the positions outlined generally speak to a traditional Design-Bid-Build (DBB) setting. The allocation of risk, especially for design obligations, changes significantly in other contract models. For instance, in an Engineering, Procurement, and Construction (EPC) contract, the contractor is typically responsible for both the design and construction and is therefore held to a higher standard, including a "fitness for purpose" requirement.

1. The Golden Rule of Claims: Notice is Non-Negotiable

Before diving into the specifics of different claim types, we must start with the single most important rule, the one that can make or break your ability to recover a single dollar: You must provide timely, written notice.

1.1. The "Claims-Aware" Mindset

For many contractors, sending a formal notice letter feels confrontational. There's a persistent fear that it will damage the client relationship. This is a cultural hurdle that must be overcome. Successful claims management requires a shift from fear-based reluctance to process-driven discipline.

In public sector work, this is a given. In federal contracting in the U.S., giving formal notice isn't just accepted; it's expected. This is similar to public procurement in the United Kingdom under its Public Contracts Regulations, where formal procedures are also strictly enforced. Sophisticated owners, public or private, understand that projects rarely go exactly as planned. They respect contractors who follow the contract's procedures professionally. A formal notice isn't an act of aggression; it's an act of professional contract administration.

1.2. The Mantra: "When in Doubt, Send a Letter"

This should be the mantra for every project manager. If an event occurs that might—even possibly—lead to an increase in cost or a need for more time, send a notice. Its primary purpose is to preserve your rights.

Here is a simple, effective template for a non-adversarial notice letter:

"This letter is to provide formal notice that an event occurred on [Date] regarding [Brief, Factual Description of the event]. This event may give rise to a change in the contract price or time. We are currently assessing the potential impacts and will provide further information as it becomes available. We hereby reserve all rights under the contract."

This is factual, professional, and non-threatening. It simply puts the owner on notice that an issue has arisen and that you are following the contractually agreed-upon process.

1.3. The Consequences of Silence: The Owner's First Line of Defense

What happens if you don't send that letter? You hand the owner the easiest defense against your claim: "You didn't provide timely notice as required by the contract. Claim denied."

The strictness of notice provisions, often called "condition precedents," varies. Some jurisdictions, like the U.S. state of Virginia, are notoriously strict. In a similar vein, standard contracts in the UK, like NEC and FIDIC, contain time-bar clauses that can completely extinguish an otherwise valid claim if notice is not given within the specified period. While courts have historically looked for ways to avoid harsh outcomes, the modern trend in both the US and UK is toward stricter enforcement of these contractual terms.

Key Takeaway: Even if the owner has "actual knowledge" of the problem, it may not be enough. Formal, written notice as prescribed by the contract is the only way to guarantee your rights are protected.

2. The Most Common Source of Claims: Understanding Constructive Changes

Most claims don't come from formal change orders. They arise from "constructive changes"—actions or inactions by the owner that increase your cost or time, forcing you to perform work beyond the original scope.

2.1. The Bedrock Principle: The Owner's Responsibility for Design

In the United States, the legal foundation for these claims is the Spearing Doctrine, from a 1918 U.S. Supreme Court case. It established that when an owner provides the plans, they give an "implied warranty" that those designs are adequate and buildable. This is the cornerstone of risk allocation in the Design-Bid-Build (DBB) model. The design risk lies with the owner.

In the United Kingdom and other common law jurisdictions, the position is similar but more nuanced and contract-dependent. There is no directly equivalent "implied warranty" doctrine. Instead, the liability for a defective design provided by the owner's professional team generally falls on that team, and the contractor who diligently follows the design is not held responsible for its failures. In traditional UK contracts (e.g., JCT), the architect is the owner's agent, and their faulty design information can entitle the contractor to a claim for loss and expense.

However, in both the US and UK, this dynamic is reversed in Engineering, Procurement, and Construction (EPC) or Design-Build contracts. In these models, the contractor takes on the design responsibility. Therefore, the contractor, not the owner, bears the design risk and is often held to a higher standard of "fitness for purpose," which obligates the contractor to deliver a facility that performs as intended.

2.2. Obvious vs. Hidden Flaws: Patent vs. Latent Defects

The law distinguishes between two types of defects:

Patent (Obvious) Defects: A flaw that should have been discovered by a reasonably prudent contractor during bidding. You have a "duty to inquire" about such defects before signing the contract. Failure to do so may forfeit your right to a claim.
Latent (Hidden) Defects: A hidden flaw not discoverable until work is underway. As you had no duty to inquire, you are generally entitled to compensation for its impacts, provided you give timely notice.

This distinction is recognized in most common law systems. A contractor is expected to identify obvious errors during tender but is not expected to find expertly-concealed ones.

Patent vs. Latent Defects: Know Your Duty

Feature	Patent Defect	Latent Defect
Definition	A flaw that is obvious or should be discovered during a reasonable pre-bid review.	A flaw that is hidden and not reasonably discoverable until performance begins.
Contractor's Duty	Duty to Inquire. You must ask for clarification before bidding.	No Duty to Inquire. You are protected upon discovery.
Claim Potential	Low. Failure to inquire often forfeits your right to a claim.	High. Costs and time are generally compensable if you provide proper notice.

2.3. When the Contract is Unclear: The Rule of Ambiguity

If a contract provision is ambiguous, the law often applies the principle of contra proferentem ("construed against the drafter"). Since the owner drafted the contract, any ambiguity is often resolved in favor of the contractor's reasonable interpretation. This principle is a staple of both US and English law, though courts in the UK often use it as a last resort after first attempting to determine the commercial common sense of the clause.

2.4. Other Grounds for Constructive Changes

Impossibility/Commercial Impracticability: A claim based on performance being physically impossible or so commercially destructive that it is effectively impossible.
Superior Knowledge: In the U.S., the Helene Curtis case established that an owner can be liable for failing to disclose vital, non-public information. A similar principle exists in UK law, often pursued as a claim for misrepresentation, where a party can be held liable for failing to disclose crucial information that it uniquely possessed.

3. Beyond Design Flaws: Other Major Claim Categories

3.1. Owner Interference with Your Means and Methods

The contractor generally "owns" the means and methods of construction. If an owner directs you to change your planned sequence or methods for their own convenience (and not for safety or contractual reasons), that is a constructive change for which you may be entitled to compensation.

3.2. Differing Site Conditions (Adverse Ground Conditions)

This classic claim occurs when physical site conditions are not what you were led to believe.

Type 1: Conditions are materially different from what was indicated in the contract documents.
Type 2: Conditions are materially different from what is ordinarily encountered for that type of work in that area. Most standard contract forms, including the AIA in the US and JCT/NEC in the UK, have specific clauses for this scenario. They also have some of the strictest notice provisions in the entire contract, so immediate notification is paramount.

3.3. Delays and Acceleration

Types of Construction Delays and Their Impact

Type of Delay	Cause	Contractor Entitlement
Excusable/Compensable	Owner-caused (e.g., late information, design flaws, interference).	Time Extension & Money (e.g., extended overheads).
Excusable/Non-Compensable	No-fault (e.g., unusually severe weather, force majeure).	Time Extension Only.
Non-Excusable	Contractor-caused (e.g., poor planning, subcontractor failure).	No relief; potential liability for liquidated damages.
Constructive Acceleration occurs when you are entitled to an excusable delay, but the owner refuses a time extension and insists you finish on the original date. To win such a claim, you must prove: (1) you experienced an excusable delay, (2) you gave proper notice and requested an extension, (3) the owner denied the extension and ordered completion on time, and (4) you actually accelerated and incurred extra costs.

4. Proving Your Case: From Entitlement to Quantum

Winning a claim is two-fold: first, prove entitlement (the right to claim), and second, prove quantum (the amount of damages).

4.1. The Pillars of Cost Recovery

Your claimed costs must generally be:

Reasonable: A prudent person would have incurred the cost.
Allowable: Permitted by the contract terms.
Allocable: Directly attributable to the claim event.

A fourth pillar is crucial: Non-Fraudulent. In the U.S., the False Claims Act carries severe penalties for bad-faith claims against the government. Similarly, the United Kingdom has robust legislation like the Fraud Act 2006 and the stringent Bribery Act 2010, which impose severe penalties for false representations and corrupt practices. Honesty is a legal and commercial necessity.

4.2. The Power of Documentation

The key to proving quantum is contemporaneous documentation. When a change event occurs, immediately segregate the costs. Set up a separate cost code. Track labor, materials, and equipment specifically for that work. An after-the-fact estimate is far weaker than a claim backed by daily reports and segregated costs.

4.3. Calculating Home Office Overhead

When an owner-caused delay suspends your work, you are entitled to recover unabsorbed home office overhead. How this is calculated varies by jurisdiction.

In U.S. federal contracting, the Eichleay Formula is the accepted method.
Internationally and in other jurisdictions, different methods are recognized, such as the Hudson Formula (a simple percentage of the contract value prorated for the delay period) or the Emden Formula (similar but uses gross profit). The specific formula used often depends on the contract, the jurisdiction, and the quality of evidence available.

4.4. Presenting Your Claim: Words Matter

How you frame your claim matters. An anecdote from a U.S. jury trial illustrates this. A claim for "loss of efficiency" was rejected because jurors felt "efficiency" was the contractor's own responsibility. In retrospect, the term "loss of productivity"—which better implies disruption by external forces—might have succeeded. The lesson is universal: use precise language that clearly assigns cause and effect.

Conclusion

Successful claims management is about disciplined, professional contract administration. The most costly mistake is failing to provide timely, written notice. It’s a simple act that preserves all your downstream rights.

Understanding foundational principles—like the owner's design responsibility in a DBB contract—and knowing how to identify constructive changes empowers your team to spot recoverable costs. It all comes back to the central message: the simple, non-confrontational act of documenting an issue and formally notifying the owner is the single most powerful tool in your financial arsenal.

Your Action Plan

Review: Pull out one of your current contracts. Find and read the "Changes," "Notice," and "Adverse Ground Conditions" clauses. Do you know your specific deadlines?
Train: Make "claims awareness" a key topic at your next project management meeting. Empower your team to identify issues and notify you immediately.
Implement: Create a standard, non-adversarial notice letter template and a clear internal process for when and how it gets sent.

When in doubt, send the letter.