Written by Adam Cook

Even with recent cuts in state spending, the Alaska Department of Transportation and Public Facilities (“DOT”) still provides about $500 million in contracts every year to Alaska’s contractors and subcontractors.  That’s about seven percent of all construction statewide (federal spending is by far the biggest driver in construction).  Thus, for most builders in Alaska, there is a good chance DOT construction is going to account for some portion of their job portfolio.

A recent decision by the Alaska Supreme Court, Department of Transportation v. Osborne Construction Company, underscores the importance of reading these contracts closely and following their requirements carefully.  DOT hired Osborne Construction to build soil structure improvements at the Fairbanks International Airport in 2013.  Osborne’s subcontractor encountered soil conditions different from those anticipated.  The subcontractor also struggled to procure sand for the project.  Following conclusion of the work, Osborne sent a claim to DOT demanding additional compensation for expenses incurred because of these unexpected conditions.  The DOT contracting officer denied the claim because Osborne had failed to submit the claim “within 90 days of becoming aware of the basis for the claim.”  Osborne unsuccessfully appealed the denial to the DOT Commissioner and then the Alaska Superior Court.

The Alaska Supreme Court upheld the prior rulings.  Osborne argued that it did not fail its contract obligations by submitting its claim more than one year after discovery of the costly conditions, because it was only “aware of the basis for the claim” after the contracting officer denied additional reimbursement, breaching the contract.  But the Court noted that an act serving as “basis for a claim” was defined in the contract as an act giving rise to a demand for additional compensation, not a denial of such demand.  Osborne knew or should have known that it had a claim immediately after incurring the additional costs to address the unexpected condition.  Osborne waited so long that it waived its right to make a claim.

The Alaska Supreme Court’s strict adherence to the State’s contract requirements regarding demands for additional money echoed a decision from seven years ago, North Pacific Erectors, Inc. v. State, Department of Administration.  In that case the builder had encountered unexpected difficulty removing asbestos, then failed to submit a claim documenting the “actual costs” it incurred.  The contract clause governing differing site conditions had specified “complete, accurate, and specific daily records concerning every detail of the potential claim, including additional costs incurred.”  The contractor had submitted a claim cost summary that was generalized, providing no specificity as to actual labor hours or additional materials.  The Alaska Supreme Court held that the contractor was barred from recovery because it had failed to follow the express provisions of the contract.

While the Osborne decision highlights the importance of making claims promptly, North Pacific Erectors highlights the importance of documenting claims thoroughly.  The decisions also demonstrate a restrictiveness in state contracting that is not necessarily present at the federal level.  Courts in some jurisdictions may take the attitude that contractors are not lawyers and cannot be expected to follow the hard letter of the lengthy terms and conditions they agree to.  The Alaska Supreme Court has once again indicated that it will grant no such leniency.