A claim letter is a formal notice that puts another project party on notice of a contractor’s claim for damages.
Traditionally, claim letters set forth a contractor’s contractual right to payment, what the contractor is requesting payment for, the amount the contractor believes he is entitled to and why, and provides documentation to support the claim. After project meetings and informal conversations requesting payment, writing a claim letter is an important next step to pursue payment.
In fact, many, if not most, construction contracts require claim letters and require that they contain certain content, and be sent to specific parties within a specific period of time. If the strict notice of claim requirements are not complied with, a contractor risks waiving the claim. This article explores the basics understanding and drafting a claim letter.
What information does a claim letter include?
A notice of claim includes a detailed description of the reason a contractor is making a claim and the damages it is seeking. It also explains what the contractor is seeking damages for and why the damages are due. A more detailed description of the damages puts the receiving party in a better position to respond to each allegation for payment. For example, a letter stating $100,000 is due and owing is less helpful than: “Contractor seeks $100,000 for the delivery of X tons of sand and gravel material associated with Purchase Order 3395, signed on March 5, 2019. The materials were delivered on January 5, 2020, were acknowledged by S. Jones and payment was due upon delivery.” Had a contractor simply sent a letter stating that $100,000 was due, the party responding may not have been able to confirm:
- what the payment was due for;
- when the materials were allegedly delivered;
- confirm the material delivery with S. Jones; or
- internally track whether the materials were received.
A more detailed and thorough background and analysis of the claim usually elicits a more meaningful response.
Who does the claim letter need to be sent to?
Most contracts contain a notice of claim provision. That provision usually details whom the claim needs to be sent to in order to be effective. If the claim is not sent to the individuals or entities listed in the provision, a contractor risks waiving its claim. Very often, the notice will need to be sent to multiple parties (the owner, the owner’s representative, legal counsel, etc). All of those parties need to receive a copy of the letter. Language detailing who the claim letter needs to be sent to is usually clear and similar to the following: “Notice of the claim needs to be sent to the parties designated below in order to be effective: Contractor A at 100 S. Second Street, Owner B at 200 S. Second Street, etc.”
How does the claim letter need to be sent?
Similar to confirming who a notice of claim letter needs to be to, the notice of claim provision details how the claim letter needs to be sent to be effective. Some provisions only authorize effective delivery of a claim notice upon email, overnight via a courier with a delivery confirmation, personal service, via registered letter or by fax. Ensure that the claim letter is delivered in the right fashion. In the event that the provision is not clear, serve the parties in multiple avenues to ensure the party was able to receive the document (i.e. send via registered letter, and via email, etc.).
When should a contractor send a claim letter?
The notice of claim provision usually details when a contractor must send a notice of claim letter. Sending a claim letter also allows the party responding to the letter to investigate the claim while it is still fresh. Contractors should be aware of the timing because if a claim letter is not sent timely, a contractor risks waiving its claim. Contracts usually give 21-30 days to send a notice of claim from the time a contractor discovers the condition giving rise to the claim. Which event “gave rise to a claim” is subject to interpretation. To be safe, send the claim letter before the deadline. If additional information to support the claim if found later, send an amended claim letter or a supplement.
Why send a claim letter?
Formal claim letters are usually required by the controlling contract and they usually garner more attention than emails, telephone calls and project meetings. They serve the dual purpose of forcing a party to clearly articulate their position with supporting documents and sending a message that they are preparing to proceed to more formal means (such as litigation) if their payment demand is not met.
