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Best Practices Construction Law | Matthew DeVries

Yesterday was daylight savings day, which means that you are probably running about your job this morning a little more groggy because you lost an hour of sleep. As I was waffling through emails today in my own groggy state, I received an alert about a new area code being added to the Nashville, Tennessee area.  Naturally, I thought about bid day .

What about bid day? Think about how technology has improved all aspects of the construction industry.  Think about how we deal with electronic drawings. Think about how we communicate between the project site and the home office.  And think about how we transmit proposals on bid day by fax and email.

But technology does not solve all problems. Sometimes, problems with technology create their own problems.  For example, in Federal Acquisition Services Team, LLC (pdf), B-410466, December 31, , the government contractor challenged an agency s decision not to consider its proposal that was transmitted by email but had been rejected by the agency s server. The contractor asserted that its proposal was improperly rejected and it was “bounced back” by the agency’s server for exceeding the applicable size limitation for emails. In the protester’s view, the problem occurred as the result of a “systemic failure” of the agency’s systems, and the agency therefore should consider the proposal.  The GAO denied the protest.

The GAO determined that the proposal was never actually received by the agency.  The fact that the proposal was rejected by the agency server was not important because other offerors received the same bounce back message and they modified their submissions and resent them.  Finally, there was not sufficient evidence to prove a systemic failure with the agency s servers.

The takeaway.   The real lesson from the Federal Acquisition Services Team decision is to be mindful of potential problems with technology and to plan for those problems.  Here are a few tips:

  • Check your fax machine settings.   With the announcement of the new area code in Nashville, local contractors should make sure to re-program your fax machine numbers to include the full area code. You know have to dial the full ten numbers, whether (615) or (629).  Don t wait until bid day to check your settings to make sure the fax machine works.
  • Review submission guidelines. When submitting large documents, make sure your proposal can be submitted within the data requirements.  Did you know that a document converted to PDF can be made smaller than a document scanned to PDF?  Make sure you have a back-up plan.
  • Don t get caught by surprise.   While most of our network cell phones automatically update with the time change, make sure you change all of the phone in your business.  Even this morning, I walked around the office and every manually set phone was running an hour behind.

Let technology help your chances on bid day, not hurt them.

Busy, busy, busy!  I have reviewed five new construction contracts in the past two weeks.  If you are a contractor, there are a number of key provisions that you will want to be on the look out before you sign the agreement. Check out my series on the Top 20 Contract Issues for Contractors and Subcontractors .

Recently I have worked on a couple of matters for contractors who were expecting unlimited access to their construction site, only to find the owner had given the prime access point to an adjacent contractor. The owners defended their actions based on standard contract specifications requiring “coordination and cooperation” of the contractors.

What have the courts done in these situations? They look both at the contract language and at implied duties. It is settled law that every contract contains an implied obligation that neither party will do anything to prevent, hinder or delay performance. An owner, including a DOT, is said to have violated the implied obligations where its action or inaction delays performance of the project, thus increasing costs. Here are two few cases addressing the situation:

  • In Gerhardt F. Meyne v. U.S.. 110 Ct.Cl. 527 (1948), the Court of Claims considered a specification which provided that site “entrance for trucks shall be at South gate of reservation, over Walker Avenue, Highwood, Illinois, via Patten Road to site.” The contract plainly contemplated the use of Patten Road and other paved roads. Shortly before the contractor began performance, military authorities closed the road and directed the contractor to enter the reservation over an unpaved road. The court found the site access specification was a representation that Patten Road would be available and that the contractor relied on this representation. If the roads were not available, the government impliedly promised it “would stand the increased costs.” On that basis the court found the contractor was entitled to recover its increased costs stemming from the use of a different site entry.
  • Re Commercial Contractors Equipment, Inc.. 2003 WL 22232953 (A.S.B.C.A.) involved a contractor who could not access the construction site due to the government’s inability to secure property rights by the promised time. The subsequent delay affected construction sequencing and scheduling. Although the contractor was able to work on another phase after altering its construction sequencing, it spent additional time and effort moving its forces and equipment around the unsecured location. The contractor initially agreed to avoid the encumbered area; however, the Board found the contractor did not waive its right to seek additional compensation for the denied access. Additionally, the contractor informed the corps it could no longer avoid such work without incurring additional costs. The Board found the Army Corps’ failure to secure unencumbered access to the construction site was a breach of its express warranty and constituted a change to the contract, entitling the contractor to an equitable adjustment for additional costs incurred from the disruption of its work sequence and movement of its equipment and work forces.

Keep it positive.  What about clauses like the “coordination and cooperation” of contractors clause? If there is a specific representation in the contract regarding access, then those clauses should not prevent recovery. In an old Supreme Court case, Hollerbach v. United States. 233 U.S. 165, 34 S.Ct. 553 (1914), the court made it clear that a government contractor is entitled to rely upon positive statements made in the specifications despite general cautionary language in other paragraphs of the specifications. The court held that the positive statement in the specifications constituted a representation upon which the contractor had a right to rely. But in order for the government to be held liable for its statements they must be interpreted as an express warranty.

In anticipation of what could be an influx of wintry weather, the Tennessee Department of Transportation has made arrangements to ensure the state’s roadways stay clear. According to the Johnson City Press. TDOT has distributed more than 200,000 tons of salt and 2 million gallons of brine to stations in each of the state’s 95 counties to prevent or treat potential road hazards. Cold weather not only affects traffic on our highways, it can dramatically affect construction projects.

What should a contractor do with such historic conditions and unusually severe weather affecting construction activities?   In Daewoo Eng’g Constr. Co. v. U.S.. 557 F.3d 1332 (Fed. Cir. ). the contractor involved in building a 53-mile road around the island of Babeldaob submitted to the Corps a claim for delays and additional costs incurred because of high humidity, rainy weather and moist soils encountered on the project. The contractor sought $13 million in additional costs incurred and more than $50 million for future costs not yet incurred. The government filed a counter-claim alleging fraud and other violations.

Although the appellate decision focuses on the government’s claims, the lessons learned about delays stem from the trial court ‘s opinion.  The trial court criticized the contractor’s witnesses for lacking credibility.  The court concluded that the $50 million portion of the contractor’s claim addressing future costs was no more than “a claim to gain leverage against the United States [and] violates the principles on which Congress enacted the Contract Disputes Act.”  Apparently, the contractor was seeking a substantial modification of compaction requirements for embankment that would have greatly reduced problems for the contractor. In the court’s view, the $50 million in future costs was an inflated figure inserted into the claim as a ploy to expedite the Corps’ decision on whether to modify the compaction requirements.

The most notable lesson from Daewoo is that contractors should seek the guidance of experts to assist in calculating damages and to perform a schedule analysis for their claims.  You’ve read my tips on proving weather delays before, but they are worth repeating:

  •  The contractor is usually entitled to additional contract time, but not additional compensation for weather delays. Here, the contract terms and specifications are key to understanding what relief is available.
  • Delays must be attributable to unusually severe weather or weather not reasonably anticipated.   Of course, by its very nature, such a claim will be factually driven. The contractor should be prepared to establish this by reasonable documentation, such as weather data from the National Oceanic and Atmospheric Administration .
  • Weather analysis should be geographically limited.   What may be characterized as unusually severe weather on a Memphis transportation project may be different than a site in another part of the country.
  • The delays must actually impact the schedule.   While you may think that down-time due to weather should automatically entitle the contractor to a time extension, it will depend largely on the contract provision addressing weather delays. You will have to determine whether the inclement weather affected material delivery, access to the site, safety measures, etc.

Finally, get guidance from your experts as soon as possible.  What most likely doomed the Daewoo contractor was the difference in methodologies in assessing the claim.  Although the claim was originally prepared using in-house personnel, the outside experts hired for trial abandoned altogether the methodologies the contractor utilized in the claim. The trial court concluded that “the experts’ method resulted in an entirely different claim to the Government. [and]. the claim that was certified by the plaintiff’s project manager became an orphan during trial, supported by no one and barely acknowledged by plaintiff’s attorneys.”

Even on the smallest claims involving the calculation of damages, contractors should—at a minimum—seek the guidance of an expert on the most desirable methodology and should permit the expert to review the results prior to inclusion of them in the claim submitted to the public entity.

The boxes are packed. The old office is empty. The new office is empty as well.  The old computer has worn keys, the new keyboard clicks with excitement.  I will have some news early next week about my new job when the rest of the world actually gets back to work after the holidays but I wanted to share a few thoughts about change.

Why is change so difficult? As a construction attorney for almost twenty years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic’s liens.  I’ve learned to adjust to the circumstances to meet the needs of my clients.

Whether you are dealing with a new safety policy on the site,  a difficult personality on the design team, an estimate error that is going to affect the bottom line, or even a potential transition to a new job, here are a few things you can do to adapt to change:

  • Understand that change is going to happen.   Whether you are talking about your professional career or your personal life, there will be change.   You can count on it.  I can guarantee it.  Most of the time, those people who fail to recognize change have the hardest time adjusting to it.
  •  Understand that change and your responses will come in stages.   Consider a fatal workplace accident.  Undoubtedly, your construction company will go through numerous changes in response to this incident, including the initial shock of the accident, feelings of potential guilt, assessment of safety measures, analysis of liability, and the transition of duties and potential change in policies.  Change of any sort comes in stages.
  • Understand that communication leads to succ ess.   Communications is always important, but it is especially important when you face change.   Practically speaking, you need as much information about the change as possible, so that you can make an intelligent decision. Talk to your boss, your boss’s boss, and your co-workers to get their understanding of the situation. Be honest in all your discussions and deal with the problems when they arise.
  • Understand that flexibility is good.  Change requires flexibility and the ability to adapt.  The better able you are to respond to change, the more likely you will succeed. Make an assessment of the situation, identify potential outcomes, plan and develop a response strategy, and then begin to ride the wave.  Maybe your current job isn’t what you expect?  Perhaps the new workplace policy strains the ingenuity of your employees? Try to be flexible with an understanding of the potential outcomes.  Part of the fear of change often involves dealing with the unknown.

In my situation, communication and flexibility on everyone’s part has enabled a good transition.  I am sad to leave my old firm, but I am thrilled at the opportunity to help build a new and exciting construction practice. I will miss all my former colleagues … but who knows … I may see them in court!

You will rarely find me advertising on this blog.  However, throughout the year I regularly receive inquiries about electronic discovery, mobile apps, and the paperless project.  And every couple of years I partner with the Construction Pro Network to address these issues.  I am pleased to announce that I will be doing a Webinar on October 8, , at 1:00 p.m. EST.  

You can learn best practices for documentation and record management in this 90-minute webinar — From Paper to Paperless: Controlling Construction Documentation, Improving Record Management and Identifying Risk in an Electronic Age . This interactive program will provide you with guidance to help you develop effective procedures for documenting your projects, including the transformation to the paperless project. You’ll get answers to your pressing questions about electronic evidence on a construction project, including the legal issues surrounding social media. This course will explore:

  • Why are proper records so essential for claims and disputes?
  • “Putting it in writing” rule – what should you record?
  • What is the hearsay rule?
  • Critical project documentation – what you absolutely need to document; and non-critical documentation – what you don’t need to document
  • How to use project management software and Web-based capabilities to move towards a paperless project, establish good audit trail and consolidate project documentation
  • Are electronic documents subject to the same discovery rules as paper documents?
  • Is a written instruction via e-mail the same as a change order?
  • How do social media platforms (Twitter, Facebook, MySpace) affect your project? Do you need a social media policy for your employees?

Please join me for this informative Webinar!

My mentor and good friend, Cordell Parvin . has over the years shared with me some great best practices for contractors—whether talking about bid protests, accidents on the jobsite, or filing a claim.

Recently, Cordell sent me a list of items that all contractors should review when developing a request for additional compensation.  I have edited the list and I am happy to share these ideas:

  1. Identify the best person to manage the team.   You need to select someone who is resposible and can lead in the following areas, which may involve more than one person: (a) Project personnel, who have detailed knowledge of the facts; (b) Estimator or project engineer, who has knowledge of the project, but is more objective than field personnel; (c) Legal representative, who can provide the proper legal framework for a claim and can identify and develop the legal strategy for recovery; and (d) Scheduling personnel, who can provide proper schedule analysis if there is a time consideration.
  2. Identify issues and establish a roadmap. This is often the starting point for reviewing a claim and the key to a successful analysis of issues.  The leader should: (a) Interview estimator/project engineer, superintendent and other project personnel; (b) Review aspects of project that changed from the time of bid; (c) Review cost reports with most knowledgeable person; (d) Review segregated job costs, if any; (e) Compare your bid with other bids; and (f) Prepare a roadmap for potential claim preparation.
  3. Review the contract terms.    As you develop the claim, the contract documents are the first set of documents that you shoudl review.  The following provisions are important: (a) Changes (including notice provisions); (b) Differing Site Conditions (including notice provisions); (c) Delays (including notice provisions); (d) Disputes (specifically required steps); and (e) Schedule.  Also, you will want to identify any contract interpretation issues.
  4. Review the contractor s plan of work.  This includes talking about the anticipated means and methods with estimator/project engineer; reviewing crew sizes and anticipated crew movements; analyzing the anticipated productivity (per cy, sf, etc.) and determine whether that productivity was realistic; identify anticipated equipment and expected time to be on project; and identify planned staffing (tasks and durations).
  5. Analyze the schedule.  At first, take a look at the initial approved schedule to determine whether the logic makes sense, review the durations for reasonableness, and decide whether the has any restraints.  Next, check the updates which can include the Owner’s responses and any notes or memos reflecting status of the project each month. At this point, determine if contract procedure was followed. If not, why not?
  6. Review change orders and correspondence.  At this point, your focus should be on what has been documented on the project to date.   You are going to go back to the original scope of work to see if that was well defined, and changes have been made either in the field or as part of a negotiated, detailed change. You are going to review the actual change order to confirm that all costs and time have been captured and make sure you have not otherwise released any claims by language in the change order.  You need to confirm that the changes procedure in the contract was followed. If not, why not?
  7. Assess other pertinent documents. Make sure your files have been organized so that you can review the following: (a) requests for information (RFIs): determine the number of RFIs and the cause; (b) daily reports; identify pertinent ones (determined by roadmap) and use as supporting documentation for proof of events or impacts.
  8. Identify whether there was loss of productivity .  Determine actual productivity and compare it with the anticipated productivity.  Identify any trends and determine whether there is a causal event for any loss of productivity that may be compensable.
  9. Evaluate any costs that are recoverable.    Identify differences with plan on staffing (number and durations) and evaluate the reasons for any differences.  Perform a bottom up analysis, which starts with the cost reports and works up.  Review each major cost code in job cost reports and try to determine every possible reason for differences between budgeted and actual costs.  Determine which cost increases were caused by events for which the owner or other contractors may be responsible.
  10. Prove legal entitlement.   Too many facts and no law could hurt your claim, just as much as too much law and no facts could limit your recovery.  You need to paint the right story based upon the facts and use the law to prove your legal entitlement.  Your recovery could be based upon or limited by a contract provision, some applicable statute (such as a no damages for delay clause being invalid), or the applicable case law.

The American Institute of Architects  (AIA) recently released seven updated documents in its design-build family.  According to AIA, the Design-Build documents enhance the early interaction between the Owner and the Design-Builder, calling for clearly defined and mandated Owner’s Criteria for the Project and requiring submission of a Preliminary Design by the Design-Builder.

AIA Documents Overview. An AIA press release highlights the array of how AIA agreements seek to accommodate the various ways in which design build projects are delivered. The key document is, of course, the agreement between the Owner and the Design-Builder. In addition there are agreements for use between the Design-Builder and Architect, as well as between the Design-Builder and Contractor. There are also agreements for use between the Architect and consultants, and between the Contractor and subcontractors. If the Owner desires independent consulting services with respect to the Project design and/or construction, there is also an agreement for use between the Owner and that independent consultant. To help understand these design-build project variations, and the related contracts, the AIA Contract Documents team created a free Design-Build Relationship Diagrams (pdf).

Additional Changes.  Other changes include updated insurance provisions that are consistent with current industry terminology and practices, and a Sustainable Project exhibit, which can be used if the Owner has identified a Sustainable Objective as part of the Owner’s Criteria. The Sustainable Project exhibit is derived from the most recent AIA Sustainable Project Documents and describes the process by which the Owner and Design-Builder will work to achieve the Sustainable Objective.

Best Practices.   When I asked a representative of AIA about some of the best practices resulting from the new documents, it was all about clarifying the parties expectations throughout the process.   Michael Bomba . Associate Counsel at AIA, provided the following statement:

Clarity regarding the parties’ obligations is of the utmost importance in any agreement. The AIA’s updated design-build documents include an enhanced description of the Design-Builder’s design process, thereby clearly aligning the parties’ expectations regarding the design process and related deliverables. Further, through the use of a new Sustainable Projects exhibit derived from the AIA’s Sustainable Projects Documents, the updated design-build documents provide a contractual mechanism to identify the Owner’s sustainable objective for the project, if any, and define the parties’ respective obligations for achieving the objective.

According to Bomba, the design-build documents clearly establish the Owner’s requirements for the project and do not allow the design-builder to deviate from those requirements without the Owner’s written consent.

Practice Point.   Of course, any form document will give you a good starting point. But the best practice is to tailor your documents to fit your particular need.  For example, the Exhibit A is an insurance and bonds exhibit.  Unlike the 2004 version (which was Exhibit C), Exhibit A insurance provisions are not potentially duplicative of insurance requirements already provided in the General Conditions. Many practitioners never used Exhibit C of the 2004 version, and instead inserted limits in Section 11 of the 2004 Exhibit A General Conditions. The Exhibit A provides blanks to fill in for the insurance limits, as well as the traditional text.  Practitioners will likely beef up these terms and conditions to suit their needs.

Sometimes it is a race to the courthouse and dispute resolution for construction disputes can take many forms: litigation, mediation, arbitration, med-arb, dispute review boards, flip-a-coin, etc. Every now and then, I will review a construction contract where one of the parties. at its sole option . has the right to demand arbitration.  This can be a good provision if you are the party who has that option.

In Archer Western Contractors, LLC v. Holder Construction Company . the Georgia Court of Appeals recently affirmed the trial court’s decision to grant a contractor’s motion to compel arbitration with a sole option provision. The main subcontract included the following disputes clause:

[All disputes] arising out of or related to the Work or the [Phase 3] Subcontract or any breach thereof shall be decided, at the sole option of [contractor], by binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect.

The contract also contained a venue provision, which stated that “all matters relating to the validity, performance or interpretation of this Subcontract shall be governed by the laws of the state where the Project is located [Georgia].”

The subcontractor argued that the provision relating to venue and jurisdiction of any legal proceeding supplanted the arbitration provisions, but the Court of Appeals disagreed, finding that the provision merely provided for venue and jurisdiction if the contractor decided not to submit to binding arbitration.

While the decision did not turn on the sole option language, it is important to review carefully the disputes clause in your construction contract to fully understand who has the right to demand arbitration and what rules will apply.

I have written before about statutes of limitation and statutes of repose relating to construction disputes. I recently learned that these principles may not apply to a public owner s claims against design professionals and contractors.

Statutes of limitation/repose?  In its simplest terms, a statute of limitation is a time limit for bringing a lawsuit (i.e.. you may have six years to file suit on a breach of contract dispute), whereas a statute of repose is the drop-dead date where the legal no longer exists.  In other words, a statute of limitation may not run because the cause of action has not accrued (or started), but the statute of repose would bar any lawsuit not brought within the statutory time.

For example, in Tennessee, claims regarding improvements to real property must be brought within four years of substantial completion of the project, regardless of the date of discovery.  There is an exception if the claim is discovered during the fourth year after completion. In this case, the claim must be brought within one year after discovery, or within five years after substantial completion of a project.

State immunity. If you have heard the phrase, the King can do no wrong, then you should understand this concept.  In fact, the Connecticut Supreme Court recently held that the doctrine of nullum tempis occurrit regi ( no time runs against the King ) was alive and well in Connecticut common law and that the State’s right to bring suit against contractors and design professionals in connection with a State project completed 12 years earlier was unaffected by the passage of time, laches, Connecticut’s statutes of limitations and/or repose for contract and tort claims, and contractual provisions purporting to limit the State’s right to pursue its causes of action.

Time-barred claims.  In State v. Lombardo Brothers Mason Contractors, Inc.. 307 Conn. 412 (), the State brought an action against 28 defendants, including design professionals, contractors and others, to recover damages for defective design and construction of the UCONN law library more than 12 years after completion of the project. The State was seeking to recover the costs of work needed to correct water infiltration problems that the State claimed to be the result of deficient design and construction. In response, all of the defendants raised the defense that the State’s claims were time-barred by statutes of limitations or repose.

The trial court agreed with all of the defendants, finding that nullum tempis had never been

adopted as the common law in Connecticut and that, as a result, the State’s claims were barred

by the statutes of limitations or repose.  The Connecticut Supreme Court reversed, holding that nullum tempis was part of the State’s common law and a privilege afforded to the federal and state governments as one of incidents of sovereignty, which furthers the public policy of preserving the rights, revenues, and property of the State from loss caused by the negligence of public officers.

Lesson learned.   While you may think that the Lombardo decision is directed only to lawyers, it provides a good tip for everyone.  One of the most important things you can do when you find out you have a potential construction dispute is to review your contracts and applicable limitations periods to determine the timeliness of your claim.  Those claims may be time barred, or in some instances, you may have a legal excuse for the delay.

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