Best Practices Construction Law

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Matt has written articles and given presentations on all aspects of construction law. Find a resource here.

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Best Practices top posts include claims preparation, contract drafting, and litigation pitfalls. You don’t want to miss these ones.

Matthew DeVries

Matt is a construction & litigation attorney at Burr & Forman LLP and father of seven young kids.

When Is the Contractor’s Termination for Default Proper? When It Does Bad Things.

Posted in Uncategorized

Sometimes you “do” bad things.  Sometimes you “look like” you do bad things.  Just look at the difference between Bad-boy Jack and my youngest daughter, Haven, who just “looks like” she’s up to no good.  In the world of construction contracting, both can get in you in trouble, including a termination for default of performance.

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Appeals of  Industrial Consultants, Inc. d/b/a W. Fortune & Company, ASBCA No. 59622 (2017) involved a construction contract to upgrade an HVAC system at a facility in New Hampshire. The Board held that the contractor was properly terminated for default where: (1) it repeatedly insisted on changing the design of the project; (2) it furnished the submittals consistently late and at times did not submit them; (3) it did not respond to certain communications regarding design changes and rejections; and (4) it never submitted a safety plan.

The Facts.  Following award of the contract to the successful bidder, immediate concerns arose regarding the design. The contractor’s presiden believe there was a defect in the design and he began to offer suggestions on redesign. The contractor submitted numerous RFI’s, to which the government responded. During the process, the contractor delayed in providing submittals and often times never provided submittals. The contracting officer sent a notice to the contractor demanding the contractor to cure its deficiencies.  Numerous communications are back and forth between the parties, all of which demonstrated that the contractor was accusatory and combative.  In the end, the contracting officer has sent three cure notices and ultimately issued a termination for default.

The Decision. The Board found that the contractor failed to proceed with the work in violation of FAR 52.233-1 (Disputes) (June 2008), which requires that the “contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” As to the merits, the Board found:

The government bears the burden of demonstrating that [the contractor] did not perform in a timely manner and that it failed to gain approval of its submittals. Failure to proceed with the work during a dispute is a ground for termination for default. In this appeal, it is undisputed that [the contractor] failed to complete the work on time, failed to proceed with the work after the Corps rejected its proposed changes to the project, and failed to furnish some submittals and failed to gain approval of other submittals. The government has made a prima facie case for default termination; [the contractor]must, therefore, prove that its nonperformance was excusable.

The Board then found that the contractor’s default was not excusable—as it had a basic misunderstanding as to its role as a contractor on the project.

Lesson Learned.  Utlimately, the Board concluded that “government contractors must perform the contracts they execute and cannot require the government to rewrite the contract so that they can build some other project they like better.”  In this case, the contractor questioned the design of the HVAC system and notified the government of those concerns.  But in the end, the government  chose to proceed with the design. At that point, the contractor had one choice: continue to build the project as it had contracted to do.  It did not have the option to act bad by “dragging its feet” and refuse to perform, which ultimately led to the termination for default.

What Is Inefficient Risk Transfer? The Use of Indemnification in Construction Contracts

Posted in Legal Trends

As a father of seven children, I am always being asked to determine the “responsible party” when something breaks, gets lost, or is simply missing.  In parenting, there is no written contract between the adult and to child to transfer the responsibility for the loss or damage.  In construction, there should be a written contract to transfer the risk when you are stuck between a rock and a hard place.

Rock

Understand that an indemnity clause in a construction contract is merely a written agreement to transfer some type of risk on the project to one or more of the parties, which may looks something like this:

Contractor agrees to hold harmless and indemnify the Owner, the Architect, the Lender and each of their agents and representatives for any losses, claims or other damages involving personal injury or property damage, other than to the Work itself, caused directly or indirectly by Contractor’s or its Subcontractors’ acts or omissions.

In a recent article in the Journal of the Canadian College of Construction Lawyers (2017 J. Can. C. Construction Law 1), Andrew Wallace and Victoria Merritt give a contractor’s perspective to contractual indemnity provisions in construction contracts.  While the authors recognize that indemnification provisions are standard for many construction contracts, certain indemnification provisions “raise serious concerns for parties involved in the construction project in so far as they reflect inefficient risk transfer between contracting partners.”

Since indemnification can be created by statute or by common law (or case law), the authors suggest that indemnity provisions should be included in construction contracts for two simple reasons: (1) to explain the legal principle that already exists by statute or common law; and (2) to expand one party’s exposure beyond what already exists by statute or common law.

Perhaps “inefficient risk transfer” (alluded to by the authors) comes when parties try to transfer risk opposite or beyond what the law addresses. Perhaps it comes when parties transfer risk to the party who ultimately cannot control they circumstances given rise to the loss. In the end, a court or arbitrator will be asked to determine the validity of the indemnification clause and whether the law will allow such a transfer of risk given the particular situation.

 

Did the FAR Lose Its Mojo in the Government Contracts World? Depends.

Posted in Case Law, Claims, Federal Construction, Legal Trends

It’s not everyday that you read about one of your longtime heroes, the Federal Acquisition Regulations (“FAR”), losing some of its mojo.  The Nash & Cibinic Report read as follows: “The FAR: Does It Have Contractual Force and Effect?”

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According to the article, there remains some confusion about the application of the FAR based upon the recent decision in Lockheed Martin Integrated Systems, Inc., ASBCA 59508 (Dec. 16, 2016).  In Lockheed, the Army awarded two separate indefinite-delivery, indefinite-quantity, time-and-materials (“T&M”) contracts to Lockheed for various support services.  Following various audits, the Government filed a complaint against Lockheed seeking more than $115 million in reimbursement based upon a claim of breach of contract.  Lockheed filed a motion to dismiss, arguing that the Government’s legal theory failed because the FAR did not provide a contractual duty or obligation for Lockheed to manage its subcontractors.

What did the FAR say?  Both contracts expressly incorporated FAR provisions, including 52.232-7 addressing T&M and labor-hour contracts.  Based upon an audit of certain subcontractor costs, the Government determined that Lockheed violated FAR 42.202, which provides that “the prime contractor is responsible for managing its subcontractors.” Accordingly, the Government argued, the costs submitted by Lockheed without adequate record-keeping or back-up documentation were questionable.

What did the Board say?  The contracting officer concluded that Lockheed was responsible for repayment of approximately $102 million because the contractor breached its duty of performance.  The Board disagreed:

Notably, nowhere in either complaint or COFD does the government cite to a contract term giving rise to a contractual obligation or duty. As the government conceded in its briefs, FAR 42.202 is not a term of the contract.

Our inquiry does not end there, however. The government asserts for the first time in its briefs that there exists an implied contractual duty for a prime contractor to manage its subcontracts . . . [T]he government summarizes the essence of its claim, which is that [Lockheed]’s breach of a contractual duty to manage its subcontractors led it to breach the contract by submitting claims for subcontract costs that were unallowable because [Lockheed] breached its contractual duty to manage its subcontractors. Thus, ipso facto, if [Lockeheed] did not breach a duty to manage its subcontractors, it did not submit unallowable costs for payment, and if it did not submit unallowable costs for payment, it did not breach the contract.

Ultimately, the Board concluded that the Government incorrectly went “forward with a claim for over $100,000,000 that is based on nothing more than a plainly invalid legal theory.”

When does the FAR apply?  A common misunderstanding about the FAR is its binding nature or application to government contracts.  Nothing in the FAR indicates that it is contractually binding or incorporated into government contracts as a whole.  According to Nash & Cibinic, “[I]n the course of our teaching we have been startled by the number of acquisition personnel in both Government and industry, including personnel with long experience, who believe that the FAR is contractually binding.”  Therefore, when the Government wants to contractually bind a contractor to comply with a particular FAR provision, it must include the appropriate FAR clause within the contract.

Did the FAR lose its mojo? Nah. The real lesson from Lockheed is one about mistaken mojo—too many people think the FAR generally applies in full force to all government contracts.  But according to Nash & Cibinic, the rule is simple: “In order for a contractor to be obligated to act or refrain from acting in a specified way pursuant to FAR, the contract must plainly say so. It must include a term to that effect, such as a specification or a contract clause.”

How Construction May Be Affected by President Trump’s Executive Orders on Immigration

Posted in Federal Construction, Legal Trends, Legislation

With all the talk about billions of dollars of investment in infrastructure and sweeping reversal of prior executive orders affecting construction labor and federal contracts, it should come as no surprise that President Trump’s recent executive orders on immigration may have an affect on the construction industry.

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What Happened?  Beginning on January 25, 2017, the Trump Administration began leaking a series of Executive Orders aimed at changing immigration policies that have developed over the last decade.  Three of those have been signed as of January 28, 2017, and more orders likely will be signed in the coming weeks.

The order that received the most attention over the weekend affects citizens from the following countries: Iraq, Iran, Libya, Somalia, Sudan, Syria, and Yemen.  This includes individuals who may have dual citizenship with other countries.  The order instructs U.S. Customs not to allow citizens of these countries to enter the U.S. for the next 90 days.

What’s the “Real” Effect?  Many of the cases of detained individuals that made the news involved Legal Permanent Residents of the U.S. (“green card holders”).  However, DHS Secretary Kelley has stated that LPRs will be admitted as of this morning.  The order also suspends the Refugee Admissions Program for 120 days, which means that refugees from any country who have been processed for entry outside the U.S. will not be admitted unless DHS makes an exception based on “national interest.”

Department of State, which processes visas at U.S. Consulates abroad, also sent emergency notifications Sunday that visa cases for citizens of these countries will be put on hold indefinitely.  The court-ordered stays entered Saturday and Sunday only prevent DHS from detaining and deporting individuals based solely on the executive order.  Travel bans, suspension of visa processing, and suspension of the Refugee Admission Program appear to be intact.  DHS has not been clear on how it intends to comply with the court orders, likely because the court orders themselves are not altogether clear.

What You Need to Know?  While it may seem obvious, here are a few things to be mindful.  As related to international construction projects, point number 2 below will likely affect international business travel on foreign construction projects.

  1. Stay Put!  Citizens of these countries, dual citizens of these countries, and possibly non-U.S. citizens who have visited these countries in the last few years should refrain from travelling if at all possible.  Affected individuals who are outside the U.S. should make arrangements to remain outside the U.S. for the duration, and those who are in transit to the U.S. should be prepared for delays and detention at a U.S. airports or other ports of entry.  You should not sign any waivers or other documents relinquishing approved visas despite pressure from airline authorities and Customs officials to do so.
  2. Reciprocal Action is Likely.  Government officials from several countries on this list have stated intentions to subject U.S. travelers to similar scrutiny and travel bans under the diplomatic principal of reciprocity. Construction projects in these target areas must be ready for the challenges of reciprocal action.
  3. Visa Processing is going to Change.  Citizens of all countries should be prepared for visa processing times to increase, background checks to intensify, and denial rates on visa cases to rise.  The executive order eliminates several “work-arounds” that U.S. Consulates have developed over the years to make visa processing more efficient.  Some countries, such as India, China, Mexico, and the Philippines, may see visa processing times increase from weeks to months this year.

Special thanks to my colleague Anna Scully for contributing to this post!

Texas Court Gobble-Gobbles New Federal Overtime Rules

Posted in Best Practices, Federal Construction, Legislation

On this Thanksgiving Eve, contractors and other employers can take a breathe and gobble down some extra turkey and pumpkin pie without worrying about the new increases in overtime rules.

gobble

On Tuesday, November 22, 2016, a Texas federal court entered a nationwide injunction blocking the U.S. Department of Labor’s (“DOL”) new federal overtime rules from taking effect on December 1, 2016.  The DOL’s new overtime regulations, which were finalized in May 2016, would nearly double the minimum salary threshold requirements for the common white collar exemptions from $23,660 ($455/week) to $47,476 ($913/week).  The DOL estimates that 4.2 million workers who are currently classified as exempt under the white collar exemptions would be affected by the new rules.

In September 2016, 21 states and dozens of business groups filed lawsuits seeking an immediate injunction to block the new rules from taking effect on December 1, 2016.  U.S. District Judge Amos Mazzant ruled Tuesday that the states were able to show a likelihood of success on the merits of their challenge and irreparable harm if the new rules went into effect and that the DOL exceeded its authority by raising the minimum salary threshold.  Judge Mazzant’s ruling recognized that the DOL enjoys “significant leeway” to establish the types of job duties required for exemptions, but nothing in the FLSA permits the DOL to classify employees by salary levels.  “Congress defined the [white collar] exemption with regard to duties, which does not include a minimum salary level,” Judge Mazzant said. “With the final rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.”

The legal battle over the federal overtime rules is far from over. There is little doubt this decision will be appealed to the United States Court of Appeals for the Fifth Circuit.  At least for now, however, the new overtime rules will not go into effect. Employers are no longer required to meet the December 1, 2016 deadline.  It is unlikely the nationwide injunction would be lifted before the Trump Administration takes office in January 2017, and it is unclear whether the new Administration will push for the new overtime rules to take effect or repeal them altogether.

(Special thanks to Carlton Hilson for contributing to this post!)

What A Trump Card Means In The Game of Construction and Development

Posted in Development, Federal Construction, Leadership, Transportation

Like many of you, I stayed up late on Tuesday night / Wednesday morning to watch the 2016 election returns.  I dragged myself into the office after only a few hours of sleep and my phone was immediately ringing. Some clients. Some association contacts. Some reporters.  They all wanted to talk about the same thing: What would Donald Trump do as President when it comes to construction and development?

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If you listened to President Elect Trump’s victory speech, you learned a few things that will impact individuals and business owners in the construction world:

  1. A President Trump will likely move on illegal immigration.  As I commented to the Nashville Business Journal’s  inquiry on this subject, this will unlikely affect unskilled labor shortages hurting many states:

    “How does that affect various states with labor shortages? If we pull those back, it’s only affecting a small subsection,” DeVries said. He noted that both government agencies and many large private contractors have policies prohibiting the use of illegal immigrants on construction projects.

    “I don’t think him being elected as the new president is going to have a direct effect, negatively or positively, on this particular issue of a lack of skilled labor,” DeVries said.

  2. A President Trump will push for major stimulus package for investment on infrastructure improvements.  Indeed, by pledging to double Clinton’s $275 billion proposal, Trump indirectly pledged to spend more than $500 billion repairing America’s roads, bridges, highways, airports, waterways and other infrastructure. ENR reports that the proposal could be as much as a $1 trillion, 10-year plan. The real question is whether he will find enough allies in Congress to get a growth package in place and passed in order to stimulate the road-building industry.
  3. A President Trump will likely move to repeal or otherwise limit a number of the policies put in place by Executive Orders by President Obama.  Many Republicans in the House and Senate oppose the various regulatory rules and Executive Orders that touch the construction industry, and they want Trump to move quickly. These include regulations on wages and overtime for Federal contractors, OSHA and other safety issues (like silica dust) and environmental hurdles.
  4. A President Trump is expected to overhaul or repeal the Affordable Care Act, which affects many small- to medium-sized business owners in the construction industry.   While affordable healthcare is an ancillary issue to construction executives, it remains a significant business issue that a new administration will tackle in 2017.

What I Learned from My Kids About Delay Claims

Posted in Claims

This past week, I came home to a complete mess in our backyard—it was littered with debris, trash, plates and utensils, and overturn patio furniture.  My instruction to the kids yesterday morning was stern: “Clean up this mess by the time I get home…or else!”

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One kid fixed the furniture in 15 minutes. One kid picked up the plates, bowls and utensils in 30 minutes. And one kid wasted six hours with an empty trash bag wandering, playing, napping, etc.  The trash is still there because of the significant delays on the job.  My son had every excuse, but I was not buying any of them.

It almost goes without saying that if you have to pursue or defend a delay claim, you are going to need some evidence (whether by expert or otherwise) to establish or to challenge entitlement to the damages sought. And we all know that there can be different routes to the same goal. However, the different methods of schedule analysis can lead to varying results. So, which method is correct?

According to a great Construction Law International article by my friends Don and Rob, there are eight guidelines that any schedule delay analysis comply with, including:

  1. Compare the planned work before and after each delay. Practically, this means that you should compare the plan to perform the remaining work before each delay and the plan to perform the remaining work after that delay, which will require a review of the schedule updates during the project. This will also involve looking at the estimated impact, as well as the actual impact, of the delay.
  2. Identify the critical delays. Generally, the delay must affect the critical path of the work to be compensable. If the delay absorbs the “float” in the schedule, then it is not compensable. According to the authors, “If an activity does not have any float, by definition it is critical as it would impact the required contract completion date.”
  3. Evaluate the delays in both a chronological order and a cumulative manner. If you do not look at the delays in sequence, it can “mask” what actually occurred on the project.
  4. Adjust the completion date to reflect excusable delay as it occurs. This will assist in finding the actual float values and determining which activities are actually critical at any point during the project timeline.
  5. Include accurate as-built information. Again, it is important analyze the actual progress of construction, which can best be achieved through accurate as-built data.
  6. Minimize projected future delays. If you include projected future delays in the schedule, they should be minimized because projected delays can alter float calculations and possibly change which activities are critical.
  7. Correct any logic flaws. If you correct any logic flaws found in the schedule, make sure to document and explain the changes at the time they are made. Understand that judges and arbitrators can be skeptical when substantial changes are made after construction is complete.
  8. Tie causation to each delay. Ultimately, you will have to show whether the delay is non-excusable, excusable/compensable, or excusable/non-compensable.

Using these guidelines, any contractor can begin to evaluate and prepare a potential delay claim as the conditions on project causing the delay occur. If the claim turns to a dispute, you will have done a significant amount of preliminary work that an attorney and/or consultant will need to assist you in the claim.  As for my child’s delay claim, this dad is not buying it!

How To Track Increased Construction Costs For Proving Claims

Posted in Best Practices, Claims, Claims and Disputes

I previously blogged about the importance of using daily reports to prove construction claims.

In addition to daily reports, the following records should be prepared and maintained in the normal course of business to help prove claims and effectively manage the project:

  • Correspondence file containing all correspondence relating to a specific claim, including letters and/or memoranda to and from the DOT and subcontractors.
  • Meeting minutes and internal memoranda concerning the claim should be maintained in order to document attempts to resolve matters with the DOT and its representatives.
  • Plans and specifications, including all amendments, details, clarifications, and options of the owner concerning the plans and specifications.
  • Change/work order file showing all changes or work orders requested with regard to the particular aspect of the work that is the subject of the claim.
  • Schedules, including the as-planned and updates.
  • Job photographs and videotapes, for both status of work in place and possibly evidence of the conditions leading up to the change.
  • Subcontractor and/or supplier files documenting all dealings between the contractor and the subcontractor concerning the area of the claim.
  • Miscellaneous evidence file containing all other evidence that could help support the claim, such as inspection reports, completion schedules, projections, flow charts, work progress, accident reports, photographs, etc.
  • Job cost records, which will be critical to showing the additional costs incurred.

If a contractor expects to seek additional compensation for an encountered condition, it should create an additional job cost category describing the extra work. Once the new cost category is created, the supervisor responsible for completing the daily report should assign all additional labor and equipment hours to the newly created cost code. Where an unforeseen condition creates additional work not included in the original contract, recording labor and equipment hours is quite easy. On the other hand, when unforeseen conditions create no new work, but rather, take the form of impeding a crew’s progress, the recording task becomes more difficult.

Image: Tanzer18

Top 14 Most Common Scheduling Mistakes by Contractors

Posted in Claims and Disputes, Project Management, Scheduling

Many delay, disruption, and loss of productivity claims are lost or substantially reduced in value because mistakes, errors and carelessness are reflected in the original schedule and plan of operations. The original schedule is often the first piece of documentation that the owner receives demonstrating the contractor’s professionalism in planning and management.

Contractors should pay great attention to the scheduling process and avoid many of the common mistakes that can lead to a loss of credibility on the project. It is impossible to list all of the possible initial scheduling mistakes, but the following is a list of the Top 14 mistakes in the initial construction schedule that some courts and boards of contract appeals have noted:

  1. No proof of the information used to prepare schedule
  2. Errors in technical logic
  3. Incomplete schedules
  4. Overlooking procurement of critical materials
  5. Failure to consider physical restraints
  6. Failure to consider weather restraints
  7. Failure to consider resources
  8. Failure to consider the economics of the sequencing
  9. Failure to consider uncertainty and risk in establishing durations
  10. Schedule does not “tie in” to the anticipated means and methods and/or estimate
  11. Logic intentionally deviates from the manner in which the contractor intends to build
  12. Elimination of float by increasing durations
  13. Unrealistic productivity or durations
  14. The schedule submitted to the owner was not used to build the project

Again, the schedule can often set the tone for the job. In court, it is the document that establishes the benchmark of all time related claims. As such, it has a tremendous impact on the judge and jury and influences the credibility they will attach to the evidence that follows.

Eeeek! What To Do When You Find Bones or Human Remains On the Construction Site?

Posted in Best Practices, Claims and Disputes, Project Management

Last month, authorities in Suffolk, Virginia were investigating a construction site where human bones were found.  Forensic experts were called in to excavate the site and determine whether they were recent or from an old burial ground.  Has this ever happened at one of your sites?

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If you find bones or other archaeological artifacts during excavation and construction, here are a few tips on what you should do:

  • Stop work.  Many contract documents, including the AIA 201 (2007), require the contractor to “immediately suspend” the operations upon the discovery of human remains or other archeological findings.  Even if your contract does not address this situation, you should stop work to properly analyze the situation.
  • Call others.  This includes the owner, the architect/engineer of record, and local police.  Check your state’s law to see whether you have an obligation to notify any other public authority, such as Tennessee Code section 11-6-107, which requires you to notify the coroner or medical examiner upon the discovery of human remains during construction.
  • Assess options.  Depending on your jurisdiction, you may be required to rebury the remains pursuant to a local statute.  For example, if you have excavated a cemetery or other historical burial site, you will be required to rebury the remains by using either a funeral home or an archeological group.
  • Preserve claims.  As always, the parties’ contract should address risks such as “bones” found on the construction site.  Generally, the owner of the site is required to take action to continue the work and resolve the problem.  The contractor may be entitled to additional time and money for the impact of the discovery and remediation efforts.

In the situation above, forensic experts will continue to investigate to determine whether any crime was committed.  At the conclusion of the investigation, the property owner and contractors can continue their work.