Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

It has been some time in the making, but on May 13, 2013, Governor Haslam signed into law HB-0183, which authorizes a pilot program for the use of a construction manager / general contractor (CM/GC) project deliver method in the development and construction of transportation projects.

Generally, the CM/GC project delivery method allows an owner to engage a construction manager during the design process to provide constructability input. (A design consultant can also be engaged by the owner, through a RFP process). The Construction Manager is generally selected on the basis of qualifications, past experience or a best-value basis through a subjective RFP process. During the design phase, the construction manager provides input regarding scheduling, pricing, phasing and other input that helps the owner design a more constructible project. At approximately an average of 60% to 90% design completion, the owner and the construction manager negotiate a sole source "guaranteed maximum price" contract for the construction of the project based on the defined scope and schedule. If this price is acceptable to both parties, they execute a contract for construction services, and the construction manager becomes the general contractor. The general contractor would self-perform a certain percentage of the work.

A proposed amendment to the original bill was prepared and the Tennessee Road Builders Association had extensive discussion with TDOT about the amendment. Under the amendment, the CM/GC method would be a pilot program of three projects. The first project could not exceed $70 million and the other two projects would have a maximum of $100 million, but the aggregate total of the three projects could not exceed $200 million. A selection committee of five TDOT persons and three people from the private sector with a construction and/or finance background would review and score the RFP proposals. Prior CM/GC, or any other project delivery method, experience could not be considered or be a factor to be weighed as part of the RFP. The law is set to take effect on July 1, 2014 and terminate on July 1, 2019.

There are certainly those in favor of and against the new law.  Where do you stand?
 

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When I moved to Nashville in 2006, I was sworn into the Tennessee bar by a local judge.  My partner happened to be in trial on a significant prevailing wage dispute, and the court a break during the trial to admit me to the practice of law in Tennessee.  Five minutes later, the parties returned to their week-long trial on the wage determination claims.

Fast forward seven years and a new bill is being sent to Governor Bill Haslam's desk that essentially repeals Tennessee's Prevailing Wage Act. Generally, present law requires that the prevailing wage rate, as determined by the prevailing wage commission, be paid to workers on all state construction projects, which are projects that are: (1) over $50,000 for any type of building and construction work for which state funds may be appropriated or expended; or (2) for construction work on any streets, highways or bridges.

HB-0850, which was signed by the House and Senate on April 15, 2013 and sent to the Governor for approval on April 16, 2013, revises the current law as follows:

• Eliminates the state mandate of specified wages on state building projects;
• Eliminates the mandatory certified payrolls and other paperwork submitted to the State of Tennessee on those projects;
• For projects other than highway construction, "no such contract may require the private employer to pay wages that exceed the Tennessee Occupational Wages Report" 

The bill, as amended, does not impact highway (TDOT) projects. This is due to the Federal mandate of requiring a specified wage rate on road work. If a state does not have a mandated state Prevailing Wage, then the Davis-Bacon rate would be adopted for the wages for workers on the highway project.

This bill comes on the heels of HB-0501, which became law on April 16, 2013, that prohibits local governments from mandating health insurance benefits, leave policies, hourly wage standards or prevailing wage standards that deviate from state statutorily imposed standards on private employers as either a condition of operating a business within the jurisdictional boundaries of the local government or when the local government contracts with a private employer.

Image: USDAgov

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Last week, I saw a Tweet about the United States Supreme Court granting certiorari in a construction dispute ... and I thought it had to be an April Fools' Day joke because they never take construction cases on appeal.  So, being quite the jokester, I naturally sent out the following Tweet:

Well, the joke is on me.  Last week, the Supreme Court did announce that it will review the decision of the Fifth Circuit in In re Atl. Marine Const. Co., Inc., 701 F.3d 736 (5th Cir. 2012) cert. granted, 12-929, 2013 WL 1285318 (Apr. 1, 2013).  

Forum selection clause.  The dispute relates to a subcontract agreement on a construction project located on Fort Hood in Texas. When the general contractor did not pay the subcontractor for its work, the subcontractor filed a lawsuit in federal court in Texas based upon diversity jurisdiction (...that means a dispute in excess of $75k between parties of different states...).  The general contractor tried to get out of the lawsuit by filing a motion to dismiss or, in the alternative, tried to get the case transferred to Virginia based upon a forum selection clause in the subcontract agreement.

Trial court.  The trial judge did not dismiss the case, nor did he agree to transfer the case to Virginia.  The court held that the project, and most of the project documentation, was located in Texas.  In addition, almost all of the witnesses lived in Texas and would not be able to testify if the case were transferred to Virginia.

The appeals court.  The general contractor filed an appeal to the United States Court of Appeals for the Fifth Circuit in the form of what was called a Petition for Writ of Mandamus in an attempt to reverse the trial court's ruling. The Fifth Circuit denied the write petition.  All three panel members agreed that the standard for obtaining a writ of mandamus was not met in this case.  One of the panel members agreed with the result, but wrote a concurring opinion.  In its decision, the majority of the panel concluded that the parties’ contractual choice of forum was not the only factor which should be weighed in a motion to transfer venue.  Stated differently, the majority reasoned that the federal venue statutes, not the parties' contractual forum selection clause, should govern whether Texas, as opposed to Virginia, was a proper forum for the case to be heard.

The Supreme Court. SCOTUSblog has all of the key documents and dates leading up the to grant of certiorari by the Supreme Court.  The issues on appeal are: (1) Whether the Court’s decision in Stewart Organization, Inc. v. Ricoh Corp. changed the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a); and (2) whether district courts should allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause.  

Practical implications.  While the issues on appeal are not construction-specific, such as whether pay if paid clause is enforceable, the ultimate decision may affect the contracting process for parties to a construction project.  Until there is clear guidance from the Supreme Court on these issues, some things to think about include:

• Forum selection clauses are not always enforced as written. As demonstrated in the Atlantic Marine Construction case, a court may focus instead on whether the plaintiff's chosen venue is proper under the statutes. The court may not place the same emphasis on where the parties agreed to litigate.
• When drafting a forum selection clause, you should think about all the where questions: (a) where the parties are located; (b) where the witnesses reside; (c) where the contract negotiations took place; and (d) where the project is located.
• By requiring in your forum selection clause that disputes be resolved in state court, you can eliminate these issues from the dispute.  For example, the majority panel in Atlantic Marine Construction noted dismissal would have been proper had the parties' forum selection clause required the case to be heard only in state court since federal courts may only transfer cases to other federal court.  

When the Supreme Court issues its decision on the American Marine Construction case, there may be some additional practical implications.

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Labor and employment laws regularly intersect with the construction industry—whether you are dealing with employment issues such as the hiring and firing of employees, compliance with state and federal E-Verify requirements, or applicability of project labor agreements on a project. 

New Hires.  When you hire a new employee, you are well advised to properly document the process, as you may have certain reporting requirements depending on your construction project.  For example, did you know that you are required to complete and retain a Form I-9 for every employee you hire for employment in the United States?  The U.S. Citizenship & Immigration Services (USCIS) website lists the following exemptions: 

• Individuals hired on or before Nov. 6, 1986, who are continuing in their employment and have a reasonable expectation of employment at all times. Some limitations to this exception apply.) Also excepted are individuals hired for employment in the Commonwealth of the Northern Mariana Islands (CNMI) on or before Nov. 27, 2009.
• Individuals employed for casual domestic work in a private home on a sporadic, irregular or intermittent basis.
• Independent contractors or individuals providing labor to you who are employed by a contractor providing contract services (for example, employee leasing or temporary agencies).
  Individuals not physically working in the United States.

Even though independent contractors are exempt, federal law prohibits individuals or businesses from contracting with an independent contractor knowing that the independent contractor is not authorized to work in the United States.

The Breaking News.  On Friday, March 8, 2013, the USCIS released a new Employment Eligibility Verification Form I-9 (pdf) and all employers should begin to use the new form immediately for new hires. The form is now two pages, has expanded instructions, and includes new fields for an email address and phone number in Section 1.  You can read about the background to the new form (pdf) here. The old form can be used until May 7, 2013 and the new form can be used now, but will be mandatory after May 7, 2013.

Applicability to construction industry.  If you are a contractor or subcontractor and use E-Verify, then you can still require identification of an applicant's social security number.  The new instructions make clear that identifying a social security number for Section 1 purposes remains voluntary, unless the employer is enrolled in E-Verify.

Image: Will Merydith

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Given the increase of today's mobile technologies available on the construction site ... from smart phones, to iPads and tablets, to electronic drawings and specifications ... there are going to be new disputes involving those technologies.

In particular, I think we are going to find an increase in disputes when it comes to the use of emails as a means of communication among project members.  First, email communications tend to be sent "off the cuff" without creating a draft of the communication that can be reviewed by team members.  In addition, you may not have the accurate contract provisions in front of you when you are sending an email from the project site, so your communication may not include the appropriate contract references that you need to support your position or claim.  Finally, email communications simply tend to be more informal and can lead to "miscommunications" among the project team members.

Notwithstanding these potential problems, people continue to use email without having a full understanding of the risks involved.  For example, did you know that your email communications can be used to establish an enforceable contract, change order, or settlement?  In Tennessee, there is the Uniform Electronic Transactions Act (UETA) that applies to electronic records and electronic signatures relating to a transaction. The statute expressly states that:

1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
3. If a law requires a record to be in writing, an electronic record satisfies the law.
4. If a law requires a signature, an electronic signature satisfies the law.

The UETA was recently relied upon by an appellate court in Tennessee, Waddle v. Elrod, where the parties had reached a settlement agreement through the email communications of the attorneys. Although one party later attempted to renege on the settlement agreement, the court found that the emails by counsel constituted a valid contract.

Question: Do you have a computer use policy for your project managers? Are you training your construction teams on the use of emails?

Image: Sean MacEntee

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Yes, there are limits to what parties can include in a construction contract.  For example, many states like Tennessee have choice of law and venue statutes that make it unlawful to include a provision in a contract requiring the substantive laws of another state or the venue of litigation/arbitration in another state for real estate improvement projects that are located in Tennessee.  Other states like Maryland prohibit lien waivers in executory construction contracts.

Recently, the Supreme Court of Nevada held that a general indemnification agreement was void and unenforceable based upon the purposes and intended effects of the Americans with Disabilities Act.  In Rolf Jensen & Associates v. Eighth Judicial District Court of Nevada, the design contract included an indemnification provision where the design professionals agreed to indemnify the project owner for "any damages arising from any act, omission, or willful misconduct." 

The Facts.  The owner of the Mandalay Bay Resort contracted with Rolf Jensen on the expansion project to provide certain consulting services involving ADA compliance.  Following completion of the project, the Department of Justice investigated certain violations related to lack of handicap accessibility at the property.  The owner estimated that it would take approximately $20 million to bring the resort into compliance.  The owner sued Rolf Jensen under the indemnification provisions to recover the costs of the repair work.

The Holding.  The procedural aspects of the court's decision are tricky, but in the end the decision was clear: "We conclude that Mandalay's state law claims for indemnification pose an obstacle to the objectives of the ADA and therefore are preempted."  Ultimately, the court concluded that allowing the indemnification claims would weaken an owner’s incentive to prevent violations of the ADA, which would conflict with the purpose and intended effects of the statute.. “Simply put, such claims would allow owners to contractually maneuver themselves into a position where, in essence, they can ignore their nondelegable responsibilities under the ADA.”

An Observation.  While the Rolf Jensen decision appears to undermine parties' freedom to contract, there have always been limitations on those freedoms.  Perhaps the question in this case stems from the lack of a clear prohibition against waiver of the ADA in contracts.  Perhaps this was simply an example where public policy trumps freedom to contract.  I think one of the real lessons is to make sure to review your construction contracts to make sure the agreement complies with the applicable state and federal law.

Question: Have you read the decision?  What are your thoughts?

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Last week, ENR's Digital Wire highlighted an article in the Pittsburg Post-Gazette by Jon Schmitz about Pennsylvania's new law to boost private investment in public projects through PPPs. According to the article, there are numerous major projects in the pipeline that will garner interest from private investors, including highways, bridges and other transportation facilities. 

Under the new law, PPP proposals would go before a panel made up of seven transportation and budget members appointed by the governor and legislative leaders.  "The Legislature would have the ability to override the panel's decisions but would have to act within 20 days."  According to Schmitz, 33 other states have similar laws.

What are some of the most important legal aspects when looking at a public private partnership?  Here are a few:

• Understand the PPP enabling legislation in your state.  As evidenced by the new Pennsylvania law, each state will have to explore whether use of PPPs for roads, bridges and other infrastructure projects can be successful.  If so, then the enabling legislation must provide the mechanism to achieve the right contracting goals.
• Understand that PPPs don’t create new money.  Instead, the arrangement relies on the private sector and other resources to help develop the infrastructure. Public funds will eventually be a part of the equation to pay back the private investment.
• Understand the different risks involved with PPPs. If you are going to participate in a project involving alternative financing, you need to understand the new risks and opportunities that you will encounter.  For example, the AGC of American published a White Paper on Public Private Partnerships (pdf), which gives a good overview of the history of PPPs, the legislative hurdles encountered by states, and the legal issues to consider by contractors.

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As a construction attorney, I have been on both the sending side and receiving side of a request for a time extension.  Whether the deadline involves discovery responses, a witness interview or a trial brief, most requests are granted.  In the construction world of competitive bidding, however, the request for an extension is not so clear.

Most bids on construction projects must be accepted within a certain time period; otherwise, they are no longer binding. Of course, the same provisions permit an extension of the time period by consent of the bidder or both of the parties. What happens if there is no formal agreement to extend the bid acceptance period? A good example of this scenario is found in the case of Prime Contractors, Inc. v. City of Girard, where a disappointed low bidder contested an award to the second bidder.

In this case, the City sought bids for repavement of a road.  The bid documents included the City's right to determine if the bidder had the ability to perform the work at the bid price, as well as a provision requiring bidders to attach materials showing they had complied with the state's Equal Employment Opportunity Commission (EEOC) requirements.

When the bids were opened, the City learned the low bidder had failed to comply with the EEOC requirements because its Certificate of Compliance had expired two days before the bid's submission.
Thus, the City decided to award the contract to the second bidder.  The low bidder challenged the decision and sought an injunction against the award to the second bidder.  The trial court ruled in favor of the second bidder.

On appeal, the low bidder relied on a state statute that required the award and execution of a contract to be done within 60 days. Under the statute, the failure to award and execute a written contract within that time frame invalidates the entire bid proceedings and all bids submitted, unless the time for awarding and executing the contract is extended by mutual consent of the owner and bidder.

Mutual consent.  The court found the 60-day limit could be extended by "mutual consent." As to this point, the court emphasized that the parties to the proposed contract need not "agree" to extend the 60-day period. Instead, mutual consent could be reasonably inferred by conduct. Under this interpretation, the court concluded the bid does not automatically become invalid at the end of 60 days: It continues to be valid until one party indicates to the other that it is withdrawing its consent.

Implied extension.  In this case, the court found no evidence that either the City nor the second bidder had revoked their consent to extending the 60-day period. In fact, the evidence showed that the second bidder had already begun to perform the work on the project even though a written contract had not been executed. On that basis, the court refused to grant the injunction sought by the low bidder. 

Lesson learned.  In most cases, public owners specifically request extensions of the bid-acceptance period when some problem holds up an award. Suppose a public owner did not seek an extension and the low bidder did not revoke its bid. Could the public owner require the bidder to perform by a notice of award several months later?  Obviously, the answer to that question depends on the wording of the statute or bid proposal. Interestingly, the court in the Prime Contractors case found a consent to extend that did not require a formal agreement.

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While I generally limit my guest posts to my fellow law partners, I simply could not resist sharing with you today's post from my friend and construction attorney, Scott Wolfe, Jr.  He is the founder of Zlien.com, a national mechanics lien filing and compliance management service. Scott writes the Construction Lien Blog, which analyzes construction lien laws and regulations across the nation.

Now the disclaimer part: I have not used or test-driven any of the services offered by Zlien.com and this post here is not an endorsement of the product.  I can say, however, that Scott is one bright guy and has a lot of good information about lien filings throughout the states.  I hope you enjoy.

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Through the years of consulting with folks in the construction industry about mechanics lien and bond claims, I’ve unearthed a set of principles to help navigate the very complicated world of liens. These principles form a set of “best practices” for the company interested in preserving its lien rights on every construction, and ultimately therefore, avoiding bad debt.
 

Understand What Type of “Lien” Is Available.  The term “mechanics lien” is overused in the construction industry, with companies presuming they can file a mechanics lien on any type of project. That’s part true, and part untrue.

The truth in this statement is that there is a lien-like remedy available on every construction project. The untrue part of the statement is that it’s not always a “mechanics lien” per se, it could be, for example, a state bond claim or a miller act claim.

This can get confusing to the contractor or supplier who considers them all one in the same. The other day, for example, I had an equipment rental company ask me whether they could file a mechanics lien on a state project in Florida. I referred them to some Florida attorneys who answered the question, but those attorneys got hung up on the terminology and not the goal of the client.

Rather than answering the equipment rental company by saying “yes, you can encumber the project” by filing a bond claim, they emphatically told the company that they couldn’t file a mechanics lien claim. They barely even mentioned that they could file a bond claim, and that this is commonly even referred to as a lien.

The long and short of this discussion is that the industry uses the term “lien” pretty loosely. But, if you’re on a state project, you’re likely filing a bond claim; on a federal project you’re filing a miller act claim; and on a private project you’re filing a traditional mechanics lien. They work differently, there are different rules, but they are all fundamentally the same.

The first best practice is to understand what lien remedy is available to you, because it will help you get that type of lien document filed when the time comes.

Know All Relevant Project Information.  If you’re furnishing labor or materials to a construction project, you should know all the critical data about that project. This includes:

● The address where your furnishing
● The name of the property owner
● The name of the general contractor
● The name of the bonding company (if any)
● The name of the lender (if any)

You’d be surprised how often I’m approached to help someone file a lien claim without this basic project information. This information is critical to not only filing an accurate mechanics lien claim, but also to sending out the required preliminary notices. If you don’t have this information, figure out a way to get it.

Most of the time you can politely request the data, and get it without much effort. Other times, you may need to send in a formal request. On state and federal projects, the identity of the bonding company and the general contractor is public information, and you can typically request this directly from the contracting department.

If you’re in Tennessee, a great place to start is with Matthew DeVries’ checklist, originally published on this Best Practices Construction Law Blog: Information Needed To Prepare A Lien.

The second best practice is to have good information about your construction projects.

Understand Preliminary Notice Requirements and Lien Deadlines.  In most states, filing a mechanics lien or bond claim is a discipline, and not something you can do impulsively. That’s because many states require you take actions right at the beginning of furnishing to preserve your right to file a mechanics lien or bond claim. It’s very important that you understand these requirements.

If you furnish in one state only, it should be fairly simple for you to get educated about that state’s notice requirements. Take the time to learn this information and follow it diligently. If you furnish to multiple states, organizing and understanding the information may be a bit more complex, and you may need to consult with a mechanics lien service or attorney to help you comply with the varying notice requirements. Remember, these mechanics lien laws and nuances will vary not only between states, but also between projects.

The third best practice, therefore, is to understand the requirements applicable to your project to preserve your lien claim rights, and then to follow those requirements.

Conclusion.  While most companies don’t want to file lien claims lightly, it is a very effective way to get paid on a construction project, and therefore, a remedy you always want available. If your customer doesn’t pay its debt, if money gets misappropriated on a job, or if your customer files for bankruptcy, you’re going to wish that you had preserved and enforced your lien or bond claim rights.

It’s very difficult to comply with lien and bond claim requirements on every project, because there are so many layers of complexity. However, these best practices will help your company wade through those requirements and set itself up to successfully protect its lien rights...and, hopefully, always get paid.

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We all have preconceptions about the language you might find on the construction project.  However, it is not every day that you read a court opinion and you find the following language: "...nor is it the business of the federal courts generally to clean up the language and conduct of construction sites."  This came from a recent ruling from a federal appeals court in Louisiana.

In EEOC v. Boh Brothers Construction Co. (pdf), the United States Court of Appeals reviewed a Title VII case brought by the Equal Employment Opportunity Commission against Boh Brothers Construction Company on behalf of the claimant, a male construction worker who alleged that his superintendent engaged in same-sex harassment.  According to the opinion, there was "plenty of evidence that [the employer's superintendent] is a world-class trash talker and the master of vulgarity in an environment where these characteristics abound." 

At the trial court, the jury was "very sympathetic" and awarded both actual and punitive damages to the claimant.  Although the appeals court agreed that the superintendent's language and abuse were offensive, it did not establish a claim of unlawful same-sex discrimination.  Ultimately, the appeals court concluded that there was insufficient evidence that the superintendent "acted on the basis of gender" in his treatment of the claimant.

Although the court's opinion is a good read for HR staff and employment lawyers for understanding same-sex discrimination standards, it also provides a few good lessons for all involved in the construction industry:

• Words make a difference.  The Boh Brothers case is a good reminder that words can have serious consequences, whether you are talking about the formation of a contract, the verbal admissions made during project performance, or the legal liability created by your management and employees. 
• Employers beware of employee conduct.  Although the question was not raised in Boh Brothers, employers need to understand that the company may be responsible for the conduct of its employees performed within the course of their employment. 
• Professionalism is important. If you were to read only the Boh Brothers' opinion, you would think that the contractor-employer simply defended the lawsuit.  Of course they did....there was a lot of money at stake.  But the company disciplined the superintendent and implemented a training program for this behavior.  According to an ENR article on the case (sub. req.), company representatives confirmed that Boh Brothers was embarrassed by the conduct and that "such treatment [of employees] will not be tolerated."  Even though the employer won in court, it was also important for the company to publicly admonish the offensive conduct.

Have you read the Boh Brothers' decision?  What other lessons exist?

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You can imagine that with seven young children in our house, there are a substantial number of arguments on any given day.  When both my wife and I are at home, the question becomes, Who decides disputes: Mom or Dad?  In the construction arena, the same types of questions arise.

Recently, in Bechtel Do Brasil Construcoes Ltda v. UEG Araucaria, Ltda., 638 F.3d 150 (2d Cir. 2011), this same issue arose in the context of whether the owner's claims were barred by the applicable statute of limitations.  Almost six years after completion of the power plant, the steam-turbine failed.  The owner filed a demand for arbitration against the contractor. 

The contractor filed a motion in court to permanently stay the arbitration because it argued that the claims were beyond the statute of limitations.  The owner filed a response, arguing that the arbitrator (and not the court) should decide the issue of the limitations period.

Who decides arbitrability?  Whether the court or the arbitrator decides the statute of limitations issues depends on the parties' contractual agreement.  In this case, the disputes clause stated that: "Any dispute, controversy, or claim arising out of or relating to the Contract, or the breach, termination or validity thereof ... shall be finally settled by arbitration..."  However, another provision in the contract stated that "the validity, effect and interpretation of this agreement to arbitrate shall be governed by the laws of the State of New York" and that "the law governing the procedure and administration of any arbitration instituted ... is the law of the State of New York."  Can you see the dilemma now?   In the end, the appeals court concluded that the arbitrator (and not the court) was required to decide the statute of limitations question. 

The takeaways.  The real lesson here is to understand that the parties' agreement will determine who decides arbitrability of disputes.  When you use phrases like "any and all disputes" in your contract, then it is likely that the arbitration or dispute provision is elastic enough to encompass every imaginable dispute, including statute of limitation defenses.  This exercise is more than academic because there may be strategical reasons for you wanting a court, as opposed to an arbitrator, deciding gateway issues and defenses.  So choose your words wisely in your contracts.

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It has been almost three years since the giant (...Google...) joined the legal research playing field with Westlaw, LEXIS, FindLaw and all the other law-related databases.  In November 2009, Google launched a new feature on Google Scholar that made 80+ years of US federal caselaw and 50+ years of US state caselaw searchable and readable. Here's what are able to find: 

• The entire opinions are indexed and available
• Every citation is hyperlinked to the full text of the opinion cited
• Every opinion includes a "How cited" tab showing how the current opinion was cited by the referring opinion
• All opinions include their official citation and include page breaks and page numbers

Let's to a quick test.  A couple of years ago I worked on a case for a road builder which had a claim against the Tennessee Department of Transportation.  When I GoogleScholar the name of the contractor and TDOT, my search immediately returns the Court of Appeals decision and the Supreme Court decision.  That's it!  The hyperlinks to the footnotes and other citations ... check.  The page numbers ... check.  So far, so good.

Let's try a different approach.  Suppose you want to research whether a written change order requirement can be waived under Tennessee law.  Just search: Tennessee "change order".  The search returned a list of 51 citations, including one of the leading cases on the issue: W&O Construction v. City of Smithville.  If you go to the W&O case and click on the "How Cited" tab, you will find a wealth of information, including the cases that have cited the decision, as well as snippets of the quoted material:

After being in the public for a few years, here are some insights about Google Scholar as a research tool and how businesses should approach its use:

• This is a great offering from Google.  Ask any associate attorney in my office where I suggest that they start a research assignment and the answer will be: Google.  Is that the only legal research an inquiring mind should do?  Absolutely not!  But it is the best place to start.  And Google Scholar just opened a wealth of additional data for these preliminary searches.
• One of the enhanced features of Google Scholar is the Advanced Scholar Search that allows you to search by name, jurisdiction, and subject area.  Again, I believe this enhances the preliminary searches that are performed.
• Before relying on Google Scholar exclusively, I would want the public to fully test the scope of the database.  It will be important to watch how timely case law is collected and stored.  

Despite the benefit that Google Scholar results from provide public access to case law, the question remains: will this benefit the practice of law and resolution of disputes in general?  Some of my clients are empowered by their ability to do research and to assist in the trial preparation, while others would simply prefer to show up for the final judgment.  I think for the former group, Google Scholar opens up a pool of available research.  The later group would not bother.

If I had to limit my comments to one sentence, it would be: Great new tool for preliminary research!

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I received an email last week from Kent Starwalt of the Tennessee Road Builders Association that reminded me of how important it is to check your particular state's laws when you have a legal question. This particular issue involved the applicability of E-Verify, which varies by jurisdiction, and the recent changes to the law in Tennessee.

The Federal Law. E-Verify is a federal electronic work authorization verification service created by the U.S. Department of Homeland Security and first introduced in 2003. All employers are already required under federal law to verify the work status of new hires, via the I-9 process. This process requires employers to complete an employment eligibility form required by Homeland Security for new hires, excluding independent contractors.

Tennessee Law. The new Tennessee law now imposes these same requirements under state law. Effective July 1, 2012, employers with 200-499 employees must be in compliance with the “Tennessee Lawful Employment Act.” That law requires employers to check the employment eligibility of new hires and mandates that most Tennessee employers either use the federal E-Verify program or review certain identification documents of new employees and independent contractors.

Safe Harbor. An employer’s obligation to use the I-9 process under federal law will not change. However, the new law will remove the safe harbor protection for employers under current Tennessee law where the lawful verification information is later determined to be false. In addition, it will require employers to either request and maintain a copy of one of certain identification documents, such as a drivers license, or, alternatively, to enroll in the E-Verify program.

Unlike laws in several other states, the Tennessee law does not require employers to use E-Verify. Rather, it attempts to bring the existing employment verification process (essentially, the I-9 process) within the reach of the State, while also encouraging–but not requiring–the use of E-Verify. On the other hand, in one respect it goes further than certain other state laws, by also requiring businesses to review the driver’s licenses or other valid document for 1099 non-employees (independent contractors) to show lawful presence in the U.S.

The law provides a safe harbor for employers who use the E-Verify program to verify the status of an employee if the employee is later found to be in the country illegally.

Application in Stages. The provisions of the law took effect on January 1, 2012 for employers with 500 or more employees. It will apply to private employers with 6 to 199 employees on January 1, 2013. The law will not apply to employers with five or less employees. An employee is defined as "any individual for whom an employer must complete a Form I-9 pursuant to federal law and regulation, and does not include an independent contractor as defined by 8 USC Sec. 1324a and its regulations."

Violations. Employers who fail to follow to this law will be subject to harsh penalties. For a first violation, an employer will be subject to a penalty of $500 and an additional $500 for each non-verified employee or non-employee. A second violation will result in a $1,000 penalty and an additional $1,000 for each non-verified employee or non-employee. A third or subsequent violation will result in a penalty of $2,500 and an additional $2,500 for each non-verified employee or non-employee.

Image: Jonathan McIntosh

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I was working in our Virginia office this past week and was amazed at the amount of highway construction at and around Tyson's Corner.  What also caught my attention was the progress of the 495 Express Lanes project, which includes the construction of high occupancy toll (HOT) lanes that will operate on the I-495/Capital Beltway.

As the U.S. moves toward the construction of "smart" highways as an integral part of our transportation system, state DOTs and localities will be called upon to broaden the horizons of their normal procurement and contracting systems. Undoubtedly, many legal issues will arise as high-tech companies compete for contracts that offer the likelihood of substantial follow-on business in order to maintain compatibility.

"Improvement" versus "Construction". Presently, a few cities, states, toll road and turnpike authorities are in the process of procuring electronic toll-collection (ETC) systems. Many are procuring those systems under state statutes that call for competitive bidding of all construction contracts. The question has come up, however, whether those government entities are required to award contracts after public bidding. That question was considered in the 1995 decision called In the Matter of AT/Comm, Inc. v. Peter Tufo, 652 N.E.2d 915 (N.Y. 1995), where the New York Court of Appeals made an interesting distinction.

In 1991, the New York State Thruway Authority, together with similar agencies in New Jersey and Pennsylvania, formed an interagency committee (IAG) to evaluate electronic toll-collection systems that would be compatible among the three states. The IAG issued a request for proposals for both "read only" (which scan information from a windshield tag) and "read/write" (which are needed when tolls are determined by entry and exit points) systems. AT/Comm and Amtech Systems, both ETC-system manufacturers, submitted proposals for the contract to install the ETCs at designated sites along the New York State Thruway.

In 1993, without public bidding, the authority entered into a $1.7 million contract with Amtech for the manufacture and installation of an interim read-only ETC-system. This system would be used pending the IAG's selection of a fully integrated read/write system that would eventually replace it. Upon contract award, AT/Comm filed a petition seeking to stop the contract between Amtech and the authority. It also sought an order stopping the authority from entering any contract for the ETC-system without first conducting competitive bidding in accordance with the appropriate New York statutes.

In the litigation, AT/Comm argued that the ETC-system was an "improvement" of the thruway within the meaning of the New York competitive-bidding statute, which required a public bidding. Amtech and the authority disagreed, arguing that the contract for the installation of the ETC-system was not a contract for "construction, reconstruction or improvement" of the thruway and, as a result, was not subject to the competitive-bidding requirement. The Court of Appeals agreed with Amtech and the authority.

The Court of Appeals noted that the New York statute requires public bidding where the work undertaken is for the construction, reconstruction or improvement of the actual road or passageway used for traffic. The aim of the E-Z Pass system, however, was not to improve the roadway but to improve the flow of the traffic on it.

Lesson Learned. Competitive-bidding statutes were enacted by state legislatures to protect the public against fraud, favoritism, corruption, extravagance and improvidence in the award of public contracts. The idea behind such statutes is to require contract-award decisions to be based on objective criteria. Electronic toll-collection contracts are generally awarded after proposals are technically evaluated by consultants.

Public entities need to make sure they are not drafting specifications aimed at favoring one competitor over another. They should also establish criteria on how proposals will be evaluated and make evaluations of competing proposals fairly. Finally, they should ensure that their consultants are not biased. Given the subjectivity involved in this process, the cost of preparing proposals and the potential economic gain of being considered by several governmental entities who seek to make their systems compatible, there is great likelihood for disputes and litigation in the future.

Image: VaDOT

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Today's guest post is by J. Matthew Kroplin, a fellow attorney at Stites & Harbison PLLC.  Matthew is a member of the Business Litigation and Creditors' Rights & Bankruptcy Service Groups. He represents and advises clients in the areas of business and commercial litigation, bankruptcy and financial restructuring, and construction law.  Matthew has represented a number of contractors in construction claims, business litigation, and employment matters.

 During this session of the Tennessee General Assembly, which ended about a month ago, state legislators approved the so-called “Loser Pays” rule, with the stated intention of discouraging frivolous claims in Tennessee courts.

This rule essentially requires that a judge assess litigation costs to a party who successfully seeks dismissal of a claim that does not have a basis in fact or law. These recoverable costs include reasonable and necessary attorney fees and are capped at $10,000. Governor Haslam has since signed the legislation into law as Public Chapter 1046 (pdf).  The “Loser Pays” rule will not apply to:

• any claims filed before July 1, 2012;
• claims by or against the government;
• any claim that is dismissed by the granting of a motion that was filed more than 60 days after service on the moving party of the latest pleading containing that claim;
• any claim that is withdrawn or amended to state a claim upon which relief may be granted, as long as notice of such is given by the earlier of the response deadline or at least 3 days prior to the hearing on the motion;
• actions by pro se litigants, except where the court finds that the pro se party acted unreasonably;
• claims seeking to extend, modify, reverse, or challenge the constitutionality of existing law, or claims of first impression, as long as one of those reasons is specially plead; and
• claims that stated relief that could be granted when filed but subsequent law removed the right to relief.

As you might expect, much of the legislative discussion focused on possible unintended consequences, such as whether the new rule will inhibit judges from granting a motion to dismiss whenever possible or whether this law will effectively impede access to the courts for individual citizens and small business owners. On the other side of the issue, though, proponents argued that the new rule will reduce pointless lawsuits and will increase judicial efficiency. Either way, it will certainly be interesting to see how this plays out in future lawsuits.

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One of the largest groups for construction lawyers is the American Bar Association's Forum on the Construction Industry.  In the weeks leading up to to the Forum's 2012 annual meeting in Las Vegas, Nevada last month, a number of construction attorneys and I were feverishly reviewing submissions for Division 10's annual Construction Law Update.  The document is a compilation of cases and legislation affecting the construction industry.  The updates are provided throughout the year by attorneys all over the country.  This year, Division 10 released its 6th Annual Update. 

The following are examples of the types of information that you will find in the Construction Law Update: Cases and Legislation Affecting the Construction Industry (2011-12):

• Senate Bill Number 59, Alabama 2011 Regular Session. The bill amends §§ 6-5-221, 6-5-222, 6-5-225 and 6-5-227, Code of Alabama, 1975, reducing the statute of repose for actions against an architect, engineer or builder from 13 years to 7 years from the substantial completion of the construction of an improvement on or to real property. This Bill will become effective upon signature and approval by Governor Robert Bentley.
• In William Smith v. Krishna Pinnamaneni et al., 2011 Ariz.App. LEXIS 59, 607 Ariz.Adv.Rep. 35, (2011), the Arizona Court of Appeals held that the defense of lack of licensure could be waived if not timely and appropriately raised in an arbitration proceeding. Accordingly, the Court rejected defendants’ claims that the plaintiff contractor was not appropriately licensed and therefore was precluded by statute from pursuing its affirmative claim when defendants first raised the defense after plaintiff moved to confirm the arbitration award. The Court noted that contracts executed by unlicensed contractors are voidable, not void, and that unlicensed contracting constituted an affirmative defense that could be waived like any other affirmative defense.
• In Midwest Asphalt Coating Inc. v. Chelsea Plaza Homes Inc, 45 Kan.App.2d 119, 243 P.3d 1106 (Kan.App. 2010), the Court reaffirmed that claims for breach of contract and quantum meruit are mutually exclusive and a quantum meruit claim is permitted only if the contract is unenforceable. Additinally, pursuant to Kansas Fairness in Construction Act (K.S.A. §§ 16-1805 and 16-1806) attorney fees and costs are recoverable only if “undisputed” sums are not timely paid. Here there was a dispute if the work was completed and thus the amount owed was disputed. The Court also reasoned that even if it was a quantum meruit claim the amount was not liquidated or still in dispute until an award was made and thus fees are not recoverable.
• In Voigt Consultants, LLC v. Plymouth Crossroads Station, LLC, 2011 WL 1119697 (Minn. Ct. App. March 29, 2011), the court held that, in order for a mechanic’s lien to have priority, a mortgage holder must have actual notice that the lien claimant had not been paid. Moreover, the mortgage holder has no affirmative duty to inquire about whether the mechanic’s lien claimant has been paid in full.

There are updates from all over the country.  In addition, we have included references to recent federal legislation that affects the construction industry. If you would like a copy of the Construction Law Update, all you have to do is the following:

1. First, go to the ABA Forum's main website
2. Then,  look to the left column and connect with the Forum via Facebook LinkedIn, or Twitter
3. Finally, send me an email saying which you did.

If you would like copies of the past year's updates, please see my Resources, Articles, Presentations page.

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A recent ENR headline caught my attention: "Structural Engineers Learn Lessons From Failures Through Digital Databases." The article by Nadine Post discussed a new digital database—similar to YouTube, SharePoint and Wikipedia—being developed by structural engineers to “harness knowledge” to avoid future loses.  

As noted in Post's article, "[w]ith global engineering research, knowledge and failure data at their fingertips, designers are able to connect the dots as never before."  Whether it is a post-construction meeting, survey or other analysis, construction industry players are wise to understand the legal implications associated with harnessing knowledge of lessons learned.

Is this type of information discoverable in subsequent litigation? Any lawyer worth his weight in gold would give you the only correct answer: It depends!  The key question is whether a "self-critical analysis" can be used by the opposing party as evidence of liability, breach of contract or violation of some standard of care. The courts have treated the issue differently—a few of which hold that these type of documents are “privileged” and are not discoverable. The self-critical analysis privilege should not be confused with attorney-client communications, which as a general rule are privileged and not discoverable.

The Majority Rule.  Most courts have rejected the self-critical analysis privilege entirely or defined it vary narrowly. Examples of project documents where courts have rejected application of the self-critical analysis privilege include:

• Safety review and meeting notes
• Quality control documents
• Audit documents and other information
• Environmental assessments and analysis
• Internal communications and corporate reviews

Ultimately, you need to be concerned that any document containing your company’s self-critical analysis is generally not privileged and, therefore, will be subject to discovery in the event of litigation. However, this should not dissuade you from using “lessons learned” or “best practices” to ensure future successes and to avoid future losses.

Image: Paul Garland

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Today's guest post is written by Joe Hardesty, who handles complex litigation in construction and business disputes. He has defended and prosecuted claims for clients arising from major construction projects throughout the country, surety disputes, commercial real estate disputes and a variety of disputes arising from business transactions. He also advises clients on matters related to government contracting and compliance.

Does a construction manager have a duty of care to employees of contractors and subcontractors to provide a safe project site? This was the question that the Indiana Supreme Court addressed in its opinion issued on March 22, 2012, in the case of Hunt Construction Group, Inc. v. Garrett.

The Facts.  Hunt was the construction manager agent for the construction of the Lucas Oil Stadium in Indianapolis and had contracted with the owner, the Indiana Stadium and Convention Building Authority. Baker Concrete Construction, Inc. had also entered a contract with the Stadium Authority to perform concrete work on the stadium. Shannon Garrett, an employee of Baker, was injured while removing forming material from concrete. Garrett pursued a workers compensation claim against her employer, Baker, but also sued Hunt, the construction manager, for negligence in not providing a safe job site.

The Opinion. The Indiana Supreme Court addressed the issue of whether a construction manager has a legal duty of care for job site safety to employees of contractors and subcontractors. The Court held that a construction manager has a legal duty of care to workers on the job site for job safety in only two circumstances: (1) when such a duty is imposed on the construction manager by a contract to which it is a party; or (2) when the construction manager assumes such a duty, even gratuitously or voluntarily.

In this case, the Court found that there were no provisions in the construction manager’s contract under which Hunt contractually accepted the duty to maintain safety on the project. The Court noted that the contract provided that the contractors, not the construction manager, have the responsibility for project safety and the safety of their employees. The Court found no safety provisions in Hunt’s contract that imposed any specific legal duty to or responsibility for the safety of all employees on the construction site. Therefore, the Court held that Hunt’s contract did not create a duty to employees for job site safety and that Hunt’s only responsibilities for safety were owed to the Stadium Authority.

The Court next considered whether Hunt had assumed a legal duty for job site safety through its conduct beyond that required by its contract. The Court stated that a construction manager could be responsible for job site safety to individual employees where it specifically agrees to take on specific safety responsibilities beyond those set forth in its contract. Examples of such conduct are appointing a safety director, initiating weekly safety meetings, directing that certain safety precautions be taken and inspecting the job site for safety. Garrett argued that the fact that Hunt’s safety representative conducted safety committee meetings every Monday and inspected the site daily for violations of the project safety program demonstrated that Hunt had assumed responsibility for job site safety and owed a duty to workers for job site safety. The Court found that these activities were activities required by Hunt’s contract with the owner and, therefore, these were not additional duties voluntarily assumed by Hunt to job site workers. Hence, the Court found that Hunt did not assume specific supervisory responsibilities for job site safety beyond those set forth in its contract and, therefore, there was no duty owed by Hunt to Garrett or other workers for job site safety.

Lessons Learned.  This case focused only on the issue of whether a construction manager owes a duty to workers for job site safety such that individual workers would have a claim against the construction manager. It found that a construction manager’s duty for job site safety is normally only owed to the owner rather than to individual employees of contractors and subcontractors. Construction Managers should note, however, this case did not address what liabilities a construction manager might incur to OSHA for job site injuries. Construction managers must assess not only its duties to owners and workers for job site safety but also its legal obligations under OSHA.

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I had an admiralty professor at law school who would often refer to the Justices of the Supreme Court of the United States as ... get this ... the Supremes!  In honor of Professor Jones, today's post is about the Supremes' decision in PPL Montana, LLC v. Montana (pdf),  where the court declined to expand the definition of "navigable" under federal law.

What is "navigability"? In the case, the Montana Supreme Court held that the state of Montana owns and may charge for use of riverbeds where privately owned hydro-electric dams were located.  It was undisputed that the state owned all riverbeds that were navigable at the time of statehood, but that title remained with the federal government for those beds of river that were not navigable. Thus, the ultimate question turned on whether the waterway at issue was "navigable" and which test applied. In a 26-page unanimous decision, the Supremes held that navigability must be determined segment by segment, and that river segments which are sufficiently obstructed that travelers must portage are not navigable.

Why is the decision important to the construction industry?  The decision is hailed as a victory by the American Road & Transportation Builders Association, which was the only transportation construction association involved in the case and who filed a brief with eight other industry associations.  According to a press release by ARTBA, the ruling removed a "road block" that unnecessarily had the potential of delaying transportation projects:

For purposes of transportation development, once something is considered “navigable” it is under federal control, and subject to the permitting authority of the U.S. Environmental Protection Agency (EPA) and the Army Corps of Engineers (Corps). An expanded definition of “navigability” could have resulted in a scenario where the EPA and Corps would have the option of exerting jurisdiction over roadside ditches, potentially adding years to already expansive review and approval process for transportation infrastructure projects that are needed for increased mobility and improved safety.

If the state decision had been upheld, any water body ... including water features that are common on highway and other transportation projects ... could have been deemed to be navigable simply because someone could use it for a “recreational purpose."

Image: Orin Zebest

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You can search a legal database and find thousands of construction disputes. If you are lucky, you find the one case that has similar facts to your dispute and the court reaches the same legal conclusion that you seek. And it's a good story.

If you end up in court, either pursuing a construction claim or defending a breach of contract claim, your attorney should be a good story-teller. Ultimately, you will have to convince either a judge, jury or arbitrator that your side of the story is correct. One of my favorite stories in a construction dispute comes from the court in Blake Construction Co. v. C.J. Coakley Co. Inc., 431 A.2d 569 (D.C. 1981), where the court described the painful construction dispute as follows:

Except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project such as the building of this 100 million dollar hospital. Even the most painstaking planning frequently turns out to be mere conjecture and accommodation to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever-changing commands on the battlefield. Further, it is a difficult task for a court to be able to examine testimony and evidence in the quiet of a courtroom several years later concerning such confusion and then extract from them a determination of precisely when the disorder and constant readjustment, which is to be expected by any subcontractor on a jobsite, become so extreme, so debilitating and so unreasonable as to constitute a breach of contract between a contractor and a subcontractor.

Honorable mention goes to Mobil Chemical Co. v. Blount Brothers Corp., 809 F.2d 1175 (5th Cir. 1987), where the court introduced the theme of the case with the follow words: "The parties to this action somehow built a chemical plant. They have been trying to figure out who should pay for it ever since."

If you have a construction dispute, you will have to be prepared to tell you side of the story in a credible way, supported by written documentation, and you must have reasonable expectations. Too many times clients get bogged down in the "fine print" details without focusing on the big picture. To me, the details are important ... but they cannot replace the overall story that must be told.

Question: What are some of your favorite construction stories?

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When it rains and the kids cannot got out to play, our house can get a little chaotic.  A few weeks ago, I lost my cool demeanor.  Jackson (below) was screaming at the top of his lungs and was chasing three other kids with a light-saber.  I yelled: "Time out! Everyone!"  They all stopped dead in their tracks.   

This kind of "time out" is occurring more and more frequently in the construction industry.  It is called the automatic stay and it can affect the entire construction project when one of the parties files for bankruptcy protection.  Sometime, parties attempt to get around the automatic stay of bankruptcy by including a waiver provision in their contracts, which can read something like this:

Subcontractor hereby waives the protection of the automatic stay provisions under federal bankruptcy laws, 11 U.S.C. section 362, or any other similar stay provisions under any present or future state or federal law relating to bankruptcy or insolvency.

That cannot be enforceable, can it? What's the point of a time out ... the automatic stay of litigation that is guaranteed by filing for bankruptcy protection ... if you can waive it? Certainly, the bankruptcy courts do not appreciate their jurisdiction and powers being waived? Wrong. The issue is not so simple.

Courts have treated pre-petition waivers differently and inconsistently throughout the country.

  The courts generally fall into the following categories:

• Those jurisdictions where pre-petition waivers are enforceable, whether on public policy grounds or freedom of contract grounds.
• Those jurisdictions where pre-petition waivers are unenforceable, as against a statutory policy or to protect other creditors.
• Those jurisdiction where pre-petition waivers are viewed on a case-by-case basis.

If you understand the purpose of the automatic stay, then you understand why there might be divergent views from the courts.  The waiver of automatic stay provision should not be confused with a blanket prohibition against filing for bankruptcy, which would not be enforceable.  In other words, the automatic stay is not to provide an absolution of liability, but rather to "stay" the litigation of claims that exist outside the bankruptcy court.  The stay ... or "time out" ... gives the debtor, the creditors, the trustee and the court a resting area to begin, assess, and analyze the restructuring process.  For an good review of the law, see Michael L. Bernstein's article for the American Bankruptcy Institute entitled, "Enforceability of Prepetition Waivers of the Automatic Stay."

What are the lessons learned when dealing with the automatic stay?  There are a few: (1) read your contracts before you sign them; (2) understand what the laws are in your jurisdiction and whether a pre-petition waiver is valid; and (3) don't violate automatic stay once the "time out" is in place.  Penalties can include voiding the action, damages, and even contempt of court.

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Last night at an AGC of Middle Tennessee dinner, a contractor asked me, "Are pre-employment physical exams legal?"  I gave him my favorite legal response: "It depends!"

More and more, employers in the construction industry want to implement pre-hire health exam programs to determine whether prospective employees are physically capable of performing the particular construction job.  The concern for contractors is that a new hire with a physical limitation gets re-injured and costs the company to defend workers' compensation claims.  So the legal question is whether the employer can conduct a pre-hire examination without violating either state or federal law.

What are the legal limitations?  The American with Disabilities Act (ADA), which applies to employers of 15+ full-time employees, comes into to play in this situation. In addition, your particular state's human rights laws probably adopt the same or substantially similar limitations as those required by the ADA.  The fear is that, as an employer, you do not want to face a claim of discrimination for refusing to hire someone with a physical disability that is protected under the ADA or its state law companion.

In order to comply with both state and federal law, the following general requirements should be met:

1. An offer of employment should be made conditioned on the results of a subsequent physical health examination.
2. The health examination focus only on the job-related abilities that are essential to the position.
3. The health examination should be required of all people that are conditionally offered employment for the particular position.

What happens when the health examination demonstrates a limitation?  If the person does not pass the physical examination and the employer decides to withdraw the conditional offer of employment, then it must notify the person within 10 days of the decision to withdraw.  The employer must provide the medical basis for withdrawing the offer. 

What are some best practices for implementing a program?  Of course, each state is different.  However, some general tips to follow include:

• You should have a written file on the physical requirements of each job description, which can be used by the examining physician
• Any information learned from the health exam should be kept confidential, so as not to violate any privacy rights of the prospective employees
• Leave the medical assessment to the health examining physician and do not ask medical questions during applicant interviews

The law can be confusing when talking about pre-hire health exams and you are well advised to seek legal counsel if you want to develop such a program.  

Image: Lower Columbia College

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Words matter. Yesterday, the Supreme Court of Tennessee released its decision in a construction dispute between Ray Bell Construction Company and the Tennessee Department of Transportation.  Where the contractor won the first two rounds at the trial court and intermediate appellate court levels, TDOT prevailed in the final appeal.

The Dispute.  The primary issue in dispute was whether the completion date in the parties' contract could be amended or moved to account for the impact of increased quantities and other delays.  TDOT argued that the completion date could be modified for purposes of the disincentive payment and liquidated damages, but under no circumstance could the date be modified for purposes of the incentive payment.  The contractor argued that the date could be modified for all purposes, including the incentive payment.  Ultimately, the claims commissioner awarded the contractor the $2.5 million early completion bonus, finding that the incentive date provision could be amended consistent with prior instances.

The Court of Appeals affirmed the claims commissioner's finding that “a definite latent ambiguity exist[ed] for which parol evidence not only is admissible, but frankly, absolutely necessary in both understanding and deciding the issues in this case."  

In a short opinion [pdf], the Supreme Court reversed that finding and concluded that the contract language was plain and ambiguous.  When the contract language is unambiguous it is the duty of the courts to interpret the contract according to its plain terms. According to the Court,"TDOT's refusal to extend the incentive date beyond December 15, 2006, was therefore consistent with the contract."

Lessons Learned.  The RBCC case is worthy for a number of reasons:

1. The appellate court decisions provide a good overview of the public contracting claims process. Like many other jurisdictions, the Claims Commission in Tennessee resolves claims involving tax recovery, state employee workers' compensation, negligence by state officials or agencies, and contract claims involving the State. The RBCC dispute went to trial before a claims commissioner and was appealed to the Court of Appeals and Supreme Court.
2. The case summarizes the two sides to a contract interpretation question.  Like almost every construction dispute, the contract will determine the rights and obligations of the parties.  In this case, a $2.5 million early incentive payment was at stake and the decision turned on whether there was an ambiguity in the parties' contact and what evidence could be used to resolve that ambiguity.  The Court of Appeals described in detail the ambiguity in the contract, where the Supreme Court found the contract unambiguous.
3. The case involved a truly "interesting" factual story.  The dispute involved a multi-million dollar claim ... design delays ... easement delays ... unexecuted change orders ... quantity overruns ...  contract ambiguities ... a compelling letter by the state agency ... a compelling letter by the federal agency ... and much more.

It appears to be the end of the road for this claim.  Noticeably absent from the Supreme Court's decision is any discussion of the circumstances leading up to this particular contract, which arguably formed the basis of the trial court's initial decision and the intermediate appellate court's decision.  The evidence included prior projects where the incentive date was allowed to be modified, as well as letters between TDOT and the Federal Highway allowing for a change to the incentive payment date.  The Supreme Court's opinion was silent on these issues most likely because it found the contract to be without ambiguity.

[Note: I was involved in this case along with lead counsel Greg Cashion at the trial court and court of appeals, but I moved law firms to Stites & Harbison before the appeal had been taken to the Supreme Court.]

Image: Blue RidgeKittie

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Happy Halloween!  Today's post is not about ghosts, ghouls and goblins, though.  It's much scarier ... it's about contractors, subcontractors and insurance companies! (....shriek....)

In a noteworthy decision issued last week, the Tennessee Supreme Court held that all construction contracts have an implied duty on part of the contractor to perform in a "careful, skillful, diligent, and workmanlike manner." In Federal Insurance Co. v. Winters (pdf), the court adopted the "majority rule" that has been applied in most states.  According to the court's decision, a contractor may not escape liability for performing in a workmanlike manner by "delegating" or subcontracting the work to a subcontractor.

In Winters, the defendant contractor entered into a contract to replace a roof. When the newly installed roof developed leaks, the defendant hired an independent contractor to make the necessary repairs. While performing the work, the independent contractor caused a fire, resulting in an $871,069.73 insurance claim by the homeowners.

The plaintiff insurance company sued the defendant contractor in both tort and in contract based upon theories of subrogation (i.e., stepping in the shoes of the homeowner to assert their rights for claims arising out of the fire). The defendant contractor filed a motion for summary judgment, asserting that because he had subcontracted the work to another contractors, he could not be liable. The trial court granted the motion on both the negligence and breach of contract claims.

The Court of Appeals reversed, holding that the defendant had a non-delegable contractual duty to perform the roofing services in a careful, skillful, and workmanlike manner.  The Supreme Court granted the defendant's application for permission to appeal. Because the defendant had an implied non-delegable duty to install the roof in a careful, skillful, diligent, and workmanlike manner, the Supreme Court affirmed the decision.

I told you it was scarier than ghosts, ghouls and goblins!  Is there a lesson to be learned?  Yes. Even the Supreme Court acknowledged that this rule was not a prohibition against delegation of construction contracts.  Rather, the lesson learned is that the delegation must be accompanied by a release from the other party.

Image: Pedro Ferreira

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Where is the best place to start when you have been away from work for a family emergency? Naturally, you go back to the basics.  In my next few posts, I review some of the "basic building block" or "essential" construction cases every contractor should know.  The first two are Spearin and Luria Bros.

U.S. v. Spearin, 248 U.S. 132 (1918) is perhaps the most important construction case to understand.  Spearin established the well-known rule that the government/owner impliedly warrants the adequacy of its design. The United States Supreme Court held that detailed specifications describing the work "imported a warranty that if the specifications were followed, the sewer would be adequate. This implied warranty is not overcome by general disclaimer clauses requiring the contractor to examine the site, check the plans and specifications and assume responsibility for the work until completed." The rule, which has come to be known as the Spearin Doctrine, has, for years, allowed contractors to recover the costs incurred as a result of defective design specifications provided by the government. The Spearin Doctrine has been adopted by most states.

In Luria Bros. v. U.S., 369 F.2d 701 (Ct. Cl. 1966), the Court of Claims further expanded upon the Spearin Doctrine to make clear that the government must timely correct its defective design. The court found that the original specifications were defective.  When defective specifications delay the work, the court reasoned, the contractor is entitled to recover damages. In Luria Bros., the government was dilatory in recognizing the need for and in revising defective specifications, which constituted a breach of the implied obligation not to do anything that would hinder or delay the contractor’s performance.

Both Spearin and Luria Bros. provide a legal assurance to contractors that additional costs may be recovered for defects in the design by the owner.

Next post features what is an equitable adjustment.

Image: stevendepolo

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Last week, the Supreme Court of Tennessee heard oral arguments on a contract interpretation issue in a construction dispute between Ray Bell Construction and Tennessee Department of Transportation.  You can get the details here, but the real lesson is one about how to interpret contracts, whether you are talking about the scope of work, changes, compensation or delays.

The TDOT Dispute.  The disagreement in the the TDOT case involved a question whether the contractor was entitled to an early incentive payment given the delays on the project beyond the contractor's control.  There was a disagreement as to whether the completion date could be moved, altered or amended. The trial court held that there was an "egregious ambiguity" in the parties' contract and allowed extrinsic evidence, including evidence of other contracts, to clarify the issue. The Court of Appeals affirmed [pdf].  The final decision from the Tennessee "Supremes" is expected.

Another Example.  In construing a written contract, the controlling consideration is the intention of the parties as derived from all the terms of the contract. Legally, a written contract to which both parties have assented as a complete and accurate expression of their agreement, may not be varied or contradicted by understandings and negotiations, which occurred prior to signing the contract. Thus, as a general rule, a proposal by a contractor cannot be used to vary or contradict the signed contract.

If the contract is so ambiguous that its meaning is unclear, the court can allow parol or extrinsic evidence to be admitted. A contract is considered ambiguous "when it is reasonably susceptible to more than one meaning." As a result, if the contractor can show that the scope of work specified in the contract is ambiguous, then the contractor's proposal may be used as extrinsic evidence to explain the meaning of the contract.

Owners (such as TDOT in the case currently on appeal) often argue the language in the scope of work specified in the contract is readily apparent and, therefore, the contractor should not be permitted to introduce its proposal as evidence on the issue of ambiguity. However, a court may conditionally consider extrinsic evidence, including the proposal, for the purpose of determining whether a contract is ambiguous. If the signed contract is reasonably susceptible of two or more meanings, the courts would likely consider the public owner's interpretation of the scope of work and the contractor's proposal.

Who Can Help Interpret a Construction Contract?  Using the above two examples, the rules are pretty clear that the court must look only to the four corners of the contract to interpret its provisions. Only where there is an ambiguity can the court look to extrinsic or parol evidence, including other writings, conduct of the parties, and industry practice.

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Last week I wrote a post about what is considered timely acceptance of a subcontractor's quote. My friend and former colleague, Brian Waagner, submitted a comment to that post, focusing on the importance of a written contract.  Brian also blogs at The Contractor's Perspective.  Brian's comments are on-point, so I have included them here as a guest post:

This case strikes me as an example of what happens when parties are not clear as to the terms of their contracts. While a written contract is not always necessary, the absence of a written contract when the circumstances indicate the parties expect to sign one is often a problem. 

Two other decisions make this point. In Jack Baker, Inc. v. Office Space Dev't Corp., 664 A.2d 1236 (D.C. 1995), for example, a developer advised an excavation subcontractor that it had been selected, but no formal subcontract had been signed. The subcontractor sued when he saw another contractor performing excavation work at the site, but his claim was dismissed on summary judgment because there was no written contract. In the court's view, the size of the project, the formality of the procurement process, and the ongoing negotiations as to the terms of the contract would make it impossible for a reasonable person to conclude that the parties had reached a complete agreement on all terms and conditions of the contract.

In Haughton Elevator Co. v. Donata Corp., 271 F. Supp. 958 (E.D. Va. 1966), Haughton submitted a bid for the installation of elevators. Donata directed Haughton to proceed while the parties discussed "final details" that would be necessary for the preparation of a "formal purchase order," but no purchase order was ever signed. The court rejected both Haughton's claim for lost profits and Donata's counterclaim for additional costs incurred to install the elevators. Both parties were "very experienced in the construction field" and their discussions made it clear that they did not intend to be bound until a formal contract was executed.

Excellent points Brian!  These are real-life examples of disputes about parties' expectations that were not fully nor clearly reduced to writing.

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If a subcontractor's quote does not contain a deadline by which it must be accepted, how late can the contractor accept the quote to be valid?  And when there is a dispute, who has the burden of proving that the contractor accepted the quote in a timely manner?

The court addressed these issues in Piland Corporation v. Rea Construction Co., 672 F.Supp. 244 (E.D. Va. 1987), a Virginia case involving a contractor's bid to perform work at a government facility.  The contractor solicited a quote from a subcontractor to perform certain paving work on the project. The subcontractor phoned in its quote to the contractor, and it also gave the same quote to other bidders. When the subcontractor learned that the contractor was the low bidder and had been awarded the contract, it phoned the contractor to see if it had been awarded the subcontract.

The subcontractor called a second time after waiting a week to pass without hearing from the contractor.  Four more weeks ... no response from the contractor.  Understandably, the subcontractor assumed that it did not receive the award for the paving work and closed its files.  Several months later, the contractor sent an agreement to the subcontractor to sign. When the subcontractor refused to sign the agreement to perform the work at the earlier quoted price, the contractor filed a lawsuit for breach of contract.

At trial, the court focused on whether the contractor had notified the subcontractor in a timely manner about the subcontract award. The court looked to local industry practices, which dictated that it was customary for prime contractors to notify selected subcontractors within 30 days after notice of acceptance of its bid.  The court also determined that telephone notification was an acceptable industry standard. 

Ultimately, the court concluded that the contractor was unable to show by a preponderance of evidence that it timely notified the subcontractor of its acceptance of the quote.  Much of the decision was based upon credibility findings, where the court found the contractor's evidence to be weak and unconvincing.  The contractor's estimator could not remember details of the all and had one minor notation about notice to the subcontractor that read: "Called 2-2-84, bid okay."

On the other hand, the subcontractor's estimator was so positive in his testimony that he received absolutely no notice of acceptance and he closed out the file.  The court concluded that there was no acceptance of the bid and, therefore, there could be no breach of contract without a binding contract in place.

This case outlines the problems contractors may encounter when they fail to document all their actions. The contractor should have given written confirmation of notice of the award and acceptance of the subcontractor's bid.  Even if notice is given by telephone, it should be properly documented as well.  Finally, as to what constitutes a "reasonable time" to accept a bid, the parties should include the time for acceptance in the written offer to avoid a determination by industry practice.

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Owners, contractors, and subcontractors in Kentucky should carefully review their legal claims given a recent Kentucky Supreme Court decision.  On June 16, 2011, the Court joined the majority of other states and adopted what is commonly know as the economic loss doctrine.  Now, claims against  suppliers for product defects are legally limited to the parties’ contract and warranties. 

In Giddings & Lewis, Inc. v. Industrial Risk Insurers [pdf], the Court held that “a manufacturer in a commercial relationship has no duty under a negligence or strict products liability theory to prevent a product from injuring itself.”  Ending years of speculation regarding the applicability of this doctrine in Kentucky, the Court wrote: "We believe the parties’ allocation of risk by contract should control without disturbance by the courts via product liability theories.” 

In Giddings & Lewis, the manufacturer sold a sophisticated machining center to an industrial company.  After seven years of continuous operation, and after the contract’s express warranty expired, the machining center malfunctioned, throwing huge chunks of steel across the factory floor.  The costs of repair and other business damages were almost $3 million.  After reimbursing the machine’s owner for its losses, a consortium of insurance companies asserted a subrogation claim against the machining center’s manufacturer.   With the warranty expired, the insurance companies sued in negligence, strict liability, negligent misrepresentation, and fraudulent misrepresentation. 

Applying the economic loss doctrine, the Kentucky Supreme Court held that the purchaser could not recover from the manufacturer under any tort theory.  The consortium was limited to contractual remedies, all of which expired years earlier.  The Court side-stepped the claim for fraudulent misrepresentation, leaving it for another day, by holding that the insurance companies’ were actually claiming “fraud by omission,” which they could not prove as a matter of law. 

Caveat emptor is alive and well in Kentucky.  Construction project participants should review contracts carefully and negotiate warranties.  Recovery will be limited to contract terms and statutory remedies.

Hat tip to Cassidy Rosenthal and John Tate for the original write-up.

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A few of my favorite parts of a holiday picnic are: kids running through sprinklers, very cold watermelon, crispy hot dogs, and the Charlie Daniels Band blaring over the speakers.  (... yep, the devil went down to Georgia ... he was looking for a soul to steal ...)  I do not intend to equate the devil with immigration reform, but keep reading so that you can make your own decision.

Last week, Georgia law makers enacted the Illegal Immigration Reform and Enforcement Act of 2011, which will change the requirements for doing work on construction public projects in Georgia.  The existing law (OCGA 13-10-91) already requires a contractor bidding or contracting with a public owner to provide an affidavit attesting that:

1. it has registered with and is authorized to use E-Verify;
2. the contractor's user ID number and date of authorization; and
3. it is using and will continue to use E-Verify throughout the contract period for all newly hired employees or subcontractors. 

First and second tier subcontractors are also required to register and participate in E-Verify to verify info of all newly hired employees.  Notice of the identity of any new subcontractors on the project is required to be sent to the owner within five business days.

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There's a debate in Congress.  There's a debate in Congress between Chicago's two senators.  There's a debate in Congress between Chicago's two senators about privatization.

Last week, Bob Sechler of the Wall Street Journal described newly introduced legislation from Senator Dick Durbin (D-Ill) called "The Protecting Taxpayers in Transportation Asset Transfers Act."  The bill seeks to require that U.S. government money spent on state and local transportation projects be repaid before the assets are leased or sold to private operators.  In Sechler's words, this could "potentially crimp[ ] the ongoing national push toward privatization."   The bill could create a federal lien to project the public's investment: 

Under the bill, a federal lien would be attached to all transportation projects that have received more than $25 million in federal funding, or that are valued at more than $500 million and have received federal funding. The lien wouldn't be released until the money is repaid, based upon a depreciation formula, and "the parties agree to take action to increase transparency and public input in the privatization transaction."

Already, Jon Hilkevitch of the Chicago Tribune is reporting about a new plan to be unveiled this morning by Senator Mark Kirk (R-Ill) that challenges the method of investment proposed by Senator Durbin.  Under the proposed "Lincoln Legacy Infrastructure Development Act," Senator Kirk and his co-sponsors want to make it easier for governments to lease public transportation assets or enter into partnerships with private companies to build them.

If you are involved in the transportation construction industry, this is a fight worth watching.  The two pieces of legislation go the heart of the debate: that is, What is the proper balance of the private-sector's role in constructing roads, airports, railroads and other transportation facilities?   On one end of the spectrum is the importance of protecting the public's share of investment before major transportation projects are leased or sold.  The counter-concern is to eliminate barriers for innovative funding for highways, bridges and other infrastructure at a time when there is little to no public funds available. 

I previously wrote about whether PPPs could help revive highway and bridge construction.  I have also written about some problems with partnering on construction projects, whether you are talking about PPPs or some other partnership arrangement between owners/developers and contractors.  This will continue to be a debate in the political halls, but doing nothing is not an option.

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Last month, Tennessee Department of Transportation (TDOT) suspended all current bridge construction projects by Britton Bridge, LLC and related companies until they performed an independent review of their safety procedures.  This action came as a result of a second on-the-job fatality of a worker at the Henley Bridge project in Knoxville, TN, since January 2011.

But the inquiry has not stopped there.  Earlier this week, the Department of Homeland Security's Immigration and Customs Enforcement took lead of the investigation into the two fatal worker accidents to determine whether the Britton knowingly hired illegal immigrants. According to the report, an illegal immigrant had a role in the first accident in January and the second victim last month may have also been working illegally.

As a contractor, what do you need to know about the immigrant status of your employees or subcontractor's employees?  Here is what the law requires for public projects in Tennessee: 

• The state shall not contract for goods or services from any person who knowingly utilizes the services of illegal immigrants in the performance of the contract.
• That means, no contractor can knowingly utilize the services of illegal immigrants in the performance of a contract with the state.
• Effective January 1, 2007, the contractor must attest in writing that it will not knowingly utilize services of illegal immigrants.
• If a contractor does so, then he may be barred from public contracting for a period of one year.

So, how does the contractor comply with the state law?  First, it should include an appropriate attestation clause in its prime contract with the state, which may look something like this:

Contractor attests, certifies, warrants, and assures that it shall not knowingly utilize the services of an illegal immigrant in the performance of the Work and shall not knowingly utilize the services of any Subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.

The next step for the contractor is to include a similar requirement in its subcontracts, which may look something like this:

Contractor has agreed to comply with the immigrant labor provisions of all applicable laws, including Tennessee Code Annotated, Section 12-4-124. Accordingly, Subcontractor agrees that it will not knowingly utilize the services of illegal immigrants in the performance of the Work. Additionally, upon execution of this Subcontract, Subcontractor shall provide a written attestation in the form of the attached “Addendum” stating that it will not knowingly utilize the services of illegal immigrants in the performance of the Work.

This information may be helpful for projects in Tennessee and you should check with your attorney to review the applicable state and other Federal labor requirements for public projects.

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Let's get ready to rumble! According to an ENR-Southeast article by Scott Judy, the road builders in Florida are preparing for another fight against legislators who have raided the state's transportation trust fund.  This is the second year in a row the Florida legislature has taken measures to raid the transportation funds for general uses. Last year, the raid was only prevented by the veto from then Governor Charlie Crist.  As reported by Scott Judy, Governor Rick Scott is considering a veto of this year's raid. 

Groups such as the Florida Transportation Builders' Association are gearing up for the second round fight.  Bob Burleson, president of FTBA, recently commented, "[We] could not be more disappointed with the tone and actions of Florida's lawmakers. . . . Governor Rick Scott campaigned on a job-creation platform, and we are confident he will consider a veto of this anti-jobs legislation.”

Aside from the political issue, there is a legal component to the analysis: Can a state legislature so easily sidestep the restrictions it puts on the use of state trust funds? This issue has been contested in a recent series of court cases across the country.

Facing deficits between 2001 and 2004, the Colorado legislature passed a series of acts directing the state treasurer to transfer over $442 million from thirty-one earmarked funds to the state’s general fund. Three of these earmarked funds were designated as “trust” funds by statute. A group of Colorado taxpayers challenged the transfer of the earmarked funds in a case called Barber v. Ritter. Among other things, the taxpayers argued that the three “trust” funds were irrevocable trusts that the legislature could not unilaterally revoke.

The case made its way to the Colorado Supreme Court, which decided in 2008 that the legislature could transfer the funds, including the “trust” funds. The court reasoned that the legislature could not use the statutes creating the “trust” funds to modify its constitutional power over appropriations. The court concluded: “[E]ven if the cash funds are public trusts, they are not irrevocable trusts, and the legislature has the authority to amend them to allow for the transfer of monies to the General Fund.”

A similar challenge to legislative raids of earmarked funds was also recently decided by the Supreme Court of Ohio.  The plaintiffs in Ohio argued that their legislature’s raid violated the Contracts Clauses of the state and federal constitutions.  The trial court agreed, finding that the raid on the earmarked funds was unconstitutional.  Both the Court of Appeals and the Supreme Court of Ohio reversed, finding that the legislature had plenary power to enact the targeted legislation.  

Another case pending in the Illinois Supreme Court addressed a similar constitutional challenge: whether the legislature's raid on earmarked trust funds violated the Takings Clauses of the applicable constitutions.  Like the Ohio case, the court in Illinois must decide whether the legislative earmarking creates an irrevocable trust.  The Illinois raid was upheld by both the trial court and the appellate court, but one of the three appellate judges dissented. The dissent plainly states that the legislature can create an express trust, and found “the legislature’s use of the term ‘trust fund’ to be compelling evidence that it intended to create a trust.”

It will be interesting to see if the Supreme Court of Illinois follows Colorado’s lead. If they do, it seems that state legislatures are as free to re-appropriate “trust” funds as any other funds. This is alarming for those concerned with transportation trust funds, which have been frequent targets of legislative raids in recent years.

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Last year around this time, I blogged about a new report indicating that half of the construction industry was using building information modeling (BIM) on their projects.  Last week, the BIM community lit up in response to an article by Nadine Post, which was featured in both Engineering News-Record and Architectural Record.

A representative of XL Insurance provided to ENR the background to a recent dispute over the construction of a life-sciences building at a major university.  According to the article, this is the first known claim related to the use of BIM by an architect. 

On the project, the architect and its MEP engineer used BIM to fit the MEP systems into the ceiling plenum.  When the contractor was about 70% through assembly, it ran out of space in the plenum.  It came to light that the design team failed to inform the contractor that the extremely tight fit of components depended on a specific installation sequence.  In the end, everyone sued: the contractor sued the owner, the owner sued the architect, and the insurance carrier sued the MEP engineer.

The settlement was confidential and there is little information about the identity of the parties, the amount of settlement and the terms of the agreement.  But, based upon the ENR article, as well as best practices generally, here are some lessons learned when using BIM:

• Communication within your own team.  Although not highlighted in the article, it goes without saying that most construction disputes are 90% fact driven and 10% law driven.  This may be a generalization, but lawsuits are about losses and responsibility for those losses.  The parties' contract or the applicable law my allocate the risk to one particular entity, but often the dispute is fueled by the facts of the case.  Here, it becomes imperative that your own project team members (from estimating, to scheduling, to field conditions, to contract administration) regularly talk with each other to avoid miscommunication.
• Communication among the project team. The primary lesson is highlighted by what Nadine Post calls "poor communication" on the project.  According to the insurance carrier, the "'design team never discussed the installation sequence with the contractor, and the contractor wasn't sophisticated enough' to understand the importance of assembling the components in a certain order."  As you would suspect with integrated projects, communication among all project team members can help avoid problems stemming from design to construction.
• Communication per the contract documents.  If you follow construction industry trends related to contract documents, you know that both the AIA and ConsensusDOCS have a working set of documents focused on integrated project delivery.  Here is a comparison of the two groups' documents related to IPD.  In the end, you should make sure your written agreements conform to your understanding and expectation of how the parties will communicate, what information will be communicated, and what happens in the event of lack of communication ... or a dispute.

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A portion of my construction practice involves employment issues.  You can imagine the types of employment-related questions that arise on the project site:

• Hiring, firing and layoffs
• Harassment and discrimination
• Wage payment and commission claims
• Employee policies, including computer use and social media
• On-the-job injuries and fatalities
• State and Federal OSHA requirements
• Prevailing wage laws, including Davis-Bacon Act
• ... and the list goes on!

If you are a contractor who received Federal monies under the Stimulus Act, then you should be aware of your obligation to comply with affirmative action and equal opportunity laws.

According to this Business Record article, the Federal Stimulus Act "has contractors looking over their shoulders when it comes to hiring workers."  Reporting requirements mandate that contractors track employee information, including race, gender and veteran status. In addition, contractors must show that their tracking efforts are working in the hiring process. Ultimately, the contractor will have to demonstrate a diverse workforce.  The Office of Federal Contract Compliance Programs announced late last year that it would step up enforcement efforts.

What can you do to ensure success?  Here are a few tips:

1. Identify whether your project requires compliance.  You would be surprised to learn how few contractors actually know whether their project is subject to review of OFCCP auditors.  If the project used $1 of Federal monies, then the job falls under US Department of Labor oversight.
2. Maintain good documentation.  If you are tracking your hiring efforts electronically, then it will be easy to maintain this information in the event of an audit.  The more problematic scenario arises when you do not have a written protocol for hiring practices and you do not keep records maintained in an organized fashion.
3. Cast a wide net in your hiring endeavors.  Job outreach efforts should include religious groups, nonprofits and other organizations.  Contractors need to seek out ways to spread the word about available jobs to as wide a population as possible.

The lesson is not about who you hire ... it's about how you hire.

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Yesterday, highway and bridge contractors in Tennessee received an alert from from TDOT officials about the affect of heavy rain in the area: "I'm sure most are aware of the anticipated rise in the Mississippi River, but could you please share with all that are working in the Mississippi River area and the backwater areas of the Mississippi that they may want to consider moving to higher ground in the next weeks. Thanks." 

The warning came with more details from the Army Corps of Engineers about excavation activities near a floodwall and the rising waters:

. . . [W]e have analyzed the construction excavation immediately adjacent to the floodwall and have determined that when the Memphis Gage reaches a reading of 38, with predicted additional rise, the excavation adjacent to the floodwall must be filled in. The Mississippi River will reach 38 sometime next week with significant additional rise forecasted. . . .

Based on the predicted stages, significant uplift pressures are possible for some distance from the wall. These excavations may also need to be filled in order to ensure the integrity of the flood risk reduction system. . . .

The river stages currently being predicted are historic in nature and will test our flood risk reduction systems at a new level.

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. 2009), 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.

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In the weeks leading up to the ABA Forum on the Construction Industry's annual meeting in Scottsdale, Arizona, a number of construction attorneys and I were feverishly reviewing submissions for this year's Construction Law Update.  The document is a compilation of cases and legislation affecting the construction industry.  The updates are provided throughout the year by attorneys all over the country.  

The following are examples of the types of information that you will find in the Construction Law Update: Cases and Legislation Affecting the Construction Industry (2010-2011):

• ARKANSAS: In Crumpacker v. Gary Reed Constr. Inc., 2010 Ark. App. 179, __ S.W.3d __ (Ark. App. 2010), the Crumpackers filed suit against Gary Reed Construction alleging that it had breached the implied warranty of habitability. Although this case does not represent a drastic change in Arkansas construction law, it provides a clear understanding of the facts required of a plaintiff in order to pursue a breach of implied warranty of habitability claim.
• CALIFORNIA: Assembly Bill modifying California Civil Code Sections 3084 and 3146. Assembly Bill 457 modifies California’s mechanic’s lien statutes with new notice requirements. The new law requires that a mechanic’s lien and Notice of Mechanic’s Lien now be served on the owner of the property, or on the construction lender or original contractor if those parties cannot be served. A proof of service affidavit must be completed and signed by the person serving the Notice of Mechanic’s Lien and would be included as part of the mechanic’s lien. The lien is unenforceable if it is not properly served according to the new statute. [NOTE: The legislation was scheduled to go into effect on January 1, 2011.]
• GEORGIA:  The Georgia Constitution was amended in 2010 to implement the Georgia Restrictive Covenants Act, O.C.G.A. § 13-8-50, et. seq., which dramatically changed the law regarding restrictive employment covenants in Georgia. In addition to providing express guidance to employers as to which types of covenants are enforceable (previous guidance had come only through caselaw), the Act allows courts to “blue pencil”, or edit, otherwise unenforceable restrictive covenants to make them enforceable. The new statute is effective January 1, 2011.
• TENNESSEE: In Ray Bell Construction Co., Inc. v. State, No. E2009-01803-COA-R3-CV, 2010 Tenn. App. LEXIS 737 (Tenn. Ct. App. Nov. 24, 2010), the Tennessee Court of Appeals affirmed the claims commissioner’s award of $2.5 million to the plaintiff. The case concerned an alleged breach of contract involving the incentive clause of a Tennessee Department of Transportation ("TDOT") road construction contract. Before the Claims Commission, TDOTargued that the contract language was clear in prohibiting an extension, alteration, or amendment of the incentive clause. The Claims Commission disagreed and found that the plaintiff was entitled to a modification of the incentive provision based on admissible parol evidence. Agreeing with the Claims Commission, the Court of Appeals held that “a definite latent ambiguity exist[ed] for which parol evidence not only [was] admissible, but frankly,absolutely necessary in both understanding and deciding the issues in this case.”

There are updates from all over the country.  In addition, we have included references to recent federal regulations and administrative rulings that affect the construction industry. If you would like a copy of the Construction Law Update, please send me an email.

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Not a week goes by that I don't receive a telephone call or a question from someone asking general bid protest questions.  While a bid protest dispute will largely differ based on whether it is a local, state or federal project, here are some ways you can prepare: 

• Be prepared to follow the rules.  Public entities such as a state department of transportation usually make their own rules and procedures pertaining to bid protests.  It is absolutely necessary to understand and comply with the applicable rules and procedures ... whether the guidelines relate to notice, timing, basis, and supporting documentation. You will also find that some states tend to have more protests than others, which may give you an understanding on the "climate" for how a protest will be received by the agency.
• Be prepared for a quick ride.  Depending on your state, there may or may not be a public notice period for an award of a contract.  However, if your company is a disappointed bidder, you will want to be prepared to act as quickly as possible following bid opening.  Some states, like California, post information about their contract awards and bid protests on their state website. 
• Be prepared to post a bond.  Many states such as Florida require a protester to post a bid protest bond securing payment of the costs associated with the bid protest. This is usually a statutory requirement and the failure to post a bond can be grounds for rejecting the protest.

Most of all ... Be prepared to fight.  If a protest is timely filed, in most situations the contract will not be awarded by the public agency until the issue is resolved. However, in some instances, you may be required to seek a temporary restraining order or preliminary injunction prohibiting the award of the contract pending a full hearing.

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A recent article in the Nashville Business Journal equated a joint venture on a construction project to a marriage: "Want a successful joint venture? Think seamless."

The article offered several points of what should be addressed in the joint venture agreement before pursuing work: 

1. Address potential consequences.  Parties should address the potential consequences of joining finances and forces for the joint venture.  When disputes arise, how are the parties going to resolve them?  What should the agreement say about permissible and prohibited activities, such as hiring away employees?
2. Divide the duties.  The agreement should clearly outline the respective duties of the parties, whether relating to performance of work, management, and decision making. 
3. Split the proceeds.  The agreement should also address how the parties are going to divide the proceeds from the contract.  This often depends on the investment of the parties, whether monetary and non-monetary.
4. Contemplate duration.  Remember that the joint venture generally lasts through the life of the project.  It is important to consider warranties when contemplating the duration of the parties' agreement.

The article not only speaks about matters of the mind (...the legal obligations of the joint venture partners ...), it also recommends matters of the heart: "Experts agree that forming that seamless partnership is key in all joint venture situations."  In other words, the success of the joint venture will often depend on the integrity, character, commitment and relationship of the parties, as opposed to simply the agreement between them.

This is more than legal mumbo-jumbo, particularly for highway and bridge contractors. At the federal level, there are contract set asides for companies certified under the Small Business Administration's 8(a) program.  At the state level, where most DOT work is allocated, each state and local transit agency must establish a goal for the participation of Disadvantaged Business Enterprises (DBE).  Partnering with an SBA 8(a) or DBE contractor can meet these requirements.

But each state will have specific guidelines and requirements for joint ventures on projects.  For example, Washington DOT has a set of pre-qualification guidelines (pdf) for what is required of joint ventures on their projects.  Similarly, at the federal level, the FAA and the USDOT have issued a Joint Venture Guidance document (pdf) for DBEs.  The real lesson is to make sure to explore and understand the legal requirements when you set out to establish a joint venture on a construction project, particularly if it involves minority participation.

Image: Belvoir Army Engineers

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As reported in the Nashville Business Journal and News Channel 5 (video), a non-discrimination bill passed on a second reading at Metro Council last week.  The council voted 21 to 16 in favor of the bill that would add two new classes to the procurement code Metro contractors already follow. These companies would not be able to discriminate on the basis of gender identity and sexual orientation if it passes.  

A copy of the non-discrimination bill can be found here.  The bill must pass a third and final reading at the next council meeting set for March 15, 2011.  As reported, Mayor Karl Dean said that he would sign the bill into law.  According to The Tennessean, more than 181 other communities across the country have adopted similar policies.

What does the proposal mean to contractors?  If the legislation is passed on the final reading, contractors and suppliers who work with Nashville would have to offer workplace protections for homosexuals and transgender individuals.  In its simplest terms, contractors who do business with Metro would be required to add gender identity and sexual orientation to their non-discrimination policies.  In addition, the parties' contract must include an affidavit of compliance, which should be part of the bid documents.  The law reads:

The purchasing agent of the metropolitan government shall include in all bid specifications or invitations to bid a provision to the effect that no contract shall be entered into for building and construction projects or supplies or services unless the successful bidder submits an affidavit to the metropolitan government stating that by his employment policy, standards and practices he does not subscribe to any personnel policy which permits or allows for the promotion, demotion, employment, dismissal or laying off of any individual due to this race, creed, color, national origin, age, sex, gender identity, or sexual orientation, and that he is not in violation of and will not violate any applicable laws concerning the employment of individuals with disabilities.

As amended, the law excludes businesses with less than 15 employees and it does not not apply to religious institutions.

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Initially filed as a class action suit in October 2010 against the USGBC, Henry Gifford's lawsuit took a turn this week when he filed an amended complaint.  The original lawsuit alleged violations of the Sherman and Lanham Acts for “deceiving users” of the LEED rating system.  The lawsuit questioned whether "LEED buildings use less energy than conventionally-built buildings.”

Gifford's amended complaint ([pdf) focuses on claims of false advertising under the Lanham Act and state law, as well as a claim for deceptive trade practices under state law.  Again, it is no longer a class action, but instead alleges certain damage to Gifford and a few others as professionals in the industry.  The amended complaint states:

USGBC's false advertisements divert customers from Plaintiffs to professionals accredited by USGBC and/or its affiliates who provide advice about how to obtain LEED certification. Plaintiffs are losing customers because USGBC's false advertisements mislead the consumer into believing that obtaining LEED certification incorporates construction techniques that achieve energy-efficiency.

Should Owners and Contractors Worry about Gifford's Suit Against USGBC? At this point, the answer is a simple ...  No ...  While it is interesting to follow the legal commentary about the lawsuit, the claims are in their infancy stage.  The USGBC will be afforded an opportunity to challenge Gifford and his co-plaintiffs' standing to bring the law suit.  "Standing" is one of those Law School 101 principles that says a party must demonstrate to the court sufficient connection to and harm from the action challenged.  In other words, they must have a dog in the fight.

Whether you are an owner-developer or contractor working with a green project, the real lesson from the Gifford show is to address LEED certification and energy performance in your contracts.  As an owner, you may want the LEED certification from the USGBC and you may want your building to achieve a certain energy performance.  As a contractor, you cannot guarantee certification, but you may be obligated to construct the building with certain performance guarantees. 

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A few months ago, I did a webinar on project documentation.  At the end of the webinar, one of the participants asked, Are digital signatures as good as hard copy signatures?

I addressed this exact question in a feature article that I wrote for ABC's Construction Executive magazine on the paperless construction project.  In the end, the question raises issues involving both contract formation and evidentiary proof.

As to contract formation, some commentators have found a distinction between an electronic signature and a digital signature.  However, the real issue depends on whether the parties manifested an intent to be bound by the contract provisions.  If it can be shown that the digital marking ... whether by affixing an image of a signature, typing the name of the party on the signature line, or clicking an "I accept the terms of the agreement" button ... then it is likely that the signature will form a valid and enforceable contract.

The next question involves one of proof: Is an electronic document more likely to prove a claim than a hard copy document?  The courts respond differently.  One appeals court in Montana has held that an email was sufficient to support a finding of increased costs for a change order, while another court in North Carolina concluded that an email promising additional work was not an enforceable contract for purposes determining whether a change order was valid.  A case in Florida demonstrates that an electronically faxed release was not the same as the original document because one party demanded the original to be provided.

An electronic document can be the basis of a contract. A digital photograph can be used to demonstrate installed quantities. An electronic schedule (and its logic ties) can be used to impeach a witness. Ultimately, the form of the document may not have as great an impact as the intended purpose of the document.

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Today's guest post is by fellow Stites attorney Bob Goodrich, Jr., who has been designated by the American Bankruptcy Board of Certification and the State of Tennessee as a specialist in business bankruptcy. For more then 25 years, Bob has represented creditors, creditors' committees, landlords, and other interested parties in bankruptcy and insolvency related matters in state and federal courts. If you have questions, you can contact Bob by email or phone at (615) 782-2231.

Bankruptcy lawyers are often asked to “bankruptcy proof” a transaction, and they often explain that an agreement not to file bankruptcy or under which property is forfeited or a contract terminated by a bankruptcy filing is likely unenforceable. There are, however, bankruptcy proofing tactics which have some degree of success, as illustrated by In re DB Capital Holdings, LLC, BAP No. CO-10-046, Bankr. No. 10-23242 (10th Cir. BAP December 6, 2010).
 
In this case the Debtor was a Colorado LLC that owned a condominium project, encumbered by a mortgage loan in favor of WestLB AG (“WestLB”). The Debtor’s manager attempted to put it into bankruptcy. The Debtor’s operating agreement originally did not expressly empower the manager to file bankruptcy for the LLC and stated that the manager must cease operating as manager “upon dissolution or bankruptcy,” necessitating a change in management if a bankruptcy were filed. The LLC agreement also prohibited the manager from doing any act that would make it impossible to carry on the ordinary business of the LLC. Citing previous authority, the bankruptcy court and the appellate court agreed that filing a bankruptcy prevented the LLC from carrying on the ordinary course of business. Both courts found that the manager was not authorized to place the LLC in bankruptcy. Additionally, an amendment to the LLC agreement, inserted after some negotiations with WestLB, expressly prohibited the filing of a bankruptcy. The court found no evidence of coercion but found it did not need to opine on that issue because it concluded the LLC was not eligible for bankruptcy under the original LLC agreement.
 
The case is a reminder that an entity’s ability to act, including its power to file bankruptcy, is based on state law and the authorizing documents that empower the entity to act. To the extent that such authorization is not present, the entity cannot file bankruptcy, but it can be placed into bankruptcy involuntarily by its creditors. Also, so long as the members vote to change the LLC agreement, it can be amended to empower the filing of a bankruptcy.  If, however, the requisite voting is not there, no amendment can be made. Lenders sometimes control a vote or votes so that the requisite votes cannot be obtained to empower the entity to file bankruptcy, but these arrangements sometimes raise breach of fiduciary duty issues with respect to the holder of the vote who is acting at the direction of the lender.

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As many of you know, I am involved in the ABA Forum on the Construction Industry, which is the largest organization of construction lawyers in the United States and abroad.  The mid-winter meeting is coming up on January 20, 2011 in New York City.  The one-day conference focus is "Do You Think it's Alright? Pushing the ADR Envelope." You can register online here.

Don't know much about the Forum?  Never been to a Forum conference?  Don't think it is worth your time or money?  Ask me, What do you get out of the Forum, Matt?  Go ahead, ask me!  I will tell you:

1. An opportunity to take your practice to the next level.  Although I had been a member of this ABA group since I graduated from law school, I did not get involved for the first 8 years of my career.  Yep, I paid annual dues and did not go to one single conference. Call it an expensive newsletter subscription!  Then, in 2006 one of my partners challenged me to get involved or get out.  That decision four years ago was one of the catalysts to take my practice to the next level.  I made commitment to attend at least one conference a year, establish relationships within the industry, and get involved in the Forum's work.  In the years since, I've had tremendous speaking and writing opportunities.
2. An opportunity to meet and work with the top construction lawyers in the nation. Once I jumped into the Forum's activities, primarily by joining one of its twelve divisions, I began to meet many of the "construction lawyer greats" who I had read about in various construction publications (like construction-writing-guru Patrick O'Connor) or who acted as an arbitrator in multi-million dollar disputes (like dispute-arbitrating-Superman Adrian Bastianelli). I am honored to have worked with some of the top construction lawyers who I have met through the Forum.
3. An opportunity to contribute to the construction industry.  Contrary to what my wife thinks, we do a lot more than travel, eat and drink at Forum events.  The first year I got involved in the Forum, I volunteered to coordinate and help publish Division 10's Construction Law Update, which was a compilation of case law and legislation affecting the construction industry.  That first year we had contributions from 35 states.  Fast forward to 2009-2010, and we had all 50 states, plus Puerto Rico, plus an update on environmental and federal legislation affecting the construction industry.  Below are copies you can download.

Download Construction Law Update 2006

Download Construction Law Update 2007

Download Construction Law Update 2008

Download Construction Law Update 2009

For the non-attorneys, thanks for your indulgence in reading this post.  Perhaps you can review what's been happening in your state over the past few years on the construction legal front. 

For the attorneys, now is the time to get involved.  Make the decision to get out of your comfort zone and meet some great construction lawyers and consultants by attending a Forum meeting, by joining a division, or by putting your name into the hat as an author or speaker.  You can even contribute to the 2010 Construction Law Update by sending me an email.  And don't forget, the Forum is Twitter (@ABAConstruction) and LinkedIn.

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Last week, Jim Gray (chief executive of Gray Construction) flew to New York for a round of meetings.  As reported in the New York Times, it was Gray's newly acquired title as Mayor of Lexington, Kentucky that prompted his visit to New York to chat with Mayor Bloomberg.  Contractors and politics ... what can we learn from this duo?

There are significant similarities between the successful construction executive and the local politician.  Consider the NY Times' job description of the mayor:

. . . to oversee the police, fire and school departments, and to make sure the potholes are filled, the snow is removed and the budget is balanced. An energetic mayor can create jobs far more directly than the federal government — by helping lure new industry to town, or giving companies tax breaks to help them expand. He or she can push for new development — and then, with any luck, preside over the ribbon-cutting when the development is complete. It is probably the most hands-on job you can have in government, and the one where you can most easily see the fruits of your labor.

A successful construction executive, who is involved in all aspects of the company and its projects, has similar traits.  In the end, it is about being a "customer focused" leader — whether you a talking about mayor or chief executive officer. 

But you don't have to run for office to be involved politics.  It is equally important to follow the legislative trends, which you can do through industry groups like the Associated General Contractors of America or the American Road and Transportation Builders of America.   For example, earlier this year the Florida legislature attempted to raid the Transportation Trust Fund to pay for general expenditures.

Enter the contractor into the political process ... Bob Burleson of the Florida Transportation Builders’ Association (FTBA) recognized that the proposed raid would only push the real budget problems into the future, while freezing new transportation projects and eliminating tens of thousands of jobs in the present. An FTBA rally drew hundreds of protestors to Florida’s Capitol. This message came through loud and clear in Tallahassee: Governor Charlie Crist prevented the raid with a veto.

So, whether you are seeking govern a city with sound business experience like Jim Gray or seeking to defeat bad policies and legislation like Bob Burleson ... get involved!

Image: wallyg

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If you are a contractor, you love hearing about these types of boxing tales: Contractor works his butt off. Owner benefits from the accelerated work. Contractor seeks early completion bonus. Owner rejects the claim based upon technicality. Contractor fights in court ... fights on appeal ... and wins! 

That is exactly what happened in Ray Bell Construction Co. v. TDOT (pdf), a 2-1 "split decision" released by the Court of Appeals of Tennessee on November 29, 2010.  In RBCC, the claims commissioner awarded Ray Bell Construction Company a $2.5 million early completion bonus.  The primary issue in dispute was whether the completion date in the parties' contract could be amended or moved to account for the impact of increased quantities and other delays.  TDOT argued that the completion date could be modified for purposes of the disincentive payment and liquidated damages, but under no circumstance could the date be modified for purposes of the incentive payment.  The contractor argued that the date could be modified for all purposes, including the incentive payment.

The primary issue in the litigation was whether the contractor could rely on evidence of other projects where TDOT had granted an extension to the incentive date.  During the dispute, the contractor learned from TDOT officials that there was a list of "existing" projects where TDOT and its financial participant, the Federal Highway Administration, had agreed in a set of letters between them that the incentive date could be moved, despite a change in FHWA policy.  Although the RBCC project was existing at the time of the TDOT-FHWA letters, it was not included on the list of "existing" projects. 

In the majority opinion, the court of appeals affirmed the claims commissioner's finding that “a definite latent ambiguity exist[ed] for which parol evidence not only is admissible, but frankly, absolutely necessary in both understanding and deciding the issues in this case."   In his dissenting opinion, Judge Swiney believed that the parties' contract was "crystal clear" in not allowing a modification to the incentive payment date.   The RBCC decision is a worthy read for a number of reasons:

1. The decision provides a good overview of the public contracting claims process. Like many other jurisdictions, the Claims Commission in Tennessee resolves claims involving tax recovery, state employee workers' compensation, negligence by state officials or agencies, and contract claims involving the State. The RBCC dispute went to trial before a claims commissioner and was appealed to the court of appeals.
2. The decision summarizes the two sides to a contract interpretation question.  Like almost every construction dispute, the contract will determine the rights and obligations of the parties.  In this case, a $2.5 million early incentive payment was at stake and the decision turned on whether there was an ambiguity in the parties' contact and what evidence could be used to resolve that ambiguity.  The majority and the dissent describe both sides to the issue.
3. The decision involves a truly "interesting" factual story.  As noted above, the dispute involved a multi-million dollar claim ... design delays ... easement delays ... unexecuted change orders ... quantity overruns ...  contract ambiguities ... a compelling letter by the state agency ... a compelling letter by the federal agency ... and much more.

Will there be a Round 3?  Don't know.  TDOT can file an application for permission to appeal to the  Tennessee Supreme Court, which must be filed within 60 days of entry of judgment by the Court of Appeals.  According to the appellate rules, the application shall be granted if two members of the Supreme Court are satisfied that the application should be granted.  In determining whether to grant the application, the Court looks to: (1) the need to secure uniformity of the decision; (2) the need to secure settlement of an important question of law; (3) the need to secure settlement of questions of public interest; and (4) the need for the exercise of the Supreme Court's supervisory authority.  At this point, it is a waiting game on whether there will be Round 3.

[Note: I was one of the boxers in the ring, along with lead counsel Greg Cashion of Smith Cashion & Orr PLC, at the trial court and court of appeals, but I moved law firms before oral arguments in the appeal. Special thanks to Greg for allowing me to write about this victory.]

Image: Fonzie's Cousin

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I have often wondered whether there is such a thing as too small a dispute.  Well, the parties in Earl Faulkner v. Tom Emmett Construction Company (pdf) determined to take their $3,000 construction dispute to the Tennessee Court of Appeals.  In the end, the Court gave some good instructions on the "first material breach" rule, which applies in many states.

 The Owners hired the Contractor to build a new driveway at their home.  The total contract price was $18,000 and the Owners refused to pay the balance of $8,000 because they were dissatisfied with the workmanship of the driveway.  The Owner sued the Contractor, seeking the cost to remove and replace the allegedly defective driveway. The Contractor claimed that the driveway was properly constructed and filed a counterclaim for the remaining $8,000 balance owed on the oral contract.

The trial court concluded that any problems with the driveway were not sufficient to require that it be removed and replaced.  Because there was a problem with how the concrete on one portion of the driveway had been poured, the trial court ordered the Owners to pay only $5,000 of the remaining
$8,000 owed on the contract.

The appellate court affirmed the findings of the trial court, but modified the judgment.  The court held that the Contractor committed the first material breach of the contract when it failed to construct the driveway in accordance with the plans.  Accordingly, the Owner was relieved of any obligation to pay:

A party who has materially breached a contract is not entitled to damages stemming from the other party’s later material breach of the same contract. Thus, in cases where both parties have not fully performed, it is necessary for the courts to determine which party is chargeable with the first uncured material breach.

. . . We conclude that [Contractor's] admitted failure to use a gravel base prior to pouring the driveway extension constitutes a material breach of the contract, thereby prohibiting [Contractor] from challenging [Owner's] later material breach of failing to pay the balance of the contract price.

Based upon the above reasoning, the appellate court concluded that the Owner was not required to pay the remaining $3,000 breach of contract damages awarded by the trial court. 

While the amount in controversy in Faulkner does not seem significant, the decision provides a good illustration of the first material breach rule.

Image: DavidDMuir

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Some court decisions provide little instruction for future disputes.  Other court decisions give you a great road map for analyzing your claims.  Every now and then you find a decision where the court is split and you wonder which side is right, such as the opinion in Davis v. McGuigan (pdf), issued by the Supreme Court Tennessee on October 26, 2010.

A husband and wife alleged that the appraiser, who was hired by the bank financing the husband and wife’s home construction, recklessly overestimated the value of their proposed construction and that they reasonably relied on the appraisal value to their detriment. The intermediary appellate court affirmed the trial court’s ruling, holding that an appraisal is an "opinion" that cannot form the basis for a fraudulent misrepresentation claim. 

In the (3-2) opinion by the Supreme Court of Tennessee, the majority held that an "opinion" can form the basis of a fraudulent misrepresentation claim. The majority also concluded that genuine issues of material fact precluded summary judgment as to the husband and wife’s claims against the appraiser.  The dissent reached a different conclusion as to the facts of the case: "Even though an opinion can provide the basis for a fraudulent misrepresentation claim, the undisputed facts in this record, and the inferences reasonably drawn from these facts, support only the following conclusions."

The opinion in Davis is 32 pages with both the majority and dissent opinions.  The majority opinion provides a good road map for what elements are required to prove an intentional misrepresentation claim, including an analysis of each element and the applicable factual allegations.  The dissent opinion provides a good road map of proof required to establish summary judgment and to shift the burden of production to the non-moving party.

If you are a legal practitioner, the Davis decision is worthy of a read (although it may take you some time to fully digest the two opinions).  If you are an owner, developer, seller or appraiser, be warned that opinions may be used to establish an intentional misrepresentation claim.

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In Kampert v. Valley Farmer Cooperative (pdf), an opinion issued on October 19, 2010, the Tennessee Court of Appeals validated a forum selection clause in a construction contract that specified venue in a county other than where the property was located. 

The primary issue in dispute was whether the proper venue in a case involving the breach of construction contract lawsuit should be the county named in the forum selection clause of the contract, or in the county where the construction project and land was located. 

In Kampert, the owner entered into an agreement with the contractor to construct an operational dairy facility on the Kamperts’ farm, including barns, sheds, and milking facilities. The contract contained a forum selection clause requiring that "venue for any litigation shall lie in the Circuit or Chancery Court for McMinn County, Tennessee.”

Following disputes between the parties, the owner filed a lawsuit in Giles County (where the property was located) for breach of contract, negligence, civil fraud, intentional infliction of emotional distress, and violation of the Tennessee Consumer Protection Act. The trial court denied the motion to dismiss for improper venue, holding that the property was located in Giles County and, thus, venue was proper.  Although this may seem to be a straight-forward analysis, the opinion contained some noteworthy points.

First, the venue issue must have been important to Tennessee jurisprudence because the Court of Appeals granted an "extraordinary appeal" under Rule 10.  The trial court concluded that the claim involved injury to land, which required that suit be brought in the county where the project was located.  The contractor filed a request for an interlocutory appeal, which the trial court denied. The appellate court granted the motion for extraordinary appeal, perhaps because the case addressed an ambiguous area of law or involved important legal issues.

Second, breach of construction contracts do not necessarily invoke a "local action involving land."  The appellate court noted the distinction between causes of action that are transitory versus local.  A transitory action is based on a cause of action of a type that can arise anywhere, whereas a local action can only arise in the particular county because the injury is tied to that locality.  Here, a breach of construction contract would be transitory, but an injury to property claim would be local.

Third, venue provisions and forum selection clauses are valid and enforceable.  Notably, the appellate court made a distinction between injury to existing buildings and injury to new buildings: 

In contrast, the alleged negligence in the present case involved faulty construction of new buildings on the plaintiffs’ land.  If we were to hold this to be a local action, it would effectively make all actions on construction contracts local, and it would render void any forum selection clause in a construction contract that designates venue in a county other than the one where the construction takes place.

The court found statutory support for its conclusion that contractual venue provisions are valid under Tennessee Code Section 66-11-208.

It is suggested that the dispute is resolved "for now" because it may be appealed to the Tennessee Supreme Court.  An interesting legal issue is the Court of Appeals' reliance on the statutory provisions of section 66-11-208, which address venue in cases involving real property. 

Subsection 208(a) provides that a contract requiring application of the laws of another state or requiring resolution of disputes in another state involving improvement of property in this state is void and unenforceable.  Subsection 208(b) provides that for projects partially located in Tennessee and partially located in another state, venue can be in any state in which part of the property is located. 

Although the provision expressly applies to multiple state disputes, the appellate court in Kampert concluded (perhaps correctly, perhaps incorrectly) that the provision applied to venue challenges involving two counties in Tennessee.  The "Supremes" may be asked to weigh in on the subject.  For now, contractual provisions calling for venue in one county involving construction projects in another county are valid.

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The Tennessee Court of Appeals released another opinion in a construction dispute earlier this week.  In East Tennessee Grading v. Bank of America (.pdf), the court grappled with competing ownership claims and made its decision primarily on grounds of timing.

In this case, the owner of a residential development did not pay the excavation contractor.  The contractor filed suit to enforce its $2 million lien for excavation and road work.  An agreed judgment was entered as to the contractor's claims against the owner, awarding judgment for materials and labor performed on the property.  It was discovered that one parcel of the total 150 acres of property was owned by someone other than the developer.  That small parcel was subject to a deed of trust in favor of Bank of America.

The trial court held that Bank of America had priority over the contractor as to 1.9 acres because the contractors had not filed its "Notice of Lien" in a timely matter to maintain priority over the subsequent owners pursuant to Tenn. Code Ann. § 66-11-112.  However, the trial court also held that the contractor had priority over Bank of America as to the remaining 4.46 acres because the contractor's Notice of Lien was filed before the Amended Deed of Trust in favor of Bank of America was filed.  The appellate court affirmed the trial court's decision

The decision provides some key practice points for lien claimants:

• You must know, understand and follow your deadlines.  The case was brought under the pre-2007 amendments and the court in East Tennessee Grading had to carefully walk through the timeliness of notice requirements.  Also, since the contractor abandoned the work based upon the owner's non-payment, there was an additional timeliness question for "completion or abandonment" of the work.  You need to make sure you understand all the notice requirements and filing deadlines.
• A lien may be enforced even against subsequent purchasers.  In limited circumstances, if a sworn statement is not recorded within the applicable statutory time period, the lien's priority as to subsequent purchasers or encumbrancers is determined as of the date of the recording.  In other words, you may lose priority over a subsequent purchaser even if the work was performed prior to the sale.
• Tennessee is now a "substantial compliance" state.  This is a new standard within the past few years. Tennessee lien law once required “strict construction,” as was stated in the East Tennessee Grading opinion.  However, the General Assembly changed the law in 2007 to require only “substantial compliance.”  The new statute is to be “construed and applied liberally.” T.C.A. § 66-11-148(a). This was a significant change in the law.

Image: Catherine on Flickr

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Construction projects (new and renovations) within the health care industry will undoubtedly see growth in the upcoming years.  Indeed, MedCity New reports that the Nashville medical mart (pictured below) is close to signing 15 new leases for the the new project, a major renovation of the existing convention center.   According to Medical Construction & Design, "Total spending on hospitals and other healthcare buildings continues to increase steadily, driven particularly by rapid expansion in public healthcare construction."

Not only does construction affect the health care industry, but health care affects the construction industry.  When Congress passed the new health care laws in March, it included some major provisions that will be "phased in" for the next few years.  According to the USA Today report, here are some of the provisions that may affect your construction company:

• Business tax credit: Effective now, small business with no more than 25 employees can receive a tax credit to help provide insurance to employees.  The credit will be up to 35% of the employer's contribution if the employer pays 50% of the total premiums.
• Retiree insurance coverage:  The government has included a $5 billion reinsurance program to allow employers to provide health coverage to those retirees over the age of 55 who are eligible for Medicare.
• High risk insurance coverage:  The government has also included a $5 billion temporary insurance pool for high-risk cases to provide coverage to individuals with pre-existing medical conditions or who have been uninsured for at least six months.
• Potential increased premiums:  Based upon three key provisions, there will be a likely increase in your insurance premiums to account for the additional coverages.  These provisions include: (1) insurance companies are barred from denying coverage to children who have pre-existing medical conditions; (2) insurance companies must provide coverage for dependent children up to the age of 26; and (3) insurance plans are prohibited from placing lifetime limits on how much they pay out to individual policy holders.

There are numerous other provisions taking affect in 2011 that may increase the premiums for your employees as well.

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Where's Waldo?  The real question is, Where's Matt?  If you've wondered where I have been the past few days, try looking in Texas and North Carolina.  I have been preparing to speak at two construction law conferences in two different states.  Look closely and you might find me.

On Thursday, I will be speaking at the University of Texas School of Law 2010 Construction Law Conference in Dallas, Texas.  I am speaking with Jeffrey Peters of Rimkus Consulting Group and our topic will be: "LEED 101 and Beyond: Incentives, Design, Construction Pitfalls, Certifications and Contracts."  In this workshop, Jeff and I will be talking about the design issues, contracts and certifications for green and sustainable development, including a look at the most common green standards and how they are used to certify green buildings.  We will also talk about the financial incentives driving developers to go “green” and some of the possible challenges with this type of construction.

On Saturday, I am speaking at the North Carolina Bar Construction Law Section Annual Meeting in Greensboro, North Carolina.  Our panel of regional construction lawyers will discuss common construction issues that arise in NC, SC, GA, TN and VA, including statutes of limitations and statutes of repose, lien and bond claim deadlines, contractual quirks and indemnity requirements.

What's in it for you?  Well, if you check back with me on Monday ... and send me an email, a direct message to Twitter @matthewdevries, or a LinkedIn message, I will send you a copy of one, the other, or both presentations.

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Just because you may win on appeal in one claim does not mean that you have properly preserved your other claims.  This was a hard lesson to learn for one developer in the case of B&B Enterprises v. City of Lebanon (pdf), a decision recently issued by the Supreme Court of Tennessee on August 31, 2010.

In B&B Enterprises, the developer of a residential subdivision filed suit against the City, alleging that the planning commission had denied it all economically beneficial use of its property by wrongfully refusing to approve the final plans for two phases of its subdivision. 

Although there is more history to this dispute, the real rub occurred after the developer appealed to the trial court the planning commission's refusal to approve the final plan.  Both the trial court and the appellate court held that the planning commission had acted arbitrarily and capriciously when it declined to approve the plans for Phases Two and Three.  Thereafter, the developer filed a complaint seeking monetary damages based upon claims of regulatory takings and violation of civil rights.

In those proceedings the City argued that the applicable one year statute of limitations barred the developer's claims.  Ultimately, the Supreme Court of Tennessee concluded that the claims were untimely because the developer "knew" that the City's conduct occurred when the planning commission denied the final plans.  The Court rejected the developer's claim that the City's actions were not "permanent" or "complete" because it sought (and won) judicial review of the planning commission's denial.  The Court reasoned:

The Planning Commission’s action on February 26, 2002, put B & B Enterprises on notice that its reasonable investment-backed expectations for the use of its property had been frustrated. Regardless of the eventual outcome of the judicial proceedings, the Planning Commission began interfering with B&B Enterprises’s economically beneficial use of its property by no later than February 26, 2002.

Do you see the fine line here?  The Court focused on the planning commission's actions and not the subsequent actions of the courts.  Again, it is the final decision of the agency that triggers the claim and not whether subsequent review of that decision provides relief.  Since I am a visual-learner, it may be easier to understand the time line this way:

UNTIMELY LAWSUIT = Planning commission's denial→ judicial and appellate review of denial → appellate reversal of denial → suit to seek damages relating to denial.

TIMELY LAWSUIT = Planning commissions denial → review of denial and suit to seek damages relating to denial → judicial and appellate review if necessary.

While you make not agree with the reasoning of the court's decision in B&B Enterprises, the lesson learned is one about preservation of rights at the earliest stage possible.  Know and understand your deadlines.

Image: husfse on Flickr

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I previously blogged about the historic flooding in Nashville in May, including insurance flood claims,  building permits for repairs, and statute of limitations on mold claims. I also recently blogged about the leadership lessons from the flood recovery by Colin Reed, the CEO for Gaylord Entertainment. 

It seems that there is a trend of newsworthy items involving the flood damage at Opryland, including recent news that Opry Mills just sued its insurers for more than $150 million in flood coverage.  As reported in the Nashville Post, the owner of Opry Mills Mall filed a lawsuit against its property insurers yesterday afternoon, alleging that the insurance companies wrongfully refused to honor a majority of the $200 million in flood insurance policies.  The complaint, available here, alleges that the insurance coverage denial could delay work to repair damage from the historic flooding.

The complaint filed by Greg Cashion provides an outline of the types of causes of action involved in a major property loss such as the flooding at Opry Mills. These include:

• Breach of contract.  This claim is for the insurance companies' failure to provide coverage within the terms of the insurance policies.  At dispute will be the applicability and meaning of the insurance policy terms, exclusions, and exceptions.  Notably, this lawsuit will involve the issue of whether the mall is part of a "high hazard flood zone" for which a certain $50 million limitation applies. The lawsuit alleges that the mall is not listed in such a zone.
• Estoppel.  This claim alleges that the insurance companies issued certificates of insurance to Opry Mills for full coverage and with "no mention" of any limitation of liability.  Under these circumstances, the complaint alleges, the insurance companies are estopped from relying on any limitation of liability clause.
• Declaratory Judgment.  This claim seeks a determination from the court that the policy coverage is valid and that there is no limitation of liability of $50 million.  The importance of declaratory relief, particularly in this instance, is to get a judicial determination as soon as possible so that funds will be available to complete the construction repairs.  
• Negligence.  There is a claim based upon the alleged negligent actions of the broker and agent of the insurers.  According to the complaint: (1) the broker/agent had a duty to Opry Mills to perform its services in a professional manner; (2) the broker/agent had a duty to correctly represent the coverages; and (3) the broker/agent breached that duty, which has caused in whole or in part the losses alleged. 
• Consumer Projection Act.  Finally, the complaint contains a statutory claim for violation of Tennessee's Consumer Protection Act for deceptive practices or practices declared unlawful for insurers.  If proven, this claim provides recovery for additional damages and attorney's fees.

As noted in the Nashville Post article, the lawsuit may drive the construction efforts.  According to Opry Mills president Gregg Goodman, "work will cease, delaying the mall’s reopening pending its success in this suit."

 Image: Ritab38315 on Flickr

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As I stepped out of the shower this morning, something stuck to the bottom of my foot.  It was Florida.  Actually, it was the puzzle piece of Florida from my daughter's USA puzzle map. I chuckled because yesterday afternoon I found this map on various statutes of limitations and repose for the entire country (pdf).

What is a statute of repose?  A statute of repose provides a date upon which the legal action no longer exists . . . and here is the kicker . . . whether it has accrued by that date or not.  In other words, for a construction defect case, there may be an applicable statute of limitations that says the property damage claim is barred if not brought within three years of discovery of the injury.  If the defect is not discovered in the new building until seven years after completion, then the claim would not be barred by the statute of limitations.  However, the statute of repose for a particular jurisdiction may be five years and the the claim could not be brought after five years from completion of the project. 

What is the law statute of repose in Tennessee?  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.

Statutes of repose are puzzling because the rules vary markedly from state to state.  As shown on the Construction Defects Statutes of Limitation and Repose map, each jurisdiction varies on the applicable limitations periods.  Some states like New Mexico have a ten-year statute of repose, while others have shorter periods.  Additionally, some allow for a discovery extension, while others do not. 

Here's a  tip! 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.

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Today's guest post is by Dan Douglass, a fellow construction partner  in the Construction Service Group at Stites & Harbison PLLC.  He is listed in the 2007, 2008, 2009 and 2010 Georgia Super Lawyers magazine and is listed in The Best Lawyers in America® (2009-2011) for Construction Law.

In these difficult economic times, lien rights are even more important to contractors as security for payment on construction projects.  Generally, a construction lien is a statutory claim against the owner’s property that secures payment for work performed to improve the property.  However, the devil is in the details, and every state’s lien laws are different.  In fact, some of the differences are surprising and even dangerous.  For example, did you know:

In North Carolina, subcontractors have a lien on funds held by the project owner, in addition to the general contractor’s lien against the real property.

In Tennessee, while there is no lien on funds, the owner is required to establish a separate escrow account to hold retainage for the benefit of contractors.

In Florida, filing an overstated claim of lien can not only forfeit your lien rights, but also render you liable for the owner’s attorney’s fees. 

In Georgia, a lien waiver becomes effective after 60 days, even if you have not been paid. 

In Kentucky, a contractor that improves real property under circumstances where a mechanic’s lien may be filed must use each owner payment to pay bills for labor and materials on that project or risk criminal penalty. 

To continue reading Dan's post and learn about the specific lien statutes, please click here.

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Last Sunday, the headline from the Tennessean read "Unions shrink but stay active."  Although the article focused on the use of union labor on Nashville's convention center project currently underway, it provided a glimpse of the bigger picture of what is happening with labor groups in the construction industry.

In Tennessee, the percentage of work force represented by unions has decreased from 10% to 6.6% over the past ten years.  Union work on the Music City Center has shown signs of promise, as organized labor won a spot in three major subcontracts (electrical, steel and plumbing) estimated to be worth more than $100 million in work.

But what is the real lesson behind these figures and reports?  I think two driving factors on use of union labor are locality and project type.  Here is what I mean:

• A state's labor laws dramatically affect union participation.  While this may be a no-brainer, consider Tennessee's right-to-work laws, which provide that workers do not have to be union members to hold a particular job.  The law states: "It is unlawful for any person, firm, corporation or association of any kind to deny or attempt to deny employment to any person by reason of such person's membership in, affiliation with, resignation from, or refusal to join or affiliate with any labor union or employee organization of any kind." Tenn. Code. 50-1-201.  The right-to-work laws can be a huge incentive for business, since owners and developers won't have to negotiate with union.
• The type of project can also dramatically affect use of union labor.  For example, just last week the AGC of America helped persuade the U.S. Army Corp of Engineers to withdraw its project labor agreement ("PLA") requirements on a project at the Patrick Air Force Base in Florida.  According to the letter sent by the AGC, government mandates for PLAs for the construction of publicly funded projects is not in the best interests of the selection process.  A federal project may implement certain labor requirements, which ultimately may be determined by the contracting agency.  At the local level, there are instances where unions attempt to invest in the project through their pension funds in an effort to secure a portion of the construction work.

In the end, organized labor on a construction project will depend largely on the type of project (state or federal; public or private) and the applicable right-to-work laws, as well as the business clout and influence the particular union may have. 

 Image: National Right to Work Legal Foundation

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It can be a daunting task to mine through the federal and state laws, regulations and court decisions to determine what rights and remedies you may have as a disappointed bidder on a public project.   In a case involving a state university construction project, the Ohio Supreme Court recently provided a good road map of what do in such situations.

In Meccon, Inc. v. University of Akron (pdf), a contractor sought a temporary restraining order and other relief resulting from the university's failure to award it the HVAC contract.  The facts of Meccon are intricate because the project involved multiple scopes of work that could be submitted by offerors as stand-alone bids or combined bids.  Ultimately, the contractor alleged that the university wrongfully awarded three of the stand-alone bids to the awardee—after the awardee had withdrawn its combined bid—which was in violation of the university's own "Instructions to Bidders" documents and public bidding statutes.  The contractor sought injunctive relief, as well as damages for its bid-preparation costs.

On appeal, the Supreme Court of Ohio concluded that when a rejected bidder establishes that a public authority violated state competitive-bidding laws in awarding a public-improvement contract, that bidder may recover reasonable bid-preparation costs as damages if: (1) the bidder promptly sought, but was denied, an injunction to suspend work on the project pending resolution of the bid dispute; and (2) it is later determined that the bidder was wrongfully rejected and injunctive relief is no longer available.  [Note: You can view the oral arguments before the Ohio Supreme Court by clicking here.]

Wow.  That's a mouthful!  What does that practically mean? The decision provides a useful road map for what the court called "mitigation of damages" in a public contract.  For instance, if a rejected bidder alleges that the public authority violated its competitive-bidding laws, the bidder should immediately seek injunctive relief from the court or agency to stop the award of the contract to the successful bidder.

If the request is granted, then the wrongfully rejected bidder will have avoided the damages that would otherwise flow from the wrongful conduct by the public authority.  If the request is denied, then that means the allegation of "wrongful conduct" by the public authority will not be determined until a later date after a full hearing on the merits.  Absent the temporary restraining order or preliminary injunction, the rejected bidder will never be able to perform because work will have commenced or will be completed.  Under the Meccon decision, the rejected bidder is entitled to recover reasonable bid-preparation costs where it seeks, but is denied, injunctive relief and it is later determined that the bid was wrongfully rejected.

Hat tip to fellow colleague Mark Leach for sending the case!

Image: Michael Meiser

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Depending on where you live, owners of construction companies may have a new dilemma to address with their employees: medicinal marijuana.  The conflict puts the company's safety and employment policies often dictated by federal law directly up against what may be an individual's rights under state law. 

Stephanie Simon reports in this morning's Wall Street Journal about this drug dilemma in the work place:

Fourteen states and the District of Columbia have laws or constitutional amendments that allow patients with certain medical conditions such as cancer, glaucoma or chronic pain, to use marijuana without fear of prosecution. The Obama administration has directed federal prosecutors not to bring criminal charges against marijuana users who follow their states' laws.

But that can put employers in a difficult position, trying to accommodate state laws on medical marijuana use while at times having to enforce federal rules or company drug-use policies that are based on federal law.

That is precisely the problem for today's construction company, many of whom have rigid drug free work policies that include prohibitions against: 

• the use, sale, manufacture, distribution, dispensing,  and possession of illegal drugs and drug paraphernalia;
• the abuse of prescription and/or over-the-counter (OTC) drugs; and
• the use and/or abuse of alcohol, or reporting to work while under the influence of alcohol or any illegal drug. 

In many instances, a violation of these provisions allows the employer to discipline the employment, including and up to termination of employment.

But what about those states that allow use of medicinal marijuana?  As noted in the WSJ report, it will depend entirely upon state law and the courts' interpretation of that law.  For example, the courts in Oregon, California and Montana and the Washington have all ruled that employers have a right to fire medical-marijuana patients for using the drug.  However, the courts in Maine and Rhode Island have held that an employer cannot penalize an employee simply because of his status as a medical marijuana patient.  In Michigan, the law says that registered patients shall not be "denied any right or privilege" or face disciplinary action at work because they use pot.  There is an exception where employers do have the right to terminate workers who use marijuana on site or come to work high.

What can you do to protect your company? (1) Check you state's law on the use of medicinal marijuana; (2) review your employment and safety policies to make sure you have adequate protections for your employees and to maintain job site safety; and (3) make sure to train your management to observe employee behavior.  The real danger is having an employee come to work "high" or in an intoxicated state.

Image: Joseph Leonardo

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For years, I have paid my homeowner's association dues.  Recently, my neighbors selected me to serve on the board (... I was unopposed and I had to promise to name my next child after the development ... ).  I have even been involved as counsel in a number of HOA disputes over the past few months.  In Tennessee, the only thing you need to know is that the courts will enforce those HOA covenants.

Last week, the Court of Appeals issued its opinion in Hershey v. Cathey (pdf), a dispute involving the HOA's Architectural Control Committee.  When the defendants began construction of a fence on both of their lots, the HOA filed a lawsuit to stop the construction.  The HOA claimed that the defendants had not obtained approval to erect a fence and that the fence was not in compliance with the applicable restrictive covenants. The defendants asserted that they obtained the required approval and that strict compliance with the restrictions had been waived.

The trial court held the following: (1) that plans and specifications were required to be submitted to the Architectural Control Committee for its approval; (2) that no plans or specifications were ever submitted; and (3) that the defendants had not obtained the requisite approval to construct the fence at issue.  Accordingly, the trial court entered an order requiring the defendants to remove the fence and to comply with the Architectural Control Committee restrictions.  The appellate court affirmed that ruling.  Here are two lessons from the case: 

First, the courts will enforce HOA covenants.  Whether you are a new homeowner or you are one of the leaders in a homeowner association, you must read your restrictive covenants.  The architectural guidelines may be strict or broad, depending on how they are written.  The court is going to look to the express language of the covenant to resolve any disputes. 

Second, you must prove your case at the trial court.  The decision by the appellate court in Hershey was based largely upon the factual findings of the trial court.  Indeed, the appellate court wrote: "The trial court made a specific finding of fact that Defendants did not obtain approval to build the fence."  The appellate court presumes factual findings are correct unless the preponderance of the evidence is otherwise. 

Image: glen edelson

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Last night, the evening news reported that Tennessee House Democrat Leader Mike Turner planned to file a complaint with the Department of Labor, alleging that "one of the contractors working on the Music City Center project is hiring illegal immigrants."  Turner stated that he received the information from an inside source.

While there may be muchos problemas on the Music City Center, this is a good time to review the state's laws on use of immigrant labor on public projects.  Here is what the law requires:

• The state shall not contract for goods or services from any person who knowingly utilizes the services of illegal immigrants in the performance of the contract.
• That means, no contractor can knowingly utilize the services of illegal immigrants in the performance of a contract with the state.
• Effective January 1, 2007, the contractor must attest in writing that it will not knowingly utilize services of illegal immigrants.
• If a contractor does so, then he may be barred from public contracting for a period of one year.

So, how does the contractor comply with the state law?  First, it should include an appropriate attestation clause in its prime contract with the state, which may look something like this:

Contractor attests, certifies, warrants, and assures that it shall not knowingly utilize the services of an illegal immigrant in the performance of the Work and shall not knowingly utilize the services of any Subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.

The next step for the contractor is to include a similar requirement in its subcontracts, which may look something like this:

Contractor has agreed to comply with the immigrant labor provisions of all applicable laws, including Tennessee Code Annotated, Section 12-4-124. Accordingly, Subcontractor agrees that it will not knowingly utilize the services of illegal immigrants in the performance of the Work. Additionally, upon execution of this Subcontract, Subcontractor shall provide a written attestation in the form of the attached “Addendum” stating that it will not knowingly utilize the services of illegal immigrants in the performance of the Work.

This information may be helpful for projects in Tennessee and you should check with your attorney to review the applicable state and other Federal labor requirements for public projects.

Update: Thanks for friendly reader Emily for pointing out that there is no such thing as muchas problemas and the correct phrase is muchos problemas.  Gracias Emily!

Image: Nashville Chamber of Commerce

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As my four children were running through the house this weekend, I inevitably yelled at them, "No running in the house!"  My five-year-old responded, "Just passing through..."  Imagine the smile I had this morning when I read about a recent Tennessee appellate court decision about pass-through claims against the State.

In Kay and Kay Contracting, LLC v. Tennessee Dep't of Transportation (pdf), the contractor entered into a $10.2 million contract with TDOT for the construction of a new bridge on Interstate 75.  The contractor then entered into a $3.1million subcontract with the grading and excavation subcontractor. 

Problems occurred during performance and both the contractor and subcontractor filed claims against TDOT for additional compensation.  TDOT rejected the subcontractor's claim because it did not have a contract with the subcontractor and, thus, it argued that sovereign immunity barred any claim by the subcontractor.  Although the Claims Commission agreed that the subcontractor was not a proper party to the lawsuit, it allowed the contractor to pursue the claim against TDOT as  "pass-through" claim on behalf of the subcontractor.

The Court of Appeals of Tennessee reversed, holding that the pass-through claim was prohibited by the doctrine of sovereign immunity.  Under that principle, the state is immune from lawsuit unless that immunity is expressly waived by statute or otherwise.  The Tennessee legislature has expressly determined that a written contract with the State is a waiver of the immunity for any lawsuit on the breach of that contract.  See Tennessee Code 9-8-307(a)(1)(L).

In Kay and Kay, the appellate court concluded that the contractor was not entitled to pursue the pass-through claim on behalf of the subcontractor, who did not have a contract with the state.  The court reasoned:

We acknowledge that we must give Tenn. Code Ann. § 9-8-307(a)(1)(L) a liberal construction. However, in so doing we cannot amend, alter, or extend the statute beyond its obvious meaning. Stewart, 33 S.W.3d at 791. The obvious and ordinary meaning of requiring a “written contract between claimant and the state...” is not susceptible of more than one meaning. A contract is either written or it is not. If we allow pass-through claims, then we are allowing a party to sue the State and prosecute the claim of a different entity that has no contractual relationship with the State. This is contrary to the clear and unambiguous language of the statute requiring a written contract between the claimant and the State before the State can be sued for breach of contract. We again note that if the General Assembly believes that allowing pass-through claims is in the State’s best interest and public policy favors allowing such claims, we invite the General Assembly to amend the relevant statutory provisions to expressly allow such claims.

The appellate court expressly held that its decision applied "only to pass-through claims wherein subject matter jurisdiction is predicated on the removal of the State’s immunity pursuant to Tenn. Code Ann. § 9-8-307(a)(1)(L)." 

The court expressed no opinion on whether pass-through claims otherwise are permitted in Tennessee in other contexts.  That decision was left for another day ... another dispute. 

Image: Roger Smith

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Fellow blogger Matt Handal did a post today about his Livescribe Pulse Smart Pen.  I love technology and I absolutely love this gadget!  However, Matt's post raised a red flag to me about the discoverability of taped or recorded conversations in litigation.

For years, lawyers have been requesting "electronic discovery" from the opposing side.  Traditionally, the debate has been about emails and native electronic files.  How are we to collect the information?  How are we to process the information?  How are we to produce the information? But the debate mainly focused on computer servers, desktops and laptops.

Then came mobile devices, such as Blackberries and iPhones.  Is the information on these devises subject to discovery?  Instant messages and other data stored on mobile devices are generally discoverable under the applicable rules in your jurisdiction covering e-discovery.   In one reported case, the court found it suspicious that all data had been wiped from two Blackberries and ordered sanctions for spoliation of evidence.

So what about the data from a Livescribe Smart Pen? I would treat this data as any other form of data ... whether in hard-copy or electronic format.  If a construction schedule is discoverable, then the native Primavera files are most likely subject to production.  If a particular written statement is discoverable, then the recorded version is most likely subject to production.  If hand-written notes are discoverable, then the electronic notes transcribed by the smart pen are most likely subject to production. 

In the end, I am extremely leery of recording any attorney-client conferences, as well as any meetings with consultants and testifying experts.  The Livescribe Smart Pen would be great for hearings and other public meetings.  But understand that the digital recording may be otherwise discoverable depending on your jurisdiction.

Matt Handal agrees: "For privacy reasons I restrict my use of the smart pen to proposal and strategy related meetings."

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You’ve heard about Nashville’s historic flood almost six weeks ago and all the damage that it has caused to thousands of homes throughout Middle Tennessee. Just this morning, Nashville Metro government sent 305 buyout letters to homeowners whose homes were damaged within the floodway, the area where water flows most swiftly during a flood. Today’s post is about a decision released yesterday by the Court of Appeals of Tennessee regarding what may occur when a restoration contractor fails to remediate toxic mold following significant water damage. 

In Victoria Dutton v. Farmers Group, the Plaintiffs’ home was flooded and incurred severe water and mold damage when the hot water tank burst. The Plaintiffs began to experience various illnesses after moving back into the home. Despite assurances from ServePro (the remediation contractor) and the Plaintiffs’ insurance carrier that the home was safe, the Plaintiffs discovered that their home was contaminated with toxic mold almost three years after moving back into the home. The Plaintiffs filed suit against various defendants alleging distinct causes of action.

The trial court held that the Plaintiffs’ claims were barred by the applicable statute of limitations. The Court of Appeals reversed, holding that the discovery rule tolled the applicable statute of limitations.  In Tennessee, the discovery rule provides that a cause of action accrues and the statute of limitation begins to run when the plaintiff knows or should have known that an injury has been sustained as a result of some wrongful or tortuous conduct by the defendant. 

In this case, the Plaintiffs did not connect their illnesses to the toxic mold exposure in the home until close to three years after they moved back in the home. The Court found that the defendants attempted to remediate the mold issues in 2002 and the Plaintiffs had a good faith belief that the problem was resolved. The Plaintiffs did not discover until 2005 that the flooring throughout the home was not removed as originally advised in the 2002 cleanup of the home. After testing, it was found that the linoleum flooring was severely contaminated with toxic mold spores. The Court reasoned:

Without the obvious signs of mold contamination in the home, Plaintiffs had no indicators that mold contamination caused their health problems. . . . Eventually, [the insurer] retested the home, which confirmed that Plaintiffs’ home was contaminated with toxic mold. Until a doctor mentioned a possible allergic reaction as to the cause of [Plaintiffs] injuries, Plaintiffs did not have sufficient facts to investigate their potential claims. Under these circumstances the discovery rule tolled the statute of limitations.

The Victoria Dutton case is a good example of how the courts will apply the discovery rule to personal and property damages cases involving residential construction.  Factually, the case also highlights the severity and seriousness of toxic mold exposure following a significant flooding event. Finally, the case demonstrates that there may be certain substantive defenses in your state that preclude you from recovering on a claim including, but not limited to, a statute of limitations, the discovery rule, and the tolling of the statute of limitations.

Image: Eric Hamiter

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It really is impossible to put your arms around the number of green building and energy performance policies and codes that are sprouting up all across the nation.  When a project involves private commercial development or public investment, one of the most discussed issues is whether the cost of obtaining LEED certification from the U.S. Green Building Council is worth the investment.  And so the cost versus certification debate continues ... and one county in Montana has found the middle ground.

Yesterday, commissioners of Missoula County, Montana approved a policy that encourages and promotes green building practices, as long as they save money in the long run.  According to chair of the Commission, “This is the closest thing we'll come to having an energy policy. If the feds won’t do it and take the lead, I’m just honored to be a part of this.”

The policy directs county offices and departments to “incorporate” or “support the use of” LEED methods and techniques when designing, remodeling and operating public facilities. Unlike other counties in the United States that have recently required a specific level of LEED certification, the Missoula County policy will require “the highest level achievable under LEED that’s cost-effective based on the long-terms cost and the limits of available funding.”

As state and local leaders are racing to develop and implement new building practices—whether they incorporate USGBC’s LEED, Energy Star, Green Globes, or some other rating system—I think the compromise by Missoula County is a step in the right direction.  Such a policy would allow the public or private developer to incorporate cost-effective criteria in its development plans, while at the same time would require that owners and developers adhere to sustainable building practices.

There remains one problem: consider the owner who seeks the highest level of LEED certification that is cost effective based upon its long-term costs and limits of available funding and it is determined that LEED certification would not be possible. What then? Have they complied with the local building policy or code?

Image: satosphere

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In the weeks leading up to the ABA Forum on the Construction Industry's annual meeting in Austin, Texas, a number of construction attorneys and I were feverishly reviewing submissions for Division 10's annual Construction Law Update.  The document is a compilation of cases and legislation affecting the construction industry.  The updates are provided throughout the year by attorneys all over the country.  This year, Division 10 is pleased to report that we received updates from 51 jurisdictions, as well as a number of Federal laws and regulations.

The following are examples of the types of information that you will find in the Construction Law Update: Cases and Legislation Affecting the Construction Industry (2009-2010):

• In Holcim (US), Inc. v. Ohio Casualty Ins. Co., __ So.2d __ (Ala. Nov. 13, 2009), in responding to a certified question from the Eleventh Circuit Court of Appeals, the Alabama Supreme Court took the opportunity to discuss the current state of Alabama law on indemnification. The case arose from a construction site injury to the employee of a genera! contractor which had agreed to indemnify the owner. The Court repeated the principle that Alabama law permits parties to enter into valid indemnity agreements allowing indemnitees to recover indemnity even for claims resulting solely from the negligence of the indemnitee. Moreover, as a new matter, the Court held that parties may validly agree to an indemnity agreement based upon proportional fault, even though Alabama common law does not permit contribution among joint tortfeasors
• Ark. Code Ann. § 18-44-113, Assignment of Liens. Previously, assignments of liens were not enforceable against a property owner unless the owner had actual notice of the assignment. The statute was amended to state that the owner shall be considered to have actual notice if, within thirty (30) days of an assignment, a copy of the assignment is hand-delivered to the owner, mailed to the owner (as evidenced by a return receipt signed by the addressee, or a returned envelope showing a refusal of delivery or that the item was unclaimed), or delivered by any other means that provides written, third-party verification of delivery at any place where the owner maintains an office, conducts business, or resides.
• In Weydert Homes, Inc. v. Kammes, 2009 WL 3153041, No. 2-08-0768 (2nd Dist. September 30, 2009) the court ruled that a contractor’s sworn statement pursuant to Section 5 of the Mechanics Lien Act, which was not notarized, rendered that contractor’s claim for lien unenforceable.

There are updates from all over the country.  In addition, we have included references to recent federal regulations and administrative rulings that affect the construction industry. If you would like a copy of the Construction Law Update, please send me an email.

2009 Update

2010 Update

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My children have been mad at Mother Nature over the past month.  One day ... jeans, turtle necks and jackets.  The next day ... shorts and flip-flops.  At least in the South we have not had to deal with 30 inches of snow like on the East Coast.  That kind of weather can cripple a construction project and cause months of delay to the schedule.

As Spring approaches, how do you address the impact of unusually severe weather?  Traditionally, the parties' construction contract will dictate who bears the risk of loss in these types of situations.  Here are some general rules:

• The contractor is usually entitled to additional contract time, but not additional compensation for weather delays.  The AIA contract documents provide that "if adverse weather conditions are the basis for a Claim for additional time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time, could not have been reasonably anticipated and had an adverse effect on the scheduled construction."  The ConsensusDOCs provide that "if the Contractor is delayed at any time in the commencement or progress of the Work by any cause beyond the control of the Contractor, the Contractor shall be entitled to an equitable extension of the Contract Time. Examples of causes beyond the control of the Contractor include, but are not limited to, the following: ... adverse weather conditions not reasonably anticipated ..."
• 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.  Having moved from Washington, D.C. to Nashville in 2006, I can appreciate this point.  The entire Middle Tennessee closes down, including the government and schools, at the slightest hint of snow (...exaggerated slightly ...), but it takes 30 inches in D.C. to paralyze the roads and commuters.  The point is that "unusually severe weather" on a Nashville construction site may be different than a site in the nation's capitol.
• 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.

As with most other issues involving time and money, the parties' contract will determine what happens when Mother Nature refuses to cooperate with your construction schedule.

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A fellow Twitter friend, @danielschwartz, promoted a technology symposium on his Connecticut Employment Law Blog yesterday.  In order to spread the word about the symposium, he challenged his readers and fellow Twitter followers to tweet about their favorite Supreme Court case in less than 140 characters.  

As I thought about the construction industry, there was only one decision that kept coming to mind.  It involved a contractor who agreed to build a dry-dock in the Brooklyn Navy Yard.  In order to build the dry-dock in the site selected for it, the contractor was required to relocate a portion of a sewer that ran through the specified site. The owner (the United States) provided the plans and specifications for the sewer that was to be relocated.  The contractor completed the work according to the plans and specifications.  The owner approved and accepted the work.  But wait ... about a year after the relocation of the sewer, a dam in a connecting sewer caused flooding in the area excavated for the dry-dock. This dam was not shown on the owner's plans and specifications.  That's the background and here is my tweet: 

US v. Spearin: Owner designs. Contractor builds. Owner accepts. Work sucks. Owner sues. Contractor absolved. Owner loses.

If you live in the government contracting world, don't start sending me emails about how wrong I have described the Spearin Doctrine above.  Let me expand my statement beyond 140 characters and give you some more information about the 1918 decision in United States v. Spearin:

• The Rule. The Spearin Doctrine is legal principle that holds that when a contractor follows the plans and specifications furnished by the owner, and those plans and specifications turn out to be defective or insufficient, the contractor is not liable to the owner for any loss or damage resulting from the defective plans and specifications.
• Exceptions to the Rule.  In 2007, the Ohio Supreme Court rocked the construction law world by significantly limiting the application of the Spearin Doctrine.  In Dugan & Meyers Construction Co. v. Ohio Dept. of Administrative Services, the trial court applied the Spearin rule in favor of the contractor based upon alleged damages from the impact of an excessive amount of design changes.  On appeal, the Ohio Supreme Court reversed, holding that the Spearin Doctrine did not apply to cases involving delays due to design changes. Rather, the court focused its decision on the “no damages for delay” and “written requests for time extension” clauses in the contract.  Specifically, the court concluded: “We observed that the Spearin Doctrine does not invalidate an express contractual provision.” 
• Applicability to Green Construction.  Last year, fellow blogger Chris Cheatham suggested that there could be a green Spearin Doctrine.  I am confident that the Spearin Doctrine would be applied equally to non-green construction projects and LEED certified projects, As noted by Chris, a guarantee by the contractor could invalidate any Spearin Doctrine defense by the contractor.  Sounds like the Ohio Supreme Court, right?  The Spearin Doctrine cannot invalidate an express contractual provision.

Any Spearin tid-bits that you would like to share? 

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As you may be aware, one of the greatest risks on a construction project involves the payment process. Particularly in these economic hard times, a contractor and its subcontractors and suppliers expect to be paid on a timely basis once the work has been performed.

Contractors have a means of shifting the risk of non-payment by the owner to the subcontractor by including a “pay when paid” or “pay if paid” provision in their subcontract.The enforceability of these types of clauses may be limited by your particular state or jurisdiction.

In Universal Concrete Products Corp. v. Turner Construction Company (pdf), the U.S. Court of Appeals for the 4th Circuit concluded that a “pay if paid” clause in a subcontract was not ambiguous and, therefore, enforceable against the subcontractor.  The work involved the construction of the Granby Tower Project in Norfolk, Virginia. The subcontract between the general contractor and the concrete subcontractor contained the following clause: 

“The obligation of contractor to make payment under this agreement, whether a progress or final payment, or for extra or change orders or delays to the work, is subject to the express condition precedent of payment therefore by the owner.”

The owner ultimately lost its construction financing on the project and abandoned the development. Since the contractor had not been paid for its work, it refused to pay the subcontractor's work.  In a payment dispute between the subcontractor and contractor, the contractor argued that the “pay if paid” clause provided an absolute defense to payment. (Again, it should be noted that some states limit the enforceability of these clauses by either statute or case law. However, in Virginia, these types of clauses are enforceable so long as they are clear and unambiguous.)

The subcontractor argued that the prime contract between the owner and the contractor defined the cost of work to include “payments made” to subcontractors. Accordingly, the subcontractor argued that the contractor would, under the normal scenario, be paying its subcontractors and submitting the invoice to the owner as a “payment made” by the contractor. Both the trial court and the Court of Appeals disagreed, finding that payment from the owner was a condition precedent to payment from the contractor to the subcontractor.

 Courts across the country vary in their treatment of these issues. For example, in the Universal Concrete Products case, the 4th Circuit reasoned that Virginia courts favor the freedom to contract and that parties are freely able to negotiate and draft these types of provisions. However, in Thomas J. Dyer v. Bishop International Engineering, the 6th Circuit refused to enforce a “pay when paid” clause because the court determined that the clause was sufficiently ambiguous. In that case, the contract stated that “no part of payment shall be due until 5 days after the owner shall have paid the contractor.”  Other jurisdictions, such as California, New York and Nevada, have expressly ruled that the “pay as paid” clauses are unenforceable as a violation of state public policy.

So, what should your contracts provide?  What should you do to determine the enforceability of a “pay if paid” clause in your state?

• Contact an attorney within your jurisdiction to determine whether there are any limitations of the enforcement of these type of clauses.  Since each state differs dramatically, it is in your best interest to determine the applicable standard in your state or the applicable law where the project is located or the governing law of the contract to determine this information.
• Determine as between the parties who should bear the risk of non-payment. If you are a general contractor, you should make sure that your subcontracts include clear and unambiguous language placing the risk of loss for non-payment on the subcontractor. In addition to putting a timing mechanism on payment of funds to the subcontractor following a certain number of days after payment by the owner, it is also advisable to include a clause that “payment by the owner to the contractor is a condition precedent to payment by the contractor to the subcontractor”. In addition, you can make your subcontracts explicitly clear by stating that “the subcontractor assumes the risk of non-payment by the owner due to insolvency or other inability to pay”.

For the contractors out there, Universal Concrete Products is a good reminder of the importance of drafting clear and unambiguous contact terms between the parties.  It is worth the effort to seek legal advice on these issues prior to drafting and executing contracts with other parties.

For the legal practitioner, Universal Concrete Products again reminds us of the importance of legal research in our profession.  It is imperative that we, as a legal advisor, stay up to date on the case law within in our jurisdiction, as well as check other jurisdictions to help guide our clients through legal risks.

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On Thursday, I will be joining a panel of construction attorneys and consultants to address the issue of aging infrastructure in America and, in particular, how to finance all the work that needs to be done. 

Our panelists include: 

Christopher Montez, Thomas, Feldman & Wilshusen, LLP, Dallas, TX
Kenneth R. Baker, Hill International, Poway, CA
Sarah Biser, McCarter & English, LLP, New York, NY
Robert Rubin, McCarter & English, LLP, New York, NY
Dennis Staats, Navigant Consulting, Boston, MA

You can still register for the short webinar on the Forum's website. Here are a number of answers that our panelists will try to answer: 

• What is the problem? Where are the major failures? 
• What are the sources of funding?
• How much money does the Federal Government want to pitch in?
• What can contractors do to maximize their changes to win Federally funded work?
• How may Public Private Partnerships help solve the problem?
• What does it take for a PPP to be successful?
• What can construction counsel do to help his/her clients in this arena?

If you have any questions that want answered in the webinar, it's not too late.  Send me an email and I will make sure that one of the panelists addresses it.

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I wonder who that sad little scrap of paper is?  Do you know?  Oh, yeah, he's just a bill ... he's just a bill on capitol hill.

You knew that Nashville was the Music City, right? Reminiscent of the "Schoolhouse Rocks" days, last night I attended the kick off dinner for the AGC of Tennessee’s “Day on the Hill”… an event where AGC members attend hearings and meet with state senators and representatives about various bills relating to the construction industry in the state of Tennessee. Although there are reported to be more than 1300 bills introduced for consideration by the General Assembly in the 2010 regular session, approximately 15-20 of those impact or affect the construction industry in some manner. The top five bills for which the AGC of Tennessee has stated their position include the following:

• Worker's Compensation Insurance Reform. There have been a number of bills introduced in the session of the General Assembly regarding the issue of subcontractors not having workers compensation insurance coverage. I previously blogged about Public Chapter 1041, who's implementation date was recently deferred until March 28, 2011.  The law would have required all contractors to obtain workers compensation coverage, even on themselves if they were sole proprietors. Rather than taking a position on the individual bills that were introduced in this session, the AGC of Tennessee suggests that any legislation proposed on this issue consider the following recommendations:

1. Allow up to three officers of a company to “opt out” from being required to have coverage;
2. Require the filing of an affidavit with the Department of Labor that specifically names the individuals who have opted out of coverage;
3. Proof of at least 10% ownership;
4. Submission of a federal employer identification number with any filing;
5. An acknowledgment of a waiver of all rights of recovery, including workers compensation and tort claims, if the opt out individual is injured on the job; and
6. A provision that any individual who opts and files a claim would be guilty of fraud.

• Drug Free Workplace.  This legislation was first introduced by 2008 by the AGC of Tennessee. SB 1524 and HB 1604 make certain changes for denying workers compensation claims involving drugs or alcohol. By changing the burden of proof by the injured employee from a “preponderance of evidence” to “clear and convincing” evidence. This legal language change would make it more difficult for the employee to prove that drugs did not contribute to the cause of the accident. AGC of Tennessee strongly supports this change to the current legislation.
• Listing of Masonry Contractors. SB 2722 and HB 2794 requires information concerning those bidding for masonry contractor work be included on the outside of the envelope containing a bid, in addition to those contractors currently required to be listed. AGC of Tennessee strongly opposes this legislation, consistent with the position taken by the Tennessee Board for Licensing Contractors. Currently, masonry contractors are not required to have a license in Tennessee. Adding this requirement to current legislation as suggested by the AGC, would be put an additional burden on the general contractors bidding a project.
• Electronic Bidding. SB 3607 and HB 3158 revise the current requirements concerning information that must be contained on the outside of the envelope containing a bid to also require the same information be included in an electronic bid. AGC of Tennessee strongly supports this legislation because it brings the bid process into the electronic technological arena.
• Local Bid Preferences. AGC of Tennessee strongly supports SB 3607 and HB 3160, which clarifies that the only bid preferences that are permissible in public construction projects of local governments are those created by the General Assembly by general law. This legislation is intended to prevent local jurisdictions and governments from creating special bidding rules for construction projects.

Although there are numerous other bills before the General Assembly, these are the main ones being discussed by AGC members this morning at the “Day on the Hill” program. 

I once worked as a staff member on Capitol Hill more than 15 years ago and I truly miss being involved in the legislative process.  Whether you support or oppose any of the above measures, the real lesson is to get involved to help shape the laws that can (and will) affect your business.

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My wife thinks I am nerd.  She's right.  I rushed the kids to bed early one night last week so that I could sit in the kitchen to watch . . . okay . . . I will say it . . . the Metro Nashville Council vote on the fanancing package of the new convention center and the ensuing aftermath.  I love this stuff!   

• In a vote of 29-9 last week, the council approved the $585 million downtown convention center, the largest building project in the City's history
• Councilmember Randy Foster opposed the measure and tweeted about the bill's passage right before it happened
• As reported on the tube, there are 1,329 days between today and the first booked event at the new convention center

There remains one pending lawsuit that could affect construction, although most commentators believe a compromise will be reached.  Tower Investment owns a parcel of land within the convention center's overall footprint.  The dispute relates to the emminent domain proceedings by Metro to secure the land.  Interestingly, a number of council members have been subpoenaed to give testimony in the case.  Proceedings are set to begin in February.

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On December 24, 2009, the United States Senate voted to pass its own version of the health care package.  You have probably heard cries about the length of the bill (1,990 pages).  You have probably heard the cries about the costs.  But have you heard about an amendment that may significantly affect the construction industry?

According to a letter from the Associated General Contractors of America to Senator Mitch McConnell (pdf), the bill is non-workable and unnecessarily targets the construction industry.  The AGC opposes the health care package because of the complexity of the plan, the cost-shifting (rather than the cost- reductions), and the likelihood that it will increase insurance costs for those construction businesses that provide insurance to their employees.

Even worse, according to the AGC, is an amendment drafted by Senator Jeff Merkley (D-Or) and inserted into the bill by Majority Leader Harry Reid (D-Nev.) that would exempt the construction industry from the small business exemption that was included in the original bill.  According to another letter from the AGC to Senator McConnell (pdf), this would cripple small construction businesses:

For all other industries, H.R. 3590, exempts employers with fewer than 50 employees from the fines levied on those who cannot afford to provide their employees with the federal minimum standard of health insurance. However, the Manager’s Amendment alters the exemption so that it singles out small businesses in construction for special punishment by applying the exemption to only those firms with fewer than five employees in the construction industry. . . . The 50 employee threshold was meant to exempt smaller firms, [and] this amendment will unfairly punish small construction contractors.

There remains considerable debate about the effectiveness of the health care package.  The introduction and consideration of the Merkley amendment is a reminder for all industries to do your homework as Congress enacts laws that may affect, both directly and indirectly, your company.

Photo: Flickr | pixelle54

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Is it too late to discuss a case from 2009?  Nah.  Especially if the court released the opinion within the past two months.  And according to the decision in Shelby County v. Crews (pdf), there are times when it may be too late to withdraw a condemnation petition. That line in the sand appears to be the date after the public entity takes legal possession.

In Shelby County, the Court of Appeals of Tennessee recently held that the County was precluded from backing out of condemnation proceedings too late in the game. The County had possession of a small strip of land owned by the Crews. The County used the land as a parking area for a nearby penal farm and had gone as far as to pave the property. In the summer of 2004, the County filed a Petition for Condemnation of the strip of land pursuant to the condemnation statutes. The County offered approximately $40,000 as to the amount of compensation for the family land owners. The family did not contest the County’s right to acquire the property, but disputed the amount of compensation it should receive for the land. Thereafter, the trial court entered a Consent Order that granted “all property rights and ownership in fee simple” in the property to the County. The trial court scheduled a trial on the issue of compensation for a later date.

One week prior to the scheduled trial date, the County filed a Notice of Non-Suit, which is a document that gives notice of a voluntary dismissal of the condemnation proceedings.  The Crews filed an objection to the non-suit order, arguing that the County was not entitled to dismiss the case because it took possession of the property. The issue before the court was whether the County was entitled to voluntarily dismiss the condemnation after it took possession of the property.

In a short five-page opinion, the court held that the County was precluded from voluntarily dismissing the condemnation proceedings after it had acquired ownership and legal right to possession, leaving only the issue of compensation to be decided.

While this issue may seem like a no-brainer to you, the case is important because it establishes a limitation on a public entity's power to condemn property.  The public entity can no longer take possession of the property and later "back out" of the deal if compensation looks to fall in favor of the private owner.

Photo: Flickr | ToniVC

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Back in November, I wrote about a Tennessee Attorney General Opinion that addressed the new workers' compensation law in Tennessee that requires sole proprietors to carry workers' compensation insurance on themselves. (Traditionally, there was an exclusion for sole proprietors.)  Just after release of the AG-Opinion, the leadership in the state house and senate came to an agreement to suspend the effective date of the new law.

Over the past month, there have been a number of grass roots campaigns to address this issue.  So, where does the law stand now?  According to an official bulletin from the Department of Commerce and Insurance Commissioner Leslie Newman (pdf), the statute goes into effect at midnight on December 31, 2009.  Although the General Assembly has reported that it will address the issue as soon as they convene on January 12, 2010, the statute as written and enacted is enforceable on January 1, 2010.  The most important tip from the Bulletin is about election of coverages:

The Department interprets this change in the law to mean that a sole proprietor, partner, or limited liability company member ("LLC member") who had not previously been required to have coverage on himself must  now obtain coverage on himself. . . . The Department wishes to make clear its position that failure of a sole proprietor, partner, or LLC member to obtain such coverage without having met an exemption, is in violation of [the new law] and could subject such person to penalties by the Department of Labor and Workforce Development.

The Bulletin also includes the "Certification of Election" form that must be filed with the Department. I plan on following this issue closely.

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Every construction litigator in the residential arena knows that a state's consumer protection laws are good grounds for disputes.  Will my client get treble damages?  Will they recover attorney fees for deceptive trade practices?  Does my client have any defenses to these types of claims?

In Fayne v. Vincent (pdf), the Supreme Court of Tennessee held that the Consumer Protection Act applied to real estate professionals engaged in the sale of their personal residence. The case involved problems with a septic tank that were discovered after sale of the residence to the purchasers.  Mr. Vincent was a builder and developer and his wife was a realtor. Mr. Vincent was the developer of the neighborshood and he constructed the home in question, moving into the house after it was completed. Mrs. Vincent signed the Tennessee Residential Property Condition Disclosure Statement in her dual capacity as owner of the property and as realtor for the property.

After the purchasers moved into the home, they began to notice odorous fluid seeping from around the septic tank. After investigation, the purchasers filed suit against the builder and the realtor for various claims including negligent misrepresentation, fraud, deceit, and violation of the Tennessee Consumer Protection Act.

Following a two-day jury trial in the trial court, an appeal to the Court of Appeals, a remand back to the trial court, and a subsequent appeal, the Supreme Court held that the sale of the home was covered by the Tennessee Consumer Protection Act (TCPA). Specifically, the Court recognized that the TCPA does not apply to sellers who are “not in the business of selling property as owners or brokers” and therefore that “persons making an isolated sale of their home [is] not covered.” The Court reasoned:

We adhere to the holding ... that homeowners participating in the casual and isolated sale of their personal residence and not in the conduct of trade or commerce cannot be sued for damages under the TCPA. This principle applies to developers, contractors and realtors who are selling their personal residence in a casual or isolated sale and who are not performing or providing professional services to facilitate or finalize the sale. However, we have also concluded that developers, contractors, and realtors cannot insulate themselves from liability under the TCPA simply by owning and briefly residing in a house before they offer it for sale as their personal residence.

Accordingly, the Supreme Court held that the TCPA applied to the facts of this case.

The Fayne case is a good reminder to developers, contractors, and realtors, as well as to purchasers of residential property, to know and understand the full breadth of your state’s consumer protection laws.  Imagine the case of where verbal abuse by the builder against a purchasing couple gives rise to a claim for intentional infliction of emotional distress and consumer protection act violations.  It happens.

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The U.S. Environmental Protection Agency yesterday issued a final rule in an effort to reduce water pollution on construction sites. The rule, which is set to take effect in February 2010 over a four-year period, is targeted to improve the quality of water nationwide.  According to a press release by the EPA, the impact is significant: 

Construction activities like clearing, excavating and grading significantly disturb soil and sediment. If that soil is not managed properly it can easily be washed off of the construction site during storms and pollute nearby water bodies.

The final rule requires construction site owners and operators that disturb one or more acres to use best management practices to ensure that soil disturbed during construction activity does not pollute nearby water bodies.

In addition, owners and operators of sites that impact 10 or more acres of land at one time will be required to monitor discharges and ensure they comply with specific limits on discharges to minimize the impact on nearby water bodies. This is the first time that EPA has imposed national monitoring requirements and enforceable numeric limitations on construction site stormwater discharges.

Soil and sediment runoff is one of the leading causes of water quality problems nationwide. Soil runoff from construction has also reduced the depth of small streams, lakes and reservoirs, leading to the need for dredging.

The pre-publication rules (pdf), as well as the EPA's Fact Sheet on the final rule (pdf) are available online.  While it is too early to comment on the draft rule (...primarily because I have not had a chance to digest it all...), it is interesting to note that adoption of the rule came in response to a court order in a lawsuit alleging that the EPA failed to issue certain regulations under the Clean Water Act.  According to the Wall Street Journal, the court requried the EPA to issue the rule no later than December 1, 2009.

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Last week Scott Judy, Editor-in-Chief of Southeast Construction magazine, sent me a tweet about a courthouse project in Jacksonsville, Florida where a large number of fake IDs surfaced on the site.   As reported in the article, Federal officials discovered about 100 fake documents after looking at the paperwork collected by the city.  The mayor was expected to forward the list of 100 illegal workers to the contractor, Turner Construction, last week and demand that the badges badges be revoked for those workers.  

Scott then raised an interesting question: Can the owner use the issue of job-site fake IDs to consider the builder in breach of contract?  I hate to be trumpeting the same tune, but again the answer to this problem is, “It depends.” Here is why:

• As you might expect, the parties’ contract will largely dictate the rights and obligations of each party, whether it relates to payment, building specifications, delays, insurance requirements, and even compliance with federal, state and local law. So whether an owner has a cause of action for breach of contract for the presence and employment of undocumented workers on the site will largely depend on the exact terms of the parties’ contract.
• The applicable laws and regulations will often dictate additional obligations or provisions that must be included in the parties’ contract. For example, in 2007 Tennessee enacted a new requirement that "no person may enter into a contract to supply goods or services to the state or other state entities without first attesting in writing that the person will not knowingly utiluze the services of illegal immigrants in the performance of the work...." Tenn. Code 12-4-124.  Practically speaking, this means the contractor working on a public job is required to certify in writing that it will not use undocumented workers.  It must also require that its subcontractor sign the same type of attestation clause.  These statutory obligations are written into the parties' contract.
• Even if there is not a contractual requirement, there may be some statute or regulation that gives rise to liability for a contractors use and employment of undocumented workers. For instance, the same Tennessee statute cited above carries a penalty of debarment (i.e., prohibited from submitted a bid on any public project for period of one year) for any knowing violation of the law.  This statute applies ever wheter the requirement is not written into the parties' contract.

One way for a contractor to protect itself in these types of circumstances is to include a blended attestation-indemnification clause, such as:

The subcontractor, identified above, does hereby attest, certify, warrant, and assure that the subcontractor shall not knowingly utilize the services of an illegal immigrant in the performance of the Work and shall not knowingly utilize the services of any sub-subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.  Subcontractor further agrees to indemnify and hold harmless the contractor for any violation of this provision.

Applying these principals to the situation in Florida, it will be interesting to watch how the contractor responds to the allegations raised. It appears from the article that "the city's contract with Turner prohibits knowingly hiring undocumented workers and Turner's agreements with subcontractors contain the same language."  Whether there is a breach of those contracts will depend largely on; (a) the express language of agreement, (b) the "intent" requirement of the statute, (c) the knowledge of the parties involved, and (d) the immigration status of the workers.

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I recently read in the Nashville Bar Journal about a new change to the hearsay rules.  This is what immediately came to mind.  On any given day, I receive a call from my lovely wife about one of my five children who has been put on the witness stand for interrogation by my wife. The defendant child has either taken something that did not belong to them, invaded some other child’s personal space, or spewed out some dirty word.  Inevitably, when I get home from work I am called in as the judge to determine the guilt or innocence of the defendant child.  In many instances, I will interrogate some of the other witness children about what occurred.  Can you tell me which one is the traditional defendant? (Hint: bottom right.)

Under the former version of the Tennessee Rules of Evidence, prior inconsistent statements of my witness children could only be used to impeach the witness child. However, effective July 1, 2009, Tennessee adopted Rule 803(26), a new exception to the hearsay rules. The Rule provides for the admission as substantive evidence the prior inconsistent statements of any non-party witnesses if certain reliability requirements are met.  This goes further than the Federal Rule of Evidence 801(d)(1)(a) and allows an additional way to admit inconsistent statements for their substantive value. In my own child criminal court, that means that the prior inconsistent statements of my six year old son can be used as substantive proof against the four year old defendant. You know momma is going to be happy with a conviction.

While this is not the majority rule among the jurisdictions, Tennessee is now among a number of jurisdictions that have adopted this modern approach.  Again, Tennessee now allows for substantive proof the use of statements made in preliminary hearings, depositions, police investigations, or other recorded statements and interviews.

How does this affect your construction dispute?  As with many other legal questions, the answer is: "It depends."   It depends on your jurisdiction, the type of trial (judge or jury), and the type of construction dispute. 

• If you are in a jurisdiction that has adopted the modern approach, which includes Tennessee, Colorado, Hawaii, Wisconsin, New Jersey, Illinois, California or Montana, then prior inconsistent statements can be used substantively. 
• A judge should be able to truly appreciate the difference between prior inconsistent statements used for impeachment versus used for substantive evidence. 
• Finally, in a fact-driven construction disputes (as opposed to simple breach of contract matters or cases involving a battle of experts), this new evidence rule may come into play.

The real lesson to be learned from this rule change is to preserve pre-trial statements by all witnesses.  For example, it is important to take witness statements immediately following a construction accident, failure of the installed work, or other significant event during project performance.  In the event of litigation, the recorded statement can be used during trial as substantive proof.

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As reported by the Tennessee Bar Association, the 2010 Tennessee State High School Mock Trial Competition got underway yesterday with the release and publication of the mock problem. The case involves a dispute over the design and construction of a 400,000 square foot distribution center featuring a concrete slab-on-grade floor. The primary issue in dispute is whether the work performed by the contractor constituted a breach of contract or professional negligence. A copy of the problem may be downloaded on the TBA’s website.

The case materials for this year's problem were developed in large part by the Tennessee Association of Construction Counsel, which is an association of about 100 attorneys from across the state with practices serving contractors, building material and equipment suppliers, architects, engineers, and building owners and developers.

Marisa Lee Combs, the Chair of the Tennessee State Mock Trial Committee and a construction attorney at Lewis King in Nashville, is a product of the mock trial competition. In response to an inquiry, Marisa said, " If not for that experience, I am not sure I would have chosen a career in the law. Other classmates of mine were interested in drama, so they loved playing witness roles. To me, it is a great way to show the students how complicated and fun the law can be."  

To me, it is exciting to see a future generation of thinkers, problem solvers and litigators at such an early age in their education. I am also excited to see that this year’s problem focuses on a construction dispute that will provide for some very interesting trial arguments. (Since I am a construction lawyer who regularly litigates these types of disputes, I will refrain from providing any more commentary on this issue.)

Kudos to the Tennessee Bar Association and the Tennessee State High School Mock Competition for their extraordinary efforts in creating and supporting this great program. And a hearty good luck to all the young participants!

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Following on my earlier post ... nevermind.  Leadership of the Tennessee House and Senate recently reached a bipartisan agreement to immediately introduce legislation in January 2010 to suspend the effective date of Public Chapter 1041 from January 1, 2010 to February 28, 2011.  As reported last week, the new law was enacted to require a sole proprietor to carry workers' compensation insurance on himself.  The effect of the new ruling was addressed in Tennessee Attorney General Opinion 09-173 (pdf). 

In a statement, Representative Judd Matheny, Chairman of the House Consumer and Employee Affairs Committee alluded that timing was an issue:

 “Although there are merits in this legislation which need to be addressed, its effective date could not come at a worse time for the portions of the industry affected or the already fragile economy.”

Matheny is sponsoring HB 1839 along with Representative Joe Pitts to immediately suspend the effective date of PC 1041 until February 28, 2011.

According to House and Senate Leadership, a suspension of PC 1041’s implementation until February 28, 2011 is the first of two steps in reconsidering the issue of the sole proprietor and workers’ compensation in the construction industry. The second step would be considering alternative ways to address gaps in coverage for workers in companies of all sizes in the various construction fields. Recommendations for alternatives have been collected from consumers and affected industries and are being looked at closely. No action on implementing any alternatives is expected until February 28, 2011 at the earliest.

This action should assist sole proprietorships for the time being.  However, unless the move is taken immediately at the start of the January 2010 session, there will still be some period where the new law will be in effect which requires workers' compensation coverage.

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College football in the Midwest.  No further comment needed.  So it should come as no surprise to see that a construction project in Mishawaka, Indiana was "postponed" as the local football team advanced to the state playoffs.

Although the school's request to hold off the work crews affected construction for only a few days—and there was no indication that the postponement significantly delayed the completion of the work—it does raise some questions about excusable delays.  

Generally, the parties' contract will determine whether a delay is excusable or non-excusable. Some typical examples of excusable delay include:

• Design problems
• Differing site conditions
• Changes in the work
• Force majeure (i.e., Acts of God, unusually severe weather, riots, war, labor disputes)  

In some instances, the contract will contain an exhaustive list of those events or circumstances where a delay to the contractor's work will be excused.  In other instances, the contract may simply define an excusable delay as "any delay to the work that is beyond the contractor's control and without the fault or negligence of the contractor." 

On the other hand, non-excusable delays are traditionally the responsibility of the contractor. Examples of non-excusable delay may include:

• Non-conforming or defective work
• Failure to adequately plan or schedule the work
• Inadequate manpower
• Any other delay within the contractor's control

In these instances, the contractor is generally not entitled to a time extension, is not entitled to additional compensation for the extra time on the project or work performed, and may even be responsible for liquidated damages.

When there is a delay to the work, what should you do?  Although you may have different options depending on whether you are the owner, contractor or supplier ... or depending on whether the project is public or private ... here are some tips:

1. Review the delay provisions of the agreement.  Because these provisions vary from contract to contract, it is critical to understand what will be considered excusable.  The real issue here is to determine what will be the litmus test in determine whether the non-performance or delay in the work should be excused for some reason beyond the performing party's control.  
2. Determine whether a time extension is warranted.  As you review the delay provisions, the next step is to determine what relief will be given if the delay is determined to be excusable.  For example, the contract may allow for a contract time extension, additional compensation, and relief from liquidated damages when the delay is found to be excusable or beyond the performing party's control.
3. Consider whether the delay is concurrent.  Many times the contractor's work may be delayed by more that one cause—one that is excusable and one that is non-excusable.  In this instance, depending on the applicable law, the court may either: (a) deny any recovery whatsoever because the delays were caused, in part, by the contractor; or (b) apportion the delay damages between the responsible parties.

For some additional thoughts on delay claims, see Tim Hughes' articles (part 1, part 2) on his former law firm website. 

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I love seeing a case zig zag through the appellate process ... and I especially enjoy reading one where intermediate appellate court reverses the trial court and the highest court then reverses that intermediate appellate court.  I know, I'm sick.

In a decision released yesterday, Goff v. Elmo Greer & Sons Construction Company, the Supreme Court of Tennessee reversed the Court of Appeals and reinstated the trial court's decision approving an award of punitive damages in a construction case.  The owners of the property filed suit against the general contractor on a highway widening project.  The owners contracted with the general contractor to use their adjacent land as a lay down area in exchange for compensation.  When the contractor failed to pay the full contracted amount, the owners sued.

Following a trial, the jury found in favor of the land owner and awarded: (a) about $5,300 for the unpaid contract balance; (b) about $9,500 for damages resulting from blasting activities; and (c) about $3,300 for burying debris on the property.  The jury also returned a verdict of $2 million in punitive damages, which the trial court reduced to $1 million.

The Court of Appeals affirmed the trial court's judgment as to liability, but reversed the award of punitive damages based upon a finding that the trial court improperly considered Tennessee's environmental laws in approving the award.  The Supreme Court of Tennessee reversed, holding that the trial court properly considered Tennessee's environmental statutes in approving the award.

The Goff decision has a number of construction nuggets to analyze.  One of the more significant aspects of the opinion is the jury's award of punitive damages based upon various environmental laws without any finding of a violation of those laws.   The intermediate appellate court determined that because the jury found that the contractor had not committed an environmental tort, the trial court should not have relied on the environmental statutes and policies in affirming the award of punitive damages.  The Supreme Court disagreed:

The evidence supporting the nuisance claim was the proof regarding buried whole waste tires.  In order to determine the reprehensibility of burying whole waste tires, the trial court considered the State's policy regarding such action. To this end, the trial court correctly noted that the State has enacted legislation against burying whole waste tires, recited the public policy behind that legislation, acknowledged that [the contractor] was aware of the State’s policy against burying waste tires, and
observed that high civil penalties are permissible for burying waste tires. In our  view, the fact that the legislature has determined it necessary to prevent the improper burial of tires “to protect the public health, safety and welfare” is important in the discussion of the reprehensibility of [the contractor's] actions.

Interestingly, the Supreme Court did not decide whether a private right of action existed for a claimed violation of the state's environmental statutes because the jury did not find the existence of any "environmental tort" and neither of the parties raised the issue on appeal.

For the contractors out there, Goff is a good reminder of the total exposure (including significant punitive damages) for violation of state waste disposal and environmental laws.  For the legal practitioner, Goff instructs that a statute may be used to define the public policy for proving punitive damages even when there is no violation of the actual statute.

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Over the past two months, I have received a few inquiries from small business owners about an amendment to Tennessee's workers' compensation laws.  The primary question is whether the new law, which takes effect on December 31, 2009, will require a sole proprietor to carry workers' comp insurance on himself?  (Traditionally, there was an exclusion for sole proprietorship under Tennessee law.)

According to the recent Tennessee Attorney General Opinion No. 09-173, the answer to the above question is a resounding, "YES."  Based upon the AG's opinion, here is how the law now stands:

1. If you are a general contractor or subcontractor, you must provide workers' compensation insurance coverage for your employees. ("Any person engaged in the construction industry, including principal contractors, intermediate contractors and subcontractors, shall be required to carry workers' compensation insurance.")
2. If you are a sole proprietorship ... and you have no employees and you are performing the work yourself ... you are required to carry workers' compensation insurance on yourself, unless: (a) you contract directly with the homeowner; or (b) you are working on your own residence.

It will be interesting to watch how the construction industry responds to this issue.  The legislative history of the amendment reveals that the change in the law was prompted by a need to ensure that all subcontractors and employees working on a construction site were properly covered by workers' compensation insurance.  According to the legislative discussion, some employers were purportedly avoiding paying for coverage by claiming that their employees or subcontractors were actually sole proprietorships.

Question: What's happening in your state on this issue?

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I have my Google reader set to search various blogs, news sites, and Twitter feeds to help me keep current with the latest trends in the construction industry.  There remains one major problem: the words we use have different meanings for everyone.  

Take, for example, my search of Twitter feeds (above) for Building Information Modeling (BIM).  If you were to do the same search during a weekday morning, the majority of results would return various individuals involved in some aspect of the construction industry either praising or criticizing BIM. Now, if you were to do the same search on any given Friday or Saturday night, you might be surprised to get a varied assortment of results (and photographs) of individuals out for a night of partying.  You see, BIM is also slang for "bimbo" or ... how do I say this ... a "lady with questionable morals"? 

What's the lesson here?  Did you click on this article because you thought it related to LEED or Green Buildings?  It kinda does.  It kinda doesn't.  The lesson is that we live and work in a world where information spreads quickly.  In addition, we have become informal in our communications through the use of email, texting and Twitter.  (And in our personal lives, there may not be anything wrong with informality in our communications.)

However, the construction project is built on expectations and performance.  Where those expectations are accurately and correctly reduced to a writing, the parties have a written contract.  Where the parties use words that have different meanings (and both interpretations are reasonable), we now have an ambiguity.  A judge or arbitrator will then be asked to interpret that ambiguity based upon any number of legal tools (i.e., parties' words and conduct, other writings outside the four cornings of the contract, industry norms, etc.).  As the construction industry begins to employ new technologies, such as BIM, or new performance based goals, such as energy performance from a LEED certified building, then it becomes even more important that we use words that do not lead to miscommunication.

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What is the scope of coverage under a commercial general liability (CGL) insurance policy on a construction project?  As most attorneys will tell you, "It depends."  It truly depends on the express terms or language of the policy, the cause of the damage, and notably the jurisdiction of the dispute.

The Mississippi Supreme Court heard oral arguments on October 5, 2009 in the case of Architex Association Inc. v. Scottsdale Insurance Co. to determine what exactly is covered under the terms of a CGL policy.  The general contractor (Architex) filed suit against its insurance carrier after the owner the project sought damages from the general contractor for alleged defective work.  The insurer claimed that the defective work was performed by a subcontractor, which was not covered by the CGL policy.  The general contractor contended that any negligent work of the subcontractor should be covered under the "your work" provisions of the policy.  

The trial court held that damages were not caused by an occurrence or accident since the work being performed by the subcontractor was an "intentional act."  The oral arguments on appeal can be found at the Mississippi Appellate Court Video Archive. (The appellate court has some great questions between 1:50pm-1:55pm and 2:01pm). 

In a prepared statement published in the Mobile Bay Business Journal, Architex's counsel, Dorsey Carson, indicated that a finding for the insurance carrier would render a contractor's CGL policy practically useless:

"It would exclude coverage for any damages if the act that caused the damage is in any way related to the act of construction. It is a matter of whether the insurer is going to cover its insured for acts that it received premiums for, and for a policy that it marketed to contractors expressly for this type of damage.”

A decision from the Mississippi Supreme Court is expected by the end of the year.  Many in the construction industry are watching this case as it will have a significant impact on insurance coverage disputes:

• “The insurance industry made a very conscious decision to provide this coverage and charge these premiums. We are asking the insurance industry to stand behind the language of the policy it has today.” Mike Kennedy, general counsel for Associated General Contractors of America.
• "The premise has always been that if the work of your subcontractors is negligently performed and causes damage, it's covered." Chris Solop, Mississippi Associated General Contractors.

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For all my Nashville and Middle-Tennessee friends, I want to take a moment to highlight two upcoming conferences.  Although the programs are geared towards construction lawyers, don't shy away if you did not get a "shark degree" from Build 'Em Big University ... Each conference offers a little different glimpse depending on your career path.  What do I mean? 

The Fundamentals of Construction Law will be held on November 5, 2009 in Nashville, TN (...along with many other locations...) and is taught by leading construction lawyers.  This program presents a unique opportunity for new construction lawyers or experienced lawyers who occasionally practice construction law to learn the essentials from those who practice it daily at its highest levels. The program concisely covers the gamut of construction issues including:the roles of the key participants in a project, the structure of project delivery systems, the bidding and construction process, insurance and bonding and dispute resolution.

For the non-lawyer: This seminar will give you a great glimpse into the basic legal principles affecting your construction practice.

The Nashville conference is being coordinated by Joe Welborn, one of my partners (... and all-around-great-guy...).  If you have any questions about the program, then send Joe an email.

The second conference, the Tennessee Association of Construction Counsel Fall Meeting, will be held the very next day on November 6, 2009.  For the construction lawyers, there are three seminars right up your alley:

• Litigation Strategies for the Construction Law Practitioner, by experienced litigator Andy Ness
• Steel Structural Collapse of the Chicago Post Office Building, by engineer and expert Ian Chin (pdf)
• Bankruptcy Law for the Construction Practitioner, by bankruptcy guru Dan Puryear

For the non-construction lawyer:  You will not want to miss the mock trial! Learn from the pros on how to best present your case.  Participants include: Davidson County Chancellor Ellen Hobb Lyle (as judge), Tim Gibbons and Todd Panther (as advocates), and Gary Parkes and David Wright (as fact and expert witnesses).

The TACC conference is being coordinated by Vic McConnell, another one of my partners ( ...and another-all-around-great-guy...).  If you have any questions about the program, then send Vic an email.

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Released in 1968, the lyrics from Steppenwolf's psychedelic rock song blare out: "I like to dream, right between my sound machine..."  Yep, you remember ... the Magic Carpet Ride!

The Maryland Court of Appeals recently decided a construction case based upon a set of pre-contract discussions that Judge Harrell described as a "complicated series of events from which this appellate 'magic carpet ride' springs..."  In Questar Builders v. CB Flooring, the court upheld the duty to act in good faith and deal fairly in construction contracts. The appellate court reversed and remanded the trial court's decision for a determination of whether the contractor (Questar) acted in bad faith when it terminated for convenience the flooring subcontractor (CB Flooring).

Questar received bids from three subcontractors to install the "magic carpet" in the luxury midrise apartment and townhome complex.  CB Flooring submitted a bid for $1.12 million and CTI submitted a bid for $1.24 million.  Interestingly, the third subcontractor's bid was so low that it left Questar with the impression that the subcontractor misunderstood the scope of the project.    (...I wonder if all the low estimates being submitted on public contracts these days fall into this category? Certainly not! ... Sarcasm ... )

Ultimately, disputes arose between Questar and CB Flooring about design changes in the selection of the carpet and the resulting increases in the cost of work.  Questar reportedly used CB Flooring's original bid to obtain CTI's agreement to perform the same work for $1,000 less than the original winning bid.  Meanwhile, Questar terminated CB Flooring, alleging breach of contract, as well as a contractual right to terminate for convenience.

The trial court held that CB Flooring did not breach the subcontract agreement with Questar.  The court also rejected Questar's claim that it had a right to terminate for any reason.  Based upon the evidence presented, the judge found that the subcontract was improperly terminated.

On appeal, the appellate court held that the termination for convenience clause "may" be enforceable, but that the trial court failed to determine whether the termination was made in good faith and in accordance with fair dealing.  Therefore, the case was remanded to the trial court for a determination of that issue.

The opinion is a long read (...50 pages...), but sheds some light on the limitations inherent in a contractual right to terminate:

"Questar's contention that it was entitled to terminate the Subcontract for any reason whatsoever goes too far and is inconsistent with the terms of the Subcontract. To be sure, a right to terminate in the absence of the other party's breach does not equate necessarily with the right to terminate based on a whim. We shall not read into the Subcontract such unfettered power."

This point was highlighed by the American Subcontractors Association, which filed an amicus brief in the appellate proceedings.  In its brief, ASA argued that an exception to the scope of the good faith and fair dealing covenant would "not only poison business relationships and eliminate business certainty, but also does great damage to the ability of subcontractors to rely on their signed contracts as a reliable indicator of future work and expected revenues" and would otherwise make subcontracts "illusory and meaningless."

This case provides a good warning to contractors: Beware of subcontractor shopping after you have already entered an agreement with another party.  While you may have the contractural right to terminate for cause, do not make a decision in haste without adequate basis for the termination.  These magic carpet ride cases often involve hotly disputed facts leading up to the termination and you may find yourself defending a lawsuit.

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This weekend my eldest son turned six years old.  What right of passage does every six-year-old boy celebrate in the South?  He goes to a SEC football game.  And so we set out on Saturday evening for a little "guy time" with the Vanderbilt Commodores, hot dogs, nachos and popcorn.  My son was decked out in his new blue polo shirt sent from his O'Ma, while I had on my favorite red, slim-fitting AGC golf shirt.  The problem is ... Vandy's colors are black and gold!  Which means that you are summoned ... ordered ... required ... mandated ... dictated ... to wear either black or gold!  My lack of knowledge did not excuse my non-compliance with the black and gold ritual.  Imagine being the only person in the entire stadium with a red shirt.

If you are a federal contractor, don't be the only person with a red shirt.  Effective today, contractors and subcontractors will be required to use the E-Verify system to verify their employees’ eligibility to work in the United States. In the past, the government attempted to mandate the use of E-Verify, the web based system that employers can use to confirm the legal status of their employees. The proposed law was set to take effect in January of 2009. However, the legislation instigated much debate and several controversial provisions kept it from taking effect.

Although the amended proposal which takes effect today has significantly less bite, E-Verify has broadened in scope. Not only do the provisions apply to contractors and subcontractors on federal projects, but also to any business receiving funds under the federal stimulus project. For more details about E-Verify and some of the hot issues surrounding its controversial history, check out some of the following sites:

• Michael Payne's post on Federal Construction Contracting Blog, which gives a good overview of the law's applicability to certain contracts
• An extensive summary by Nixon Peabody attorneys Kent Jonas and Matthew Zandi
• An article by Federal Times about the federal district court in Maryland which found the  regulation to be legal
• A Wall Street Journal report on the 11th hour bid to overturn the law

Given the current state of the economy, more and more contractors are taking on public projects. For this reason, all contractors and subcontractors would be well advised to prepare for compliance with the mandated use of E-Verify.  Don't be the only one wearing a red shirt.

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A few weeks ago I tweeted about the local building code in Nashville "under review."  Actually, those words were a little weak.  What about these words: "Contractor Leads Attack Against Nashville's LEED Legislation" ... the exact words used by my colleague Stephen Del Percio, attorney and author of Green Real Estate Law Journal.  A good analysis by Steve!  

The original article by Michael Cass in The Tennessean highlights a local contractor's frustration with the LEED requirements on a school project.  However, Councilman Duane Dominy, sponsor of the bill, said he didn't write the legislation specifically to help the contractor and isn't trying to "do away with LEED." 

According to the title of the legislation at issue (BL2009-503), the bill seeks "to allow an alternative to LEED certification based upon lowered measured energy use."  The legislation was introduced on July 21, 2009 and passed its first reading. The bill was then referred to the Codes Committee. It was scheduled for three votes on August 6, 2009, but was "deferred" for a later time.

Importantly, the preamble contains a statement that any alternative should be allowed "provided the alternative system will result in actual lower measured energy use."  There are many signficant highlights of the proposal, including the following:

• it allows for a city-wide approval of an alternative to LEED certification;
• it requires "actual lower measured energy use" for an alternative system
• it requires the governing authority (Metro Goverment) to approve a certified or duly recognized "business energy professional" to monitor the energy use 12-18 months after substantial completion

Finally, here are the two kickers:

D. If the energy use objectives are not met, the pre-determined entity responsible for the warranty shall reimburse the Metropolitan Government for excess energy use costs for any year of the warranty period based on the energy rate costs prevailing during the first year of the warranty period. The entity responsible for the warranty shall provide the Metropolitan Government an irrevocable warranty surety.

E. No warranty penalty or reimbursement shall be applicable if the Metropolitan Government significantly changes the function of the facility beyond what was originally authorized by the final use and occupancy permit.

A couple of thoughts on this new legislation: First, it will be interesting to see whether a surety will step up to the plate with an irrevocable warranty.  I cannot imagine the difference in energy costs savings and losses would be so significant so as to place the risk beyond insurability. 

Second, there remains a carve-out in the event that the owner changes the function of the building beyond what was anticipated.  In other words, there appears to be a less stringent standard ... or no penalty ... for major rennovations that perhaps change the function of the building.

Finally, the legislation demonstrates that there is, and will continue to be, tension between the LEED rating system and alternative rating systems, particularly as local and state jurisdictions become more green-saavy in their understanding of sustainable design, energy performance, and longterm investment strategies.

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Mom always said I was a late bloomer (... Wonder what she meant? ...)  Well, you can call me late to this game, but hopefully not too late. 

Perhaps the best summary of the new LEED 2009 Minimum Program Requirements (MPR) can be found on Stephen Del Percio's Green Real Estate Law Journal.  Last week, Chris Cheatham's Green Building Law Update caught on fire with comments about his post on LEED Decertification.  The match that lit the fire turned out to be the following language found on USGBC's website about the MPRs:

NOTE: CERTIFICATION MAY BE REVOKED FROM ANY LEED PROJECT UPON GAINING KNOWLEDGE OF NON-COMPLIANCE WITH ANY APPLICABLE MPR.  IF SUCH A CIRCUMSTANCE OCCURS, REGISTRATION AND/OR CERTIFICATION FEES WILL NOT BE REFUNDED. 

A couple of observations from my neck of the woods.  First, I am not sure that the fact USGBC has wielded this revocation stick is as noteworthy as its ramifications. Indeed, verification requirements and revocation/de-certification processes appear in various substantive areas of law (i.e., union and labor, banking, minority business, etc.). What is noteworthy, again, is the fact that the revocation stick will have undetermined consequences. 

In other words, the authority to revoke LEED certification from a project raises legal concerns beyond the scope of LEED’s stated intent—that is, to provide “building owners and operators a concise framework for identifying and implementing practical and measurable green building design, construction, operations and maintenance solutions.” Now we are talking about issues like: third party standing to initiate decertification proceedings, time elapsed certification, regulation enforcement and insurance coverage questions.

Next, would you be surprised to learn that the concept of "permit revocation" has been adopted by a local municipality for green projects that fail to provide proof of LEED certification? That’s right, last fall the City of Gaithersberg, Maryland adopted the “Green Building Requirements” to amend its building code, which included the following revocation provision:

3110.2.4 Verification. Within eighteen (18) months after the receipt of a Certificate of Use and Occupancy, the applicant shall provide proof to that the required LEED-level rating was obtained. Failure to submit the required proof shall be grounds for revocation of the Certificate of Use and Occupancy.

This code was passed almost one year ago. I’m looking into whether any revocations have occurred yet under this new Gaithersberg ordinance.

 Finally ... and here's the kicker … apparently, a LEED revocation is underway or has already occurred somewhere out there. According to the literature for the Green Buildings Seminars in September 2009, there is one reported instance of decertification proceedings. Lawrence Spielvogel, an independent consulting engineer, is scheduled to “discuss why this non-compliance typically occurs, and will describe the actions of the designers that led to the first ever decertification of and plaque removal from a LEED Certified project.” 

 Did I read that correctly?  Let's ask Larry ...  ring ... ring ... [conversation] ... hang up phone ... Yes, I read that correctly! Looks like we have to wait for the presentation in September 2009 to report on the whole scoop.  Perhaps Shari will go for me?

 And now ... what I promised in the title of this post ... here is what some the industry experts have said about the revocation issue:

  If I missed you, send me an email and I will update the list.

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I realize that the title to this post may scrunch some “What you talkin’ about, Willis?” eyebrows to the many LEED AP-construction-green-building-attorneys out there. However, the title really conveys the first words that ran through my mind as I read Gary Cole’s post on The Real Green Goblin – Emerging Legal Liability for Green Design Professionals and Contractors on his blog LAW/ARK.

I must admit that I jumped to various conclusions prior to reading Cole’s entire post. Instead, I focused on the following statements:

The bad news is that attorneys, especially those already practicing in construction law, will soon realize that aside from green design and construction’s sometimes specialized and occasionally ill-defined vernacular, there’s no real novelty in the types of claims that might arise.

No new frontiers of jurisprudence need be explored–a leaky green roof is still a leaky roof–whether it also requires regular mowing and landscape maintenance changes little from a legal perspective.

As I continued reading the post, however, I realized that Cole was marching in the right direction, particularly with the following statement: “In non-legal terms, most legal liability associated with green design and construction will arise from one issue–though it’s an issue with many faces–unfulfilled expectations.” Cole even makes a call out to the “fellow attorneys” reading the post with a disclaimer that this is an oversimplified analysis of the legal claims available.

When discussing green building claims, perhaps the best point made by Cole is understanding the balance between a project’s “green marketing claims” (or its “form”) and its “real performance (or its “substance”). I view that so-called "balance" at the heart of the issue. While it can be said that green building disputes will arise primarily from parties’ unfulfilled expectations–as do most commercial contract disputes–the form and substance will be an inherent part of any claim, whether pursued in contract, tort or otherwise.

Cole may be right that there is no novelty to the traditional types of claims (contract, tort, statutory, etc.) that may arise in green construction disputes. However, the novelty in the green building industry is the new set of standards that will inevitably become part of the legal dispute. In other words, while “a leaky green roof is still a leaky roof” … there will be new risks to be allocated, different types of damages lost, additional players involved, varied proof required and, yes, perhaps a novel cause of action alleged because that leaky green roof system failed.  Given the relatively uncharted territory, I cannot say that "green building for attorneys is merely hoopla" ( ... my words ... not Cole's ...)

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I know that I am a few hours early, but Governor Phil Bredesen is scheduled to sign the Tennessee Clean Energy Future Act of 2009 today at 1:30pm.  He will be joined by key legislators, as well as members of his Energy Task Force.

Among other provisions, the new law will provide for: (1)  a limited statewide residential building code to promote energy efficiency, (2) new energy usage guidelines for state buildings and vehicles, and (3) an extension of Tennessee’s emerging industry tax credit to the clean-energy technology sector. You can find the bill summary on the General Assembly's website, along with the full text of the new law.

Under the new law, the State Building Commission has the authority to implement various cost-saving measures. 

The measures may include, but shall not be limited to, maintenance, repair or replacement of lighting and mechanical equipment and related controls. Energy cost saving measures may be implemented through contracts with energy professionals including, but not limited to, energy service companies, commissioning and retro commissioning firms and agencies and energy auditing consultants.

There are no new state-wide LEED certification requirements, though.  In due time ... in due time.

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You don’t always say what you mean. And you don’t always mean what you say. 

In construction contracts, parties attempt to use plain and ordinary words to describe their respective obligations. For example, when the parties use the word “shall” in their agreement, they generally understand that the obligation specified is mandatory. Or when parties use the word “may” in their contract, performance is permissive or optional given the plain meaning of the word. Consider the following construction contract provisions:

“If the Owner fails to make payment for a period of 30 days, the Contractor may, after seven days written notice, terminate the Contract and recover from the Owner payment for Work performed.”

“The Work may be suspended by the Owner as provided in Article 14 of the General Conditions.”

“Payments may be withheld on account of (1) defective Work not remedied, (2) claims filed by third parties, or (3) failure to carry out the Work in accordance with the Contract Documents.”

In all of theses examples, it seems clear that the parties agreed to allow—but not require—the specified performance. The word “may” was permissive in nature.

According to some courts, however, this traditional line of reasoning is no longer the trend in the context of arbitration provision in construction contracts. For example, in TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in arbitration at the election of one of the parties. The arbitration agreement provided:

“If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the procedures set for in [previous section] . . . then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.”

The court held that the above provision was mandatory at the election of one of the parties: “The word ‘may’ . . . means that either party may invoke the dispute resolution procedures, but neither party is compelled to invoke the procedures. . . . [But] once a party invokes the arbitration provision, the other party is bound to arbitrate.”  The Delmarva court reasoned that the disputes provision would be “rendered meaningless” if the word "may" was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.  The Fourth Circuit reached the same dcision in United States v. Bankers Ins. Co.

Given the trend that the courts have interpreted the term “may” as “shall” in the context of arbitration agreements, parties to a construction contract must be careful in understanding both the plain, ordinary meaning and the legal meaning of the particular words used. In the above examples, if the parties wanted arbitration of disputes to be permissive and non-mandatory, they could have clarified their contract by including more explicit language (i.e., "any and all disputes, upon mutual agreement, may be arbitrated" or "with the consent of the other party, either party may commence arbitration").  It is important in contract drafting that you say what you mean and you mean what you say.

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Within the past couple of months, BNA started a new report called Infrastructure Investment & Policy Report.  Earlier this week, I was contacted by BNA reporter Kate Naseef to share some thoughts about HR 2454, the climate change legislation that was recently approved by the House Energy and Commerce Committee and its affect on the construction industry. 

According to AGC and ABC representatives, Naseef writes, the climate change bill is a "mixed bag" because it offers both opportunities for new construction and building modifications, but it could also lead to increased costs and delays given the regulatory hurdles. The article also highlighted comments from Cathy Altman, a good friend and construction attorney in Dallas:

Fewer, Bigger, Green Projects

 

As building shifts to more carbon-friendly facilities, there will be fewer, but bigger projects “because of the higher capital costs of green construction,” Cathy Lilford Altman, an attorney with Carrington, Coleman, Sloman & Blumenthal, L.L.P in Dallas, said.

 

A cap-and-trade program and renewable energy standards are going to further experimentation and use of new technologies and new construction means and methods, “which could open up opportunities, but also create risks,” Altman said. “There's a certain amount of trial-and-error that is going to be inevitable,” she said. Owners are going to want guarantees that designers and contractors might not be able to give until the new technologies and processes are tested.

 

Designers, engineers, and contractors are going to have to get accustomed to working with new materials and new technologies that add cost on the front-end of a project, Matthew DeVries, an attorney with Smith Cashion & Orr, PLC in Nashville and author of www.bestpracticesconstructionlaw.com, a construction law blog, said. Whether or not this results in savings down the road remains to be seen, he said. 

Although there are reports that HR 2454 will be brought to the House floor next week, it will be interesting to see any mark-ups from the Transportation and Infrastructure Committee chaired by Rep. James L. Oberstar.  For those of us outside the Beltway, keep us informed BNA!

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“Intellectual property is an extremely important and valuable asset that is often overlooked or ignored in the construction industry.” So said Brian Hickey and Edward Benes at the ABA Forum on the Construction Industry’s annual meeting in April in New Orleans.

In their joint presentation entitled When the Colors Run Together: Recent Development in the Intellectual Property Aspects of Construction, Brian and Ed highlighted the risks and liabilities associated with the four basic types of intellectual property: (1) copyrights; (2) trademarks, service marks, and trade dress; (3) patents; and (4) trade secrets. Here is why intellectual property finds its way onto our radar screen at Best Practices:

“Economic realities and environmental initiatives will drive a search for streamlined designs, new systems, and innovative materials. Industry leaders will develop standard components and process that can achieve savings in time and money. To the extent that some of these new products, methods, and designs may be protected through copyrighted drawings, trademarks, patents, trade secrets or other means, the inventors and creators will endeavor to do so.”

Brian and Ed did a great job explaining in their presentation how intellectual property relates to construction, architecture and engineering. In simple terms: Construction begins with ideas. Ideas take the form of an expression. Expressions are copied, stored, distributed. Those expressions are edited and improved.  You see where this is going … the expressions become subject to protection. These authors packaged this broad issue—intellectual property in the construction industry—in such as way as to understand the risks and walk away with some good pointers, including the following:

• Allocate ownership of copyrights through contractual provisions
• Understand the “thorny” collaborative design issues that naturally arise with multiple parties
• Appreciate the risks of “copying” information
• Evaluate the need for registration of your own information

I truly appreciate Bryan and Ed’s hard work to bring to light intellectual property for all those hardhat construction lawyers, owners, developers, architects, engineers, contractors and suppliers. 

[Note: Unfortunately, I was unable to attend their presentation because I was speaking on The Green Explosion: The Legislative Impact of Alternative Energy, Climate Change and Sustainability on the Construction Industry. However, their written paper was thorough and easy-to-read.]

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That's not exactly how the headline reads ... but close enough.  The actual title is BIM Promotes Sustainability: Practitioners are Finding Paths to Green through Interoperable Software.  As reported by McGraw Hill Construction, this article demonstrates the practical utility of Building Information Modeling (BIM) on a construction project ... a green one!  MH reports about the restoration of the historic Grant School in Washington, D.C.: "The contractor had nearly finished the time-consuming coordination of mechanical, electrical, and plumbing trades. Then work ground to a halt. Local legislation had just passed requiring all public buildings to achieve LEED certification."

Although the project was exempt from the change in the law, the School wanted to demonstrate their commitment to green by seeking LEED certification.  Using BIM, modifications to the design (including the mechanical systems and the acoustics) were relatively straightforward.   Without BIM, the work would would have been prohibitive given the increased costs and delays associated with the re-design.

Two cool things ...

First, the Grant School project featured by MH typifies the benefits of technology in the industry.  According to Dwayne Sellars, BIM manager for Turner Construction, his company is using BIM even in situations where the architect does not because the model reveals conflicts between systems that are often discovered only in the field. 

Second, not only does the Grant School project illustrate the effective use of BIM technology, the format of article itself is exciting.  The article is presented in a case-study format as part of McGraw Hill's Continuing Education Center.  You can review the information and take a test for 1.00 credit for HSW/SD.  According to CEC, after reading the full article you will be able to: 

• Describe building-information modeling (BIM).
• Explain strategies for applying BIM to promote sustainability.
• Discuss uses of BIM at different phases of a building's life cycle.
• Understand how BIM relates to green "best practices" within your own discipline.

The real import of the article--and particularly the convergence of BIM and LEED--is realized upon reading the concluding paragraph:

Architects are receiving better, earlier energy-related analysis; engineers are providing more focused expertise during design; builders are reducing waste in construction; and facility managers are increasing the efficiency of their operations. And many of those experiencing the benefits of technology and teamwork have visions of still more capabilities and benefits in the future.

No time for the test, McGraw Hill ... but thanks for the good information.

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 As I was watching the evening news this week, I learned that my new home may have some Chinese drywall within its four corners.  What does that mean?  Well, I am too late to the game to accurately capture what has been going on the world of Chinese drywall litigation.  Just check out the growing number of Google-News archives for "Chinese drywall."  Or check out the new legislative update from ENR on drywall issues.

Here is a round-up of a few my favorite posts:

• On Construction Law Monitor, Scott Wolfe discusses the difficult choices faced by builders, homeowners, and construction attorneys.  These posts contain thoughtful considerations and practical checklists when dealing with drywall claims.
• On his other blog called Chinese Drywall Blog, Scott highlights a chart of drywall shipments from China, which is easy to read and provides great information (prepared by the Harold Tribune).

I have not seen or heard of any claims in Tennessee, but there were reports on the news that new homes ( ... like mine ... ) being built in the 2005-2006 "may" have some of the tainted materials.  We know it made it to Charleston, South Carolina ... but did it make here? 

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As I was driving to work, a super-hero-like voice interrupted my morning news program on the radio: "Green Power Switch is coming to a neighborhood near you!  Green Power Switch will allow you, the consumer, to choose to purchase “green” energy from the companies that sell the power that TVA generates."

That’s right! The Tennessee Valley Authority and local power companies are banding together to offer their customers various alternatives of renewable energy (i.e., solar, bio fuels and wind).

Self, I ask, what’s the big deal with that? The big deal is that the speeches and PowerPoint presentations we’ve heard on renewable energy legislation and its effects on the construction industry are becoming a reality.  

Just a few weeks ago, the Green Ribbon Committee on Environmental Sustainability issued its recommendations to Nashville Mayor Karl Dean, including the following: 

• "Implement program at NES to switch from petroleum oil to a soybean-based oil for transformers used city wide."
• "Develop a Metro Green Fleet program to expand the use of electric vehicles, hybrids and bio-diesel to help diversify energy supplies, decrease emissions and support regional economic activity."
• Adopt an Advanced Metering Infrastructure (AMI) system for NES residential customers that would enable them to manage their energy consumption and conservation efforts.

From government initiative ... to legislative enactment  ... to industry standard ... to consumer incentive ... renewable energy will have a dramatic effect on the construction industry as a whole. Already, we are seeing green-related ordinances that affect the day-to-day business operations of your hard-hat construction contractors, laborers and suppliers.  Take, for example, the green cement ordinance in Dallas, Texas that requires use of cement from "dry kilns" versus "wet kilns."  That's good news if you operate a dry kiln ... not so good news if you operate a wet kiln.  In other instances, the issue is finding its way into the court system like City of Albuquerque v. AHRI, which blocked enforcement of various state energy conservation codes in New Mexico on preemption grounds. The plaintiffs were a group of HVAC and water heating equipment trade organizations, contractors and distributors.  (Steve Del Percio discusses the City of Albuquerque v. AHRI case on www.greenbuildingsNYC.com.)  

These are just a few examples of the 411 (... information ...) that you can find here at Best Practices Construction Law.  Check back soon for an overview of other green-related legislation affecting the construction industry.

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It is official.  The Construction Blawg  is retired.  For a number of years, I maintained a construction-related blog called The Construction Blawg … which was highlighted by the ABA Journal Law News Now.  While all of the posts are archived, we may have a difficult time resurrecting the content given the internal hyperlinks and coding and expiration of our domain.  (… for you non-techies, that means that there are a lot of codes within each post that will have to be manually changed … )

Although The Construction Blawg has been retired, I am returning to the cyberworld with Best Practices Construction Law.  You will see some of the old regulars like Rip Rap (...focusing on those random construction stories...), but you will also see some new commentary … with a great emphasis on issues like Green-Building, Technology, Building Information Modeling, Great Tips on Project Management and Alternative Dispute Resolution.

Another significant change in The Construction Blawg family is that I now have five … yes, that’s right … FIVE children … and four of them are under five years old!  So I will have some great stories to tell you, which hopefully will shed light on some best practices in the construction industry.  No, really.  Trust me.

So, out with the old … in with the new!  Make sure you check back regularly.

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