Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Smith Cashion & Orr Law Firm : Green Building & LEED Litigation

The construction industry is one of the hardest hit in this down economy.  From the top to the bottom, from executive to business development and sales to project management, you may find that you have to dust off your resume to look for new opportunities. 

An article by Joann Lubin in the Wall Street Journal yesterday highlighted a networking pro, George Landis, who had to learn some new tricks as his executive job ended last November.  Landis was described as a "deft conventional networker" who once relied on the traditional handshake.  Times are changing ... and Landis realized it.  He agreed to learn networking in the 21st century. Here are the top tips from his informal advisors, as well as a few of my comments:

• Develop a stronger online identity by revamping your resume.  For Landis, this meant changing his work summary from "a seasoned executive" to "I make sick companies significantly better for owners and employees."  From my perspective, it is also good to create an electronic version of your resume that contains hyperlinks to your work experience, notable projects, published articles and speaking gigs. (Here is an example of my electronic resume.)
• Make better use of LinkedIn, a professional networking website.  For Landis, this meant reviving his inactive LinkedIn account.  You may already have hundreds of contacts in your old, dingy address book.  Now's a good time to search those contacts for their online presence.
• Create a more visible personal brand.  For Landis, this meant finding a new way to position himself as a thought leader in business management.  For the construction player, this means finding opportunities to speak and write.  There are local associations like AGC of Middle Tennessee that enjoy new faces at their lunches. You are also bound to find a local educational institution like MTSU that has a concrete management program that always needs guest lecturers. 
• Get a bigger payoff from industry events.  For Landis, this meant joining the Turnaround Management Association and offering to assist in program development.  When you participate in the event organization, your start to become known as a good helper and volunteer.  Your name recognition and reputation builds.

At the executive and business development level, some of these tips may be easier to do than at the project management level.  But I think it comes back to identifying your passion and making that your job.  Former-construction-attorney-turned-marketing-coach Cordell Parvin shares 5 Keys to Success and Fulfillment and the second one is about finding your major definite purpose.  Perhaps your current circumstances allow you to look for new opportunities. And remember, you may be like Landis in your archaic networking ways, but even a pro can learn new tricks.

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What did you watch after the Superbowl?  If you are like more than 36 million other viewers, you watched the premiere episode of Undercover Boss . . . a new reality show on CBS that features high level executives who go undercover to interact and work with daily employees.

The premier episode featured Larry O'Donnell, President and Chief Operating Officer of Waste Management, as he worked alongside his employees.  O'Donnell got down to the nitty gritty, cleaning porta-potties, picking up trash at a landfill, sifting cardboard at a recycling plant, and driving on a trash route.  If you saw the interaction between O'Donnell and his employees, you felt the authenticity of the moment.  Whether you call it "good reality television" or a case of "good scripting," there were a number of lessons that can be gleamed from O'Donnell's experience:

• A company's success depends largely ( ...if not entirely... ) upon its people.  While this may be common sense, many company leaders do not realize how far down the ladder this principle applies ... all the way down to the bottom man or woman.  If there is a friction between your hourly employees and your middle management, that friction may never be realized by upper management.   
• No matter what level on the company ladder, innovation and hard work should be rewarded.  O'Donnell saw this in an employee named Jaclyn, who was a paid-by-the-hour administrative assistant.  Jaclyn also acted as an office manager, scale operator, and scale supervisor, and accountant for accounts payable, accounts receivable, and payroll.  Ultimately, O'Donnell promoted Jaclyn to supervisor, placed her on salary status and made her position bonus eligible.
• Work policies enacted by management should be reviewed for effectiveness and acceptability.  Some of best decisions made from above have the best intentions for the best results.  However, management decisions can achieve an opposite result if not carefully enacted.  For example, O'Donnell heard complaints from an employee who was docked pay for two minutes for every one minute they were late clocking into work.  Wanna know the kicker?  O'Donnell was the one pushing for increased productivity from WM employees.

Question: Did you identify any other "lessons learned" from the undercover boss of Waste Management?

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As you may know, the Nashville Metro Council recently passed the $585 million financing package for construction of the new Music City Convention Center.  As reported by the Tennessean this morning, discussions have now turned to project management and how to control the costs.

When asked about what areas would incur the most cost overruns, two divergent opinions emerged:

• Marty Dickens, Chairman of the Metro Convention Center Authority, said, "All of 'em."
• Larry Atema, CEO of Commonwealth Development Group and the owner's representative on this project, responded: "There aren't going to be any."

Who's right?  I am not sure either opinion is completely correct.  Cost overruns can occur when the contractor justifies any reasonable change order, whether it is the result of an owner-directed change request, a change in available materials, a change due to design conflicts, or an unanticipated delay in the work.  While there may be cost-savings built into the project's estimate, these can be rare on a sizeable project like the convention center. Add to the mix the multitude of players involved in the financing package: mortgage bankers, accountants, and cost engineers.  

To say that every trade or scope of construction will incur a cost overrun simply ignores the fact that there is a contractual guaranteed maximum price.  Additionally, there are a number of reputable, downright excellent contractors involved in this project who will do whatever is necessary to stay on budget.  Sure, there will always be the few participants trying to make an extra buck or two through change orders.  But that should not be the expectation.

On the other hand, to say that "there aren't going to be any" cost overruns may be simply a case of project management optimism.  Indeed, Atema recognizes that "[d]evelopment and construction is an imperfect process."  Atema continues: "The key is the ability to manage those imperfections." 

Image: Music City Center

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"Pay me less before the dispute erupts ... or pay me more after the dispute erupts ..." is a phrase that many construction litigators have said to their clients.  What that means, practically, is that if you invest the time and money to have your attorney review construction contracts before the job starts, you will save time, money and effort later when the dispute begins (and perhaps you may even fend it off). Despite the warnings, there are many out there who want to "go it alone" ... and that's okay.  This post is for you.

The American Bar Journal posted an article two weeks ago about a federal bankruptcy judge who was fed up with "superfluous words and too much capitalization."   The judge took a stand against legalese and issued some guidelines (pdf) to the practicing bankruptcy attorney.  Some of my favorites include:

• Lawyers apparently disfavor articles, both definite and indefinite. Use the
  articles “the,” “a,” and “an” as appropriate. Write the way you would speak.
• Never use and/or.
• Eliminate superfluous words. They serve no purpose other than to make the
  document sound more legal ... Examples of such words are: “hereby,” “herein,”
  “in and for,” “subject,” “that certain,” “now,” “that,” “undersigned,”
  “immediately,” “heretofore entered in this case,” “be, and hereby is”–the list
  goes on and on.
• Keep plurals and possessives straight and consistent. Know when to use
  debtors (plural), debtor’s (singular possessive), and debtors’ (plural
  possessive). Make sure the verb matches the subject of the sentence.

You can tell by the terse language in the judge's guidelines that he likes clarity and he wants litigants (and particularly their attorneys) to follow those guidelines.  If I were a construction litigator ... which I am ... I wonder what my suggested guidelines would be for construction contracts.  Here are a few:

• Keep the names consistent.  I know this will take some searching and replacing in your form contracts, but it is important to track the parties' names correctly.  Many times, I have found a "subcontractor" listed as "contractor" in one section and "subcontractor" in another section.
• Identify the "contract documents" for the parties.  Too many disputes arise because someone thinks the proposal or purchase order is part of the parties' agreement only to learn later that it has not been incorporated as part of the contract documents.  Many form contracts have an "order of precedence" clause that ranks the precedential value of the documents in the event of a dispute.  Make sure to expressly include every document that you want into the contract documents.
• Evaluate and clarify the "dispute" provisions.  Again, I have seen a number of lawsuits between parties spend too much time on the procedural issues such as litigation, arbitration, mediation (because the contract was not clearly written), rather than getting to the heart of the matter.  Make sure your contracts clearly identify your method of dispute resolution.

Do you have any other guidelines for your construction contracts?

Photo: Flckr - LucasTheExperience

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Seth Godin is the bestselling author of ten books on topics about marketing, the spread of ideas and managing both customers and employees with respect.  This week, Seth released an e-book, a FREE DOWN-LOADABLE BOOK, that addresses some exciting ideas for the new year. 

Why is this important for the construction industry?  Just download the book and find some of the following nuggets of encouragement and advice for the new year:

• Seth Godin (blogger and speaker): "...the more you give the more you get..."  Seth speaks of the importance of generosity in our lives.
• Howard Mann (entrepreneur and author): "They do business through personal relationships, by delivering great customer service and it's working for them."  Howard suggests that you stay connected and build personal relationships, which does not always  mean that you Tweet or blog more.
• Michael Hyatt (CEO of Thomas Nelson Publishing): "When times are tough, vision is the first casualty. Before conditions can improve, it is the first thing we must recover."  Michael highlights that vision is the lifeblood of any organization.

Are you being generous in your business?  Are you investing in personal relationships?  Do you have the vision that your company needs to get you through these difficult times? 

Some of the most successful construction business owners I know are also some of the most generous people that I know.  Even if they are not blogging, Twittering, or Facebooking, they know how to build personal relationships with their clients.  They also treat their employees well and they have the ability to stand at the helm of their company, encouraging their people through the tough times.  Are you doing the same?

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Two months ago I reported about a new "just holding hands" partnership between Associated General Contractors (AGC) and the Associated Builders and Contractors (ABC) in Tennessee.  Although not a partnership, AGC established a task force in early 1999 with members from AGC,  the American Subcontractors Association (ASA) and the Associated Specialty Contractors (ASC).  Last week, the powerhouse group released its updated Guide to Construction Financing: Second Edition (pdf).

The 26-page publication explains the construction financing process while addressing both the opportunities and pitfalls for the contractor.  According to the AGC, it is "intended to serve as a reference to get contractors thinking about the risks associated with project financing."  

How does the contractor get involved in construction financing?  Easy.  It is not unreasonable to come across the contractor who, looking to expand its business, agrees to reduce its fee for an interest in the project.  Nor is it unreasonable to find the developer who goes into default and the bank takes over the project, ordering the contractor back to work.  Or what about the contractor who decides to change the project delivery method to Construction Management At-Risk and consequently helps the owner get financing?  In each of these examples, the contractor becomes entangled in the construction financing process.

The Guide is a must-read for contractors.  Some of the best practices for contractors include:

• Know your owner-developer and the structure of their organization
• Review the "pay when paid" or "pay if paid" laws in the states you are conducting business.  (For a fee, there is a AGC State Law Matrix that outlines this information.)
• Be aware of "creative financing" practices
• Be cautious of an owner's request for upfront deposits or "investments" in the the project
• Know and understand the default terms of the loan documents
• Perform title and lien searches at the onset and periodically throughout the project

Finally, some of the red flags that you should be worried about include: incomplete plans and specifications; owner caused delays at the front end; payment slow-down or defaults; inexperienced owners; change in lender involvement; and abnormal invoicing requests.

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Although I am out of town this week preparing for a trial, I promised a few attendees that I would share with them my webinar presentation last month.  If nothing else, the first slides are entertaining.  Let me know if you have any questions and I will chat with you on the other side.

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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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As much as possible, I like to highlight various forms of construction contract documents.  In most of my green building presentations over the past few months, I have talked about the "soon to be released" Green Building Addendum from ConsensusDOCS.  Well, that day has finally come!

Based upon my preliminary review of the 310 Green Building Addendum, I am confident to say that the blogosphere of architects, engineers, owners, contractors, LEED AP-ers, and attorneys is going to be jumping.  There are a lot of new terms, such as Elected Physical Green Measures and Elected Green Status; there is a new contractual party, called the Green Building Facilitator (or "GBF"); and there is a meaty "Risk Allocation" section in the document. 

The first seven sections of the 310 Green Building Addendum include the following:

1. General Principles, including an acknowledgment that Green Measures are being incorporated into the project that affect the roles and responsibilities of the parties.
2. Definitions, which introduce and define all the new players, roles and responsibilities.
3. Green Requirements and Procedures, which are elected by the owner.
4. Green Building Facilitator, which addresses who this person will be and what his role will be.
5. Green Status, which sets the targeted status (i.e., LEED Certified Silver).
6. Green Measures, which outlines the steps to achieve the Green Status.
7. Plans and Specifications, which helps incorporate the green measures into the underlying contract documents.

Section 8 addresses risk allocation, which is where I will probably spend a couple of days digesting.  In this section, you will find issues such as:

• The role of the contractor during the process, as well as a provision that limits the contractor's responsibility for performing certain services. 
• A waiver of consequential damages, which is the provision that every green attorney will want to take a look at first.
• A general limitation of liability provision that addresses the failure to attain the targeted status, as well as, the failure to receive any intended benefits to the environment.

One cursory review ... and I did not find anything absolutely surprising.  I was interested to see that the contract document was not LEED-driven, meaning that the drafters wrote the green measure provisions and the green status provisions broad enough to include all existing and any future green building programs.

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One of my favorite leadership gurus, Michael Hyatt (CEO of Thomas Nelson Publishing) posted a few good recommendations a couple months ago about using templates for greater efficiency.  Michael wrote:

For years, I have used the concept of “templating” to improve my productivity. The idea is that you create a template for any task that you find yourself doing repeatedly. So instead of “reinventing the wheel” every time, you do it once, save it as a template, and then reuse it.

In my construction litigation practice, I have used various templates to make my life easier during various stages of a construction disputes.  This week, I want to share with you a couple of those templates.

The first one is a mechanic's lien information sheet (pdf) that outlines the background information that is needed for me to file a Notice of Non-Payment or Notice of Lien on behalf of a client.  The type of information that I need to file a lien includes the following:

• Is the project residential or commercial?
• Is the Contract with the owner of the property or the prime contractor?
• Name and address of property owner and prime contractor.
• Name of project/subdivision; property location map; and property address and/or lot number.
• Type of service/material/labor supplied to the project.
• Commencement date (ground breaking) of the project.
• Beginning date of your work on the project.
• Total amount invoiced to date with a copy of the invoices.
• Amount owed or unpaid on the project.
• Last date of your work on the project.
• Date entire project was completed.
• Any “Notice of Completion” recorded?
• Any payment bonds issued?

While this information appears to be a no-brainer request for those contractors who file liens on a regular basis, I have found over the years that my clients appreciate the template that I send them.  This way, there is no confusion about what information I need from them and I am able to more effeciently help my client pursue their rights.

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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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At the end of yesterday's webinar on Construction Documentation and Record Management, I was overwhelmed with so many good questions. Due to time constraints, I did not get a chance to answer them all.  However, I promised to follow up on your inquiries ... below are some of your questions.

How long should project related documents be retained? Why would the timeframe for retaining documents be less than the jurisdiction’s statute of repose?

During the webinar, I said that this would depend on two factors: (1) any written retention policy in place; and (2) any advice given by your tax professional. As one of the participants asked in the chat questions, you may want to keep documents for as long as the statute of repose period in your particular jurisdiction. The statute of repose (like a statute of limitations) cuts off the right to bring action if not pursued within the applicable period. For example, the statute of repose for construction defects in Tennessee is four years after substantial completion, whereas Virginia has a five year statute of repose. Short answer: Keep ‘em 10 years, unless the statute of repose period is longer.

Is there a legal requirement for keeping project documentation and emails?

There are a few issues that are competing here: business issues and legal issues. Purely as a matter of business management, you want proper document controls in place … for the reasons discussed in the presentation. As a legal matter, the only “legal requirement” to maintain records is to make sure you comply with any document management/retention obligations that are required by the parties’ contract (public or private).

Do these project management tips apply to either/both public or private projects?

The lessons can be applied to both public and private projects. Of course, there may be different project controls in place or record management systems required for public contracts. For example, both Wisconsin and Texas now require use of Building Information Modeling (“BIM”) on certain public projects. Also, the general legal issues may differ if you are pursing a claim against a public owner because you may have the dispute resolved by an agency or administrative judge. However, most of the tips in the presentation are applicable to both public and private contracts.

Closing out a job: What recommendations do you suggest for Data Controllers in gathering electronic records from Project Managers, superintendents? Also--must such electronic files be printed and placed in a hard file?

During the webinar, I partially answered this question. Let me try again with the following recommendations for Data Controllers:

• Have the same person do the collection.
• Make sure the collection is complete and exhaustive—i.e., don’t collect emails from everyone’s computer except the “document clerk.”
• Have a written policy about what information is to be gathered and what will be done with the information.
• Create an index to describe or categorize the information.
• Back-up or save all the information in one location, preferably a portable hard drive that can be copied and sent to your attorney. It is hard to deal with 50 CDs or DVDs than one hard drive.
• It is not necessary (nor advisable for cost reasons) to print electronic files for long term storage.

Does using an Owner supplied management tool (Site Manager) for daily diaries (i.e. with a State DOT) relieve you from expanding the level of detail in documentation?

No. Use as much detail as necessary to accurately describe what is required in the report (i.e., conditions, scope of work, installed quantities, labor, man hours, etc.).

As you highlighted the advantages of using a one environment/system between all parties involved, what is the main disadvantage of such application?

Cost … depending on the size of your company and project. If you do not have this infrastructure in place, the initial investment can be costly in terms of licensing fees, usage and management fees, and additional costs for trained personnel.

In regards to emails, what about if you have a disclaimer on the bottom that states that the info is only intended for the person addressed? Can those still be used by the other party?

Yes. No. Depends. If you are talking about emails between individual employees of the parties, then they can certainly be used as party admissions. If you are talking about emails to/from a non-party to the litigation (what may be called a third party), then you can probably use the information in the email and even the email itself if you can get around one of a few evidentiary objections.

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If your project goes bad and you end up in court ... effective project management procedures can help you minimize your exposure.

I will be presenting this webinar to show you what you MUST document and what you SHOULD NOT document to help you win in court!  It is sponsored by WPL Publishing Co., Inc., the publishers of Construction Claims Advisor, Construction Project Controls & BIM Report and Green Building Insider.

This interactive program will provide you with guidance to help you develop effective procedures for documenting your projects.  You’ll get answers to your pressing questions, PLUS you will get sample forms and correspondence you can put to use right away to make sure you are documenting everything you should be –  in the right way.  This course will explore:

• “Putting it in writing” rule – what should you record?
• For whom are you documenting?
• What is the hearsay rule?
• Why are proper records so essential for claims and disputes?
• Critical project documentation – what you absolutely need to document; and non-critical documentation – what you don’t need to document?
• How to use project management software and Web-based capabilities to move towards a paperless project, establish good audit trail and consolidate project documentation
  Is written instruction via e-mail the same as a change order?
• What should you do when a project goes bad?
• AND MUCH, MUCH MORE!

The presentation is set for Wednesday, October 21, 2009 at 1:00 to 2:30pm (EDT).  You can register online.   More importantly, if you have any great construction "war stories" that you would like to share, please let me know. 

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The "before" picture often magnifies the significance of the "after" picture.  In other words, if you had only seen the "after" picture below, then you may think, Wow! How did that crane find its way into that nice pool of water? Perhaps it somehow fell into the water?

Now check out the "before" pictures ... which tell you exactly what happened.

Did you know photographs like the ones above are essential to the construction project management process?  The term project management includes: (1) establishing procedures to manage, monitor and document work and progress; (2) ensuring regular flow of information for project control and coordination; and (3) creating contemporaneous, accurate and complete record of job conditions and problems including their impact to the project.

But why are proper records so essential for claims and disputes?

• To establish causal connection between the event and the damages
• To establish reservation of rights or non-waiver of your claim
• To properly identify actual costs and delays incurred

As a construction litigator, most of the claims that I handle involve breach of contract disputes.  The majority of them involved one of the above three issues, which must be established by some type of proof (i.e., testimony or letter or written change order or photograph).  Good record keeping will either prevent claims or preserve your rights. 

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When my kids break something in the house, they immediately begin pointing the finger at the "alleged" responsible actor.  In the construction world, many times you will need to fix the problem first and then point the finger later. 

I read an article today by Jack Broom in the Seattle Times that illustrates this point.  The incident involved two massive tunneling machines that were damaged and awaiting costly repairs ... 300 feet below ground!  The 17.5 foot diameter machines are supposed to be boring a 13-mile tunnel to take waste water to Puget Sound.  Rather than the five-feet-per-hour pace that these machines should be boring through compacted wet dirt, they are dead stopped awaiting repairs.  According to the article, more than 120 workers have been laid off until the machines are fixed and each day of delay adds to the owner's more than $1.8 billion in escalating costs.  It may take another month or two before the machines can be fixed and start boring again.

This story represents what should be happening on the construction project gone wild scenario: 

For now, [according to the owner's project manager], the county, the contractor and the machines' manufacturer are working together on "getting the fix in place and getting these tunnel-boring machines moving again ... It's in everybody's interest to complete this job as quickly as possible."

Although the parties are reportedly working to find a common solution to repair the two machines so that the contractor can complete the work, legal responsibility for the delays will need to be determined.  Including the legal questions highlighted in Broom's article, a court may be asked to resolve the following:

• Were there any subsurface reports performed prior to the start of the work?
• Did the owner have any contractual responsibility for subsurface conditions?
• Did the contractor have any contractual responsibility for its own inspection of subsurface conditions?
• Did the owner/architect have any ongoing supervisory or inspection duties during performance of the work?
• Were the machines properly mobilized and operated during construction?
• Were the machines defective in any way?
• Were there any other concurrent delays affecting the work?

For owners/developers, this incident is an example of how unexpected events on a construction project require a multi-phased approach to the problem.  Your situation may dictate that you quickly assess the extent of the damage, determine a workable and cost effective solution and fix the problem first ... and leave leave the finger-pointing to later.  So long as you reserve your rights in accordance with the notice provisions of your contract, the project completion will be better served in this approach.

Contractors should take heed that when your work is delayed for reasons beyond your reasonable control, there may be contractual and legal defenses to an owner's assessment of liquidated damages.  Of course, the immediate goal will be to get the project back on schedule ... but remember the finger may be pointed at you sometime down the road.

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What does a little game of tag have to do with construction contracts?  If you ever come by my house on a Saturday afternoon, you will find about 10-15 kids running through my backyard playing the "You're it!" sensation.  Oftentimes, when I am sitting on the back deck with a cool glass of iced tea, one of these runts will run right towards me in hopes of finding assylum in my presence.  Reaching out to touch my arm, the kid yells: "HOME BASE!!!"

"How did I become home base?" I ask myself.  If you don't know what I am talking about, home base in this childhood game is a safe haven ... a resting area ... a zone of protection.  I delight in the idea of being a "home base" to any one of these kids. Fun times.

The little game of tag came to mind last week when I was reviewing a construction contract, which included a new clause that I had never seen before.  It 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.

Wow!  That cannot be enforceable, can it?  What's the point of home base ... the automatic stay of litigation that is guaranteed by filing for bankrupty protection ... if you can waive it?  Certainly, the bankruptcy courts do not appreciate their jurisdiction and powers being waived.  Right?

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:

1. Those jurisdictions where pre-petition waivers are enforceable, whether on public policy grounds or freedom of contract grounds.
2. Those jurisdictions where pre-petition waivers are unenforceable, as against a statutory policy or to protect other creditors.
3. 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 outstide the bankruptcy court.  The "stay" ... or home base ... gives the debtor, the creditors, the trustee and the court a resting area to begin, assess, and analyze the restructuring process.  

<8/26/09> Update: I have received a number of inquiries about the case law supporting the various approaches above.  For an good review of the law, see Michael L. Bernstein's article for the American Bankruptcy Insitute entitled, "Enforceability of Prepetition Waivers of the Automatic Stay."

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After an extra long day at work, it is easy to come home ... take off my tie and belt and shoes ... pile them in the corner ... and collapse on the couch for a few moments of rest.  For many years, I would leave my things piled in that dining room corner and I would usually pick my belt in the morning while on the way out the door.  

One day, my belts had a different plan.  As I was preparing for an early morning meeting, I raced down stairs, knowing that there were at least two belts in my usual corner (... he-he .. I left them there two nights in a row ... ).  Rather than finding my belts, however, I found this ( ----> ) note.  I was surprised at how similar the handwriting was to that of my wife.  Nonetheless, I can't blame my belts for running away.  They have asked many times to be put away at the end of a long day.  I did not listen.  I did not learn. 

Are you listening to your belts projects?  Are you learning from your belts projects? You should be.

One project management tip is to create a "Lessons Learned" process that results in the identification of issues for improved design, construction or performance on subsequent projects.  In other words, "Lessons Learned" is the formalized approach to gathering information both during and after construction which can be used to assist future project teams based upon the written experiences and recommendations. 

What does "Lessons Learned" look like on a green building project?  Harvard's Green Building Resource provides an excellent example in a case study on the One Western Avenue project: 

• One Western Avenue was denied EQc4.3 for not providing carpet cut sheets. From the specifications, it was not clear which product was used. Be sure to include cut sheets for all EQc4 projects."

"Lessons Learned" can also be more detail oriented and created as part of a final submittal process, such as the Final Construction Deliverable prepared by Extrusion Technology, Inc. for a renewable energy project in Massachusetts.  You can even find basic "Lessons Learned" templates on-line.

Writing the lesson learned, however, is only the start.  The real commitment by project team members is to have the resource readily available for the next project and to act upon those recommendations.  I've learned my lesson and my belts have not run away ever since.

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This picture says 1,000 words ... not so good if you are the blasting contractor on a project.  Well, believe it or not, there are always a wealth of emails and other documents produced in litigation that help "make the case" for the other side. 

Take, for the example, the e-mail I found in the files of one superintendent entitled "PROJECT DELAYS" ... the words could not have been clearer ... "I think we need to begin to tell management that we are late.  We also need to consult the claims team to determine how late we really are." 

On another case, I found this nugget: "Although we should give them notice of this claim, let's wait until our equipment has left the port on their vessel before telling them."

Best Practices advises that you should have a written document management policy in place.  This policy should define and describe the role of the following:

• Critical project documentation, such as correspondence, meeting minutes, daily reports and logs, calendars and diaries, accounting records, submittals, schedules, photographs, etc.
• Non-critical documentation, such as personal emails, instant messages, text logs, blog trails, website traffic logs, etc.

The advent of project management software packages (i.e., Prolog Manager, Expedition, plansandspecs, Microsoft Project), as well as other web based platforms, enhances document control by allowing the user to track revisions, store master files, and streamline the review process.  However, the human element is still involved.  Any policy must set appropriate boundaries and guidelines for the following:

• Personal use of email (...a good place to find "mismanagement" emails...)
• Use of profanity (...I always search for the juicy four-letter words...good emails...)
• Risks of informal communications (...see emails above...)
• And, of course, a document retention policy (...don't shred right after lawsuit is filed...)

Failure to formulate a policy that addresses these simple areas almost guarantees that the bad little email will get created and produced.

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Last month, I wrote about how Building Information Modeling (BIM) helped a project meet its time and money goals when local legislation requiring LEED certification was enacted in Wasington, D.C.  The original article that appeared in McGraw Hill Construction provided an excellent overview of BIM uses and strategies for all construction projects, including green ones.  The question that keeps running through my mind is: When ... not if ... will BIM become mainstream?  

Already, industry contract documents contain BIM provisions.  In June 2008, ConsensusDOCS issued its new BIM-baby called the 301 BIM Addendum.  In October 2008, American Institute of Architects (AIA) issued the the 3.5 Release, a collective group of documents that included a BIM exhibit, as well as two new Integrated Project Delivery agreements, two new Design-Build agreements and a Scope of Services document.  The BIM protocol exhibit called the E202–2008 BIM Protocol is available online for free!

Not only is the private industry demanding ways to integrate BIM into projects, so too is the public industry.  Earlier this month, Wisconsin (through its Division of State Facilities) became the first state to require BIM on the following types of projects:

• all projects (new or additions/alterations) with a total budget of $5 million or more
• all new construction with a budget of $2.5 million or more
• all addition/alteration construction with total project funding of $2.5 million or greater that includes new addition costs of 50% or more of total

In addition, BIM is "encouraged but not required" on all other projects. Public comments are now being taken on the new BIM standards and guidelines at the DFS website.

What do I think?  I imagine most of the players in the large Wisconsin projects know, understand and fully appreciate the utility of BIM as an enhancement to the construction process.  More important, however, is the affect that that, if these projects are successful, Wisconsin and its mandated use of BIM will have on the use of BIM by other states and localities.  If unsuccessful (by standards of cost, delay, or litigation), then it may simply stall ... and not derail ... the timing of the mainstream acceptance of BIM.

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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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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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In case you have not heard, on June 11, 2009, ConsensusDOCS released what is reported to be the first and only standard contract designed specifically for federal government construction projects. The ConsensusDOCS 752-Subcontract for Federal Construction Projects provides all of the necessary terms and conditions essential to comply with the Federal Acquisition Regulation ("FAR"). In addition to being FAR compliant, the ConsensusDOCS 752 includes all of the federally-mandated flow-down provisions. The release is important in light of the federal stimulus funding bill. McGraw-Hill Construction has a good summary of the new contract document here.

According to Tom Kelleher, Senior Partner in Smith, Currie & Hancock LLP and Chair of the national coalition of associations who wrote and endorse the new standard contract, the new "federal subcontract will keep needed construction projects from getting tangled up in red tape.”

Of course, the American Institute of Architects was not totally out of the race. The now discontinued and retired AIA A-201 SC 1999 included the Federal Supplementary Conditions for public construction projects that could be incorporated into the contract documents.

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This occurred a few months ago:

“Honey, do you remember when we were talking about grace this week? Although you should eat all your food, I am going to show you some grace tonight. Even though you don’t deserve it, I am going to eat the rest of your chili for you.”  How nice of me.  I proceeded to spoon the rest of her chili into my bowl.  Happy tummy!

Without skipping a beat, my inquisitive daughter asked, “Dad . . . You got any grace for my broccoli?” 

For the rest of the story ... go to Christopher Hill's Construction Law Musings ... where I provided today's guest post.  Chris, thanks for the opportunity to tell another funny story about my kids and the lesson learned about changes and claims on a construction project!

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Essays are a great way to teach lessons. Right now, my eleven year old daughter … who I will simply call “Princess” … is at that age where almost everyday is an “Essay Day.” Last week, when caught in the middle of a lie—about an issue that was not even meaningful—my Princess was required to write an essay about INTEGRITY.  Despite the trend of repitition, she got most of it right:

Integrity means to be honest when no one is looking. If you have integrity you will have more privileges and trust and friends. If you have integrity your friends will trust you because they know you are trustworthy in all things and at all times. . . . If you have integrity, you are honest, trustworthy and you are a good friend to have especially when your friend needs help with an outfit choice.

A career in the construction industry, just like the legal industry, can be made or destroyed based upon your reputation. What if you are known as the contractor who cuts corners, is hard to communicate with, or is just plain difficult? What if you are the owner-developer who has a reputation for never approving changes or for always delaying on responses to requests for information? The fact is … your reputation will follow you.

Reputation, however, is not the only thing that should concern you. There are countless federal and state regulations and statutes that address (and sometimes require) ethical practices in contracting. Indeed, a 2007 Federal Acquisition Regulation amendment requires contractors receiving awards in excess of $5 million on a government contract adopt written codes of business ethics and conduct. Associated Builders and Contractors, Inc. published a four-page guide for complying with this rule.

The point is … ethics and integrity should be part of our everyday lives … no matter where in the construction diagram you fall. And it should not be treated as a marketing trend. In the words of one eleven year old: “You should be honest even when no one is looking.”

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In this day and age of Biggest Loser, South Beach Diet, and the latest fitness craze highlighted by Oprah, I find myself more and more conscious about my eating habits. In fact, if you promise not to tell anyone, we have a little fitness competition within our own law firm starring four fatties. Although I have not been faithful to my own fitness regime (…again, please keep that a secret…), I have found myself diving into a new set of suits in my wardrobe. Herein lies today’s topic…the matter of perspective.

You see, according the average observer, my somewhat strained belt buckle and 1-inch-shy-of-buttoning jacket are signs of an outgrown suit. But little does that average observer know is two months ago I would not have been able to attempt the acrobats of wearing this suit to work. This is one of many suits from 10 years ago! Give me two more months and the pants will be sliding on with room to grow.  You see, that average observer has a different perspective than my family who has never seen me in these suits.

I view a lot of the challenges in the green building industry as emanating from a matter of perspective. There are countless resources available on the web about the legal risks associated with green building—just look at some of the green sites on the sidebar ( -----> ). However, as you scroll through some of those posts on green building, the tone of each writing evidences the perspective of each author. In the same fashion, a green building seminar given to construction attorneys is entirely different than a green building seminar given to owners, design professionals and engineers.

Stated differently, the parties’ expectations about the benefits of a green design will result in disputes. As noted by Frank Musica at the 2007 AIA Convention, these are often “unrealistic expectations” of the owner-developer that place significant risks on the architect. But Frank was presenting to a bunch of architects. What if the talk was given by Professor Thomas E. Glavinich at an annual AGC convention, who defines "the green contractor"?  (... If you look closely, Frank was there, too. Frank is everywhere ...)

Do you understand the potential disputes caused by the parties’ perspective? So long as each party maintains a different perspective on the particular issue, then disagreement will run the project performance. But if the parties are able to clearly and accurately reduce their reasonable expectations to a writing … a contract … then perhaps the perspective they will share is one of success.

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That's a pretty old looking contract ... hanging in the historic courthouse in downtown Arthur, Nebraska.  Good thing our standard form construction contracts are not that old!

Last week, the American Institute of Architects (AIA) held its national convention in San Francisco, California. Although “construction manager” (CM) contract documents had been released in 2007 and 2008, AIA released its replacement CM documents and an updated version of its AIA Contract Documents at last week’s meeting.  Some of the more noteworthy revisions of the CM documents include:

• the famous "dispute resolution" checkbox that now appears in the A-101
• the famous “initial decision maker” (IDM) for disputes
• various provisions regarding digital data

According to AIA, the new release of software includes enhanced document management tools, as well as an easier-to-use platform:

• Data Dialogue box that makes it easy to fill out documents quickly;
• Customizing function that lets you save your favorite drafts as your own document templates for repeat use;
• Microsoft Excel helps you calculate with speed and accuracy

Has anyone used the new software?  You better try it out!  You should also begin looking at the 2007 revised documents because I also hear that the 1997 standard documents will no longer be supported as of May 31, 2009.

Photo: JimmyWayne

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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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