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

Today's guest post is from my good friend and law partner, M. Clark Spoden, who focuses on business litigation, labor and employment, environmental and construction law. The full article was published by Construction Executive. You can contact Clark at clark.spoden@stites.com.

Last April, the U.S. Equal Employment Opportunity Commission (EEOC) issued its long-awaited Enforcement Guidance regarding employers’ use of arrest and conviction records in employment decisions.

The guidance highlights the EEOC’s approach to using criminal records in background checks. Because claims can be made against employers by people who are injured by negligently hired or retained employees, firms need to know the risks involved in hiring decisions. Construction companies must walk the tightrope between potential claims of race discrimination by their employees or the EEOC, and claims by victims of those employees’ actions.

Essentially, employers must take due care to avoid presenting unreasonable risks of injury to their employees (and others), while limiting the use of arrest or conviction records in their hiring decisions.

Negligent Hiring. Negligent hiring and retention is a civil action (called a tort) recognized across the United States. According to the 2002 case Morris v. JTM Materials, Inc., an employer may be liable for negligent hiring if it knowingly (or should have known by the exercise of reasonable care) hires an incompetent, unfit or dangerous employee—thereby creating a foreseeable unreasonable risk of harm to others. In other words, a victim of a tort may recover against an employer for negligent hiring, supervision or retention of an employee if the victim establishes the elements of a negligence claim. The victim must prove the employer knew the employee was unfit for the job and verify the victim’s injury was foreseeable (see Phipps v. Walker).

It’s difficult for an employer to dismiss a negligent hiring claim without a trial. Given the importance of foreseeability, records showing a person has been arrested or convicted of a similar offense in the past could be used by the victim as evidence that similar conduct was foreseeable and could have been prevented by the employer by not hiring (or retaining) the employee.

The EEOC’s View of Arrest and Conviction Records.  Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex or national origin. According to the EEOC, approximately 6.6 percent of all persons born in the United States in 2001 will serve time in state or federal prison during their lifetimes. Assuming current rates continue, approximately one in 17 Caucasian men will serve time in prison compared to approximately one in six Hispanic men and approximately one in three African-American men. In light of the relatively high conviction rates for African-American and Hispanic men, the EEOC issued its guidance in April 2012 as an update to prior policy statements about Title VII and using criminal records in employment decisions.

The EEOC found the reliability of criminal arrest and conviction records was suspect, stating “[A] significant number of state and federal criminal record databases included incomplete criminal records…[and] reports of documented criminal records may be inaccurate.” Additionally, the EEOC concluded third-party proprietary databases vary significantly in the types of information compiled and may be “missing certain types of disposition information, such as updated convictions, sealing or expungement orders or orders for entry into a diversion program.” In essence, “whether a covered employer’s reliance on a criminal record to deny employment violates Title VII depends on whether it is part of a claim of employment discrimination based on race, religion, sex or national origin.”

For the rest of the article, click here.

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You don't need to go any further than this Washington Post article to read about a delayed construction project where the parties are passing blame back and forth.  The Silver Spring Transit Center is reported to be two years behind schedule and suffering from significant cost increases. No doubt the dispute will be resolved in litigation.

When contractors seek additional compensation for changes, design impacts, differing site conditions or other delays, they must convince the court or arbitrator of the amount they are entitled to be paid. Whenever these types of events occur on larger construction projects, there is usually a substantial loss of productivity. Yet, contractors are frequently unable to prove the appropriate amount.

The Measured Mile. One way to determine lost productivity on a project is by determining what is known as the measured mile—comparing the cost of “impacted” work with the cost incurred to perform the same or similar “unimpacted” work. Because the measured-mile calculation is based on comparing the impacted productivity and unimpacted productivity on the same project, it tends to be a more accepted approach.

Steps that Contractors Need to Take. Applying the measured-mile method is straightforward if the contractor has kept productivity records by location, type of work and crews.

• Identify and define impacted work, including the unit of measurement for the work. For example, certain aggregates designated by the agency as suitable for use in the concrete may not be suitable if the soils contain large lumps of clay. Under this first step, you need to identify and define the impacted work.
• Identify the impacted and unimpacted time periods and project locations for the analysis. Selecting the unimpacted (measured-mile) period and location for the project is crucial. Most common tasks on projects are constructed in different phases, at different times of the year and in different locations. In the above example, the contractor may be able to achieve a higher production after identifying and approving a different aggregate source.
• Carefully evaluate the difference between the two periods and select a representative unimpacted period. Remember that a potential challenge to this approach is the argument that the unimpacted selection is not representative of the project. This is because the measured-mile method assumes all work on the project would have been performed at the same rate as the unimpacted segment.
• Locate and assemble job-cost records, identifying man-hours, equipment and material used. Record keeping is critical to calculate and support any lost productivity claim. On highway construction projects, contractors must break the work down by location, activity and event. Review records for all unimpacted work periods. Field personnel need to maintain the records in generally the same manner for the impacted and unimpacted sections.
• Determine whether you will base the analysis on hours or dollars. Then develop an unimpacted benchmark productivity measurement. An hourly approach is based on the total crew hours required to complete a work task, such as yards of concrete paved. A dollar approach is based on the total cost to complete a task, including labor costs, equipment rental, operating costs and consumables that vary with time. Once you have developed the productivity factors and crew costs, simply apply these to the impacted work quantities.

A measured mile analysis is generally acceptable if based on reasonably similar work to the impacted work. The impacted and unimpacted work activities should draw on labor from the same labor pool, and both activities should involve similar skill level and effort. Identify and evaluate possible other causes for the claimed impact. Be prepared to explain why these do not apply.

Image: thisisbossi

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ConsensusDocs released the new ConsensusDocs 498 Design-Build Teaming Agreement today, which provides a standard contract for parties desiring to form a team for the purpose of submitting a bid on a design-build project.

According to the press release, this agreement has the flexibility for those team members to include design professionals, contractors and other parties. One team member serves the role as team leader for the purposes of compiling and submitting the proposal, as well as for negotiation of the owner agreement, if awarded. Critical issues such as confidentiality, withdrawal from the team, and document ownership are included. Post-award considerations are addressed and team members are required to enter good faith negotiations for a subsequent agreement covering the work (e.g., the ConsensusDocs 298 Joint Venture Agreement or the 299 Joint Venture LLC Operating Agreement).

My friend Kory George, was chair of the teaming working group, said the following: “With the industry’s increase in joint ventures and design-build construction, there is an increased need for a standard preliminary teaming agreement. The new document provides an excellent contractual foundation for all parties desiring to form a design-build teaming arrangement prior to forming a joint venture.”

The contract is specifically drafted to address the unique considerations of a design-build teaming arrangement. Similar to all ConsensusDocs standard contract documents, this agreement takes a project-first approach and promotes collaboration, communication and integration.

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"There is an undeniable need for logical, factually supportable and credible evidence to assist in calculating delay, time extensions, concurrency and compensability as well as liquidated damages and actual damages."  Don Gavin & Robert D'Onofrio (Oct 2012)

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

In a great Construction Law International article by my friends Don and Rob, the authors suggest a series of best practices that should improve on the reliability of schedule analysis and increase its acceptability in the industry.  According to the article, there are eight guidelines that any schedule delay analysis comply with, including:

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

Using these guidelines, any contractor can begin to evaluate and prepare a potential delay claim as the conditions on project causing the delay occur.  If the claim turns to a dispute, you will have done a significant amount of preliminary work that an attorney and/or consultant will need to assist you in the claim. 

Question: What other best practices can you identify for putting together a delay claim?

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Over my legal career, I have handled a significant amount of workers' compensation disputes, representing injured employees, defending employers and insurance carriers, and even a few years working for an appellate judge that addressed workers' compensation appeals. Recently I was discussing the process for determining an employers' experience rating, and I was surprised to learn about some dramatic cost increases that will likely occur in 2013.

The National Council on Compensation Insurance, Inc. is a group that performs national insurance ratings based upon data collection, particularly in the area of worker's compensation. NCCI has been operating as not-for-profit since 1922, performing the following:

• engaging studies on workplace injuries and other national and state factors impacting workers compensation
• provide analysis of industry trends
• prepare workers compensation insurance rate and loss costs recommendations
• determine the cost of proposed legislation, and
• provide a variety of data products to over 900 insurance companies and nearly 40 state governments.

What is the increase? According to a fact sheet from NCCI, the experience rating split point will increase to $10,000 on January 1, 2013.  While I have a basic understanding of the rating methodology, I am not an expert.  You will really benefit by reading the fact sheet and talking with your insurance agent. 

Why the increase?  The last split point update occurred two decades ago and the average cost of a worker's compensation claim has tripled since that time.  The result is that the rating plan is given less weight to each employer's actual experience.  With the new proposal, the split point will be increased to $10,000 in 2013; to $13,500 in 2014; and to $15,000 in 2015. 

How will the point change affect employers?  It will depend on how many claims the employer has that exceed $5,000. If no claims exceed this amount, then the employer will see a decrease in their experience rating modification.  However, in an industry like construction, where more significant type of injuries tend to occur, it is likely the number of claims exceeding $5,000 will increase the experience rating modification.  Additionally, the change also requires re-scoring for 2009-2011, which means that the increased penalty could also result in a readjustment of past assessments. 

What to do with this information?  As an employer, you need to understand that this is going to be a significant change over how the rating system has been handled for the past 30 years.  You and your risk department need to be more diligent in the workers' compensation claim process and you should have a return-to-work program.  As you work closely with your insurance agent, you need to understand the difference between medical only claims versus indemnity claims.  You could be assessed a huge penalty if a claim is turned into an indemnity status because the claimant has not returned to work after a certain time period, depending upon your state.

Hat tip to Chris Smith and Gary Sanders of Brown & Brown of Tennessee for some of this information.

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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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As a construction contractor, your work can be delayed for reasons beyond your control.  If this happens, you want to know that you can recover your losses for additional labor, extended overhead, and other monetary damages.  Would it surprise you to learn that you may have waived that right in your contract?

In the recent case of Plato General Construction v. Dormitory Authority of State of New York, appellate court enforced a no-damages-for delay clause against a contractor, rejecting a $10m delay claim.  The contractor sought delay damages resulting from the alleged poor planning by the project owner and interferences by other contractors on the site.  The trial court found in favor of the contractor, finding, among other, the following causes of delay:

• the owner failed to properly schedule and coordinate the work
• there was not an HVAC contractor on board at the time construction began
• the owner failed to coordinate the relocation of books from the library, which caused delays to the contractor's work
• there were many design changes that were not communicated to other contractors, which caused delays

The appellate court reversed the trial court's judgment because the parties' contract contained a no-damages-for-delay clause, which provided:

“No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner's discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract.”

 * * * * * *

“Should the Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the Contractor shall have no claim against the Owner for said damage.”

Although the contractor in Plato General Construction had contributed to some of the delays, this fact was irrelevant given the waiver of these types of claims in the contract above.  The court concluded: "The contract specifically provided that [the contractor] could not sue the owner for damages resulting from the acts or omissions of other contractors. Further, since the contract provided for change orders, extra work, and acts or omissions by other contractors, such delays were, on their face, contemplated by the parties at the time they entered into the contract."

What it means?  While there are some exceptions to the enforceability of such provisions depending on your jurisdiction, a standard no-damages-for-delay clause generally waives claims for additional compensation for delays on a project.  You may be entitled to additional time, as specified by the contract, but the clause can absolutely prohibit claims for additional compensation.

What can you do? The real lesson is to make sure to review your contract for these types of provisions and try to negotiate the terms.  For example, the AIA A201 expressly provides that the owner and contractor may seek damages from each other in the event of a delay caused by the other party.  There will be certain notice and substantiation requirements, but it is common to allow a party to seek damages for delay.  If an owner is unwilling to remove a no-damages-for-delay clause in your contract, then you should try to limit its application to certain delays such as delays caused by others, leaving the owner liable for its own delays.

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Last month, I wrote a post about using daily reports to support a construction claim.  The more I think about that post, the more I am reminded that the primary goal in construction disputes is to tell the "story" about what occurred on the project site that resulted in the need for additional labor, changed materials, redesign, impacts to the schedule, increased costs, etc. 

The importance of "story" was part of a speech I heard last year by the Honorable Steven Reed, a former judge of the Armed Services Board of Contract Appeals who is now in private practice.  Judge Reed's talk focused on the alternative dispute resolution process and, more specifically, "... the practical side of developing the contractor’s story in support of a claim."   Some of Judge Reed's best tips:

• The big picture: Contractors must anticipate the possibility (if not the probability) of disputed matters. Prevention and preparation are essential to a favorable outcome.
• Documentation: "Daily reports are generally required under Federal contract."  They "should contain facts ... not feelings or emotions." (Don't call the project manager a "jerk" in the project documents, even if he is one.)  Rather, use the daily report as an "opportunity to create a comprehensive record of performance." 
• Claim proof:  "Your contractor client will absolutely need its bid papers for evidence in a claim against Government."  It's a no-brainer, but you need a good document management process in place.  
• Dispute forum:  Picking a forum for resolving your dispute is strategic.  For example, a decision from the Board of Contract Appeals will be "predictable" and the process is more "stable" while the Court of Federal Claims will be more "rule bound."  The forum is also important because the Court has certain jurisdiction over fraud claims, while the Boards do not.

Judge Reed concluded his written presentation with sound advice: "Contractors need to be educated, prepared, aware, and well-represented."

Question: What tips do you have for improving the story?

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Last month, ConsensusDOCS released an entirely new online platform to deliver its construction form contracts.  ENR journalist Johanna Knapschaefer wrote a good piece about "ConsensusDOCS Contract Library Takes to the Cloud,"  where she described the real-time collaboration needed for contract negotiations.

I posted about the new technology by ConsensusDOCS that offered around the clock access, easy editing, easy collaboration, ability to convert, compare and track changes, as well as new legal commentary and user guides.  In addition to the wealth of documents already online, last week ConsensusDOCS released three new documents:

• The new and only available of its kind ConsensusDocs 298 Joint Venture Agreement makes it easier for construction companies to combine expertise and share risks on projects.
• The new ConsensusDocs 246 Owner and Geotechnical Consultant Agreement provides a balanced contract for the unique nature of geotechnical services.
• The updated ConsensusDocs 421 Design-Builder’s Statement of Qualifications helps owners choose the best qualified design-build contractors at the best prices.

On the heals of the ConsensusDOCS annoucnment, the American Institute of Architects (AIA) announced the publication of six new Construction Management documents, a project checklist, and a Construction Classification Worksheet via the Documents-on-Demand™ Web site, which for nearly four years has offered PC, MAC and tablet users easy access to the AIA Contract Documents anytime and anywhere they have Internet access. According to an AIA press release, "These additions complete the conversion of paper AIA Contract Documents to the web-based service, bringing the total number of documents available through Documents-on-Demand to 106."

“Only the AIA’s Contract Documents provide the time-tested legal protection that has been the Industry Standard for over 120 years. The latest additions to our Documents-on-Demand contracts and forms have completed our ultimate goal of providing a comprehensive, quick and easy alternative to paper documents with the added benefit of anywhere, anytime online access,” said Maan Hashem, Managing Director, AIA Contract Documents Software and Services.  The following documents and forms have been added to AIA Documents-on-Demand:
 

• A132–2009, Standard Form of Agreement Between Owner and Contractor, Construction Manager as Adviser Edition, and A132 Exhibit A, Determination of the Cost of the Work
• A133–2009, Standard Form of Agreement Between Owner and Construction Manager as Constructor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price, and A133 Exhibit A, Guaranteed Maximum Price Amendment
• A134–2009, Standard Form of Agreement Between Owner and Construction Manager as Constructor where the basis of payment is the Cost of the Work Plus a Fee without a Guaranteed Maximum Price
• A232–2009, General Conditions of the Contract for Construction, Construction Manager as Adviser Edition
• B132–2009, Standard Form of Agreement Between Owner and Architect, Construction Manager as Adviser Edition
• C132–2009, Standard Form of Agreement Between Owner and Construction Manager as Adviser
• D200–1995, Project Checklist
• G808–2001, Project Data, and G808A–2001, Construction Classification Worksheet

In the next few months, my partners Anne Gorham and Buck Hinkle will be preparing for a presentation on the comparison of the ConsensusDOCS and AIA contract documents.  Maybe we can convince them to give us a sneak peak of their presentation?

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One of the basic, yet most important, aspects of project documentation includes effective use of an on-going and detailed set of daily reports. Too often, daily reports are submitted to the contractor’s office merely noting the date, the weather, a broad description of the work being performed, and sometimes, a listing of employees and equipment present. This type of report will usually prove insufficient to support a request for additional compensation or change order claim.

Even on a perfect day, when no problems arise and production is favorable, effective project management principles require more detailed reporting.  Here are some tips when training your project team about daily reports:

• Report the normal and the abnormal. Construction personnel are often–erroneously–led to believe that daily reports should be long and detailed only on those days when owner-caused problems are encountered. Admittedly, contractors can claim success when they devise a system that provides detailed reporting on days problems occur. But frequently, daily progress reports are used as a means of proving what happens on the project when things are normal. For example, suppose a utility crew’s daily progress is adversely affected by an unexpected obstruction, the risk of which you did not contractually assume. To prove the obstruction slowed the crew’s production, you may present: (a) your original estimate showing anticipated production; (b) notes on each daily report estimating how much additional production could have been achieved for the day but for the obstruction; or (c) daily reports indicating actual production for the same work when it was free from interruption.
• Other projects may be relevant.  Being able to produce daily reports detailing other projects with similar conditions and degrees of difficulty will place the contractor in a better position than merely presenting the project estimate. At the very least, the daily reports from another project will add legitimacy to the estimate and remove some of the owner’s skepticism of paying out claims based on the total cost approach.
• Include work categories and/or cost codes.  Daily reports should include the hours each employee and piece of equipment worked on the project by work category or cost code. In addition, the locations where the work was performed should be recorded. For larger companies with payroll or personnel departments, the daily report should be a multi-copy form so it is not tied up routing through various departments. If the project is large, or if work is being performed by crews, each crew should complete a separate daily report. Reports should be designed to operate as checklists. The checklist format prompts supervisors in every category of information desired.

Finally, contractors should demand that daily reports remain just that: daily! Allowing supervisors to fill reports out at the end of the week leaves too much to memory and is certain to result in inaccurate and brief reports. When supervisors are allowed to fill out reports from personal diaries, the mental prompting so important to accurate reporting is lost. In addition, after-the-fact reporting may result in a court refusing to admit such reports as evidence.

Image: Dan Moyle

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You will rarely find me advertising on this blog.  However, since I have received numerous inquiries about my presentation at the AGC National Conference in Honolulu last month, I am pleased to announce that I will be doing a similar Webinar tomorrow, Wednesday, May 2, 2012 at 1:00pm EST. 

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

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

To register and receive a special blogger's discount, follow this link.

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I just received an email this morning from ConsensusDocs, announcing that they will be offering a new and significantly improved new technology platform for ConsensusDocs contracts within the next two weeks that will improve the contract process.  

I have been involved in some of beta-testing and I am really excited about this platform for attorneys, contract managers, and anyone dealing with the construction contract process.  Below are just a few of the many new features that are included in the new system:

• 24/7 Access – Access your contracts anytime from anywhere via our new secure cloud-based system.
• Easy to Edit – If you know how to use MS Word®, you know how to customize ConsensusDocs contracts.
• Easy to Collaborate – Invite anyone to collaborate on your contract for free - you control editing rights.
• Create Favorites – Create “Favorites” from ConsensusDocs contracts that have been modified to meet your unique needs.
• Convert & Compare – Comparison tools allow you to easily see changes from one document version to another. Upload and convert your own documents.
• Free Guidance – User instructions are embedded within the contracts and reference the free ConsensusDocs Guidebook.

Question: Have you used any of the ConsensusDOCS?  What about other online platforms?

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Noted author and business attorney, Peter Siviglia, once said: "In this world, ... there are two forms of writing: creative (such as novels, plays, and poetry) and expository (such as treatises, letters, memorandums, and briefs).  I've tried both and prefer a third: contracts, which do not entertain, do not convey information or ideas, and do not try to persuade."

In the world of commercial real estate and construction contracts, Siviglia hit the nail on the head.  Using some of Siviglia's tips in Courses on Drafting Contracts, 12 Scribes J. Legal Writing 89 (2008-09), here are a few items to think about when drafting contracts:

• A contract is about defining transactions and relationships.  This more more than the definition that we learn in law school (i.e., "An agreement between or among two ore more parties for the purpose of ...").  According to Siviglia, the contract will help define: (1) a transaction, such as the purchase of real estate; (2) a relationship, such as a partnership, or (3) a combination of both, such as a partnership to purchase and develop real estate.
• A contract is a set of instructions.  Just like the building plans and specifications instruct the contractor how to build the water treatment plant, commercial condo or new hospital, the written contract instructs the parties on their course of conduct in the transaction.  And when problems arise ... and they will ... the written contract instructs the parties on how to perform in such circumstances.
• A contract should include standard provisions.   Although each contract is different, there are a number of terms and conditions that are part of the "A Player" list, including: 

1. Termination, which defines the parties' rights to terminate the contract;
2. Assignment, which outlines whether the parties are allowed to assign their rights to another party and the terms in which they are allowed to do so;
3. Governing law, which defines the law (i.e., Tennessee, Virginia, New York) that will apply to the parties' contract in terms of both substance and procedural issues;
4. Disputes, which defines whether the the parties will litigate in court, mediate, or arbitrate;
5. Notice, which identifies where legal notice of disputes, claims, changes, etc. are directed;
6. Modifications, which outlines the procedures for modifying or amending the contract terms (not to be confused with a "changes" clause);
7. Changes, which outlines the procedures for modifying or changing the scope of work by one of the parties (not to be confused with a "modification" or "amendment" clause);
8. Claims, Rights and Remedies, which describes the method for submitting claims and may also include rights to recover or limit certain types of damages (consequential damages, liquidated damages for delays, attorneys' fees, interest); and
9. Indemnification, which describes the circumstance in which one party may have to indemnify (or pay the losses or claims) of the other party for some legal purpose.

Of course, each transaction or relationship should have a written contract tailored to its own project or development needs. In other words, while standard form agreements can be used on successive and multiple transactions, each project should nonetheless be reviewed for the applicability of particular standard form provisions to the particular project.  On occasion, circumstances dictate the necessity of revisions to your standard agreement.

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A week does not go by without a friend, colleague, or new acquaintance asking me, "How do you do it all?"  The short answer: "It's tough ... very tough ... but I have some help.  For home and family issues, I have my lovely wife.  For unloading the dishwasher, I have seven children.  For getting out letters, I have an outstanding legal assistant.  For researching legal issues, I have a number of associate attorneys who can help.  And for blogging and staying current with the construction industry, I have Google Reader." (...Okay, so my answer was not that short...)

I use Google Reader to track and scan hundreds of blogs, news sources and Twitter feeds relating to the construction industry, leadership, marketing and social media.  Rather than try to explain how it works, check out the following short video:

Now, let's see how Google Reader has helped my blogging efficiency for an actual blog post.  Last month, I read an article in my Google Reader about a skull and human bones found at a San Carlos construction site. Since the article highlighted what I thought was an instance where "best practices" can help a contractor in such a situation, I blogged about the incident, as well as some construction management tips. 

How can Google Reader help you? The tool can be used:

• To track your "go to" websites that you regularly check
• To track certain terms in the mainstream media (i.e. "construction bids Tennessee" or "green incentives for developers")
• To follow certain Twitter feeds for people or terms

Since words have different meanings to people, there may be problems with some of the initial feeds you set in Google Reader.  It may take time to determine whether the inquiries you set are returning useful information.  Overall, this is a "must use" for anyone who wants to be a leader in their industry.

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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.

Question: What are some examples of contract ambiguity you have experienced or seen? 

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CBS San Francisco reported last week that a construction crew unearthed human remains while installing new plumbing lines in San Carlos, California.  Construction was halted while sheriff’s detectives and investigators from the San Mateo County coroner’s office arrived and began an investigation.  Has this ever happened at one of your sites?

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

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

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As the kids were making Valentine's cards this week, a smaller one disappeared from the pack. Then came silence.  You see, in my house, silence is a bad thing.  This particular silence turned out to be too funny:

The hand writing on the wall is a sign of doom or misfortune. Now, the phrase has become a popular idiom for something bad is about to happen.  When something goes bad on a construction project, you have many choices.  Best practices tells us to find a solution first and point the finger later.  

What happens when there is a contaminated spill on site?  What if a busted piece of heavy machinery or equipment is delaying the schedule?  Or perhaps the most common ... what happens when you discover unsuitable soils? 

Although the parties must work to find a common solution to any of these problems so that the contractor can complete its work, legal responsibility for the delays still needed to be determined. Ultimately, when disputes like this arise, a court or arbitrator will have to resolve many legal questions, including:

• Were there any subsurface reports performed prior to the start of the work?
• Did the owner have any contractual responsibility for unanticipated conditions?
• Is the vendor or supplier have an obligation to timely service, repair or replace leased equipment? 
• 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 or were they defective in any way?
• Were there any other concurrent delays affecting the work?

For all players in construction industry, 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 the parties reserve their rights in accordance with the notice provisions of the contract, the project completion will be better served in this approach.

Contractors should pay particular attention to the contract provisions relating to time, changes, force majeure and differing site conditions. 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 best approach is to take steps during construction to avoid the writing on the wall.

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When contractors seek additional compensation for changes, differing site conditions or other delays, they must convince the DOT or court of the amount they are entitled to be paid.  Whenever these types of events occur on larger highway or infrastructure construction projects, there is usually a substantial loss of productivity. Yet, contractors are frequently unable to prove the appropriate amount.

The Measured Mile. One way to determine lost productivity on a project is by determining what is known as the measured mile—comparing the cost of “impacted” work with the cost incurred to perform the same or similar “unimpacted” work.  Because the measured-mile calculation is based on comparing the impacted productivity and unimpacted productivity on the same project, it tends to be a more accepted approach.

Steps that Contractors Need to Take.   Applying the measured-mile method is straightforward if the contractor has kept productivity records by location, type of work and crews.

• Identify and define impacted work, including the unit of measurement for the work. For example, certain aggregates designated by the agency as suitable for use in the concrete may not be suitable if the soils contain large lumps of clay.  Under this first step, you need to identify and define the impacted work.
• Identify the impacted and unimpacted time periods and project locations for the analysis. Selecting the unimpacted (measured-mile) period and location for the project is crucial. Most common tasks on projects are constructed in different phases, at different times of the year and in different locations. In the above example, the contractor may be able to achieve a higher production after identifying and approving a different aggregate source.
• Carefully evaluate the difference between the two periods and select a representative unimpacted period. Remember that a potential challenge to this approach is the argument that the unimpacted selection is not representative of the project. This is because the measured-mile method assumes all work on the project would have been performed at the same rate as the unimpacted segment.
• Locate and assemble job-cost records, identifying man-hours, equipment and material used. Record keeping is critical to calculate and support any lost productivity claim. On highway construction projects, contractors must break the work down by location, activity and event. Review records for all unimpacted work periods. Field personnel need to maintain the records in generally the same manner for the impacted and unimpacted sections.
• Determine whether you will base the analysis on hours or dollars. Then develop an unimpacted benchmark productivity measurement. An hourly approach is based on the total crew hours required to complete a work task, such as yards of concrete paved. A dollar approach is based on the total cost to complete a task, including labor costs, equipment rental, operating costs and consumables that vary with time. Once you have developed the productivity factors and crew costs, simply apply these to the impacted work quantities.

A measured mile analysis is generally acceptable if based on reasonably similar work to the impacted work. The impacted and unimpacted work activities should draw on labor from the same labor pool, and both activities should involve similar skill level and effort. Identify and evaluate possible other causes for the claimed impact. Be prepared to explain why these do not apply.

As highway contractors, you will face lost productivity when there are changes, differing site conditions or delays. How well are you prepared to show the DOT or court the amount of your lost productivity?

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You probably thought you would never see the finish line to this series of posts on the Top 20 contract issues for contractors and subcontractors.  Well, here we are, at the finish line.

In this final part of the four-part series, I share the last few areas of concern for contractors and subcontractors when reviewing a construction contract.  These include:

• Assignment: Make sure that the Owner does not have the unilateral right to assign the contract without the prior written consent of Contractor.  Also, try to negotiate your right to assign the contract if necessary.
• Lien Waivers and Indemnification: Make sure that any obligation to indemnify, defend or otherwise protect the Owner from liens is expressly conditional upon the Owner’s timely payment of sums when due. Also, make sure that you are not prospectively waiving your rights to file a lien in the first place. In many states, these types of lien waivers are invalid and unenforeceable as a matter of law. These laws provide you protection and should be cited when negotiating with the other side.
• Indemnification: Ensure that you are not indemnifying the Owner for its own negligence, and that the indemnification clause covers only "personal injury" or "damage to property other than the work itself” that is caused by you or your employees.
• Liquidated Damages and Time: When liquidated damages are included in the contract, make sure that there are no unreasonable restrictions on Contractor’s ability to obtain a time extension.
• Governing Law and Forum Selection Clause:  Finally, make sure you double-check these provisions.  In most cases, the Owner-Contractor agreement calls for the governing law to be the place of the project and that litigation/arbitration will occur in that same locale.  While this is the general rule, there may be an advantage to agreeing to another jurisdiction.

While I could write this series for a couple more weeks, I am not going to let all the secrets out.  What recommendations did I miss?

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My friend Melissa Brumback of Construction Law in North Carolina said that my post yesterday on construction contract issues was SCARY (...although I think she only wanted a shout-out...).  In any event, I am glad that I am receiving good feedback on my list of Top 20 Contract Issues. 

In this third part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The next five include:

• Warranty: Make sure to check out what warranties and representations are made in the contract.  What is the warranty duration, and does it start at substantial or final completion? The warranty period start at substantial completion, particularly if Owner intends to begin partial occupancy.
• Force Majeure Risks (weather, war, strikes): This is a tricky one.  Make sure you identify who bears the risk of force majeure events in terms of time and cost?  If weather is the culprit, you may want to define what kind of weather impact will allow for recovery, whether "excessive weather" (which is what the Contractor may want) or "unusually severe weather" (which is what the Owner will probably push for).  
• Substantial Completion: Does substantial completion contemplate occupancy of the building or structure? Are you required to have a local agency-issued certificate of occupancy, or temporary occupancy permit in order to achieve substantial completion? If not addressed in the contract, most states will have a statute or law on when substantial completion occurs.
• Payment Terms: What are they, and is there a condition precedent to payment? Despite the common confusion between the terms, there is a big difference between "pay if paid" and "pay when paid" clauses.  Also, look to see if there is interest on late payments available?
• Dispute Resolution Terms: Is mediation a condition precedent to other forms of dispute resolution? I recommend making mediation mandatory before proceeding further with other forms of dispute resolution. Also, make sure that the Owner doesn’t get to unilaterally select the dispute resolution method at the time of the dispute. Agree in advance to either litigation or arbitration. Most important, do you have the right to recover attorneys’ fees, or is it one-sided in favor of the Owner? If so, either delete it or make it mutual so that the "prevailing party" gets their attorneys' fees.

Stayed tuned for the final post in this series, covering liens, indemnification and assignments. What recommendations do you have regarding contract issues?
 

Image: Ashley Cross

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After yesterday's post, I received an email from a reader saying that the post was SWEET.  Thanks for the comment! (This picture is for you!)  To start a SOUR trend, today I am going to address terminations and changes.

In this second part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The next five include:

• Suspension of Work and Termination for Default due to Owner’s Nonpayment:  Make sure that there is a provision that allows the Contractor to stop work for nonpayment, and ultimately to terminate the contract for nonpayment by Owner.
• Termination for Default by Contractor: Make sure that the clause does not convert the Owner’s wrongful default termination of Contractor into a termination for convenience. If the Owner wrongfully default-terminates Contractor, you will want to want to recover more than the cost of the work in place.
• Change Orders: Can Contractor refuse to perform a requested change order if the Owner will not authorize or acknowledge it as a change? How are changes priced? What happens if there is a change, but agreement on time and/or compensation is not achieved?  These are all issues that need to be addressed in the changes provision.
• Who is the “Owner” listed on the Contract? Is the “Owner” (as listed on the d/b or construction contract) a property holding company or other potential “shell” company that is related to a larger company with whom you have negotiated the deal? If so, ensure that you have the financially solid company execute a guaranty agreement that guarantees the performance of the shell or holding company. Otherwise, the Contractor could end up contracting with a party without adequate resources.  Also, without a guaranty agreement, the Contractor cannot assert an action against the company with financial resources to get paid.
• Environmental: Are there any known environmental hazards associated with the site that the contract needs to accommodate? The Owner should indemnify the Contractor for existing conditions at the site.

Stayed tuned for the next post, covering warranty, force majeure and payment. What recommendations do you have regarding contract issues?

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I generally follow a "put it writing" rule, which means that if something is in writing it is more than likely to be achieved.  Whether you are a list-maker or a goal-setter, your efforts will be rewarded if you put those lists and goals in writing.

In this first part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The top five include:

• Site Conditions Clause: Make sure that the Contractor is not taking responsibility for unforeseen or differing site conditions, and that costs for such site conditions are compensable.  You should also make sure that additional time is also a remedy.
• Surveys and Geotechnical/Subsurface Conditions Reports: Whose responsibility is it to do the report? Does the contract provide that Contractor can rely on the report? If not, understand that the Contractor is assuming the risk. If Owner procured the report, do not permit the Owner to disclaim responsibility. If Contractor procured the report, make sure that site conditions reported serve as the baseline for what is a “foreseen condition” in relation to the site conditions clause.
• No Damages for Delay Clause: This provision states that the Contractor is not entitled to recovery any damages for delays caused on the project.  It is in the Contractor's best interest to delete this provision.  If the Owner won’t budge, suggest that Contractor be entitled to recover actual, documented costs for Owner-caused delays. Contractor should not have to absorb Owner-caused delays or delays caused by others.
• Owner’s Other Contractors: Does the contract put the Contractor at the mercy of Owner’s other contractors in terms of schedule and compensation? Who is required to coordinate? Do not let the Owner disclaim responsibility for its other contractors.  Remember that in most states the Contractor has no recourse directly against the other contractors.
• Ownership of Drawings: Make sure ownership of any drawings does not transfer to the Owner until payment by the Owner.

Stayed tuned for the next post, covering termination and change orders.  What recommendations do you have regarding contract issues?

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

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

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

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

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Yesterday, the American Institute of Architects (AIA) and Associated Builders and Contractors (ABC) announced a marketing partnership agreement that is designed to foster a greater understanding and exchange of ideas between architects and contractors in the construction industry.

According to the press release, the industry giants have great things to say about each other.

• AIA President, Clark Manus: “We see this as the beginning of a larger, long-term partnership between the AIA and ABC. For more than 100 years, the AIA has been committed to promoting greater industry collaboration among architects, owners and contractors, and this partnership is a natural extension of this work. ABC’s decision to partner with the AIA speaks volumes about the fair and balanced nature of AIA documents and their universal acceptance in the industry.”

• ABC President and CEO Mike Bellaman: “We believe this partnership will provide value to ABC members by giving them access to more resources to help them  win work and deliver that work safely and productively.  This partnership will allow for a healthy exchange of best practices and enhance relationships between architects and contractors, as well as bring more value to the industry.”

As part of the partnership, AIA will provide a number of benefits to ABC members, including a discount on the purchase of any retail-priced AIA Contract Document software license and access to AIA Contract Documents education programs.

In my personal opinion, this will be an interesting partnership to watch.  You may already know about the growing acceptance of ConsensusDOCS, which includes 35 coalition partners including the Associated General Contractors, as well as ABC.  I look forward to seeing what comes out of the program discussions between AIA and ABC.

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Earlier this week, I received an alert that "Five AIA Contract Documents are going green!" Developed using AIA’s flagship documents as a base, and incorporating concepts and model language from the AIA’s Guide for Sustainable Projects, the new documents address the unique roles, risks and opportunities encountered on sustainable design and construction projects.

 “The development of these new documents for sustainable projects is a natural next step following the release of the Guide for Sustainable Projects in the spring,” said Ken Cobleigh, Managing Director and Counsel for AIA Contract Documents Content. “We continue to see a demand for incorporating sustainable elements in projects. The AIA Contract Documents program continues to revise existing documents and develop new documents and guides, as necessary, to remain current with trends and changes in the industry and law.”

 The new AIA Contract Documents created for use on sustainable projects include:

1. A101™-2007 SP, Standard Form of Agreement between Owner and Contractor, for use on a Sustainable Project where the basis of payment is a Stipulated Sum
2. B101™-2007 SP, Standard Form of Agreement Between Owner and Architect, for use on a Sustainable Project
3. A201™-2007 SP, General Conditions of the Contract for Construction, for use on a Sustainable Project
4. C401™-2007 SP, Standard Form of Agreement Between Architect and Consultant, for use on a Sustainable Project
5. A401™-2007 SP, Standard Form of Agreement Between Contractor and Subcontractor, for use on a Sustainable Project

AIA Document D503™-2011, Guide for Sustainable Projects (free download), including Agreement Amendments and Supplementary Conditions, was released by the AIA in May 2011. In the short time since it was released, over 4,000 users have downloaded the Guide. In addition to providing model language that may be used to amend or supplement AIA Contract Documents for design-bid-build projects, the Guide discusses the applicability of key concepts to other delivery models such as design-build, construction management and integrated project delivery.

Question: Have you compared the AIA green docs with the ones from ConsensusDOCS?

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Thanks for all inquiries and well wishes for our family.  Yesterday, my wife was released from the hospital after a prolonged two-week stay.  She has been ordered on bed rest for the near future, but we are on the road to recovery. 

All the emails and phone calls from my friends and colleagues ("Matt, what's going on?"  "Yo! Why have you not responded?"  "I hope your family is okay.")  illustrate a good lesson for construction projects:

Facts are important.

More appropriately, facts are really important!  I have found that a construction dispute with good facts and bad law can, nonetheless, result in a good outcome. Rarely, however, do you find that bad facts and good law will result in a good outcome. 

Since facts are so important, what can you do to develop and preserve the facts necessary to help you win your case?  Here are some tips:

1. Keep written records.  Although conditions in the field may constantly change, make sure you have a process in place to reduce to writing all pertinent facts that affect construction.  This may be a changed condition, interference by another party, unusually severe weather conditions, a change in material price, etc.  If you have a pertinent conversation by phone or in person, make sure you follow-up the conversation in writing.  I cannot tell you how many times I have heard, "Well, they agreed to the change order on the phone."
2. Record just the facts.  If you take the time to record the facts in writing, make sure you leave out all the informal language and other information that will make a good exhibit in litigation.  There is no need to tell the owner's representative that he is an idiot (...even if he is...) in a request for information.  There is no need to tell the contractor's project manager that he is incompetent (...even if he is...) in an email responding to the RFI.  Stick to the facts.
3. Organize your information.  Whether you keep hard-copy documents or you have incorporated the paperless project, make sure you take the time to use a folder structure system that organizes the information in a chronological manner.  This will help you (and your attorney) in the event a dispute arises.

Although this is my own personal opinion, remember that 90% of disputes are fact-driven ... which means that you need to get the facts right, reduce them to writing, and keep them organized.

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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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As a construction lawyer involved in complex litigation, I am often asked to prepare a "litigation and discovery budget" for a client.  As a construction client, your stomach may turn when you receive one of these budgets from your lawyer.  Is there a way to control the costs of discovery in construction litigation? 

According to the International Institute for Conflict Prevention and Resolution (the Center), the answer can be found in what is known as an economical litigation agreement.  According to the FAQ published by the Center [pdf], the Agreement is like a "litigation prenup" that is intended to reduce the costs and delay of discovery according to the size of the matter.  The procedures can be incorporated into a construction contract as follows: 

Economical Litigation Agreement: Any Dispute arising out of or relating to this contract, including the breach, termination or validity thereof, whether based on action in contract or tort, shall be finally resolved by civil litigation in accordance with the International Institute for Conflict Prevention & Resolution Economical Litigation Agreement (2010 edition), by a judge sitting without a jury. In jurisdictions where advance waiver of jury is prohibited as a matter of law, or where all parties to this agreement subsequently agree in writing, such Dispute shall be decided by a jury.

If litigation ensues, the parties are bound by the procedures in the Economical Litigation Agreement, including a limited scope discovery procedure in lieu of conventional discovery.  Discovery requests are limited and sized proportionally to the amount in dispute. For example, for disputes up to $10.0M, 15 interrogatories and six four-hour depositions are permitted. Discovery disputes are to be resolved by a specially trained arbitrator via telephone conference and with limited briefing.  Other areas addressed by the Agreement include: 

1. Waiver of jury trial
2. Escalating negotiations and mandatory mediation
3. Waiver of service of process
4. Responsive pleadings by letter or email
5. Page limit on motions (3 pages)
6. Executive summaries provided with each affidavit submitted
7. Waiver of oral argument on most motions
8. Mandatory discovery with non-electronic discovery limits
9. Limits on number of interrogatories, document requests and requests for admissions
10. Use of informal witness interviews

As with all other things in the construction world ... it looks good on paper.  But I am interested in hearing any feedback from those who have used the Center's alternative to traditional arbitration and litigation.  Anyone?

Image: chbrenchley

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The following headline caught my attention this past weekend as I was reading the April issue of the ABA Journal:  "The Trouble with Terabytes: As Bulging Client Data Heads for the Cloud, Law Firms Ready for the Storm."   It piqued my interest not only because I am a lawyer who follows technology, but also because I represent construction contractors who are grappling with paperless project questions: Should we head to the cloud to back-up our document management system? Should we go entirely paperless on our projects? What are the risks?

Although the Terabyte article is focused on the struggles for law firms that are considering cloud solutions, there a number of practical tips for the construction industry.  Whether you are a general contractor, a specialty supplier or an owner/developer, consider the following as you take your construction data to the cloud:

1. Backing up your data should not be viewed as a best practice, it should be a requirement.  According to Matthew Knouff, general counsel of Complete Discovery Source, who was quoted in the Terabyte article, this is absolutely imperative.  As a player in the construction industry--whether you choose to go paperless--you should have a plan for backing up your current electronic data.  You should also consider how long to archive your project documents after completion.
2. The risks associated with loss of privacy, breach of security or public disclosure exist no matter where computing is conducted. If you think taking your data to the cloud presents new security risks, consider the risks that already exist if you networks and servers are attached to the internet.  When you move to the cloud as a back-up precaution, you are transferring that risk of loss to the service provide.
3. The benefits of collaboration can more easily be reaped through cloud computing. What's that suppose to mean? If you are involved in pre-construction design, project performance, or litigation, there is great benefit from controlled access project documents.  Web-based repositories can allow your project people, your consultants and your attorneys to review, issue code, and share documents as you prepare for litigation.  The same technologies allow the owner, designer, contractor and suppliers to communicate and share documents before disputes arise.

There are some risks, including the possibility that the cloud provider may experience technical issues, as well as financial strains.  Research and due diligence, thus, becomes important as you select a cloud computing solution.

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Last week, I came home to a fresh layer of asphalt throughout our development.  Smooth. Warm. Black.  It looked great!  Then my kids ... 5 out of 6 of them ... pulled out the chalk and began destroying this perfect surface. 

Since their daddy represents road builders, they even created their own lanes of traffic.  I am sure they did not get any environmental impact studies.  Nor did they properly carry out lane closures.  (...amateurs...)

My immediate reaction was to get mad ... They were playing in the street! They were ruining perfectly good asphalt.  But then the quiet voice reassured me.  They are kids ... and they are going to be alright.  

Do you get stressed by juggling professional demands and family life?  Here are some reasons why you should let your kids plays on new asphalt:

• Let your kids be kids.  Too often, I confuse "good behavior" with "good character."  I think my job as a parent is to instill good character, which naturally should result in good behavior. Right?  But when my focus is on their actions, rather than their heart, I become rule-driven.  Wake up, Matt, they are kids.  Let them play!  That's what new asphalt is for ... bright colored chalk!
• Let yourself be a kid.  My job as parent does not end with allowing my kids to play, though.  I need to play with them.  In this instance, I flopped down on the new, black street and began drawing.  The giggles of the little ones at my side, laughing at my "less than perfect" stick figure was all I needed.  This was fun.  
• Live one life.  Most of my hurdles over the past ten years have stemmed from that fact that I tried to compartmentalize every aspect of my daily life (i.e., work, health, family, friendships, etc). Each had their own little box. Until I came to the realization that there is only room for one life, there was conflict.  I suspect that you will experience the same.  That means, if you are a passionate executive, then take that passion home to your family.  If you work great with your kids, then work great with your staff and employees.

Are you juggling work and family and community?  What tips can you share about finding the right balance?

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I received an alert from my friends at KraftCPAs yesterday with the following subject line: "How long should your keep you tax records?"

The post by Morganne Keel contains some very basic, succinct and easy-to-implement ideas for document retention of tax records, including the following:

_________________________________________________________________

Individual taxpayers

Keep at least three years, but six year may be better.  The following records are commonly used to substantiate a taxpayer’s income and expense items:

• Form(s) W-2
  
• Form(s) 1099
  
• Form(s) K-1
  
• Bank and brokerage statements
  
• Canceled checks or other proof of payment of deductible expenses

At a minimum, the above tax records should be kept for a three-year period following the date that you file your return (or its due date, if later). However, the IRS’s time limit for initiating an audit on a return where income was grossly understated, yet no fraud was discovered, is six years. Therefore, retain the above documents for at least six years to better protect yourself in the event of an audit.

Pass-through business entities

If you are an owner in a subchapter S corporation, LLC, LLP, or a limited partnership, you should retain a copy of the annual Form K-1 for as long as you own an interest in the entity plus seven additional years. Also, keep any paperwork related to the sale or other disposition of your interest for at least seven years after the disposition.

Corporate income tax returns

It is highly advisable that you retain copies of all corporate tax returns indefinitely.

_________________________________________________________________

For construction companies, I think Morganne is right on track for retention of tax records, particularly in this day and age of electronic storage.  It is not too difficult to maintain these types of documents indefinitely in the event of an audit.

In the construction industry, the next question becomes: How long do you keep project records?  Project documents, including the contract, change orders, correspondence, drawings, specifications, daily logs, field notes, monthly reports, schedules, etc., should be kept and stored for at least as long as the applicable statute of limitations or repose period for the state in which your project is located.  Here is a good explanation of a statutes of limitations and repose for construction defect claims and how it applies to disputes.  In short, if your particular jurisdiction has a 10-year statute of repose, then you should keep you records maintained for at least 11 years. 

Image: agrilifetoday

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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.

Image: USACE Public Affairs

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I was tucking in my Power Ranger last night when he asked me, "Dad, if the clock is unplugged, does time stand still?" I was awed by the brilliant question by this six-year-old mind. "Of course not," I responded. "Okay, Dad. Goodnight." As simple as that, my genius went to sleep.

On a construction project, time is one of the most important variables that must be considered by the parties.  IT DOES NOT STAND STILL.  Here are some things to think about when allocating risk in the parties' agreement relating to time:

• Commencement Date.  Although the parties' agreement may define the Commencement Date, it is better to tie this date to when the contractor receives a Notice of Commencement from the owner.  An often-litigated issue is when the contractor actually begins the work on site and whether there were delays prior to commencement.  Try to clarify when the clock starts ticking for purposes of contract time.
• Liquidated Damages.  In the world of litigation, liquidates damages ("LDs") are a fruitful area of disputes.  The LD provisions in the prime contract are often incorporated into subcontract agreements so that delays caused by subcontractors will be grounds for the prime contractor to assert claims against the responsible subcontractor. As a practical matter, the contractor should make sure any changes by the owner or delays beyond the reasonable control of the contractor allow for a time extension in order to get relief from any assessment of LDs. 
• Scheduling Obligations.  Make sure you identify scheduling obligations, whether you are a prime contractor or subcontractor.  In some instances, you may not have a contractual obligation to maintain a critical path schedule, but you will want to do so nonetheless for claims support.  In other words, you will want to maintain an accurate schedule in order to pursue claims even if you are not contractually required to produce a schedule for the owner.
• Notice Provisions.  Time is also important from the perspective of providing notice of claims.  It is important to identify the notice provisions in the contract and outline them in a separate document.  When all your project members have access to this "notice" document, they can track the dates when notice should be given for particular events (i.e., notice of any delay affecting time of completion or the cost of the work shall be given within seven days of the event giving rise to the claim).  

These are just a few of the important "time " considerations on a construction project.  What tips do you have when discussing time?

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Last week, I was in Las Vegas speaking at the AGC National Convention and attending CONEXPO / CON-AGG, an international tradeshow featuring more than 2,000 exhibitors showcasing the latest in construction equipment, technologies and services.  Later this week, I will share some thoughts about the tradeshow, including some of my favorite exhibits.

In the meantime, I was impressed with the number of vendors with software solutions for document management.  The process of documentation, including its evaluation and improvement, may be better understood if it is subdivided into the following sub-tasks:

1. Recognition, collection and recordation: This is the most vital step in the entire process. Without it, the other steps are moot. It requires that field superintendents and/or project engineers evaluate all real-time events, selecting those that appear to be of future value, and committing them to a permanent record.  Many contractors have reported that their field personnel do not adequately evaluate the real-time events until after they have experienced a major claim on one of their projects. It is a shame to pay the costs for an undocumented claim to ensure better documentation in the future. For that reason, I have given numerous workshops and presentations on documentation and "real litigation" examples to demonstrate the importance of documentation.
2. Reporting, distribution and transmission:  This is a matter of communicating the documents or information to another party. Modern software is available to help with the reporting, distribution and transmission. There are many contractors who customize their software to meet their own particular needs. If field records are computerized at the outset, the cost of organizing them at a later point is eliminated.
3. Initial utilization: Initial utilization of field documentation is important. Contractor management must know what is going on in the field so that adjustments can be made. It is similar to football coaches reviewing real true photographs of plays during a game and then making adjustments to their plan. The documentations that is not reviewed may be routed directly to storage.
4. Storage and retrieval: Storage typically involves filing the information so that it can be retrieved at a later point. Once again, storage by use of computer software makes retrieval at a later date an easier task.

The solutions out there are numerous.  As we move forward to the paperless project, there will be more efficient, more effective and better integration through these task.

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Last week was crazy for me!  Not only did I have more meetings than one could fit in the work week, but we had to find alternative overnight plans for our six children for an out-of-town law firm event.  Just like a construction project, we had to deal with the "ripple effect" of many changes to our plans.

Attorney coach and former construction lawyer Cordell Parvin wrote about the "ripple effect" of change orders many years ago.  Changes, differing site conditions and delays frequently occur on complex highway and bridge construction projects.  Whether the owner is a federal agency, state government or local municipality, contractors are regularly asked to perform the "additional work" or "remedy the differing site condition" during the construction project.  If there is not enough time for the contractor to prepare a change order with proposed costs, the contractor may be required to perform the work on a force-account basis.

The "ripple effect" or "cumulative impact" of changes in the work, delays, and differing site conditions require the contractor to document work activities, as well as money spent for the additional work.  In this instance, the contractor should also be focused on recovering compensation for the "impact" that the change, delay or differing site condition had on the original scope of work. 

In the California case discussed in Cordell's article, State v. Guy F. Atkinson, the Owner DOT contracted with the Contractor to build 1.6 mile long section of Highway 101. Various problems arose during the project relating to wet soil conditions, which ultimately prohibited construction as specified under the bid plans. Over the course of the project, state engineers ordered numerous changes.

The Contractor initially signed the change orders, which allowed for additional compensation on a unit price basis.  The Contractor later refused to sign the proposed change orders because its entire project schedule was disrupted and delayed.  Ultimately, the Contractor submitted a claim for $1.5 million in additional compensation for the cumulative impact of the changes. 

The dispute was subject to mandatory arbitration, which resulted in a decision in favor of the Contractor.  The Arbitrator awarded the Contractor 65% of its claimed damages, finding that "[t]here were cumulative effects of all of the ordered changes. It is not feasible or possible to separately identify or measure those costs which were incurred by Atkinson as a result of the actions by the state." 

The award was confirmed at the trial court level, as well as on appeal.  The appellate court noted that the changes ordered by the State were major, ongoing and seriously impacted the entire project in terms of efficient use of labor, machinery and planning ability. The appellate court held:

The entire operation was disrupted by the ongoing piecemeal changes ordered by the state. The suggestion that only a small amount of the total embankment fill was actually replaced by other materials fails to recognize these massive '"ripple effects.'"

As noted by the court, in most complex cases it is "humanly impossible to trace, find and specify in detail, and quantify in effect the numerous circumstances [that] cause or contribute to financial consequences."

Just like a weekend away from six children requires advanced scheduling and back-up contingency plans, the best way for contractors to deal with changes, delays and differing site conditions is to prepare for the "ripple effect" or "cumulative impact."   Consider the time and productivity impacts of changes on the unchanged work when pricing changes.  With proper planning and scheduling, the impact can be estimated and predicted. This can minimize the uncertainty of change.

Image: Robert Hurzek

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Last week, I spoke at the annual meeting of the Tennessee Road Builders Association.  Fellow speaker and lobbyist,  Dave Bauer of the American Road & Transportation Builders Association, gave a legislative update on the status of Federal transportation funding.  During his talk, Dave suggested that Public Private Partnerships (PPPs) can help, but are not a solution to the economic problems currently facing the industry. 

I previously wrote about whether PPPs could help revive highway and bridge construction.  Whether you are talking about PPPs or some other partnership arrangement between owner/developers and contractors, partnering can work.  But problems often arises in three areas: 

• Partnering often works until there is a dispute about time or money.   While this may be no different than a traditional contracting approach, the partnering relationship becomes strained when project delays arise or cost overruns come into play.  The natural reaction is to start assessing blame.  Used effectively, however, the partnership should be able to find common sense solutions to time and money problems.
• Partnering is often accepted by upper management, but not at the project level.  You can imagine the problems that may arise when there is a disconnect in the family where both the owner and contractor feel they are being taken advantage of.  This feeling can be exacerbated at the project level by those who are involved in the day-to-day construction.  You need to get all levels to "buy in" to the process.
• Partnering often highlights an imbalanced decision-making process.  When disputes arise between partners, it is important that each have equal bargaining in the process.  For example, it can be difficult for the contractor's project manager to be negotiating and attempting to resolve disputes with the owner's representative, who may be at a higher level.

There are many other problems that can exist with partnering.  However, the goal is to avoid the frustration that is often felt by those who want the relationship to work.  The best way to avoid these problems is to: (1) have a balanced partnering agreement that properly allocates risk between and among the partners; (2) get all players together at the inception of the project, both within your own organization and with the other partner, to foster team-building in the relationship; and (3) incorporate an alternative dispute resolution process that allows for effective and efficient resolution of internal disputes.

Image: Metro Transportation Library and Archive

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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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I will admit it.  I am open-minded.  I will try anything (...well, almost anything...) at least once.  So, a few years ago when ConsensusDOCS hit the market, I was happy to take the construction documents for a spin ... and I was even happier to learn that ConsensusDOCS offered a metered account that allowed me access to all of the documents and pay for only the final product.

Rather than wait 10 years for a set of standard form revisions like another construction industry group (...rhymes with Bay-Why-Bay...), this week the folks at ConsensusDOCS released new and updated contract documents to respond to changed economic conditions, new technologies, and green building goals.  According to Brian Perlberg, Executive Director of ConsensusDOCS, “Today’s construction industry looks almost nothing like it did 2007. The practical expertise of an expanded coalition effort brought new ideas and actively listened to outside feedback to make the best standard contracts even better.”

Some highlights of this "review, edit and revise" process include:

• Retention of the project-first philosophy mission that put Owners in an active rather than passive role in the construction process;
• Incorporation of English writing style that provides clearer contract interpretation and project administration (...Bryan Garner is celebrating big time...);
• Promotion of promoting collaboration, communication and integration;
• Incorporation of Building information modeling (BIM) and green building goals as specific callouts into the agreements; and
• Creation of two new documents, including a Standard Purchase Agreement  and a new insurance exhibit for the Subsubcontract agreement.

I have only test-driven the ConsensusDOCS on a few projects, but I am a fan.  Have you used them?  What are your thoughts?

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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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I recently discovered that eight out of ten of the top key word searches on this site over the past few months included variations of the following words: construction, iPad, technology and apps.  The searches were referred primarily to a blog post I did about my favorite apps for the construction industry.  Construction apps are more than just fodder for technology and construction bloggers ... they are being used regularly by some as project management tools.

According to an article by the Tennessean last week,  "[t]he most important tool if you're building or remodeling a house is no longer a hammer or a saw; it's a home computer, iPad, smartphone or other electronic device." The article explains how contractors, designers and owners are collaborating on the project to achieve success:

Builders and homeowners now use computers and handheld electronic devices to instantly share information about the progress of construction projects. To-do lists, schedules, change orders and reports of each milestone are posted on a password-protected website, where they're just a click of a mouse or a tap of a touch-screen away. . . . . Thanks to technology, homeowners no longer have to spend hours waiting for a contractor who misunderstood the schedule or wondering whether a project is going as planned.

The technology solution featured in the article was Basecamp, an online collaborative project management solution used by many different small businesses.  Although I have not used Basecamp, it appears that the software is not specifically geared towards the construction industry.  Examples of collaborative software solutions for the construction industry include: Prolog, e-builder, PMWeb, Paskr, and many others.

There are all different types of solutions for your project management needs.  The key here is to understand that although one particular software "can" be used on your project, it "may not" be the best solution for your residential, commercial or industrial needs.  In other words, you may not need a track hoe when a shovel will suffice ... or you may need a boom lift when the ladder won't reach.  

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In a recent article that I wrote for ABC's Construction Executive magazine, I shared some experiences and lessons learned from a paperless project.  The construction industry needs to consider that “paperless” involves more than simply a different form of documentation, but also a debate about whether the benefits of a paperless endeavor outweigh the upfront investment costs and the potential risks.

Indeed, the courts have struggled with electronic discovery challenges for years. Workable solutions can help parties manage the production of millions of pages of electronic documents. In the end, however, the same common-sense approaches to document management on a paper project can help a contractor deal with similar challenges on a paperless project.

To continue reading the article, please visit Construction Executive.

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As the college football seasons comes to an end, USA Today had a special report on the salaries of coaches, as well as a great article on coaches' contracts.  The article described how some schools have the freedom to include "unusual provisions" in their contracts. 

How's that for bargaining?  Middle Tennessee State coach Rick Stockstill's contract includes a provision that if he terminates his agreement without cause and signs with another Division 1 school, then MTSU can accept either a $200,000 payment from Stockstill or require his new school to enter a contract to play a game with MTSU.  Purdue's coach Danny Hope was more concerned about his personal affects, as his contract allows him to keep personal items and records, including playbooks, notebooks and other documents, upon termination or expiration of his contract. 

Did you know that you can be equally creative with your construction contracts?  A contract is about defining transactions and relationships. It is a set of instructions that "instructs" the parties on how to perform in various circumstances.  Although the contract should have some standard "must-include" provisions, you can include special language to address any situation conceivable.  Here are some examples:

• Consider a cost-savings bonus.  Many construction projects include a cost-plus price, which means the owner pays the contractor the cost of the work plus a fee for the contractor's services.  In this instance, the parties may consider including a guaranteed maximum price.  To provide an incentive for the contractor to come in under budget, parties often include a cost-savings bonus where the parties split any savings. 
• Consider an early completion bonus.  Many times you hear about liquidated damages and penalties assessed against the contractor for delays in completion of the work.  As an incentive to get the work completed before schedule, consider including an early incentive payment.  But be clear in your words, as one contractor recently had to litigate the issues of an early completion bonus because the owner would not pay.
• Consider non-monetary compensation.  Just as football coaches are thinking outside the box on their contracts, parties to a construction contract (whether owner, contractor, subcontractor or supplier) can be creative with the compensation.  Perhaps this construction contract may be the basis of a supplier contract that includes other projects and bulk savings for materials.  Perhaps the owner wants to negotiate a shorter warranty period with unit prices for certain repair and maintenance items. 

There are few limits (...perhaps statutory prohibitions...) to what the parties can include in their construction contract.  Think outside the box.

Image: pobrecito33

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I woke up very early this morning so that I could get a jump start on all the work projects that need to get done before the Thanksgiving weekend.  As I tiptoed down the hallway, the rumbling little snores of 6 children made me smile.  Yep, I am thankful for many things ... but especially family and friends.  I wish you the best this Thanksgiving Holiday.

If you are traveling by vehicle this weekend, did you know that road construction projects in many states take a holiday, too?  For example, The Tennessee Department of Transportation is halting all lane closure activity on interstates and state highways in anticipation of higher traffic volumes this weekend from noon on Wednesday, November 24 until 6:00 a.m. Monday, November 29.

The lane closures certainly help alleviate some of the traffic congestion this week.  However, it will also impact all of the construction activities and project schedules.  When preparing the construction schedule for the holidays, here are a few tips: 

• Remember to include the public holidays and extended days. You would be surprised that regular holidays are sometimes left out of the schedule.  It is equally important to account for extended days, even where the public holiday may only be one day.
• Move critical tasks before or after the holidays. Distractions during this time will undoubtedly affect morale, concentration and longevity. People want to be with their families and productivity often suffers.
• Account for lighter days beginning the second week in December. While you don't have to write off the entire month of December, a realistic schedule of work allocates a lesser number of hours per day as your approach year end.
• Encourage your project team to hit goals during limited work times. The project manager is not going to get very far by pressuring the team with threats and commands. Instead, create an incentive for productivity—i.e., perhaps a shopping gift card or gift certificate for a restaurant.

Some project managers, consultants and experts allocate seven hours in a regular day because workers realistically are not productive for a full eight hours. The best way to ensure quality work from your construction employees during the holidays is to plan for the inevitable loss of productivity.

Image: amy.sept

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I recently read a BNA article on commercial arbitration entitled Achieving the Perceived Cost Savings and Expedience of Commercial Arbitration (pdf).  In the article, Chicago attorney William O'Neil identifies six essential terms you should include in your arbitration clauses.

While I agree with most of the essential terms, the recommendations really depend on the type and size of the dispute.  Here are O'Neil's recommendations to include in your arbitration provision, along with some of my thoughts for construction disputes in particular:

1. Insist on a Single Arbitrator.  Three member panels are, indeed, expensive.  While the average case cannot support the arbitration fees for a full arbitration panel, some construction disputes are of such a magnitude that a panel is necessary.  In other words, do you want one arbitrator deciding your $10 million claim?  There are ways to structure your dispute provision to have a single arbitrator for claims under $1 million and a three-member panel for claims over $1 million.
2. Limit the Time to the Hearing, the Length of the Hearing, and Time to Decision.   I wholeheartedly agree with this recommendation, as arbitration should achieve two of its primary intended purposes ... cheaper and quicker.  The problem is that parties rarely (if ever) spell out these deadlines in the contract and wait until the dispute arises to then argue about the time and length issues.
3. Adopt a Notice Pleading Standard for the Notice of Arbitration.  Most arbitration disputes begin with a Demand for Arbitration, which is usually no more than a one-page form that provides the name of the parties, the nature of the dispute and the amount in controversy.  As a construction attorney, I generally will include a multi-page complaint attached to the demand for arbitration. (Side bar: I include a similar complaint with contractor claims against the State of Tennessee even though the initial form does not require it.)  By requiring a "notice pleading" standard in your dispute provision, you are required to describe the basis of your claims or you have more information to review the claim, depending on whether you are the party seeking or defending arbitration.
4. Limit Discovery.  Again, depending on the nature and size of dispute, you may want full discovery just as you would have in the litigation process.  The point here is to decide the extent of discovery the parties want at the "contracting stage" as opposed to waiting for the dispute to arise and then be subject to either an arbitration rule of AAA or JAMS or no rule at all.
5. Authorize Arbitral Sanctions.  I agree that the decision-maker should have authority to resolve preliminary disputes, grant interim relief, and award sanctions.  Again, the key is to include this power in the dispute resolution provisions.
6. Ease the Confirmation Process.  Since arbitration is a creature of contract, the parties can contractually agree on its binding nature.  As O'Neil points out, arbitration is "wasted if there is a delay in confirming and enforcing a favorable judgment."  The problem is remedied by simply including a clause in your arbitration provision that vests jurisdiction in every district court in the United States to confirm and enforce the award.

Again, O'Neil makes some great points ... but some of these may require tweeking depending on the nature and extent of the dispute.  Make sure you check out the Model Arbitration Clause in the article for some sample language.

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Seems like I have been doing a lot of out-of-town speaking lately.  Fortunately, my next gig will be in my own office, in front of a computer, with a headset attached.  You should consider joining me on October 13, 2010, at 1:00 to 2:30pm (Eastern) for what will be an exciting webinar:

From Paper to Paperless:

Controlling Construction Documentation,

Improving Record Management, and

Identifying Risk in an Electronic Age

The event is hosted by It is sponsored by WPL Publishing Co., Inc., the publishers of Construction Claims Advisor, Construction Project Controls & BIM Report and Green Building Insider. Some of the exciting topics include:

• “Putting it in writing” rule – what should you record? 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
• Are electronic documents subject to the same discovery rules as paper documents? Is a written instruction via e-mail the same as a change order?
• How do social media platforms (Twitter, Facebook, MySpace) affect your project? Do you need a social media policy for your employees?
• AND MUCH, MUCH MORE!

If you have any great construction "war stories" that you would like to share, please send me an email.

UPDATED: If you are a regular follower of the blog and want a huge discount to the webinar, please click here for registration.  Make sure the link has "BLOGGER'S DISCOUNT".

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There is a lot of hot air in Albuquerque, New Mexico this week. And it’s not because I was in town … it’s because of the Albuquerque International Hot Air Balloon Fiesta. It truly is a beautiful sight!

Okay, some of the hot air may have been coming from me, as I was training about 30 project managers, engineers, accountants, and tribal attorneys from the Navajo Nation in Window Rock, Arizona. In the day-long seminar on Monday, we talked about:

• basic construction law principles;
• tribal immunity issues;
• the ten most common tensions on a project;
• various project delivery systems;
• project management and documentation best practices; and
• lessons learned from projects gone wild.

The last hour of the day was spent answering questions about some of the day-to-day issues faced by the tribal nation. Based upon that dialogue, I came to a few realizations about my time in New Mexico and Arizona.  Whether you are sovereign tribe like the Navajo Nation, a local public authority like a school board, or a private developer, the following project tips may be helpful:

1. Identify your available resources and make a plan for success. A successful project has the right people in place, working with clearly defined job descriptions, to achieve a well articulated goal. If you determine that your resources are limited such that you cannot hire full-time employees to manage a particular project, then perhaps you should consider staff augmentation from an experienced group that provides the right project support. They can be hired for any number of reasons—to train your staff, provide support on a temporary basis, or even provide full-time support. Likewise, legal training from a contract administration point of view is better spent money than legal assistance to pursue or defend claims in litigation.
2. Start where you are now and begin to make incremental changes. Even the most successful owner-developer can identify areas of improvement in management of their projects. And whether you are the public owner of a multi-million dollar health care facility or a new K-12 school, you can improve your current project management skills by: (1) purposeful assessment of your needs; (2) common sense planning; and (3) incremental implementation of change. If contract management is an issue, invest some time and money in getting a workable contract for your projects. If document management is the issue, draft a document management plan that will be incorporated in all your in-house training sessions and in all project manuals. The key is to start somewhere now.
3. Finally, you should understand that your greatest stumbling block may simply be an institutional acceptance of the status quo. What do I mean by that? Many times, contract administration and project management is performed with the following mentality: “Well, we have always done it this way.”  By talking with others in the industry and seeking out advice from those with similar practical experience, you begin to identify those things you are doing right and those things require change.

If you can identify areas of improvement in your project management protocols, plan to make incremental changes, and accept that there may be new ways to perform your work, the sky’s the limit on your project successes.

Question: What other tips do you have to help create change to the long-standing approaches you've used in the past?

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A headline from the Wall Street Journal caught my attention this morning: "When People Come and Go: Project teams often have different workers at different times. And that can create problems." Imagine the potential problems that exist in an industry where project team members change regularly such as in the construction industry.

What does history report on labor in the construction industry?  According to the U.S. Department of Labor | Bureau of Labor Statistics, the "contract construction field is very competitive" and the "rate of business turnover is high" in the managerial occupations.   While the career guide contains some outstanding historical data on the industry as a whole, recent trends contradict the some of the growth forecasts by the BLS. 

Does turnover affect your project management teams?  According to the WSJ article, you should be asking yourself the following questions:

1. Are you constantly shuffling people on and off your teams?
2. Do new team members take a long time to get up to speed?
3. Are long term team members dissatisfied with training new team members?
4. Is your group performing as well as they should?

If you answered "Yes" to any of the above questions, then you have an opportunity to make some changes within your project management structure.  Here are some suggestions from the WSJ article:

• Create cohesion by teaming responsibilities.  It is hard to build a sense of identification with a team if turnover is high.  However, workers identify with other employees and managers who perform the same type of work. 
• Strengthen commitment by building motivation.  "Team members who spend only a short time in the group often lack commitment to the task and the group," writes Gervase Bushe, professor of leadership and organization development.  Providing clearer communication, targeting job satisfaction, increasing job responsibility are more than buzz phrases ... they can often make the difference in employee commitment.
• Foster a mindset of shared thinking. Over time, effective project management teams develop a common way of thinking about a project, including ways about approaching the work or communicating with employees.  With turnover, it is hard to develop and maintain a shared approach.  Consider creating a "Best Practices Protocol" for each particular team.

Question: What project management tips do you recommend to deal with turnover?

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Last week, I attended the Nashville Chamber of Commerce CEO Speaker Series featuring Colin Reed, Chairman and CEO of Gaylord Entertainment.  Reed is a very good speaker and he spent the morning with an audience of 200 sharing some lessons he learned following the flood in Nashville in May 2010.  If you have not seen the pictures of the water that overtook the Gaylord Opryland hotel, then click here.

Reed did not show up last week to tout his leadership abilities.  But if you listened carefully, you learned a few lessons in leadership when faced with an emergency.  These include:

• The time for creating an emergency plan is not during the emergency.  There are going to be obvious and not-so-obvious things to do before an emergency occurs.  One of the most obvious preparations that can be done is to prepare an emergency manual that outlines the potential "events" and "responses."   As a developer or contractor, you can prepare a manual that outlines how your company and employees should respond to a work site accident involving a fatality, or unusually severe weather, or other "unexpected" event.
• Build the "right" culture of leaders, management and employees.  For Reed, this meant being purposeful in getting "the right people on the bus" or finding competent leadership.  It also meant creating an environment where the workforce loves their work and the customers they serve!  Just like the hotel industry is based upon customer service and satisfaction, so too is your construction company, property management group, or banking institution.
• Communication has to be direct and honest during an emergency.  Reed and his staff learned that some of the information being reported about the status of the flood was flawed.  In one communication, he heard that the river was rising and that they had problems.  In another communication, he heard that water levels had ceased and he did not have to worry.  The lesson for Reed: "You cannot rely 100% on the information given to you."  But the lesson was also equally clear that the information that his company had to report needed to be direct and honest in all respects.  Some of the guests were not happy to have been evacuated late in the evening on Sunday night. When Gaylord reported that the hotel lobby was six feet underwater, Reed said, "You could have heard a pin drop.  It was at that moment these customers realized that this was, indeed, really serious."  
• Out of chaos comes opportunity.  This was perhaps Reed's best advice, commenting: "We are a better company because of what we went through."  The chaos of the flood and the more than $20 million in renovations have given Gaylord an opportunity to be a stronger and more successful company.  Although more than 1,700 employees were laid off, it gave Reed and his leadership an opportunity to do the right thing by offering severance pay and three months of health care.  Many of those employees look forward to the coming months as the company begins to rehire up to 80% of its former employees.

Reed concluded that if Gaylord didn’t have the right plans, adequate resources and amazing people during this crises, things would have been wholly different.  Gaylord intends to spend millions to celebrate its re-opening in style in November.

Image: mas90guru

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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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You may have noticed that I recently transitioned to a new law firm this week.  I am happy to announce that I have joined Stites & Harbison PLLC as a partner in the Construction Service Group and the Green Law Practice Group.  The past few weeks have seemed like a tropical storm ... and the only thing to do is ride the waves of change.

What do I mean by riding the waves of change?  As a construction attorney for the past ten years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic's liens.  I've learned to adjust to the circumstances to meet the needs of my clients.

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

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

In my situation, communication and flexibility on everyone's part has enabled a good transition.  I am sad to leave such a well-respected practice in Nashville.  However, by joining one of the oldest law practices in the nation and among the largest law firms in the Southeast region, I am thrilled at the opportunity to help build one of the strongest construction groups in the Southeast.  I will miss all my former colleagues ... but who knows ... I may see them in court!

 Image: Michael Dawes

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I am involved in the ABA Forum on the Construction Industry’s initiatives to bring various social media to the forefront of our group’s marketing and development activities. This past week, leadership asked us to develop and draft a “best practices protocol” for our work on this issue. After reviewing our charge, I am more and more convinced that owners, developers, contractors, and suppliers need to implement a similar protocol for their development in construction practices.

What is a best practices protocol?

Just as it sounds ... it is a written protocol that outlines the best practices for success on a project, event or task.  In the construction context, it might be a "Best Practices Protocol for Document Management" or "... for Handling Work Injuries."  It contains the steps taken in order to achieve the successes from any given set of circumstances.  It also contains the lessons learned from the failures.

Why would you create a best practices protocol?

In its simplest terms, you would want to create such a written document in order to pass on to subsequent project managers and team leaders the operating procedures and protocols that led to the success or failure of your particular project. 

Is the best practices protocol discoverable in subsequent litigation?  Any lawyer worth his weight in gold would give you the only correct answer ... it depends!  The real issue here is whether a party's "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, but here is a good discussion of the discoverability of self-critical analysis documents.  In short, the basic requirements for the privilege are: (1) the information must result from a critical self-analysis undertaken by the party seeking protection; (2) the public must have a strong interest in preserving the free flow of the type of information sought; and (3) the information must be of the type whose flow would be curtailed if discovery were allowed.

Question:  Are you creating "lessons learned" or "protocols" for ensuring success on you projects?

Image: Brian Hillegas

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Lucidity is defined as clearness of thought or style.  In its recent revisions to the A310 (Bid Bond) and A312 (Performance Bond and Payment Bond), the American Institute of Architects (AIA) attempts to provide a clearness of thought and style.

The first publication of AIA's standard bond form was in 1911.  The most recent revisions were in 1970 for the bid bond and 1984 for the performance bond and payment bond forms.  In 2009, the AIA began revising the bond forms to reflect years of court interpretation of the traditional bond language.  However, as admitted by the AIA, some changes were made simply to "clarify language" in the long-standing bond forms.

You can review the AIA's Bond Form Commentary and Comparison (pdf).  Here are some of the major changes:

• The introductory legalese is now gone.  Do you remember the "Know all men by these present, that we [contractor], as Principal, hereinafter called the Principal, and [surety], a corporation duly organized under the laws of the State of ______________as Surety, hereinafter called the Surety, are held and firmly bound unto ..." ? Principal, obligee, surety ... all that stuff is now gone!  Now, you will find an introductory section that lists Contractor, Surety, Owner, Bond Amount and Project. Now that's clear!
• Bid bond form addresses time for acceptance of bids and statutory requirements.  For various reasons, time limits for acceptance of bids are sometime extended.  The revised document allows for up to a 60-day extension of the time for acceptance of the bid (as between owner and contractor), but the surety must be notified and provide consent to extend the bid bond.  In addition, there is necessary language for public projects that have certain statutory requirements.
• Performance bond eliminates owner-surety conference prior to termination and reduces certain waiting periods.  Under prior documents, the owner had to request a conference when addressing contractor default. Some courts held this to be a condition precedent to the surety's obligation under the bond. Now, the owner may, but is not required to, request a conference as part of its notice of potential contractor default.  In addition, the new form deletes the 20-day waiting period for terminating the contractor after notice of default.  Finally, the new form reduces the 15-day waiting period to a 7-day waiting period for a surety (not contractor) default.
• Payment bond makes a number of clarifications to payment obligations, notices and claims, and compliance with bond provisions.  First, Section 2 was revised to better reflect the parties' obligations under the payment bond.  The revisions also clarifies the difference between a "notice" of nonpayment and a "claim" that is sent to the surety.  Finally, a new Section 7.3 was added to clarify that a surety's failure to act under the bond is not a waiver of defenses.  However, the surety may have to indemnify (repay) the claimant's attorney fees if the surety fails to file an answer or fails to pay undisputed amounts.

While there are a number of other changes, these represent many of the provisions that make the AIA bond forms more clear ... more lucid.

Image: Jakebouma

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Noted author and business attorney, Peter Siviglia, once said: "In this world, ... there are two forms of writing: creative (such as novels, plays, and poetry) and expository (such as treatises, letters, memorandums, and briefs).  I've tried both and prefer a third: contracts, which do not entertain, do not convey information or ideas, and do not try to persuade."

In the world of commercial real estate and construction contracts, Siviglia hit the nail on the head.  Using some of Siviglia's tips in Courses on Drafting Contracts, 12 Scribes J. Legal Writing 89 (2008-09), here are a few items to think about when drafting contracts:

• A contract is about defining transactions and relationships.  This more more than the definition that we learn in law school (i.e., "An agreement between or among two ore more parties for the purpose of ...").  According to Siviglia, the contract will help define: (1) a transaction, such as the purchase of real estate; (2) a relationship, such as a partnership, or (3) a combination of both, such as a partnership to purchase and develop real estate.
• A contract is a set of instructions.  Just like the building plans and specifications instruct the contractor how to build the water treatment plant, commercial condo or new hospital, the written contract instructs the parties on their course of conduct in the transaction.  And when problems arise ... and they will ... the written contract instructs the parties on how to perform in such circumstances.
• A contract should include standard provisions.   Although each contract is different, there are a number of terms and conditions that are part of the "A Player" list, including: 

1. Termination, which defines the parties' rights to terminate the contract;
2. Assignment, which outlines whether the parties are allowed to assign their rights to another party and the terms in which they are allowed to do so;
3. Governing law, which defines the law (i.e., Tennessee, Virginia, New York) that will apply to the parties' contract in terms of both substance and procedural issues;
4. Disputes, which defines whether the the parties will litigate in court, mediate, or arbitrate;
5. Notice, which identifies where legal notice of disputes, claims, changes, etc. are directed;
6. Modifications, which outlines the procedures for modifying or amending the contract terms (not to be confused with a "changes" clause);
7. Changes, which outlines the procedures for modifying or changing the scope of work by one of the parties (not to be confused with a "modification" or "amendment" clause);
8. Claims, Rights and Remedies, which describes the method for submitting claims and may also include rights to recover or limit certain types of damages (consequential damages, liquidated damages for delays, attorneys' fees, interest); and
9. Indemnification, which describes the circumstance in which one party may have to indemnify (or pay the losses or claims) of the other party for some legal purpose.

Of course, each transaction or relationship should have a written contract tailored to its own project or development needs. In other words, while standard form agreements can be used on successive and multiple transactions, each project should nonetheless be reviewed for the applicability of particular standard form provisions to the particular project.  On occasion, circumstances dictate the necessity of revisions to your standard agreement.

Image: Juli Shannon

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Short answer: Yes.

While most of the best practices that I talk about here involve commercial developments, today's post applies both to residential and commercial projects.  It's been two weeks since the historic flooding in Nashville and there is a lot of cleaning up and repair to be done.  On Friday, I received an alert from Davidson County's Department of Building Codes, which contained guidelines for permits related to the repair of flood damaged homes and buildings (pdf).  Here are a few important things to remember, whether the project involves commercial or residential:

• You need a building permit prior to making repairs on flood damages homes and buildings.  While you do not need a permit for clean-up or demolition, a permit is required prior to installation of any drywall, electrical, or HVAC systems.
• The property owner or tenant can pull the permit for repairs up to $25,000.  If the repair costs more than that, the permit must be obtained by a licensed contractor.
• Use extreme caution with restarting of any electrical systems or units.  Again, it is recommended that you have a licensed mechanical contractor inspect and test these systems before using them.

One final recommendation, as related to residential home repairs, is to make sure that your repair contractor is properly licensed through the Department of Commerce and Insurance.  The State has also put together a guide for finding and selecting a licensed contractors (pdf), which recommends the following: (1) get multiple bids from at least 3 contractors; (2) hire only a licensed contractors; (3) get a written contract; (4) get the contractor's proof of insurance; and (5) set up a payment plan and do not pay more than 1/3 deposit.

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On Saturday, it rained ... and rained ... and rained.

On Sunday, it flooded.

On Monday, I took off from work to help stage a shelter at my local church for a number of Nashville flood victims.

On Tuesday, I spent part of the day with displaced residents whose homes were completely demolished.  I spent the rest of the day dealing with email problems.

On Wednesday, I started fielding calls from clients and other flood victims about what they needed to do following flood losses to their businesses and homes.

Today, I hope to outline some steps about what residents and businesses in Nashville should do about all the chaos, including lost property (personal and business), FEMA claims, insurance claims, and the daunting process of remediation and repair of your home or business. 

1. For both homeowners and businesses, locate your insurance policies.  There are a lot of rumors about flood coverages (what is required, whether you can get flood insurance, whether the loss covers contents or the building).  The only way to get to the truth is to review your policy.  If the actual written document was destroyed, then call your agent for a copy of the policy ... even if they tell you that you do not have coverage for floods.
2. If you don't have any insurance, or you do not have coverage for flood losses, then identify what resources are available to you.  As of today, Cheatham, Davidson, Dyer, Hickman, McNairy, Montgomery, Perry, Shelby, Tipton and Williamson counties have all now been granted Federal disaster designation by the President.  That means, you may qualify for assistance through FEMA.  You can apply for assistance online or by telephone.  FEMA requires that losses be submitted with 60 days.
3. Document your losses.  This may be difficult given your conditions, but it will require making a list of the damaged property, as well as taking pictures and videos. While it may be a no-brainer, separate the good from the bad ... what is recoverable and usable from what is completely destroyed.
4. Contact your advisers, including your insurance agent and attorney.  The process of filing a claim begins with giving "notice" to your insurance carrier.  Even if you are not sure about your coverage, make sure to provide the required notice.  If you are denied for any reason, then an attorney will be able to advise you about your rights. (Remember, though, you need your policy!)
5. Carefully walk through the remediation and repair process.  Whether or not you have insurance, you will want to work remediation and repair contractors who have experience with these types of losses.  As with any disaster, there will be those individuals who want to take advantage of the situation to offer their services at what may seem to be a discount.  You should check whether the company is registered with the Nashville Better Business Bureau.  To verify whether a repair contractor is properly licensed through the State of Tennessee, please use please use http://verify.tn.gov or http://licsrch.state.tn.us/
6. For businesses, evaluate whether you have "business interruption" coverage.  Again, this will depend on the actual policy.  Business interruption coverage is generally not sold as a separate policy, but is added or included in a policy package.  It usually covers: profits, operating expenses, and sometimes temporary relocation expenses. 

There is certainly a lot of advice on the Internet ... some good ... some bad.  There are going to be significant claims in the coming months resulting from the floods in Nashville and it is important that you find reliable information to help you through the process.

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Earlier this week, I was talking with fellow attorney who does not practice construction law.  At one point in our conversation, he threw out a goocher of a question: "I know this is a hard question, but what do you think causes most of the disputes on a construction project?  I am sure there could be plenty of reasons for lawsuits, but are there some more to blame than others?"

Wow!  That is a hard one ... particularly because there could be so many different reasons for disputes on a construction project.  Here were my top three reaspons for disputes: 

1. Problems with the contract.  The written (or unwritten) contract is what guides the parties' expectations as to payment and performance.  The contract must clearly identify the rights and obligations of each player in the process, from developer, to designer, to contractor, to subcontractor and supplier.  More problems occur because an incomplete, vague or ambiguous "Scope of Work" in the agreement. A well-written contract that properly analyzes and allocates the risk on the project will often save heartache at the time of completion.
2. Problems with the people.  It is no secret that successful companies are driven by successful people.  The opposite is true as well: failing companies suffer from poor management and leadership.  When "people" are responsible for building "things,"  you have to realize that those "people" can cause problems during the construction process, whether you are talking about a loan officer, a design team, a project manager or supply deliveryman.
3. Problems with the unknown.  This is what I would call the "catch-all" category, as disputes often arise from events beyond one or more of the parties' control.  This woud include anything from unusually severe weather, to labor strikes, to differeing site conditions.  These "causes" often involve requests by the contractor for more time and/or money.

If you had to answer my colleague's question, what would you say?

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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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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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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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