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

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

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

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

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

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What 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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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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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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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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