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

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

Our panelists include: 

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

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

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

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

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Earlier this week I attended the AGC of Middle Tennessee's membership lunch.  Everything was right on!   I love chicken ... they served chicken!  I have 5 kids ... the guy next to me had 9 kids!  And I like to follow construction industry trends ... and the speaker loves to follow construction industry trends.

David Wells, a senior equity analyst for Thompson Research Group, spoke about the 2010 economic outlook for the construction industry.  Some key talking points:

• There is no longer a drag on residential construction and we may see some improvement in the upcoming year
• As to non-residential or commercial construction, we have not yet bottomed out ... which may occur mid-late 2010
• Finally, as you can expect, public construction is "the only game in town"

Given the increased investment in public construction, there remains some challenges in this arena.  For example, U.S. government (and other public) borrowing has replaced private borrowing.  This creates a public debt crisis at the federal level, resulting in federal deficit projections of unparalleled amounts.  At the state level, the budget crises stem from the same economic conditions coupled with the requirement to maintain a balanced budget.

This may be new information to some of you.  It is probably old news to many others.  But what does it mean practically?  Here are some of David's concluding recommendations:

1. Take cost cuts now, if necessary.  The uncertainty of work significantly impacts employee productivity.  If you are going to need to make cuts, make them now, and reassure your remaining team that they are part of the team.
2. De-lever your balance sheets.  Use the time now to analyze your debt structures in place and attempt to de-leverage your company as much as possible.
3. Watch out for opportunities.  Weaker companies will be looking for solutions to their problems.  Stronger companies should be on the watch for opportunities to build and expand through acquisition or partnership.

Question: Any recommendations for improving your 2010 economic outlook?

Graph: Council on Foreign Relations

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

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

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

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

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

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

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

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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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When Nashville Mayor Karl Dean created the Green Ribbon Committee on Environmental Sustainability, he had lofty goals of making Nashville the greenest city in the Southeast.  Indeed, Tennessee's Lt. Governor Ron Ramsey shared a similar commitment to be a green "LEEDer" in the South. 

Fast forward to January 2010 ... Where are we on the green front?  What have we learned over the past year?  Where are we going in the future? Have we met any goals outlined in the Green Ribbon Committee report?  How have the current real estate market conditions impacted the short-term future of green building in Nashville?  Is it time to require some sort of mandate for green buildings or are incentives enough? 

Yesterday morning a group of community leaders, developers, bankers, attorneys, engineers, contractors and other green players met for breakfast at Waller Lansden's sustainability breakfast series to tackle these questions. The panel included the following: 

• Jimmy Granbery,CEO, H. G. Hill Realty Company, LLC
• Mike Jameson, Councilmember, Metro Nashville Council District 6
• Bert Mathews, President, The Mathews Company
• Joni Priest, Metro Nashville Planning Department
• Sharon Smith, Metro Nashville Mayor's Office, Director of Office of Sustainability 

The one-hour discussion was very thought-provoking and the panelist had some practical comments on the future of green building in Nashville.  Here are a few:

On the progress of green building:

Jimmy Granbery applauded the development of technology and better understanding of green solutions.  "For example, we can now build a green roof with only four inches of dirt rather than two feet of dirt," said Granbery.  This has certainly resulted in significant cost savings in the underlying materials, as well as the building costs such as the steel needed to support a heavier roof.

On city or state-wide green building code:

Councilmember Mike Jameson discussed the problem that localities face by adopting a third-party building code such as USGBC's LEED certification, suggesting that the building code will have to change as the third-party standard changes.  "Instead, I would like to see the city code mirror the [third-party version] ... to be a stand alone code," said Jameson.

On local incentives for green building:

Joni Priest highlighted some potential incentives, including bonus square footage for LEED certified buildings and building height variances.  Priest said  that there was significant opposition to any mandate for LEED certification on construction, joking that her phone rang off the hook when the mandate issue came up for discussion.

On general trends for green building and sustainable design:

Bert Mathews said that it really depends on the client, as some tenants of his developments have absolutely no interest in green building, while for others, "it is a standard that many have come to expect."

Question:  How would you rate Nashville's commitment to green building?

I look forward to the sustainability breakfast series over the next few months.  Thanks to @tenngreenlawyer for the tweet about the breakfast.

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

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

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

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

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

Photo: Flickr | ToniVC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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This morning I read Brad Heath's article in USA Today, suggesting that the stimulus funding for road repairs has detoured and by-passed large metro areas with significant road problems.

According to the USA Today study, half of the nation’s worst roads will receive only about 20% of the stimulus money allocated for street repairs. The reason—the roads were not shovel ready and were in too bad shape:

“The problem is a byproduct of a stimulus package designed to spend as fast as possible to revive the economy. Many roads are in such bad shape that repairs would take too long and cost too much to qualify for funds, says John Barton, head of engineering for Texas' Department of Transportation.

The result is that counties with the worst roads won't get much more repair money than counties with better roads. The 74 counties with half of the nation's bad roads will split $1.9 billion, records show; counties with no major roads in bad shape will split about $1.5 billion.”

Data compiled and reviewed by USA Today showed that many of the roughest roads needing repair were … let’s say … not ready for repair.  For example, state officials acknowledged that “Detroit's roads are in dire need of work, but say they didn't have enough ready-to-go projects there.”

According to Kent Starwalt, Executive Vice-President of the Tennessee Road Builders Association, the important question is not whether transportation projects are shovel ready, but rather, why weren’t these projects shovel ready?

“It would seem that if a jurisdiction’s roads are in really poor condition, they would have the necessary steps done to be able to move on projects when and if they did receive money. [Tennessee Department of Transportation] and many other state DOTs were well prepared for such a scenario. The cities were even given more time than the states in the stimulus bill to obligate any money they were to receive.”

This is more than just an issue of timing and money. One measure of the House transportation re-authorization bill includes the transfer of control from state departments to city and metropolitan planning organizations. However, Starwalt warns: “It should be obvious to everyone involved that the cities are not as efficient in getting projects out the door as state DOTs.”

This debate is interesting to those of us who follow the federal stimulus funds with the hopes that the funds actually impact the construction industry, the workers and employees involved in the projects and the local economies.

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As a father of five children, I have fully prepared myself for "the" talk.  Already, I have discussed the various scenarios with my daughter about dating, courtship and marriage.  According to this eleven-year-old Princess, the line in the sand of appropriateness ... is ... "just holding hands."  (Whew!)

Last week, the two primary construction industry groups in Tennessee—the Associated General Contractors (AGC) and the Associated Builders and Contractors (ABC)—began holding hands.  At the 2009 State AGC Convention in Nashville, leaders announced a new partnership between the state AGC and ABC organizations.  According to Ed Baldwin, President of AGC of Tennessee, "both groups have recognized the importance of partnering as a positive means to achieve excellence in construction and better represent the entire industry." 

The "holding hands" venture has been officially reduced to writing in a "Cooperation Statement" approved by leaders of both industry groups.  According to the statement, the groups have agreed to the following measures:

1. Provide a forum to identify and discuss common areas;
2. Endeavor to build trust and respect between the two groups; and
3. Attempt to avoid surprises in their cooperative efforts.

In response to my inquiry, Dan Brodbeck, President of ABC of Tennessee, said, "Our group is excited about the cooperation agreement with AGC.  We look forward to opening the lines of communication with our partner to address those construction concerns that each of our members currently face." 

Is there any precedence for such a cooperative agreement?  Actually, these two organizations have done more than hold hands, kissed and dated ... they got "hitched" in two states.  In 1994, the Arizona chapters of ABC and AGC merged to form a joint venture called the Arizona Builders Alliance.  More recently, TEXO: The Construction Association was formed in October 2008 as a result of a merger between North/East Chapter of the AGC of Texas and the ABC North Texas.

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You've read the play on words: LEEDing the way ... In the LEED ... LEEDership ... and even LEEDigation.  In an address to a room full of contractors, suppliers, and (a few) attorneys on Thursday afternoon, Lt. Governor Ron Ramsey (R-Blountville) said that the state is committed to being a leader of sustainability in the South: "Honestly, I think we need to lead the wave of green."

Ramsey was the keynote speaker at the annual convention for the Associated General Contractors of Tennessee. His animated address focused on the pro-business initiatives throughout the state.  Ramsey said that Tennessee has traditionally been rated within the top three states in the country, alongside Texas and North Carolina, for its pro-business environment.  Ramsey also took the opportunity to publicly announce key appointments to various committees in the Senate.

During the Q&A session, I asked the Lt. Governor about the future of green building/alternative energy in Tennessee and where these issues fell with respect to his pro-business focus.

Ramsey smiled, commenting that as a "conservative Republican" most people would not imagine him "pushing green [programs]."  Ramsey then highlighted two major businesses that manufacture and build alternative energy solar products (Hemlock Semiconductor Group and Wacker Chemical) that have recently committed to investment in Tennessee.  The Lt. Governor also suggested that certain initiatives through the State Building Commission could help Tennessee lead the "wave of green" in the future.  In the end, Ramsey maintained his conservatism: "I'm not for more government regulation."  Instead, he suggested that results could be achieved through incentives and other programs.

While the Lt. Governor of Tennessee sees the state as being a "green leader" in the South, I am not sure it will be the "green LEEDer" until there exists a state-wide green building code.  And right now California stands alone on this issue.

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

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

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

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

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

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

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

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

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

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

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Budgets are being cut left and right.  Our family "eating out" budget ... gone!  Our community organization "summer party" budget ... gone!  I see non-profit organizations struggling to keep pace with last year's donations, while attendance at professional industry conferences are shrinking.

You can imagine my surprise when I read a press release from CADD Microsystems suggesting that the construction industry is showing signs of rebounding.  CADD Microsystems, an Autodesk solutions provider, sponsored a conference called Tech Tour in Washington, D.C. last week.  CADD Microsystems reports that it had more than 200 attendees at the conference:

"This Tech Tour was one of the largest events our company has ever hosted," said Jeff Gravatte, CEO of CADD Microsystems, "and we are pleased with what that says about the state of the design and building industry. To have more than 200 people spend a day learning the latest trends in BIM and design technology speaks volumes about the strength of the building industry and its promise for a speedy recovery."

Perhaps this is simply a case where the title of the press release ("Indications of Building Industry Rebounding as More Than 200 Design and Construction Professionals Attend Building Design Software Event") promises more than is being served.  I have seen the monthly reports from Southeast Construction about drying up construction markets and the AGC about the continuing decline in construction jobs.  Don't get me wrong ... I would love to see a turn-around in this economy. 

The more noteworthy report from CADD Microsystems is the briefing offered to Congress, organized by the High-Performance Buildings Congressional Caucus Coalition and the National Institute of Building Sciences. The briefing on BIM and high performance buildings took place earlier this week on Capitol Hill and focused on the importance of technology in the building industry:

Building Information Modeling is focused on eliminating significant amounts of redundant and wasted effort currently embedded in the design, construction, and operations of facilities due to the lack of software interoperability. The beneficiaries of this information range from the designers and construction contractors to facility operations and sustainment all the way through the building life cycle.

Lessons Learned? Perhaps the large reported attendance at the Tech Tour is something other than an economic rebound−perhaps it is an indication that industry professionals have more "marketing and development" time on their hands to attend conferences.  It provides them with an opportunity to learn about the strengths of new technologies (i.e., Building Information Modeling), as well as, a venue to develop new business relationships.

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

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

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

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

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

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Look around the internet and you are sure to find one of these:

The design team of a 28,000 sq. ft. public school hope to achieve SS Credit 6.2, Stormwater Design: Quality Control, in the LEED-NC Rating System. Incorporating which of the following green building elements into the design would aid the team in achieving this credit? (Choose three)

A. constructed wetland

B. solar hot water system

C. vegetated roof

D. infiltration basin

E. high-albedo concrete

The correct answers are A, C, and D. (Thanks www.intheleeed.com for the sample.)  Well, if you look around Nashville, you are sure to find a real life LEED AP exam question brewing on some property known as Bells Bend.  It's called the May Town Center ... and the development has both supporters and critics.  If you think I'm kidding about the exam question, watch this clip and listen for words like "sustainable site" "light reduction" and "green-washing":

Following hours of heated open hearings, the Planning Commission voted last week against the proposed land use plan for the development. According to the Nashville Business Journal,

The Metro Nashville City Council has final say on zoning changes and will take up the issue in a public hearing on July 7. However, with a negative recommendation from the planning commission, the zoning measure will need 27 votes from the council, rather than the 21 usually required. . . .The planning staff had recommended approval of a zoning request to allow the development, but that was contingent on the land use plan amendment. The commission then voted down the proposed zoning changes.

There are many of us in Nashville closely watching the May Town Center development and I look forward to reviewing some of the LEED-related issues on the project, as well as reporting back after the July hearings.

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You may not know this, but I grew up in New Mexico . . . the Land of Enchantment . . . until I moved to Washington, D.C. to pursue a career in politics and law. In fact, I just had my 20-year high school reunion back in Albuquerque this past week. Do you know how hard it is to get seven of your favorite restaurants into only two days worth of mealtimes? I managed.

Coincidentally, right before my trip, I received an email from an acquaintance who I met during one of my seminars at the Falmouth Institutes’ Construction in Indian Country conferences a few years ago. Donavan Natachu, Project Manager for Zuni Housing Authority, wrote:

As far as our construction we are turning towards green building. So far we have built 4 units. We use ICF’s, low–e rated windows, energy star appliances, light fixtures, and bulbs. The ICF’s that we are using are Quad-Lock and they are very simple to set up. . . . There is so much and different new materials coming out for green building that it’s hard to make any decisions on whether to use them or not.

Donavan also said that the Zuni Housing Authority is currently seeking additional HUD funds in the stimulus package that will include green construction. I was glad to hear back from Donovan and the Zuni’s commitment to best practices in construction.

I wonder what resources are available to Indian Country for green construction projects? Here are a few of the more interesting tidbits: 

• Building and Buying Green in Indian Country: A Practical Guide for California Tribes
• A great article by Dean Suagee on tribal sovereignty and the green energy revolution 
• A residential project in Window Rock, Arizona that was designed by Keya Earth with the "hopes of becoming a trend across Indian Country."
• A short 2006 case study by Shelley McGinnis on sustainable design and green building in Indian Country.
• Indian Gaming magazine's article on Architectural Design in Indian Country

The California Guide is the most informative resource for providing an overview of “green” building practices to help tribes evaluate and choose sustainable options as they develop projects with architects, contractors, suppliers, or other building professionals.  The Indian Gaming article really highlights the desire to maintain a tribe's cultural heritage with sustainable design and building practices.

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

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

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

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

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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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