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

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

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

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

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

Next post features what is an equitable adjustment.

Image: stevendepolo

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

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

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

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

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

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

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

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

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

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

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

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Last week, I was selected as a Top 20 Under 40 professional by McGraw Hill's South Central Construction magazine.  (...Thanks @SCConstruction...I'm humbled...)  In an exchange of emails, one of the editors asked me to identify some of the challenges for the construction industry in 2011 and how contractors should manage and deal with those challenges. 

I am no prophet, but here are my thoughts.  As a construction lawyer, I would say the greatest challenge for the construction industry is how to best manage current economic risks into project design, development and performance.  There has been a lot of litigation over the past few years largely attributable to economic factors, whether the issue has been the fallout from the loss of construction financing or an overwhelming increase in lien claims. 

In the future, public contracting will continue to see growth, but I think we will also see more bid protests stemming from increased competition, as well as more claims asserted by contractors and suppliers.  Another area of growth will be sustainability and green building, where parties will need to be prepared for new legal pitfalls, such as the LEED certification process or energy performance issues.

The best way to manage and deal with the economic challenges is to ... prepare for them!  That means, taking assessment of your problem projects that occurred over the past few years and identify some of the pitfalls.  If your contract did not contain certain protections (such as an audit provision), then you may want to pull your contracts for the new year and review them.  If disputes arose because your personnel did not take appropriate precautions (such as securing guaranties and adequate financial security), then you may want to schedule a "refresher" lunch with your contract administration staff.  Whatever the challenge, use your past experiences, learn from them, and prepare to succeed in the future.

Happy New Year to all ... now let's get to work!

Image: bb-matt

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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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Bill Ferrell is a fellow colleague who practices intellectual property law.  Recently, Bill wrote an article on what you can do to protect your intellectual property. As I reviewed this list of recommendations, I began to appreciate the intersection between construction law and intellectual property law.  

You see, the economic realities currently faced by the construction industry require streamlined designs, new systems, and innovative materials.  As new products, methods, and designs emerge, they need to be protected through copyrighted drawings, trademarks, patents, trade secrets or other means.

Based up some of Bill's tips and my own comments, here's what you can do to protect your intellectual property and prevent infringement or misuse:

1. Iden­tify your intel­lec­tual prop­erty. The first step to pre­vent­ing infringe­ment is to iden­tify what types of intel­lec­tual prop­erty your com­pany pos­sesses. Many items con­sid­ered an expense can be con­verted into IP assets. Adver­tis­ing, train­ing mate­ri­als, instruc­tion man­u­als and com­puter pro­grams are com­monly over­looked as IP.  In the construction industry, IP can also include designs and methods of construction. 
2. Pro­tect your intel­lec­tual prop­erty. Deter­mine whether you should pro­tect your assets with U.S. and/or for­eign patents, trade­marks or copy­rights. In many instances, reg­is­tra­tion of IP is the only means of enforc­ing your rights. Since reg­is­tra­tion of intel­lec­tual prop­erty can be expen­sive, care­fully select what to pro­tect.
3. Choose busi­ness asso­ciates wisely. Thor­oughly inves­ti­gate any busi­ness asso­ciates. Con­firm that rel­e­vant con­tracts con­tain pro­vi­sions for pro­tect­ing your intel­lec­tual prop­erty. If out­sourc­ing man­u­fac­tur­ing to other coun­tries or working with foreign partners, con­sider split­ting man­u­fac­tur­ing between var­i­ous vendors to pre­vent any one vendor from learn­ing every­thing about your product.
4. Mon­i­tor your intel­lec­tual prop­erty. Insti­tute a pol­icy under which the rel­e­vant com­merce streams are mon­i­tored for infring­ing goods or services.
5. Vig­or­ously pro­tect your intel­lec­tual prop­erty. Vig­or­ously enforc­ing rights not only stops infringe­ment but also deters would-be infringers. Although it can be dif­fi­cult to get for­eign infringers into a U.S. court, intel­lec­tual prop­erty laws may allow enforce­ment against the domes­tic sub­sidiaries or dis­trib­u­tors of the infring­ing com­pany and the pur­chaser of the infring­ing goods. If there is a copyright or trademark infringement, you may seek an injunction, damages, and attorney's fees.

Still not convinced about the intersection between construction law and intellectual property law? Consider some of the following examples:

• You may need to exchange certain IP as part of forming a joint venture to pursue a construction job ... how do you protect that exchange of information?
• Suppose you want to advertise as being the best green-building contractor in the area ... what kind of slogans can you use?
• Your information technology assistant re-tools your scheduling software to interact with your cost reporting system ... have you violated any license use restrictions? 

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Aside from some personal quiet time to reflect on the day ahead, my second favorite part of the early morning is to review my RSS fees to see what may have happened in the prior 24 hours.  It's a sickness.  I know.  

I always find at least one golden nugget of information that may be useful in my professional or personal life.  Sometimes it is breaking news about a green construction issue.  Sometimes it is strange.  And sometimes it is simply entertaining.

In any event, I want to begin sharing with you some of these TOP TWEETS, which are determined during my morning review of the prior day's Tweets and based on my sole discretion. There's no formula or selection criteria.  You may agree or disagree with my choices.  That's okay.  You may choose to send me links.  That's okay, too.

And so, here are some Top Tweets for June 21, 2010:

• Top Tweet LEED: 5 Reasons Why GRI is the New LEED: Many reporting guidelines focus primarily on environmental issues because energ... http://bit.ly/azSxlM (via @thegreengod)
• Top Tweet BIM: Canadian Construction Association to form new BIM organization http://tinyurl.com/2fweghk (via @DenyseGall)
• Top Tweet Construction: Really hates construction law. (via @seraphiel10) (apparently someone studying construction law in Singapore)

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Tweet ... Tweet ... Tweet!  No, I am not cat-calling or whistling at you.  I am tweeting from the ABA Forum on the Construction Industry's annual meeting in Austin, Texas.  The program chairs have set up a Twitter account for the conference.  You can follow @forumaustin or search the hashtag #forumaustin.  If you want to follow my Tweets, you can do so at @matthewdevries.  Also, make sure to send me an email or message if you want to meet up.  And now, to the program schedule:

The Age of Turbulence: Managing Money Issues in Construction

1. From Project Concept to Funding: Where Do You Get the Money?
2. Shaking hte Money Tree: Funding Our Way Out of the Infrastructure Crisis
3. The Inside and Out of Public Private Partnerships
4. Foreign Exchange: The 10 Commandments for Successful Execution of International EPC Projects
5. Accounting for Construction Lawyers
6. Realizing "Value" from Value Engineering: Costs, Benefits and Legal Issues
7. Damages Beyond the Contract: Tort and Statutory Liabilty for Architects, Engineers and Contractors
8. The AACE Recommended Practice for Forensic Schedule Analysis
9. Pursuing Payment: Damned if You; Damned if You Don't
10. Walking the High Wire While Juggling: Strategies to Manage Litigation Costs and Meet Client Expectations
11. Law and Life Series: Making the Business Case for Diversity in the Practice of Constructoin Law
12. Consequential Damages in the Current Economic Climate: A Guide to Recovery and Avoidance
13. Pre- and Post-Judgment Collection Remedies: Show Me the Money!
14. When to Terminate the Client: It's An Ethical Question

That's a packed schedule for three days.  Let me know if there is a specific session you want me to attend.  I will be your proxy and do a special post on Friday.

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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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