With the kids off for spring break this week, we nestled around the big screen for a family favorite. “The Great Oz has spoken! . . . Pay no attention to that man behind the curtain!” My littlest chuckled.

Just like the old man who couldn’t hide behind the curtain in The Wizard of Oz, contractors and subcontractors should be reminded that pre-bid documents, such as draft proposals and bid estimates, can’t be hidden behind the curtain of “trade secrets”.  This is especially true when there is a delay claim in dispute, according to a recent ruling by a trial court in New York County.

In WDF, Inc. v. City of New York,  No. 652478 (N.Y. Sup.) (Mar. 12, 2021), the contractor filed suit to recover damages from the City on numerous combined waste water treatment projects.  The contractor claimed that the City breached its contract by supplying incomplete and inaccurate contract documents, which allegedly caused delays and a two-year extension to the project completion.  The contractor’s $15.7 million delay claim included approximately $2.3 million for damages experienced by one of its subcontractors.

The dispute is currently in the discovery phase and the City filed a motion to compel the contractor’s internal pre-bid documents and bid estimates, as well as the subcontractor’s base documents. In the trial court’s order, Judge Borrok concluded that the contractor and subcontractor’s claims for unanticipated delay damages “affirmatively put in issue what it was they contemplated in formulating their bids.”  The court relied on an old 1979 case where another trial court rejected claims that pre-bid documents constituted undiscoverable trade secrets.

So what? The trial court’s decision is a good reminder for contractors and subcontractors to implement a document retention policy for maintaining its pre-bid documents and estimates.  Parties need to understand that these type of documents may be entirely relevant in the event of disputes, and the contractor will not be able to hide behind a curtain of “trade secrets” to keep the documents confidential.

What’s a goocher?  If you saw the movie, Stand By Me, then you know exactly what I mean.  And there are times when parties to a construction contract face a goocher.  Here’s what I mean…

In J. Clancy, Inc. v. Khan Comfort, LLC, the Supreme Court of South Dakota held that a missing time element in a construction contract did not invalidate the contract.  In other words, the court found that a contract existed—i.e., there was  meeting of the minds among the parties—despite the lack of a completion date or time of performance.

In this payment dispute between the owner of a hotel and a construction contractor, there did not appear to be a traditional construction contract executed by the parties.  However, there were numerous written documents such as a proposal, invoices, and change orders that had been either signed by or transmitted between the parties.  Based upon those documents, the trial court held that there was not an express written contract, but that there was a series of implied-in-fact contracts between the parties.

The appellate court disagreed and held that the contractor’s proposal, which was signed by the owner, was an unqualified acceptance of the parties’ agreement.  The owner’s subsequent payment of the initial deposit and the contractor’s immediate commencement of work evidenced the formation of a contract.

Here’s the goocher! The appellate court held that all essential terms of an express contract were present in the contractor’s proposal, despite the fact that there was not a time of performance.

The document listed the subject matter of the work to be performed, the quantity of materials to be ordered and installed, the price for the goods, and the parties’ payment terms. Missing from the September document was a timeline for completion of the work. This, however, is not fatal.

Relying on a South Dakota statute, the court concluded: ““If no time is specified for the performance of an act, a reasonable time is allowed.”

Whether you are dealing with a commercial or residential project and whether you are a contractor or owner, this case illustrates a few important concepts.  First, words matter. What you include in your contract will be important for avoiding a dispute, as well as determining the outcome after a dispute arises.  Second, time matters. While the court in this case found that the missing element of time was not fatal, in many states the words “Time is of the essence” in the construction contract is a material term that needs to be included if you want to enforce that time period. Finally, conduct matters. Both the trial court and appellate court found that the conduct of the parties were important, although the courts reached different conclusions.  Avoid these type of disputes by having a roadmap of risk allocation through a clear and unambiguous construction contract.

We live in a world of e-mails, IMs, texts, Snapchats, TikToks, Instagrams and the occasional fax.  Although information is transmitted instantaneously in today’s environment, proof of receipt of that information (often called “Notice”) remains subject to some very strict rules imposed by contract, case law or statute.

Notice of Claims.  In a transportation case involving a personal injury, Department of Transportation v. Jones, the Court of Appeals of Georgia explained the importance of strict compliance with certain notice provisions.  The plaintiff was injured in a single-car accident on State Route 42 and he sued the Georgia Department of Transportation (“GDOT”). The plaintiff claimed that GDOT’s improper maintenance of the roadway led to an accumulation of water, which caused his truck to hydroplane into a tree, severely injuring him.  GDOT filed a motion to dismiss, arguing that the plaintiff failed to strictly comply with the notice provisions of the Georgia Tort Claims Act (“GTCA”).  The trial court denied that motion and the Court of Appeals reversed.

The Green Card.  The GTCA requires that notice of the claim be sent to “the Risk Management Division of the Department of Administrative Services.”  At the hearing, the plaintiff presented the following evidence: (a) the notice letter; (b) the green return receipt card sent to the Commissioner of GDOT; (c) a response letter from the Risk Management Division acknowledging receipt of the notice letter; and (d) a U.S. Postal Service tracking document showing that “something was sent by certified mail to the Department of Administrative Services.

The Holding. Despite this evidence, the Court held that the plaintiff failed to strictly comply with the statute because there was no proof by the plaintiff that the letter was sent by certified mail to the Risk Management Division.  The green card submitted showed proof of delivery to the Commissioner of GDOT.  The attorney for GDOT admitted in court that the notice letter received by the Commissioner of GDOT was then sent internally by the Commissioner’s office to the Risk Management Division, which then sent the acknowledgement letter.  Nevertheless, the plaintiff did not comply with the statute requiring that he sent notice of the claim to the Risk Management Division.

So What? While this may seem like a hyper-technical application of the rule, that’s precisely what “strict construction” means according to one court in George.  Whether you are contractor, developer, specialty subcontractor, or professional service provider in the construction industry, the real lesson learned is to read the express terms of any applicable contract or statute when a dispute arises, and follow both “the letter and the spirit” of the law.

Long before I was an attorney, I heard this tale that if you endorsed a check that had the words “PAID IN FULL” written on the check, then you were accepting the check as full payment of whatever was owed.  But I have never really thought about that legal principle because, “People don’t really do that, do they?”

In Triangle Construction Co. v. Fouches and Assoc., the Court of Appeals of Mississippi held that the PAID IN FULL principle—or what lawyers know as accord and satisfaction—barred a contractor’s claim for additional payment.

The Facts. The contractor won a bid to construct a water system in two local counties.  Following completion of the project, the contractor filed a claim against the owner and engineer for damages allegedly resulting from the negligence of the owner and engineer.

Upon completion of the project, the owner sent contractor a check marked “Final Payment,” but the check did not compensate the contractor for its increased construction costs as a result of the delays or for the extra-contractual project expansion. The contractor conceded that it cashed the check, but argued that it repeatedly asserted to the owner—including in a letter sent to then engineer—that it did not consider the “final payment” to be final and that it would continue seeking the remainder of what it was owed.

The Court’s Ruling. The court disagreed.  Under Mississippi law,  despite what the parties may argue was their intent, cashing a check marked “final payment” constitutes an accord-and-satisfaction agreement, which precludes that party from bringing future claims for additional payment. In Triangle Construction, the court held that the contractor’s claims against the engineer were barred by the doctrine of accord and satisfaction.

So What? The “paid in full” principle is not just an old wives’ tale.  Depending on your state’s law, if you negotiate a check that is marked “paid in full” or even “final payment” then you are risking the fact that you may be settling any claims you have.  If you are a contractor that seeks to reserve those claims, then don’t cash the check if it is marked with special language on it.

It happens all the time! The owner-contractor agreement contains a “no damages for delay” clause; a clause requiring that all changes be in writing before work is performed; and a clause requiring partial lien waivers and releases with each periodic payment.  And yet we see a claim for delays and extras filed at the end of a construction project that challenges these very contract provisions.

The Court of Appeals of North Carolina recently grappled with this exact scenario in Gamewell Mechanical, LLC v. Lend Lease Construction (Sept. 1, 2020) (PDF).  The project involved the new construction of three buildings in Durham, North Carolina.  The mechanical subcontractor filed suit against the prime contractor for $2.7m for breach of contract for nonpayment, claims for delay damages and enforcement of its lien rights.  The prime contractor argued that subcontractor’s claim should be limited to its contract balance of approximately $500k in retainage. Ultimately, the trial court awarded the subcontractor more than $800k for its claims.

On appeal, the contractor argued that the award should have been limited to the $500k in retainage.  By executing lien waivers and releases with each periodic payment, the contractor argued, the subcontractor had waived all of its claims other than retainage. The parties’ lien waiver contained language where the subcontractor could have reserved disputed claims, but the subcontractor never did so. The appellate court held that the trial court properly rejected a majority of the subcontractor’s claims that were subject to either the “no damages for delay” clause or the period lien waivers.

Notably, the trial court made a distinction for “day-to-day” or “daily” changes in the field for extra work, which was credited by the appellate court as follows:

[I]t is undisputed that there were delays, numerous Change Orders issued, re-sequencing, and coordination issues occurring throughout the project. Given the daily problems that arose as a result of these issues, [subcontractor’s] failure to reserve claims regarding the day-to-day miscellaneous items done in the field at the direction of [contractor] is not a material breach-of-contract. . . . The waiver and release documents submitted with each pay application could not cover claims not readily apparent due to daily changes on the job.

The appellate court held that competent evidence supported the trial court’s decision on each of these points.

A New Exception?

The opinion is notable because of the court’s findings that are highlighted in bold and underline above. When I read the court’s opinion, I started to think: (1) Is there now a “daily changes” exception to lien waivers and releases? (2) Are day-to-day miscellaneous items compensable even where a party fails to reserve their rights on these type of  cumulative claims? According to the court in Gamewell Mechanical, the answers these questions is yes. It would be interesting to see what other courts have reached similar conclusions.

Question: Do you know any similar cases?  If so, please share in the comments below.

If you are left in the dark about something, you don’t have the information you should have to make an informed decision.  Delay claims on a construction can be confusing, especially when you think about the delay to the work being performed and the disruption to other activities.  A few years ago, I found a case the shed some light on the delay v. disruption distinction.

In County of Galveston v. Triple B Services, LLP, decided on May 26, 2016, the Court of Appeals of Texas reviewed a contractor’s claim for damages on a road expansion project.  While the legal issue focused on the County’s right rely on the defense of sovereign immunity, the Contractor’s (and it expert’s) characterization of the damages was critical to the outcome of the case.  Since the applicable statute waives a county’s sovereign immunity for breach-of-contract damages that are “a direct result of owner-caused delays,” the Court had to decide whether disruption damages—as opposed to delay damages—were recoverable.

The Contract.  The County entered into an agreement with the Contractor to expand a three-mile stretch of road. Under the contract, the County was responsible for moving gas, water, and fiber-optic utilities.  According to the Contractor’s expert, the contract established a “baseline schedule … created by the County’s engineer,” which showed a starting date with unhindered access along the area of the road where the utilities were located. The contract allowed for “delay damages” if the Contractor’s request for those damages “is determined to be compensable.”

Owner-Related Delays.  Although the Contractor’s plans for the construction project anticipated that the County would move the utilities by a particular date, those utilities were moved almost one year later.  Nevertheless, the Contractor completed its work within the contract time.  According to the Contractor, it incurred additional costs to hand-form manholes, set and reset barricades, extended field office overhead, as well as additional labor, equipment, street cleaning, flagging, and traffic control—all of which resulted from the County’s delays in moving the utilities.

Sovereign Immunity Argument.  The County argued that Section 262.007 of the Local Government Code waives a county’s sovereign immunity for construction contracts involving claims for delay damages.  Here, the County relied heavily on the testimony of the Contractor’s expert witness who testified about the Contractor’s damages resulting from the County’s delays. Since the County did not timely move the utilities as anticipated in the original construction plan, that schedule of work was “disrupted.”  By seeking disruption damages, the County argued, the Contractor sought damages that were excluded from recovery under the statute.

So, are these delay damages or disruption damages?

On appeal, the Contractor agreed that its “disruption damages” do not meet the definition of “delay damages” as traditionally understood in the construction law arena. However, it argued that the statutory waiver of sovereign immunity for damages that are “a direct result of owner-caused delays or acceleration” includes more than “delay damages” as defined under construction law: “Disruption and lost productivity costs are … recoverable damages under the clear meaning of the words of the statute.”

The Court turned to the construction law bible written by Phillip Bruner and Patrick O’Connor to address the inquiry, noting that delay damages have a technical definition distinct from disruption damages:

 Delay damages refer to damages “arising out of delayed completion, suspension, acceleration or disrupted performance”; these damages compensate the contracting party that is injured when a project takes longer than the construction contract specified. . . .

Disruption damages, on the other hand, are for a project that may be timely completed but nevertheless includes disruption to the contractor and compensates it for “a reduction in the expected productivity of labor and equipment—a loss of efficiency measured in reduced production of units of work within a given period of time.” . . . Disruption damages can also be caused by an “event [that] both disrupts and delays a critical path activity….” A project that finishes on time but at greater expense because of disruptive events or scheduling errors presents a claim for disruption damages.

The Court’s Decision.  Based upon a plain reading of the statute, the Court concluded that Section 262.007 allows a claim for disruption damages against a county “if the disruption damages directly result from the county’s delay in performance of its contractual obligations….” Significantly, the statute did not distinguish between “delay damages” and “disruption damages” that are directly caused by the breaching party’s delay.

Lesson Learned.   According to the expert in this case, the Contractor incurred significant increased costs to finish the work on time. The Court’s opinion provides an excellent roadmap of the type of expert proof required to establish the damages sought by the Contractor, including the following:

  • The expert examined the “daily summaries” of work and “the manner [the project] was intended to be executed … [and] the manner by which the project was actually executed and some of the specific things that caused that deviation.”
  • Using this information, the expert testified that the Contractor had to adjust its approach to accommodate the County’s delay by “segmenting the work into smaller segments of the roadway, waiting on the utilities … just a various sundry of impacts that caused them to not be as productive from a direct labor standpoint.”
  • The “waiting on the utilities” caused the Contractor to waste “man-hours trying to deal with working around utilities and bouncing around back and forth and dealing with not being able to set barricades and … progress the roadway [in the way] that they thought they would be able to in an unhindered manner.”
  • The expert also testified that the Contractor had to add “a number of crews because they were working in so many different areas to try and progress the work….”
  • Finally, the expert opined that the Contractor’s clean-up crew also had to perform additional work because “whenever you slow down that progression and create situations where you’re excavating and you’re staging materials in one location[,] … you wind up with … more debris than if you were just moving in a steady progressive manner.”

Although the project in this case was finished on time and the Contractor never completely “stopped” its work, the Court readily found that the Contractor was “hindered” because of the County’s actions.  Since the type of recoverable damages include those that are “a direct result of owner-caused delays,” the Contractor could recover its disruption damages.

With six kids, not a week goes by that I don’t catch one of them running through the house.  In fact, I was on a call this morning when out of the corner of my eye I saw a blur racing down the hall.  I did a double take—not knowing which one it was—and whispered loudly, “Hey you! Please no running!” As a construction litigator, every so often you read a case that leaves you with the same feeling.

In Wickersham Construction and Engineering, Inc. v. The Town of Sudlersville, Maryland (Sept. 22, 2020) (PDF), the United States District Court for the District of Maryland held that a construction contractor had waived certain payment obligations by accepting late payments without, but that it did not waive the same payment obligations with respect to future payments.  Stick with me … there’s more.

The contract. The parties’ agreement required the owner to make payment within 20 days of submission of an application for payment by the contractor.  The agreement also contained a provision that any modification of the contract was required to be in writing.

The court’s decision. At trial, the contractor established that most, if not all, of its payment applications were paid late beyond the 20-day period.  However, the court held that the contractor waived the contract requirements by accepting the front end late payments without objection:

The court finds, however, that [contractor] waived the payment deadlines as to the first eight payments because it accepted them late without sufficient objection. “Parties to a contract may waive the requirements of the contract by subsequent oral agreement or conduct, notwithstanding any provision in the contract that modifications must be in writing. If a provision in the contract requires modifications to be in writing, it must be shown, either by express agreement or by implication, that the parties understood that provision was to be waived.”

Notwithstanding the finding of a waiver as to the first eight payments, the court concluded that the contractor did not waive the payment terms as to subsequent payments: “… the fact that [contractor] initially accepted some late payments does not show a mutual consent to modify the payment provision as to all future payments.”  Ultimately, the contractor suspended its work for nonpayment for approximately four months.

So what? You may have done your own “double take” as you consider why the court concluded that the contractor waived the time requirements for part of the payments while at the same time concluding that the overall payment provisions were not waived.  Ultimately, it came down to the contractor’s decision to exercise its right to suspend work. Since it accepted the original payments without objection or claim for interest, the court felt that the contractor could not complain about the lateness of those payments. But eventually, the contractor suspended work for nonpayment and the court found such conduct to actually affirm (and not waive) the contract obligations.  Lesson: Read your contracts, reserve your claims, and exercise your rights.

 

 

You probably saw last month’s report about a major accident at a construction site in downtown Miami, Florida. Investigation is still underway as to the root cause.

This is a good reminder of the lessons to learn when investigating or handling an accident on a construction site. These include:

  1. Prepare before the accident. It is important to prepare before the accident by having a checklist or best practices protocol to follow if an accident should occur. This should include identifying chain of command for notice purposes, identifying internal investigation team members, identifying who will be a company spokesperson, and identifying your risk management team (insurance and legal).
  2. Act diligently when an accident occurs. Don’t waste all that preparation time before the accident and then not follow your protocol. Make sure medical issues are resolved immediately and lock down the site for evidence preservation. Make a list of all witnesses. Photograph and video the conditions.
  3. Organize post-accident activities. There may be contractual obligations, regulatory requirements and public relation issues that will come after the accident occurs. Make sure that you review your contract to comply with any notice requirements that may need to be given. If OSHA becomes involved in the workplace accident, then prepare for the investigation with your safety team and risk management team.
  4. Manage the accident documents. While on the job site, an investigator may ask to see certain records such as the OSHA 300 logs, safety manuals, first aid / medical records, training records, safety meeting minutes, inspection records, and accident reports. In order to keep track of what has been requested and provided to the investigator, make a list of all requested documents and keep a transmittal log of how various documents were transmitted.
  5. Understand privileges. Please note that accident reports should be reviewed by your attorney prior to production to any investigator. Accident reports should be limited to the facts and should not contain any speculative theories or guesses as to why an accident occurred. If your attorney has directed the preparation of the accident report, that report is privileged and should not be produced to the inspector.

Most construction companies, at some point in their life, will experience a job site accident. It is important for your company to have a plan in place for the day. What lessons learned can you share?

The last six months have been a whirlwind, especially for this single dad of six school children (who are no longer in school) while I work from home/office/car/jobsite/court.

During the first week of the pandemic, I wrote an ebook for contractors on how to deal with COVID-19. Over the next month, I answered countless phone call and emails, asking about safety and employment issues in the construction industry.  Weeks four through six had me revising safety policies and employment policies to deal with the impact of COVID-19 on the day-to-day operations of contractors, subcontractors and suppliers.  Over the past two months, I have reviewed more construction contracts than ever.

So, what have I learned about the construction industry, working from home and the life of a single dad?  Here are a few lessons:

    1. The two most important attributes for success have been communication and flexibility. Of course, communication is always important in life, but it is especially important when you face challenges and changes. While working from home, this required an open dialogue with my colleagues and assistants who were able to understand my new “working hours” and assist with technology issues. As far as flexibility is concerned, change requires an ability to adapt.  The better able you are to respond to change, the more likely you will succeed. For me, once I learned that I would be working from home with six kids in a remote learning environment, I had two choices: complain or adapt.  So I turned a play room into a new home office; I set up working stations in the house; and I got a 6-person daily calendar to—what do they call it in the construction industry—identify and schedule the critical activities of numerous trades!  Communication and flexibility have helped me adjust to the post-COVID practice of law.
    2. The construction industry is resilient as ever.  I made major move from Washington, DC to Nashville, Tennessee in 2006 during the start of the housing collapse.  While it was certainly challenging for me and my family, I saw many contractors either shut doors or tighten their belts. The year of 2020 has been no different.  We saw the construction industry as a whole be classified as “essential” work, enabling projects to continue.  We saw new OSHA and safety standards be put in place, requiring the whole construction team to adjust “how” work was being performed.  Resiliency is defined as “the capacity to recover quickly from difficulties; toughness.”  Let me say this: the construction industry has toughness!
    3. You can only manage risk if you take the time to manage the risks. What does that even mean?  It means that there is no better time than now to realize that “words matter”. It means that what you have agreed to in your existing contracts will affect how claims are handled as delays are mounting, job sites are facing new health hazards, and payment is being held up.  Some clients have not updated their new form contracts; some clients have.  Some clients don’t have an attorney review new contracts; some clients do.  If there were ever a time to invest a little time on the front end of a project with risk management, now is the time.

Let me ask you: how have you adjusted to a world pandemic and what lessons have your learned over the past six months?