I am not going to even attempt to describe what has occurred over the past week.  You’ve read it online. You’ve watched the daily news reports. You’ve listened to the radio. And you’ve even had to adjust your own schedule to accommodate school closings. While working remotely myself, my mobile phone has been constantly pinging me with calls, emails and texts—all asking substantially the same question: How do we response to this mess?

After four days of answering client inquiries (that’s my favorite part my job as a construction attorney), I decided to write an ebook addressing: (1) the most important legal issues facing contractors in this time of uncertainty; (2) the practical day-to-day issues involving site access, safety, wages, unemployment and other benefits; (3) tips for documenting impacts and delays related to supply chain interruptions, work stoppages, and labor/material cost increases; and (4) the top ten contract issues in dealing with this pandemic.

You can download a complimentary copy here: Best Practices – COVID19 and Construction Claims, but please do me a favor and subscribe to the blog on the sidebar to the right.  Just enter your email, and you will receive regular updates. And feel free to pass on the book to a friend or colleague with same request…subscribe to the right!

Contractor licensing violations raise serious concerns for all parties. For an owner, an unlicensed contractor may affect financing options on one end and the contractor’s entitlement to recover profits on the other end. For contractors, a licensing violation can have a crippling effect on all projects, the ability to perform, and the ultimate ability to recover amounts owed under a contract. For subcontractors and suppliers, an alleged licensing violation can be used as leverage to secure payment for labor and materials.

In Mississippi State Board of Contractors v. Hobbs Construction, Inc. (Mar. 6, 2020), the Supreme Court of Mississippi recently held that the Board’s decision to revoke a contractor’s license violated its Due Process rights because the Board had based its decision, at least in part, on prior complaints and allegations—grounds which the contractor had not been provided notice.  In this case, the Board revoked the contractor’s certificate of responsibility (“COR”), and the contractor sought a preliminary injunction enjoining the Board from revoking the COR pending appeal.  The trial court granted the injunction and ultimately reversed the Board’s decision.

The original complaint to the Board had been filed by a supplier who had not been paid approximately $13,000 for materials on a commercial project.  Although the contractor and supplier had reached a settlement agreement for less than the disputed amount, ultimately the contractor did not pay the supplier the settlement payment. The Board proceeded on its hearing for the alleged licensing violation, and neither the contractor nor the supplier appeared.  The Board’s investigator presented evidence about the failure to pay the supplier, which formed the basis for the Board’s revocation of the contractor’s COR.

Although the contractor was not given notice that prior closed matters would be considered, the investigator testified about the contractor’s history before the Board, including eight prior complaints for failure to pay a subcontractor. While all of the prior complaints had been resolved in the contractor’s favor, a review of the hearing transcript demonstrated that Board members considered the contractor’s prior alleged licensing violations and its reputation in the contracting community.  One Board member commented, “We’ve seen this guy every meeting.” Another Board member stated, “We know this guy is irresponsible. You know, if we let him continue doing business like this, it’s just gonna be a matter of time before we see him again.”

The Board voted 5-1 to revoke the contractor’s COR.  Both the trial court and the appellate court found that a contract dispute between a prime contractor and a subcontractor or supplier is outside the Board’s authority to regulate.  In addition, both courts found that the Board’s decision violated the contractor’s procedural due process rights because the contractor was not given notice that the Board would consider the prior complaints in the revocation decision. The appellate court noted: “But the Board’s minutes reflect that its members decided, after learning from the investigator that [the contractor] had eight prior complaints, that they were tired of dealing with him and that his license should be revoked.” Following a lengthy analysis of due process, the appellate court affirmed the trial court’s reversal of the Board’s revocation.

A couple of practical lessons emerge from the Hobbs Construction decision. First, as a contractor, it is imperative for you to stay up to date with your licensing requirements, whether you are contracting within the state of your principal office, or acting as a foreign entity performing work in another state.  Next, recognize that each state may have a different complaint process and you should cooperate fully and truthfully with investigators.  Finally, and perhaps most importantly, understand that many state licensing boards are not interested in investigating payment disputes that can be brought in civil court, so you are well advised to address those disputes as quickly as possible to avoid a regulatory licensing violation.

They say that hindsight is 20/20.  Who is they, anyway?  The old proverb means that it is easy to understand something after it has already happened. In the world of construction contracts, preservation of claims made in hindsight does not always get you what you want.

In Appeal of Matcon Diamond, Inc., ASBCA No. 59637 (Feb. 20, 2020), the Armed Services Board of Contract Appeals recently denied a claim for Eichleay home office overhead delay damages  because: (1) the contractor failed to show there was a critical path impact or that the Government’s actions impacted the critical path; and (2) the claim was barred because it was not presented prior to final payment. The opinion in Matcon Diamond is a good read for government contractors wanting to understand delay claims, critical path schedules, contractor delays versus Government delays, Eichleay formula for quantifying damages and understanding the difference between work stoppages and standby or idle periods of time. You can get a copy of the decision here.

As to the preservation of the contractor’s claim, the ASBCA held that the contractor submitted its claim for delay damages after receipt of final payment. The Government’s final payment defense is an affirmative defense on which the Government bears the burden of proof.  Final payment does not bar a claim where the contracting officer knows that the contractor is asserting a right to additional compensation, even though a formal claim has not been filed.

Based upon the record, the Board concluded that the contractor never presented, let alone formulated, a claim for extended home office overhead.  At the time the contractor submitted its final invoice (which was five months after completion), the contractor did not inform the contracting officer of its intent to seek additional compensation.  Nonetheless, the contractor argued that an email sent ten days after final payment had properly and timely put the government on notice.  The Board disagreed: “This email, however, does not establish that, at the time of final payment, [the government knew the contractor] was asserting a right to additional compensation.”

So what?  Again, the opinion is a good refresher on delay claims and the required proof for a contractor to support its claims.  But more importantly, contractors are advised to adhere to all notice provisions in the contract and applicable regulations, and especially, to submit notice of an intent to seek additional compensation before submitting a request for final payment.  Given the language in the Board’s opinion, it is also likely that a mere “reservation of rights” statement will be insufficient to actually put the government on notice of a claim.

I missed it by less than an hour. I was working late last week and left my office right before midnight … which happened to be right before a Category 5 tornado ripped through the outskirts of downtown Nashville and then proceeded to East Nashville and Putnam County.  The next morning, the skies were clear as the sounds of sirens and wreckage hummed throughout the city.

It has not been a week since the catastrophic events in Nashville and surrounding areas.  Whether you are a developer, contractor or subcontractor/supplier, you undoubtedly understand that severe weather can add cost and time to project completion.  Indeed, that’s why force majeure clauses are generally included in parties’ contract.  While there are legal implications related to pursuing a claim for additional time or money, there are also practical considerations for both job site and the workers when a severe weather event occurs.

The following list was prepared by Jake Guimond at Assurance, and it gives nine steps to create a severe weather plan to protect your construction site and employees:

  1. Do this BEFORE a storm occurs; don’t wait until a storm is imminent, or worse, surprises you.
  2. Evaluate site-specific risks.
  3. Include emergency response, securing the jobsite, clean-up and trained personnel to assist with mitigating the damage.
  4. Make sure the plan covers all types of severe weather you may encounter in your area (e.g. strong winds, tornadoes, heavy rain, lightning, storms, etc.).
  5. Make sure all employees know and understand your jobsite severe weather plan.
  6. Have a process to notify all jobsite workers of impending severe weather or jobsite evacuation.
  7. Assign a jobsite foreman to perform a worker headcount during storm refuge and post-storm.
  8. Conduct post-storm job site evaluations.
  9. Identify and clearly mark locations for severe weather refuge.

In short, a risk management plan requires that you do it, you put it in writing, you train your leaders about it, and your practice it.

As a single dad of a handful of kids, my evenings and weekends are always a joyful ride. Just last weekend, I had a mini trial with one of my Littles who, get this, wanted to spend the night at a friend’s house, but also wanted to go to the movies with her other siblings.  My verdict: “You can’t have it both ways!”

In Goes v. Vogler, 937 N.W.2d 190 (2020), the Supreme Court of Nebraska recently reached the same conclusion when it considered whether a particular contract was a cost-plus contract with a guaranteed maximum price or a lump sum contract.  The owners argued that the contract was a fixed fee despite the language to the contrary.  Paragraph 47 of the contract stated that it was a “cost plus contract” with specific fees for overhead, warranty and profit to the contractor, while another part of the contract included language that the “agreed upon price is $282,000.00.”

During performance, the owners raised concerns about how the money on the project was being spent and requested that the contractor provide an accounting.  Ultimately, the contractor terminated the contract alleging lack of payment.  In consolidated lawsuits by the contractor and various subcontractors, the court held that the owners had withheld payment because of concerns about the quality of the work and fears that the project would not have been completed for the price stated in the contract. The court wrote: “The justification for the [owner’s] failure to make timely payments hinges on their assertions that the parties had a fixed-price contract and that the contract required written change orders.” Ultimately, the trial court and appellate court both concluded that the contract was not ambiguous and that it contained a cost-plus contract price, not a fixed contract price.

The owners also claimed on appeal that a contractor in a cost-plus contract has an additional fiduciary duty to a homeowner as a matter of law.  The owners argued that a contractor must provide prompt, detailed accountings of the actual costs incurred and must inform the owner of potential cost overruns. The appellate court refused to find a special fiduciary duty of a builder under a cost-plus contract.  Specifically, the court held that the contract between the owners and the contractor did not explicitly contain language creating any special fiduciary relationship and it was not going to impose such a duty on contractors as a matter of law.

So what? It goes without saying that in the world of construction contracts … words matter! There is language in the Goes decision that a cost-plus contract imposes upon the contractor an implied duty to incur reasonable and proper costs. However, the court went on to analyze the parties’ agreement as to what costs made up the “cost of the work” and whether certain documentation was required to support those costs. Construction documents like the AIA A103 and ConsensusDOC 235 contain much of contractual language that would impose such a duty upon the contractor—whether talking about reasonableness of cost or auditing and documentation supporting the costs.

I have been blogging for over 10 years now. I have spoken at construction and leadership conferences all over the country. Do you want to know my favorite place to speak?

My favorite place to speak is wherever I am. That’s right, I enjoy people-meeting, story-telling, and especially problem-solving. Best Practices Construction Law is about all of those.  As a recipient four years in a row of the JD Supra Readers Choice Award in Construction Law, the blog focuses on problems and solutions facing all players in the construction arena..

And now I am ready to jump off the pages of the internet to hold the first-ever Best Practices Construction Law Summit, where we will spend a day with industry leaders talking about complex problems that occur on construction projects and identify best practices to help avoid pitfalls and succeed. Just a few of the speakers include:

  • A former U.S Attorney and high profile litigation attorney specializing in white collar crime and high profile cases;
  • A former National Champion wide receiver for the Florida Gators who is now a construction industry leader, and
  • One of the top expert speakers in the county on the preparation of bids and proposals.

Here is where you come into the equation.  The inaugural summit will be by invitation only, which means I need to hear back from you requesting more information about the event and, more importantly, sharing with me what additional topics you may want to hear.  Click Here To Email Me About the Summit. Before you make a decision about whether this is the right conference for you, e-mail me for more information. And remember, it will also be an opportunity for you to visit the vibrant city of Nashville, Tennessee, where you can come for the conference on Friday and stay for the fun through the weekend!

 

 

You know that I have a lot of kids.  But what you may not know is that our family went through a major change last year—their mom and I got a divorce.  And so … like a construction project sometimes riddled with uncertainty … we each have a choice about how we are going to adjust to change.  But let me first tell you a story.  Yesterday was the first morning in 18 years that I woke up without my kids in their beds anxious to get up to open their stockings and presents.  Here is how I handled it:

Why is change so difficult? As a construction attorney for over twenty years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic’s liens.  I’ve learned to adjust to the circumstances to meet the needs of my clients.

Whether you are dealing with a new safety policy on the site,  a difficult personality on the design team, an estimate error that is going to affect the bottom line, or even a change in your family dynamics, here are a few things you can do to adapt to change:

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

In my situation, communication and flexibility on everyone’s part has enabled a good transition.  I love my kids and would do anything for them, which may include building a fireplace on the side of the interstate so they can get their stockings on Christmas morning!  Merry Christmas to all and Happy New Year!

If you saw the Netflix thriller Bird Box last  year, you know that what you see does not always lead you down the right path.  As a construction litigation attorney, the “claim” is often about telling the story of a breach of contract, or failed expectations, or unforeseen delays, all through the testimony of individuals or the introduction of documents.

In a recent case, Wollaston Industries v. Robert E. Ciccone d/b/a Ciccone Door Services, (U.S.D.C. Mass) (Dec. 16, 2019), the court evaluated a sub-subcontractor’s claim on a construction contract dispute arising from the renovations at the Longfellow Bridge and the Hatch Shell in Boston, Massachusetts. Although the projects involved different prime contractors, the same specialty door subcontractor was claimed to have failed to pay the sub-subcontractor, who sued for approximately $140,000.

The defendants filed a motion to dismiss a number of the sub-subcontractor’s claims, including one for fraudulent inducement.  Under Massachusetts law (like most states),  in order to prevail on a claim for fraudulent inducement, a plaintiff must allege a false representation, material to the negotiations, upon which the plaintiff reasonably relied in entering into an agreement with the defendant. Here, the sub-subcontractor’s fraudulent inducement claim was based on the theory that the subcontractor submitted false documentation (i.e., certifications and/or lien waivers) to the prime contractors to obtain payment. Specifically, the sub-subcontractor alleged that the subcontractor represented to each of the prime contractors “that no subcontractors were owed money for their work, which was a prerequisite to the prime contractors paying [the subcontractor].”

Now, remember, this is at the motion to dismiss and/or summary judgment stage.  The court was not deciding on the credibility of the evidence or whether the allegations were true.  Instead, the court focused on whether the plaintiff sufficiently alleged a cause of action against the defendants.  The court concluded that any false statements about pay apps or lien waivers were not relevant to the claim for fraudulent inducement:

This is not enough for [the sub-subcontractor] to state a claim for fraudulent inducement against Defendants. [The sub-subcontractor] nowhere alleges that Defendants made false representations of material fact to [them]. Nor does [the sub-subcontractor] allege that it acted in reliance on any false statements made by Defendants.

Accordingly, the court granted the motion to dismiss the fraudulent inducement claim.

So what?  The opinion is silent about whether there was a breach of contract claim alleged by the sub-subcontractor.  But the real lesson for contractors is to make sure the payment provisions expressly address the use of conditional and unconditional lien waivers.  In other words, if you are a subcontractor, you want to make sure your lien rights are conditionally waived only upon payment.

A number of families will be traveling this holiday season, and some are travel-savvy enough to check out travel websites for real-time traffic information and identification of construction delays.  When savvy contractors face delays on a project, they immediately take steps to provide notice, document, evaluate and plan for recovery from those delays.
It almost goes without saying that if you have to pursue or defend a delay claim, you are going to need some evidence (preferably by an expert) to establish or to challenge entitlement to the damages sought.  And we all know that there can be different routes to the same goal. However, the different methods of schedule analysis can lead to varying results.  So, which method is correct? In a great Construction Law International article by my friends Don Gavin and Rob D’Onofrio, the authors suggest a series of best practices that should improve on the reliability of schedule analysis and increase its acceptability in the industry.  According to the article, there are nine guidelines that any schedule delay analysis comply with, including:
  1. Compare the planned work before and after each delay. Practically, this means that you should compare the plan to perform the remaining work before each delay and the plan to perform the remaining work after that delay, which will require a review of the schedule updates during the project.  This will also involve looking at the estimated impact, as well as the actual impact, of the delay.
  2. Identify the critical delays. Generally, the delay must affect the critical path of the work to be compensable.  If the delay absorbs the “float” in the schedule, then it is not compensable.  According to the authors, “If an activity does not have any float, by definition it is critical as it would impact the required contract completion date.”
  3. Evaluate the delays in both a chronological order and a cumulative manner.  If you do not look at the delays in sequence, it can “mask” what actually occurred on the project.
  4. Adjust the completion date to reflect excusable delay as it occurs.  This will assist in finding the actual float values and determining which activities are actually critical at any point during the project timeline.
  5. Include accurate as-built information.  Again, it is important analyze the actual progress of construction, which can best be achieved through accurate as-built data.
  6. Minimize projected future delays.  If you include projected future delays in the schedule, they should be minimized because projected delays can alter float calculations and possibly change which activities are critical.
  7. Correct any logic flaws.  If you correct any logic flaws found in the schedule, make sure to document and explain the changes at the time they are made.  Understand that judges and arbitrators can be skeptical when substantial changes are made after construction is complete.
  8. Tie causation to each delay.  Ultimately, you will have to show whether the delay is non-excusable, excusable/compensable, or excusable/non-compensable.
  9. Get an expert on board early. As we learned earlier this week, if your going to join a “battle of the experts” then make sure you have an expert.

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

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

It kind of goes without saying, but you should probably bring your expert to a dispute if there is going to be a battle of the experts. One contractor recently learned this lesson to the tune of $65,000.

In Appeal of BES Construction, LLC, ASBCA 60608 (Oct. 23, 2019), the contracting officer awarded the contractor approximately $135,000 in delay damages for a 172 days in compensable delays on a renovation project on a base in South Carolina.  The contractor appealed the decision, seeking approximately $609,000 in delay damages. On appeal, the government presented expert testimony establishing that the contractor was only entitled to 25 days of delay damages or approximately $69,000.  Inexplicably, the contractor did not present any expert testimony and relied solely on the opinion of the owner of the company.

Rejecting the contractor’s claim on appeal, the Board reasoned:

[T]o prevail on its claims for additional costs allegedly incurred because of the late completion of a fixed-price government construction contract, the contractor must show that the government’s actions affected activities on the critical path, and where the delays of the government and the contractor are concurrent, the contractor must establish its delay apart from that attributable to the government. BES points to no such critical path analysis of its own, even though it concedes that “[t]he project encountered delays that are arguably attributable to both BES and the government”. And although BES relies heavily on the contracting officer’s decision to justify an award, our review is de novo, and the contracting officer’s award is not a floor, because once an action is brought following a contracting officer’s decision, the parties start before the Board with a clean slate. Nevertheless, we view the opinion of the government’s expert as a concession by the government that BES is owed $69,483.88 in delay costs.

Ultimately, the Board viewed this case as involving “particular and perhaps unusual circumstances” and credited the expert testimony of the government’s witness–the only scheduling expert witness in the case..

So what? This case presents two good lessons for contractors.  First, if you find that the contracting officer’s decision appears to be well reasoned, you should carefully review every detail of your claim before pursuing an appeal. Remember, in these circumstances the appeal is de novo, which means it is a clean slate on the proof. Second, and more importantly, if you are going to pursue a claim involving delay damages, the burden will ultimately be in your hands to show how the delays affected the critical path, that the delays were not concurrent with contractor-related delays, and that you have an expert to support your claims.  In other words, don’t show up to a battle of the experts without an expert.