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.

As we enter the holiday season, some people have strict guidelines about when the Christmas tree or other holiday decorations are allowed to takeover our daily lives, offices, and homes.  The red and white ribbons and the colored lights of Christmas cannot be hung until after the orange pumpkins, brown leaves and turkey carcasses are thrown away.  In other words, it is premature to celebrate one holiday before the other holiday has occurred.  In the world of construction claims, according to one court, these same rules apply—it is premature to award damages before the claim has been considered and either approved or rejected.

In VVM Builders, LLC v. Atkins Construction Group, LLC, No. CV195021541S (Oct. 31, 2019), the Superior Court of Connecticut squarely addressed this precise issue in a case involving a change order dispute between a contractor and subcontractor.  The subcontractor filed a demand for arbitration against the contractor, seeking both its contract balance and approximately $40,000 in extra and/or change order work.  The parties’ contract provided that “the subcontractor shall have no claims for additional work or changes in the work without written authorization.”  The subcontractor submitted invoices for the extra work, but, according to the testimony at the hearing, the contractor had neither approved nor rejected the subcontractor’s claim.

Nonetheless, the arbitrator essentially awarded prospective damages based upon “not yet approved” changes or extra work, stating the following:

The [subcontractor] has submitted invoices for this extra work. The [contractor] testified that [it] has not yet approved any of those extra work/change order items and, therefore, the [subcontractor’s] claim cannot be awarded at this time. I find that should the contractor approve said work then the [subcontractor] shall recover same.

The contractor paid the contract balance to the subcontractor, but the subcontractor filed a motion to confirm the award on the change order work.  The court summarily denied the subcontractor’s motion, finding that the contractor’s interpretation of the arbitration award was correct.  While not explicitly stated in the one-page opinion, the court concluded that the arbitrator could not base its award on a change order claim that had not yet been approved (or even considered) by the contractor.

The short opinion makes sense—an arbitrator cannot rule on a claim that has not gone through the process required by the contract.  So what? A more difficult scenario arises when the claim has been submitted and either the contractor or the owner have refused to respond to the claim.  It is not clear from the VVM Builders case how long the subcontractor’s invoices for extra work had been pending, but I suspect it was not an excessive or unreasonable amount of time.  If it had been, the subcontractor could make an argument that the refusal to provide a response to the claim was a “deemed” denial and, therefore, gave the subcontractor the right to proceed with arbitration. Better yet, parties should draft a time limitation period within their contract for review and response to a submitted claim (i.e., “In the event Owner fails to respond to Contractor’s written claim for additional work within ten (10) days, the claim shall be deemed approved.”).

On a more personal note, to you and your family, Happy Thanksgiving!

I just blogged about asking for what you want and the importance of complying with notice provisions in pursuing a construction claim.  A court in Oklahoma just reminded me that not all claims require notice.  Here’s what I mean.

In WinCo Foods, LLC v.  Crossland Construction Co., No. CIV-18-175-HE (Nov. 21, 2019) (PDF), the U.S District Court for the Western District of Oklahoma recognized the distinction between “notice” for purposes of asserting a delay claim by the contractor and “notice” for purposes of assessing liquidated damages by the Owner.  The contractor failed to attain substantial completion of the construction of a new grocery store by the contractually required deadline.  The contractor argued that the owner failed to comply with the notice provision when making its claim for liquidated damages.

The court held that the “notice of claims” provision in the parties’ contract was a separate provision from the liquidated damages provision and, thus, inapplicable to the claim for liquidated damages.  The court reasoned:

As set forth above, the terms of the liquidated damages provision govern the issue of liquidated damages “notwithstanding anything to the contrary in the Contract Documents”. Thus, any additional requirements set forth in the notice of claims provision, that are not included in the liquidated damages provision, would not apply. Because the liquidated damages provision does not require [the owner] to provide notice of any claim for liquidated damages and makes the entitlement to liquidated damages automatic where the circumstances warrant, [the owner] was not required to comply with that notice procedure.

It is important to note that the court’s decision was made at the summary judgment stage—first, finding that the liquidated damages provision was enforceable; and, second, finding that the owner was not bound by any notice provision in assessing liquidated damages.  However, since there were disputed issues of material facts as to the delays on the project and the architect’s bias conduct against the contract, summary judgment was not proper on either the contractor’s claim for additional time or the amount of the owner’s claim for liquidated damages.  Those issues would proceed to trial.

So what?  The primary lesson that comes to mind from WinCo is one of mutuality, or making sure that the contract provisions that apply to one party apply equally to the other party. This is especially true when one party is attempting unfairly to shift risk of attorney fees, indemnification or otherwise to the other party.  In this instance, the contractor could have made sure that notice of any type of claim by any party shall be made within the time proscribed.

You may have met my 22 year old Princess when she was 11. A few years ago, I was teaching her about grace … undeserved merit or favor.

Well, my daughter was stalling and delaying on eating her meal … by almost an hour. So, naturally, I saw this as a teachable moment.

“Honey, do you remember when we were talking about grace this week? Although you should eat all your food, I am going to show you some grace tonight. Even though you don’t deserve it, I am going to eat the rest of your chili for you.” (How nice of me. I proceeded to spoon the rest of her chili into my bowl. Happy tummy!)

Without skipping a beat, my inquisitive daughter asked, “Dad . . . You got any grace for my broccoli?”  (Nice.)

Every now and then, we joke about the broccoli incident. But I am often reminded that too many times we fail to get something we want because we fail to “ask” for it. And when we ask for it, we sometimes fail to ask for it properly. Having litigated construction disputes for almost 20 years, the issue of entitlement often turns on whether the contractor properly submitted its claims in accordance with the terms of the parties’ contract. Whether the dispute involves a change order, delay damages, or time extension, I have litigated too many claims for additional compensation or time where: (a) the request was never made; (b) the request was not timely made; or (c) the request was not properly made.

As an attorney, I try to teach all my clients that proper documentation primarily serves as a claim preservation method—whether to provide notice of the claim or to document the claim impact. No matter the size of the project, proper documentation will eliminate a number of disputes. For example, consider the following claim provision:

“Any claim for additional time must be given within seven days of the event given rise to the delay.”

Best Practices would teach you to outline and highlight these types of provisions in your contract documents before you start contract performance. Make a spreadsheet with key provisions. And when one of those “events” arise, you should immediately send your letter “asking” for additional time or, at a minimum, “preserving” your right to later seek additional time and money. Don’t wait until the lawsuit or demand for arbitration before giving notice of your claim.

In other words, if you want someone else to eat your broccoli … you have to ask for it!

As you may be aware, one of the greatest risks on a construction project involves the payment process. Just like my kids expect to be paid for the lemonade they sell, contractors and subcontractors expect to be paid on a timely basis once the work has been performed.

2009-10-31 10.12.03

Contractors have a means of shifting the risk of non-payment by the owner to its subcontractor by including a certain payment provisions in the subcontract agreement.  The enforceability of these types of clauses may be limited by your particular state or jurisdiction.

In Universal Concrete Products Corp. v. Turner Construction Company, the U.S. Court of Appeals for the 4th Circuit concluded that a “pay if paid” clause in a subcontract was not ambiguous and, therefore, enforceable against the subcontractor.  The work involved the construction of the Granby Tower Project in Norfolk, Virginia. The subcontract between the general contractor and the concrete subcontractor contained the following clause:

“The obligation of contractor to make payment under this agreement, whether a progress or final payment, or for extra or change orders or delays to the work, is subject to the express condition precedent of payment from the owner.”

The owner ultimately lost its construction financing on the project and abandoned the development. Since the contractor had not been paid for its work, it refused to pay the subcontractor’s work.  In a payment dispute between the subcontractor and contractor, the contractor argued that the “pay if paid” clause provided an absolute defense to payment. (Again, it should be noted that some states limit the enforceability of these clauses by either statute or case law. However, in Virginia, these types of clauses are enforceable so long as they are clear and unambiguous.)

The subcontractor argued that the prime contract between the owner and the contractor defined the cost of work to include “payments made” to subcontractors. Accordingly, the subcontractor argued that the contractor would, under the normal scenario, be paying its subcontractors and submitting the invoice to the owner as a “payment made” by the contractor. Both the trial court and the Court of Appeals disagreed, finding that payment from the owner was a condition precedent to payment from the contractor to the subcontractor.

Courts across the country vary in their treatment of these issues. For example, in the Universal Concrete Products case, the 4th Circuit reasoned that Virginia courts favor the freedom to contract and that parties are freely able to negotiate and draft these types of provisions. However, in Thomas J. Dyer v. Bishop International Engineering, the 6th Circuit refused to enforce a “pay when paid” clause because the court determined that the clause was sufficiently ambiguous. In that case, the contract stated that “no part of payment shall be due until 5 days after the owner shall have paid the contractor.”  Other jurisdictions, such as California, New York, Nevada and North Carolina, have expressly ruled that the “pay if paid” clauses are unenforceable as a violation of state public policy.

So, what should your contracts provide?  What should you do to determine the enforceability of a “pay if paid” clause in your state?

  • Contact an attorney to determine whether there are any limitations of the enforcement of these type of clauses.  Since each state differs dramatically, it is in your best interest to determine the applicable standard in your state or the applicable law where the project is located or the governing law of the contract to determine this information.
  • Determine as between the parties who should bear the risk of non-payment. If you are a general contractor, you should make sure that your subcontracts include clear and unambiguous language placing the risk of loss for non-payment on the subcontractor. In addition to putting a timing mechanism on payment of funds to the subcontractor following a certain number of days after payment by the owner, it is also advisable to include a clause that “payment by the owner to the contractor is a condition precedent to payment by the contractor to the subcontractor”. In addition, you can make your subcontracts explicitly clear by stating that “the subcontractor assumes the risk of non-payment by the owner due to insolvency or other inability to pay”.

For the contractors out there, Universal Concrete Products is a good reminder of the importance of drafting clear and unambiguous contact terms between the parties.  It is worth the effort to seek legal advice from an attorney in your jurisdiction about these issues prior to drafting and executing contracts with other parties.

Each and every kid in my house is held to the same standard—a very tough one I might add.  You see, I recognize they are different ages, difference sexes, and have different strengths and weaknesses, but that does not change how I choose to parent as a single dad.  In the same way, a court recently held that the type of contract delivery method did not change the applicability of the differing site conditions clause.

Appeal of John C. Grimberg Co., Inc., ASBCA No. 58791 (Oct. 25, 2018) involved the construction of a biolab facility at Fort Detrick, Maryland. The contract was a design-build contract.  As is typical of a design-build contract, no unit prices for rock excavation were set for because the contractor’s foundation solution is not established at the time of award. Interestingly, this contractor had performed other contracts at Fort Detrick involving deep foundations that happened to be design-bid-build contracts containing unit prices for excavation.

During construction, the presence of incompetent rock forced the contractor to use more drilling rigs than anticipated.  This crowded the site and prevented scheduled commencement of grade beams and rough-in of underslab MEP work. By the time the contractor completed drilling piers, it had excavated nearly four times the amount it had anticipated in its proposal.  The contractor submitted a Request for Equitable Adjustment, alleging that it had encountered a Type I differing site condition—i.e, where the site differed materially from those represented by the government. The contracting officer denied the claim, and the contractor appealed.

To establish such a claim, a contractor must prove: (1) the conditions indicated in the contract differed materially from those actually encountered during performance; (2) the actual conditions were reasonably unforeseeable to the contractor at the time of bidding; (3) contractor reliance; and (4) damages.  In this case, the board rejected the government’s argument that the differing site conditions clause is applied more restrictively to a design-build contractor than in the design-bid-build context. The board reasoned:

The identical DSC clause is required to be included in fixed-price construction projects, whether the design-bid-build or design-build method of contracting is utilized. There is no justification for interpreting the clause differently in the design-build context. As appellant concedes, design risk is transferred to contractors in the design-bid context, but not the risk of DSCs. A design-builder does not forfeit its rights under the DSC clause to rely on solicitation representations of subsurface site conditions.

The board concluded the contractor had established Type I differing site conditions claim that the “quantities of rock encountered greatly exceeded the quantity reasonably foreseeable based on a fair reading of contractual indications, albeit the Project was constructed in highly-variable karst topography at the site.”

Ultimately the decision is a good lesson for contractors to document “all of the facts, circumstances and contractual indications of subsurface conditions,” which is what the board relied upon in making its decision.  Another lesson learned is the importance of “reasonableness” when drafting or submitting claims.  Although the board found that two of the borings used by the contractor were unreasonable, it was “more reasonable” than the government’s analysis.  In the end, reasonableness matters.