We all have preconceptions about the language you might find on the construction project.  However, it is not every day that you read a court opinion and you find the following language: "…nor is it the business of the federal courts generally to clean up the language and conduct of construction sites."  This came from a recent ruling from a federal appeals court in Louisiana.

 

In EEOC v. Boh Brothers Construction Co. (pdf), the United States Court of Appeals reviewed a Title VII case brought by the Equal Employment Opportunity Commission against Boh Brothers Construction Company on behalf of the claimant, a male construction worker who alleged that his superintendent engaged in same-sex harassment.  According to the opinion, there was "plenty of evidence that [the employer’s superintendent] is a world-class trash talker and the master of vulgarity in an environment where these characteristics abound." 

At the trial court, the jury was "very sympathetic" and awarded both actual and punitive damages to the claimant.  Although the appeals court agreed that the superintendent’s language and abuse were offensive, it did not establish a claim of unlawful same-sex discrimination.  Ultimately, the appeals court concluded that there was insufficient evidence that the superintendent "acted on the basis of gender" in his treatment of the claimant.

Although the court’s opinion is a good read for HR staff and employment lawyers for understanding same-sex discrimination standards, it also provides a few good lessons for all involved in the construction industry:

  • Words make a difference.  The Boh Brothers case is a good reminder that words can have serious consequences, whether you are talking about the formation of a contract, the verbal admissions made during project performance, or the legal liability created by your management and employees. 
  • Employers beware of employee conduct.  Although the question was not raised in Boh Brothers, employers need to understand that the company may be responsible for the conduct of its employees performed within the course of their employment. 
  • Professionalism is important. If you were to read only the Boh Brothers‘ opinion, you would think that the contractor-employer simply defended the lawsuit.  Of course they did….there was a lot of money at stake.  But the company disciplined the superintendent and implemented a training program for this behavior.  According to an ENR article on the case (sub. req.), company representatives confirmed that Boh Brothers was embarrassed by the conduct and that "such treatment [of employees] will not be tolerated."  Even though the employer won in court, it was also important for the company to publicly admonish the offensive conduct.

Have you read the Boh Brothers‘ decision?  What other lessons exist?

Image: wblj

As a construction contractor, your work can be delayed for reasons beyond your control.  If this happens, you want to know that you can recover your losses for additional labor, extended overhead, and other monetary damages.  Would it surprise you to learn that you may have waived that right in your contract?

In the recent case of Plato General Construction v. Dormitory Authority of State of New York, appellate court enforced a no-damages-for delay clause against a contractor, rejecting a $10m delay claim.  The contractor sought delay damages resulting from the alleged poor planning by the project owner and interferences by other contractors on the site.  The trial court found in favor of the contractor, finding, among other, the following causes of delay:

  • the owner failed to properly schedule and coordinate the work
  • there was not an HVAC contractor on board at the time construction began
  • the owner failed to coordinate the relocation of books from the library, which caused delays to the contractor’s work
  • there were many design changes that were not communicated to other contractors, which caused delays

The appellate court reversed the trial court’s judgment because the parties’ contract contained a no-damages-for-delay clause, which provided:

“No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner’s discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract.”

 * * * * * *

“Should the Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the Contractor shall have no claim against the Owner for said damage.”

Although the contractor in Plato General Construction had contributed to some of the delays, this fact was irrelevant given the waiver of these types of claims in the contract above.  The court concluded: "The contract specifically provided that [the contractor] could not sue the owner for damages resulting from the acts or omissions of other contractors. Further, since the contract provided for change orders, extra work, and acts or omissions by other contractors, such delays were, on their face, contemplated by the parties at the time they entered into the contract."

What it means?  While there are some exceptions to the enforceability of such provisions depending on your jurisdiction, a standard no-damages-for-delay clause generally waives claims for additional compensation for delays on a project.  You may be entitled to additional time, as specified by the contract, but the clause can absolutely prohibit claims for additional compensation.

What can you do? The real lesson is to make sure to review your contract for these types of provisions and try to negotiate the terms.  For example, the AIA A201 expressly provides that the owner and contractor may seek damages from each other in the event of a delay caused by the other party.  There will be certain notice and substantiation requirements, but it is common to allow a party to seek damages for delay.  If an owner is unwilling to remove a no-damages-for-delay clause in your contract, then you should try to limit its application to certain delays such as delays caused by others, leaving the owner liable for its own delays.

You can imagine that with seven young children in our house, there are a substantial number of arguments on any given day.  When both my wife and I are at home, the question becomes, Who decides disputes: Mom or Dad?  In the construction arena, the same types of questions arise.

 

Recently, in Bechtel Do Brasil Construcoes Ltda v. UEG Araucaria, Ltda., 638 F.3d 150 (2d Cir. 2011), this same issue arose in the context of whether the owner’s claims were barred by the applicable statute of limitations.  Almost six years after completion of the power plant, the steam-turbine failed.  The owner filed a demand for arbitration against the contractor. 

The contractor filed a motion in court to permanently stay the arbitration because it argued that the claims were beyond the statute of limitations.  The owner filed a response, arguing that the arbitrator (and not the court) should decide the issue of the limitations period.

Who decides arbitrability?  Whether the court or the arbitrator decides the statute of limitations issues depends on the parties’ contractual agreement.  In this case, the disputes clause stated that: "Any dispute, controversy, or claim arising out of or relating to the Contract, or the breach, termination or validity thereof … shall be finally settled by arbitration…"  However, another provision in the contract stated that "the validity, effect and interpretation of this agreement to arbitrate shall be governed by the laws of the State of New York" and that "the law governing the procedure and administration of any arbitration instituted … is the law of the State of New York."  Can you see the dilemma now?   In the end, the appeals court concluded that the arbitrator (and not the court) was required to decide the statute of limitations question. 

The takeaways.  The real lesson here is to understand that the parties’ agreement will determine who decides arbitrability of disputes.  When you use phrases like "any and all disputes" in your contract, then it is likely that the arbitration or dispute provision is elastic enough to encompass every imaginable dispute, including statute of limitation defenses.  This exercise is more than academic because there may be strategical reasons for you wanting a court, as opposed to an arbitrator, deciding gateway issues and defenses.  So choose your words wisely in your contracts.

Contractor licensing is a specialized area of construction law that can have significant consequences to the parties involved.  Whether you are an out-of-state contractor bidding on an in-state public project, an electrical contractor on a commercial project, or a joint-venture partnership performing general contracting services, you need to check your state’s laws on licensing. 

For highway and bridge contractors in Tennessee, you should be aware of the following provisions:

Contractor License Requirement

  • Beginning for the August 3, 2012 letter, all prime contractors (except mowing and liter removal contractors) are required to be licensed with the Tennessee Department of Commerce and Insurance, Board for Licensing Contractors.
  • Contractors will not be required to have a license to bid, however, prior to recommending award of the Contract, TDOT will confirm that the lowest responsible bidder is licensed.
  • The Contractor will be considered for award for twenty-one (21) days after the letting date (bid submittal).
  • If the contractor does not have a license, on or before the 21 days, the contractor will be considered non-responsive, and the next lowest responsible bidder will be considered for award.
  • It is recommended that all "Prime Contractors" who are not currently licensed and intend to bid on future projects begin the process to obtain their contractor’s license.

Business License Requirements

  • Effective immediately, TDOT will not execute any contracts or approve subcontracts with contractors that are domestic or foreign Corporations, Limited Liability Companies, Limited Partnerships, or Limited Liability Partnerships, who are not in good standing with the Secretary of State.  In other words, you must have a valid Certificate of Existence/Authorization.
  • This includes being duly incorporated, authorized to transact business, and/or in compliance with other requirements as detailed by the Secretary of State.
  • If you have questions, you can contact the Secretary of State at (615) 741-2286 or visit the website.  

If you are a contractor, the failure to comply with the above provisions will have certain consequences, including but not limited to: the failure to secure the award even if you are the lowest bidder; the cancellation of a current contract or a determination that you are in breach of contract; or the inability to pursue your claims in court if you are not validly licensed.

It has been almost three years since the giant (…Google…) joined the legal research playing field with Westlaw, LEXIS, FindLaw and all the other law-related databases.  In November 2009, Google launched a new feature on Google Scholar that made 80+ years of US federal caselaw and 50+ years of US state caselaw searchable and readable. Here’s what are able to find: 

  • The entire opinions are indexed and available
  • Every citation is hyperlinked to the full text of the opinion cited
  • Every opinion includes a "How cited" tab showing how the current opinion was cited by the referring opinion
  • All opinions include their official citation and include page breaks and page numbers

Let’s to a quick test.  A couple of years ago I worked on a case for a road builder which had a claim against the Tennessee Department of Transportation.  When I GoogleScholar the name of the contractor and TDOT, my search immediately returns the Court of Appeals decision and the Supreme Court decision.  That’s it!  The hyperlinks to the footnotes and other citations … check.  The page numbers … check.  So far, so good.

Let’s try a different approach.  Suppose you want to research whether a written change order requirement can be waived under Tennessee law.  Just search: Tennessee "change order".  The search returned a list of 51 citations, including one of the leading cases on the issue: W&O Construction v. City of Smithville.  If you go to the W&O case and click on the "How Cited" tab, you will find a wealth of information, including the cases that have cited the decision, as well as snippets of the quoted material:

After being in the public for a few years, here are some insights about Google Scholar as a research tool and how businesses should approach its use:

  • This is a great offering from Google.  Ask any associate attorney in my office where I suggest that they start a research assignment and the answer will be: Google.  Is that the only legal research an inquiring mind should do?  Absolutely not!  But it is the best place to start.  And Google Scholar just opened a wealth of additional data for these preliminary searches.
  • One of the enhanced features of Google Scholar is the Advanced Scholar Search that allows you to search by name, jurisdiction, and subject area.  Again, I believe this enhances the preliminary searches that are performed.
  • Before relying on Google Scholar exclusively, I would want the public to fully test the scope of the database.  It will be important to watch how timely case law is collected and stored.  

Despite the benefit that Google Scholar results from provide public access to case law, the question remains: will this benefit the practice of law and resolution of disputes in general?  Some of my clients are empowered by their ability to do research and to assist in the trial preparation, while others would simply prefer to show up for the final judgment.  I think for the former group, Google Scholar opens up a pool of available research.  The later group would not bother.

If I had to limit my comments to one sentence, it would be: Great new tool for preliminary research!

Last month, I wrote a post about using daily reports to support a construction claim.  The more I think about that post, the more I am reminded that the primary goal in construction disputes is to tell the "story" about what occurred on the project site that resulted in the need for additional labor, changed materials, redesign, impacts to the schedule, increased costs, etc. 

The importance of "story" was part of a speech I heard last year by the Honorable Steven Reed, a former judge of the Armed Services Board of Contract Appeals who is now in private practice.  Judge Reed’s talk focused on the alternative dispute resolution process and, more specifically, "… the practical side of developing the contractor’s story in support of a claim."   Some of Judge Reed’s best tips:

  • The big picture: Contractors must anticipate the possibility (if not the probability) of disputed matters. Prevention and preparation are essential to a favorable outcome.
  • Documentation: "Daily reports are generally required under Federal contract."  They "should contain facts … not feelings or emotions." (Don’t call the project manager a "jerk" in the project documents, even if he is one.)  Rather, use the daily report as an "opportunity to create a comprehensive record of performance." 
  • Claim proof:  "Your contractor client will absolutely need its bid papers for evidence in a claim against Government."  It’s a no-brainer, but you need a good document management process in place.  
  • Dispute forum:  Picking a forum for resolving your dispute is strategic.  For example, a decision from the Board of Contract Appeals will be "predictable" and the process is more "stable" while the Court of Federal Claims will be more "rule bound."  The forum is also important because the Court has certain jurisdiction over fraud claims, while the Boards do not.

Judge Reed concluded his written presentation with sound advice: "Contractors need to be educated, prepared, aware, and well-represented."

Question: What tips do you have for improving the story?

Last month, ConsensusDOCS released an entirely new online platform to deliver its construction form contracts.  ENR journalist Johanna Knapschaefer wrote a good piece about "ConsensusDOCS Contract Library Takes to the Cloud,"  where she described the real-time collaboration needed for contract negotiations.

I posted about the new technology by ConsensusDOCS that offered around the clock access, easy editing, easy collaboration, ability to convert, compare and track changes, as well as new legal commentary and user guides.  In addition to the wealth of documents already online, last week ConsensusDOCS released three new documents:

  • The new and only available of its kind ConsensusDocs 298 Joint Venture Agreement makes it easier for construction companies to combine expertise and share risks on projects.
  • The new ConsensusDocs 246 Owner and Geotechnical Consultant Agreement provides a balanced contract for the unique nature of geotechnical services.
  • The updated ConsensusDocs 421 Design-Builder’s Statement of Qualifications helps owners choose the best qualified design-build contractors at the best prices.

On the heals of the ConsensusDOCS annoucnment, the American Institute of Architects (AIA) announced the publication of six new Construction Management documents, a project checklist, and a Construction Classification Worksheet via the Documents-on-Demand™ Web site, which for nearly four years has offered PC, MAC and tablet users easy access to the AIA Contract Documents anytime and anywhere they have Internet access. According to an AIA press release, "These additions complete the conversion of paper AIA Contract Documents to the web-based service, bringing the total number of documents available through Documents-on-Demand to 106."

“Only the AIA’s Contract Documents provide the time-tested legal protection that has been the Industry Standard for over 120 years. The latest additions to our Documents-on-Demand contracts and forms have completed our ultimate goal of providing a comprehensive, quick and easy alternative to paper documents with the added benefit of anywhere, anytime online access,” said Maan Hashem, Managing Director, AIA Contract Documents Software and Services.  The following documents and forms have been added to AIA Documents-on-Demand:
 

  • A132–2009, Standard Form of Agreement Between Owner and Contractor, Construction Manager as Adviser Edition, and A132 Exhibit A, Determination of the Cost of the Work
  • A133–2009, Standard Form of Agreement Between Owner and Construction Manager as Constructor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price, and A133 Exhibit A, Guaranteed Maximum Price Amendment
  • A134–2009, Standard Form of Agreement Between Owner and Construction Manager as Constructor where the basis of payment is the Cost of the Work Plus a Fee without a Guaranteed Maximum Price
  • A232–2009, General Conditions of the Contract for Construction, Construction Manager as Adviser Edition
  • B132–2009, Standard Form of Agreement Between Owner and Architect, Construction Manager as Adviser Edition
  • C132–2009, Standard Form of Agreement Between Owner and Construction Manager as Adviser
  • D200–1995, Project Checklist
  • G808–2001, Project Data, and G808A–2001, Construction Classification Worksheet

In the next few months, my partners Anne Gorham and Buck Hinkle will be preparing for a presentation on the comparison of the ConsensusDOCS and AIA contract documents.  Maybe we can convince them to give us a sneak peak of their presentation?

I received an email last week from Kent Starwalt of the Tennessee Road Builders Association that reminded me of how important it is to check your particular state’s laws when you have a legal question. This particular issue involved the applicability of E-Verify, which varies by jurisdiction, and the recent changes to the law in Tennessee.

The Federal Law. E-Verify is a federal electronic work authorization verification service created by the U.S. Department of Homeland Security and first introduced in 2003. All employers are already required under federal law to verify the work status of new hires, via the I-9 process. This process requires employers to complete an employment eligibility form required by Homeland Security for new hires, excluding independent contractors.

Tennessee Law. The new Tennessee law now imposes these same requirements under state law. Effective July 1, 2012, employers with 200-499 employees must be in compliance with the “Tennessee Lawful Employment Act.” That law requires employers to check the employment eligibility of new hires and mandates that most Tennessee employers either use the federal E-Verify program or review certain identification documents of new employees and independent contractors.

Safe Harbor. An employer’s obligation to use the I-9 process under federal law will not change. However, the new law will remove the safe harbor protection for employers under current Tennessee law where the lawful verification information is later determined to be false. In addition, it will require employers to either request and maintain a copy of one of certain identification documents, such as a drivers license, or, alternatively, to enroll in the E-Verify program.

Unlike laws in several other states, the Tennessee law does not require employers to use E-Verify. Rather, it attempts to bring the existing employment verification process (essentially, the I-9 process) within the reach of the State, while also encouraging–but not requiring–the use of E-Verify. On the other hand, in one respect it goes further than certain other state laws, by also requiring businesses to review the driver’s licenses or other valid document for 1099 non-employees (independent contractors) to show lawful presence in the U.S.

The law provides a safe harbor for employers who use the E-Verify program to verify the status of an employee if the employee is later found to be in the country illegally.

Application in Stages. The provisions of the law took effect on January 1, 2012 for employers with 500 or more employees. It will apply to private employers with 6 to 199 employees on January 1, 2013. The law will not apply to employers with five or less employees. An employee is defined as "any individual for whom an employer must complete a Form I-9 pursuant to federal law and regulation, and does not include an independent contractor as defined by 8 USC Sec. 1324a and its regulations."

Violations. Employers who fail to follow to this law will be subject to harsh penalties. For a first violation, an employer will be subject to a penalty of $500 and an additional $500 for each non-verified employee or non-employee. A second violation will result in a $1,000 penalty and an additional $1,000 for each non-verified employee or non-employee. A third or subsequent violation will result in a penalty of $2,500 and an additional $2,500 for each non-verified employee or non-employee.

Image: Jonathan McIntosh

I was working in our Virginia office this past week and was amazed at the amount of highway construction at and around Tyson’s Corner.  What also caught my attention was the progress of the 495 Express Lanes project, which includes the construction of high occupancy toll (HOT) lanes that will operate on the I-495/Capital Beltway.

As the U.S. moves toward the construction of "smart" highways as an integral part of our transportation system, state DOTs and localities will be called upon to broaden the horizons of their normal procurement and contracting systems. Undoubtedly, many legal issues will arise as high-tech companies compete for contracts that offer the likelihood of substantial follow-on business in order to maintain compatibility.

"Improvement" versus "Construction". Presently, a few cities, states, toll road and turnpike authorities are in the process of procuring electronic toll-collection (ETC) systems. Many are procuring those systems under state statutes that call for competitive bidding of all construction contracts. The question has come up, however, whether those government entities are required to award contracts after public bidding. That question was considered in the 1995 decision called In the Matter of AT/Comm, Inc. v. Peter Tufo, 652 N.E.2d 915 (N.Y. 1995), where the New York Court of Appeals made an interesting distinction.

In 1991, the New York State Thruway Authority, together with similar agencies in New Jersey and Pennsylvania, formed an interagency committee (IAG) to evaluate electronic toll-collection systems that would be compatible among the three states. The IAG issued a request for proposals for both "read only" (which scan information from a windshield tag) and "read/write" (which are needed when tolls are determined by entry and exit points) systems. AT/Comm and Amtech Systems, both ETC-system manufacturers, submitted proposals for the contract to install the ETCs at designated sites along the New York State Thruway.

In 1993, without public bidding, the authority entered into a $1.7 million contract with Amtech for the manufacture and installation of an interim read-only ETC-system. This system would be used pending the IAG’s selection of a fully integrated read/write system that would eventually replace it. Upon contract award, AT/Comm filed a petition seeking to stop the contract between Amtech and the authority. It also sought an order stopping the authority from entering any contract for the ETC-system without first conducting competitive bidding in accordance with the appropriate New York statutes.

In the litigation, AT/Comm argued that the ETC-system was an "improvement" of the thruway within the meaning of the New York competitive-bidding statute, which required a public bidding. Amtech and the authority disagreed, arguing that the contract for the installation of the ETC-system was not a contract for "construction, reconstruction or improvement" of the thruway and, as a result, was not subject to the competitive-bidding requirement. The Court of Appeals agreed with Amtech and the authority.

The Court of Appeals noted that the New York statute requires public bidding where the work undertaken is for the construction, reconstruction or improvement of the actual road or passageway used for traffic. The aim of the E-Z Pass system, however, was not to improve the roadway but to improve the flow of the traffic on it.

Lesson Learned. Competitive-bidding statutes were enacted by state legislatures to protect the public against fraud, favoritism, corruption, extravagance and improvidence in the award of public contracts. The idea behind such statutes is to require contract-award decisions to be based on objective criteria. Electronic toll-collection contracts are generally awarded after proposals are technically evaluated by consultants.

Public entities need to make sure they are not drafting specifications aimed at favoring one competitor over another. They should also establish criteria on how proposals will be evaluated and make evaluations of competing proposals fairly. Finally, they should ensure that their consultants are not biased. Given the subjectivity involved in this process, the cost of preparing proposals and the potential economic gain of being considered by several governmental entities who seek to make their systems compatible, there is great likelihood for disputes and litigation in the future.

Image: VaDOT

Today’s guest post is by J. Matthew Kroplin, a fellow attorney at Stites & Harbison PLLC.  Matthew is a member of the Business Litigation and Creditors’ Rights & Bankruptcy Service Groups. He represents and advises clients in the areas of business and commercial litigation, bankruptcy and financial restructuring, and construction law.  Matthew has represented a number of contractors in construction claims, business litigation, and employment matters.

 During this session of the Tennessee General Assembly, which ended about a month ago, state legislators approved the so-called “Loser Pays” rule, with the stated intention of discouraging frivolous claims in Tennessee courts.

This rule essentially requires that a judge assess litigation costs to a party who successfully seeks dismissal of a claim that does not have a basis in fact or law. These recoverable costs include reasonable and necessary attorney fees and are capped at $10,000. Governor Haslam has since signed the legislation into law as Public Chapter 1046 (pdf).  The “Loser Pays” rule will not apply to:

  • any claims filed before July 1, 2012;
  • claims by or against the government;
  • any claim that is dismissed by the granting of a motion that was filed more than 60 days after service on the moving party of the latest pleading containing that claim;
  • any claim that is withdrawn or amended to state a claim upon which relief may be granted, as long as notice of such is given by the earlier of the response deadline or at least 3 days prior to the hearing on the motion;
  • actions by pro se litigants, except where the court finds that the pro se party acted unreasonably;
  • claims seeking to extend, modify, reverse, or challenge the constitutionality of existing law, or claims of first impression, as long as one of those reasons is specially plead; and
  • claims that stated relief that could be granted when filed but subsequent law removed the right to relief.

As you might expect, much of the legislative discussion focused on possible unintended consequences, such as whether the new rule will inhibit judges from granting a motion to dismiss whenever possible or whether this law will effectively impede access to the courts for individual citizens and small business owners. On the other side of the issue, though, proponents argued that the new rule will reduce pointless lawsuits and will increase judicial efficiency. Either way, it will certainly be interesting to see how this plays out in future lawsuits.