Thanks for all inquiries and well wishes for our family.  Yesterday, my wife was released from the hospital after a prolonged two-week stay.  She has been ordered on bed rest for the near future, but we are on the road to recovery. 

All the emails and phone calls from my friends and colleagues ("Matt, what’s going on?"  "Yo! Why have you not responded?"  "I hope your family is okay.")  illustrate a good lesson for construction projects:

Facts are important.

More appropriately, facts are really important!  I have found that a construction dispute with good facts and bad law can, nonetheless, result in a good outcome. Rarely, however, do you find that bad facts and good law will result in a good outcome. 

Since facts are so important, what can you do to develop and preserve the facts necessary to help you win your case?  Here are some tips:

  1. Keep written records.  Although conditions in the field may constantly change, make sure you have a process in place to reduce to writing all pertinent facts that affect construction.  This may be a changed condition, interference by another party, unusually severe weather conditions, a change in material price, etc.  If you have a pertinent conversation by phone or in person, make sure you follow-up the conversation in writing.  I cannot tell you how many times I have heard, "Well, they agreed to the change order on the phone."
  2. Record just the facts.  If you take the time to record the facts in writing, make sure you leave out all the informal language and other information that will make a good exhibit in litigation.  There is no need to tell the owner’s representative that he is an idiot (…even if he is…) in a request for information.  There is no need to tell the contractor’s project manager that he is incompetent (…even if he is…) in an email responding to the RFI.  Stick to the facts.
  3. Organize your information.  Whether you keep hard-copy documents or you have incorporated the paperless project, make sure you take the time to use a folder structure system that organizes the information in a chronological manner.  This will help you (and your attorney) in the event a dispute arises.

Although this is my own personal opinion, remember that 90% of disputes are fact-driven … which means that you need to get the facts right, reduce them to writing, and keep them organized.

I write this post from a hospital bedside.  My wife has been through a whirlwind of surgeries the past week and we are still adjusting to some complications. 

As we sat talking last night, my wife reminded me of a recent fortune cookie: "Today is the tomorrow that you worried about yesterday."  With some major "wait" time, I thought about what I had to do to prepare for the surgery and the possible problems. Here are a few tips to help you plan for your time away from the office, whether for a vacation, work trip or even a medical emergency:

  1. Whenever possible, "plan ahead" and schedule your days away.  The real point here is to actually "plan" you time away from the office.  When you are talking about a vacation, mark the time off on your calendar, even if you are staying in the area.  While this may be harder for emergencies or minor trips away, you can at least plan that you will be out a certain number of days following the event.
  2. Tell your clients and customers about your time away.  Whether you are an attorney, a business executive, an architect or project manager, you should tell your closest relationships about your expected absence.  Even if you don’t have time, make sure you set up your email to send an automated message about your time away from the office, informing them of the date you are expected to get back and giving them an emergency contact number.
  3. Schedule your "away" work and deadlines before you leave.  If you find that you have a project deadline that occurs while you are away, either finish the project, assign it to your closest ally, or get an extended deadline … all before you leave.  If you plan to work while away (which I would not advised while on vacation), then prepare folders for each individual task.  That way, you can grab a folder if you have a spare couple of hours to work, whether on a plane or in a waiting room.
  4. Find access to wi-fi.  Most hotels, vacation hot spots, and even hospitals have access to wi-fi.  But you should make sure ahead of time.  If you cannot find wi-fi access, there are numerous applications that can turn your mobile phone into a modem for your laptop. 
  5. Pick an ally in the office to help you during your absence. It is important to have a strong network of co-workers in your office. Although your customers or clients will be aware that you are unavailable (or have limited availability) while you are away, there are situations where emergencies may occur. In such a case, prepare a trust-worthy co-worker to help you while you are away, whether it involves your regular work tasks or things that need to be done on an emergency basis.

Question: Do you have any "away from the office" tips?

Image: Melissa Venable

Last week, the Supreme Court of Tennessee heard oral arguments on a contract interpretation issue in a construction dispute between Ray Bell Construction and Tennessee Department of Transportation.  You can get the details here, but the real lesson is one about how to interpret contracts, whether you are talking about the scope of work, changes, compensation or delays.

The TDOT Dispute.  The disagreement in the the TDOT case involved a question whether the contractor was entitled to an early incentive payment given the delays on the project beyond the contractor’s control.  There was a disagreement as to whether the completion date could be moved, altered or amended. The trial court held that there was an "egregious ambiguity" in the parties’ contract and allowed extrinsic evidence, including evidence of other contracts, to clarify the issue. The Court of Appeals affirmed [pdf].  The final decision from the Tennessee "Supremes" is expected.

Another Example.  In construing a written contract, the controlling consideration is the intention of the parties as derived from all the terms of the contract. Legally, a written contract to which both parties have assented as a complete and accurate expression of their agreement, may not be varied or contradicted by understandings and negotiations, which occurred prior to signing the contract. Thus, as a general rule, a proposal by a contractor cannot be used to vary or contradict the signed contract.

If the contract is so ambiguous that its meaning is unclear, the court can allow parol or extrinsic evidence to be admitted. A contract is considered ambiguous "when it is reasonably susceptible to more than one meaning." As a result, if the contractor can show that the scope of work specified in the contract is ambiguous, then the contractor’s proposal may be used as extrinsic evidence to explain the meaning of the contract.

Owners (such as TDOT in the case currently on appeal) often argue the language in the scope of work specified in the contract is readily apparent and, therefore, the contractor should not be permitted to introduce its proposal as evidence on the issue of ambiguity. However, a court may conditionally consider extrinsic evidence, including the proposal, for the purpose of determining whether a contract is ambiguous. If the signed contract is reasonably susceptible of two or more meanings, the courts would likely consider the public owner’s interpretation of the scope of work and the contractor’s proposal.

Who Can Help Interpret a Construction Contract?  Using the above two examples, the rules are pretty clear that the court must look only to the four corners of the contract to interpret its provisions. Only where there is an ambiguity can the court look to extrinsic or parol evidence, including other writings, conduct of the parties, and industry practice.

Image: jimmywayne

Last week, contractors and subcontractors bidding on Tennessee Department of Transportation projects received an alert from Brian Egan, TDOT Director of Construction, warning of a noticeable increase in unbalance bids [pdf].  While the rules differ among each state, you should take Egan’s warning to heart since the consequence of submitting of an unbalanced bid can be costly.

According the TDOT memo, lump sum bid items such as stakes, lines and grades, clearing and grubbing, traffic control, mobilization, and removal of structures are being bid at significantly more than the estimated or anticipated actual costs.  The consequence for submitting an unbalanced bid: "Proposals may be rejected by the Commissioner if any of the unit prices contained therein are obviously unbalance, either excessive or below the reasonable cost analysis value."

There is a caveat. If a bid item is found to be "mathematically unbalanced" but not "materially unbalanced," then the bid may nonetheless be accepted.  A "materially unbalanced bid" is one that generates a reasonable doubt that the award to the bidder will result in the lowest ultimate cost to TDOT.  In other words, there can be a two-step analysis.  

What does all this mean?  It means that contractors and subcontractors should avoid submitting unbalanced bids of any nature. I previously wrote about how courts tend to treat an unbalanced bid and what you can to do avoid disputes.  In this instance, TDOT may accept an unbalanced bid, but not if there is suspicion it will cost the agency more.  Other states likely have the same rules as TDOT that allow the awarding agency to flatly reject unbalanced bids.

Image:Peter Nijenhuis

Last week I wrote a post about what is considered timely acceptance of a subcontractor’s quote. My friend and former colleague, Brian Waagner, submitted a comment to that post, focusing on the importance of a written contract.  Brian also blogs at The Contractor’s Perspective.  Brian’s comments are on-point, so I have included them here as a guest post:

This case strikes me as an example of what happens when parties are not clear as to the terms of their contracts. While a written contract is not always necessary, the absence of a written contract when the circumstances indicate the parties expect to sign one is often a problem. 

Two other decisions make this point. In Jack Baker, Inc. v. Office Space Dev’t Corp., 664 A.2d 1236 (D.C. 1995), for example, a developer advised an excavation subcontractor that it had been selected, but no formal subcontract had been signed. The subcontractor sued when he saw another contractor performing excavation work at the site, but his claim was dismissed on summary judgment because there was no written contract. In the court’s view, the size of the project, the formality of the procurement process, and the ongoing negotiations as to the terms of the contract would make it impossible for a reasonable person to conclude that the parties had reached a complete agreement on all terms and conditions of the contract.

In Haughton Elevator Co. v. Donata Corp., 271 F. Supp. 958 (E.D. Va. 1966), Haughton submitted a bid for the installation of elevators. Donata directed Haughton to proceed while the parties discussed "final details" that would be necessary for the preparation of a "formal purchase order," but no purchase order was ever signed. The court rejected both Haughton’s claim for lost profits and Donata’s counterclaim for additional costs incurred to install the elevators. Both parties were "very experienced in the construction field" and their discussions made it clear that they did not intend to be bound until a formal contract was executed.

Excellent points Brian!  These are real-life examples of disputes about parties’ expectations that were not fully nor clearly reduced to writing.

Timing is everything!  As I was preparing for a LEED for Healthcare presentation this week, one of my partners sent me a piece about the innovative use of "pods" to cut building costs. The article by Mike Boyer focused on a team of two plumbing and mechanical contracting firms who want to transform how the healthcare industry and other owners construct their facilities.

McGraw-Hill Construction estimates that the health care market will grow by more than 15% next year to almost $30 billion nationally.  According to the article, "…health care is the fasting growing market for prefabrication and modular construction, with 49 percent of all projects using it in some fashion."  

The prefabricated bathroom pods featured in the article are designed and built off-site and then they are transported and installed on-site.  Prefabrication offers many advantages, including:

  • Promotes sustainability. While prefabrication is not new to the industry, it is gaining support because of its "environmentally friendly building techniques" such as less production of waste.  Modular assembly often involves pre-determined material quantities that generally lead to less scrap.
  • Saves time.  During design, conflicts can be identified early in the process that may result in significant time-savings.  Additionally, since the assembly is performed offsite, there is the ability to perform multiple scopes of work simultaneously.  For example, a bathroom pod built by PIVOTek usually takes 120 hours in the plant versus 160 hours on the construction site. Time savings = cost savings = revenue generation.
  • Improves safety conditions.  Since many of the prefabricated items are built in a plant, the working conditions can be safer: "Assembly is done at bench height inside a building, rather than requiring workers to climb ladders and scaffolding on site."

Of course, use of prefabricated items requires the right project. Can you identify any problems with prefabricated and/or modular assembly?

Image: B. Tse

If a subcontractor’s quote does not contain a deadline by which it must be accepted, how late can the contractor accept the quote to be valid?  And when there is a dispute, who has the burden of proving that the contractor accepted the quote in a timely manner?

The court addressed these issues in Piland Corporation v. Rea Construction Co., 672 F.Supp. 244 (E.D. Va. 1987), a Virginia case involving a contractor’s bid to perform work at a government facility.  The contractor solicited a quote from a subcontractor to perform certain paving work on the project. The subcontractor phoned in its quote to the contractor, and it also gave the same quote to other bidders. When the subcontractor learned that the contractor was the low bidder and had been awarded the contract, it phoned the contractor to see if it had been awarded the subcontract.

The subcontractor called a second time after waiting a week to pass without hearing from the contractor.  Four more weeks … no response from the contractor.  Understandably, the subcontractor assumed that it did not receive the award for the paving work and closed its files.  Several months later, the contractor sent an agreement to the subcontractor to sign. When the subcontractor refused to sign the agreement to perform the work at the earlier quoted price, the contractor filed a lawsuit for breach of contract.

At trial, the court focused on whether the contractor had notified the subcontractor in a timely manner about the subcontract award. The court looked to local industry practices, which dictated that it was customary for prime contractors to notify selected subcontractors within 30 days after notice of acceptance of its bid.  The court also determined that telephone notification was an acceptable industry standard. 

Ultimately, the court concluded that the contractor was unable to show by a preponderance of evidence that it timely notified the subcontractor of its acceptance of the quote.  Much of the decision was based upon credibility findings, where the court found the contractor’s evidence to be weak and unconvincing.  The contractor’s estimator could not remember details of the all and had one minor notation about notice to the subcontractor that read: "Called 2-2-84, bid okay."

On the other hand, the subcontractor’s estimator was so positive in his testimony that he received absolutely no notice of acceptance and he closed out the file.  The court concluded that there was no acceptance of the bid and, therefore, there could be no breach of contract without a binding contract in place.

This case outlines the problems contractors may encounter when they fail to document all their actions. The contractor should have given written confirmation of notice of the award and acceptance of the subcontractor’s bid.  Even if notice is given by telephone, it should be properly documented as well.  Finally, as to what constitutes a "reasonable time" to accept a bid, the parties should include the time for acceptance in the written offer to avoid a determination by industry practice.

Image: airdiogo

Last fall, I attended the Mobile Healthcare Technology Summit sponsored by Smith Seckman Reid, Inc.  My post about the summit included five construction and design lessons when dealing with either new construction or renovations of existing health care facilities. Technology and innovation continue to improve in the arena of health care construction.  Two weeks ago, Johnson Controls announced a new offering to reduce energy consumption in surgical environments. 

The problem: An operating room’s HVAC system (running continuously even when the room is unoccupied) uses a substantial amount of energy to effectively ventilate and eliminate airborne contaminants  

The solution: An innovative program called Healthcare Environment Optimization™ that integrates a hospital’s building automation system with surgery scheduling to optimize air exchange rates and energy use.  The offering was developed in collaboration with HDR, Inc., an architecture, engineering and consulting firm.

According to Johnson Controls, some benefits of the solution include:

  • The ability to track air exchange rates and temperatures for record-keeping purposes.
  • An optional user interface display which gives surgical and facility staff control of the room conditions, including a manual override to adjust temperature.
  • Real-time alarms which allow occupants to immediately address HVAC system problems.
  • The ability to earn credits toward LEED® and ENERGY STAR® certifications.

As to the last point, credits may be earned under either LEED® New Construction or LEED® Healthcare, which made its debut this spring following a comment period by USGBC.

Image: US Navy

It’s a story you have heard many times: There is an invitation for bids.  There are numerous bidders … more than usual.  The lowest two or three bids simply don’t make mathematical sense.  On paper, it must be an unbalanced bid or an unreasonably low offer.  What can you do?

 

Although a few years old, there are a few lessons learned from the bid protest entitled In the matter of Ken Leahy Construction Inc., Comp. Gen. B-290186 (June 10, 2002).  In this case, the Federal Highway Administration (FHWA) issued an invitation for bids (IFB) for construction of a road in the Siuslaw National Forest in Oregon. The base portion of the IFB included construction of 5.3 miles of roadway. The FHWA included 2.3 miles of road as an option because it had not secured all of the rights-of-way for that portion. The bidders were asked to provide fixed unit prices for various line items to perform the base and option portions of the project. The following two bids were submitted:

Contractor: Elte Inc.               Contractor:Ken Leahy Construction
Base: $7,514,9757 Base: $7,046,847
Option: $1,697,270 Option: 2,667,241
Total: $9,212,245 Total: $9,714.088

As required by the IFB, the FHWA evaluated the bids by adding together the base and option prices, resulting in an award to Elte. Leahy protested the award primarily on the ground that Elte’s bid was unbalanced, alleging that Elte’s mobilization costs for the option were included in the mobilization line item for the base contract. This was a no-brainer, as Elte’s bid included $1,189,290 for mobilization in the base requirement and only $1 for the option requirement.

The comptroller general concluded that Elte’s bid was not unbalanced since there probably would not be two separate mobilization costs if the option was extended to the contractor.  (…Equipment and personnel would already be on site…). On that basis, the comptroller general determined that the factual predicate necessary for unbalanced pricing–actual costs associated with performance of the option line item–was not present in this case. 

As you review the decision, you may learn a few tips for dealing with unbalanced bids or unreasonably low offers, including:

  1. Read the applicable regulations. The Federal Acquisition Regulation provides the appropriate definition of unbalanced pricing, which exists where the price of one or more contract line items is significantly overstated. This can occur despite an acceptable overall price. Confronted with an unbalanced bid, an agency must conduct a risk analysis to evaluate whether the award will result in the Government paying an unreasonably high price for contract performance.  Depending on your scenario, the applicable regulations will guide you on what constitutes unbalanced pricing or an unreasonably low bid.
  2. Understand the specifications.  In the Leahy Construction case, the comptroller general addressed the potential "front-end loading" question that could be raised as a result of making the same mobilization payment for the contract both with and without the option requirement. Under the applicable specifications, there was no risk that Elte could receive a disproportionate amount of the contract payment early in the performance period. Section 151.03 of FP-96, Standard Specification for Construction of Roads and Bridges on Federal Highway Projects expressly limits the payment to 10% of the overall value of the contract. The remainder, if any, of a firm’s mobilization cost will be paid after final acceptance of the work.  In your case, the specifications may provide justification for including or excluding certain line items in your bid.
  3. Follow the invitation.  Finally, the comptroller general dealt with Leahy’s argument that the contracting officer improperly exercised the option because the FHWA had not secured all of the rights-of-way necessary to build the entire project. The comptroller general rejected this argument for two reasons. First, there was no requirement in the IFB that FHWA secure the rights-of-way before awarding the option. Second, Leahy ignored the express terms of the IFB, which stated that the bids would be evaluated on the basis of adding together the base and option prices. Based on the express evaluation criteria, Elte was the low bidder, whether or not the FHWA exercised the option.

In the end, the comptroller general in Leahy Construction acknowledged that it would be improper for an agency to include an option price in determining the apparent low bidder if it was reasonably certain that the agency would not exercise one or more options.

Image: Digitalnative

As a construction lawyer involved in complex litigation, I am often asked to prepare a "litigation and discovery budget" for a client.  As a construction client, your stomach may turn when you receive one of these budgets from your lawyer.  Is there a way to control the costs of discovery in construction litigation? 

 

According to the International Institute for Conflict Prevention and Resolution (the Center), the answer can be found in what is known as an economical litigation agreement.  According to the FAQ published by the Center [pdf], the Agreement is like a "litigation prenup" that is intended to reduce the costs and delay of discovery according to the size of the matter.  The procedures can be incorporated into a construction contract as follows: 

Economical Litigation Agreement: Any Dispute arising out of or relating to this contract, including the breach, termination or validity thereof, whether based on action in contract or tort, shall be finally resolved by civil litigation in accordance with the International Institute for Conflict Prevention & Resolution Economical Litigation Agreement (2010 edition), by a judge sitting without a jury. In jurisdictions where advance waiver of jury is prohibited as a matter of law, or where all parties to this agreement subsequently agree in writing, such Dispute shall be decided by a jury.

If litigation ensues, the parties are bound by the procedures in the Economical Litigation Agreement, including a limited scope discovery procedure in lieu of conventional discovery.  Discovery requests are limited and sized proportionally to the amount in dispute. For example, for disputes up to $10.0M, 15 interrogatories and six four-hour depositions are permitted. Discovery disputes are to be resolved by a specially trained arbitrator via telephone conference and with limited briefing.  Other areas addressed by the Agreement include: 

  1. Waiver of jury trial
  2. Escalating negotiations and mandatory mediation
  3. Waiver of service of process
  4. Responsive pleadings by letter or email
  5. Page limit on motions (3 pages)
  6. Executive summaries provided with each affidavit submitted
  7. Waiver of oral argument on most motions
  8. Mandatory discovery with non-electronic discovery limits
  9. Limits on number of interrogatories, document requests and requests for admissions
  10. Use of informal witness interviews

As with all other things in the construction world … it looks good on paper.  But I am interested in hearing any feedback from those who have used the Center’s alternative to traditional arbitration and litigation.  Anyone?

Image: chbrenchley