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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

I have been thinking of launching a leadership mastermind for construction professionals.  And this idea came to me over the past month as the world basically came to a complete halt—except for the construction industry, which has instead been on a roller coaster ride.

You see, most of the states and cities have enacted various “stay at home” orders with various exceptions for construction work, depending on the locality, the type of construction work, or the status of the project.  Executives, management and office personnel are working from home, while project managers, superintendents and field workers are clocking in at the jobsite on a daily basis.  There are stresses in the new “home” office, as well as new challenges on the project site.

And so I started to have more and more people asking me how to respond to the changes in the construction industry and how to adjust professional and personally. If you have seen me speak or if you have read of any of my articles, you know that leadership is just as important as construction accounting or risk management to your project and company’s successes.

My solution is a small, intimate group of construction professionals and leaders who are really focused on adapting and rebuilding through this global pandemic—to come out stronger, more financially secure, and risk ready for their companies and families. This will be a group of like-minded individuals, working with each other, helping each other, sharing different strategies and tactics with each other.  It’s going to start with this first group of founding members, but it is going to evolve into a group of industry leaders committed to rebuilding for success.

And I’d like to invite you to join me as a Founding Member. Again, this isn’t something that has been created yet and I am gauging the level of interest.  But, as a Founding Member, you get to participate in a six-week program. We will have weekly calls, where we will be given a challenge at the end of each and will report back our successes the following week.  We will develop content together for a workshop that will be given to your business or group. Finally, as a Founding Member, your only commitment is that you will show up and do the work. If you do so, I will cover the cost of this first 6-week mastermind.

If this sounds interesting to you and you’re interested in being considered to join as a Founding Member, simply send me a private message or email to mdevries@burr.com.

Many jurisdictions have allowed construction activities to continue through the COVID-19 pandemic. But the “stay at home” restrictions have varied from a state to state. Restrictions vary depending on whether the project is public infrastructure, to commercial, to health care, to multifamily and residential. (Make sure that you confirm your particular jurisdiction’s orders to see what restrictions are in place.)

When the Center for Disease Control (“CDC”) initially released its guidelines on social distancing in late March (for workplace, school and homes), it would be weeks before construction-specific guidelines were released.  Even then, the CDC did not give a clear answer for how to conduct construction activities when the work required closer proximity of workers.  On April 20, 2020, the CDC released new guidelines for “critical infrastructure workers,” and on April 21, 2020, the U.S. Department of Labor’s OSHA released an alert that basically adopted the CDC guidelines.

Remember, words matter.  In the following OSHA Alert, I have highlighted the terms that I believe continue to give contractors leeway in continuing to work during this pandemic as long as training and safety precautions are taken:

Measures that can help protect employees working in construction include:

      • Encouraging workers to stay home if they are sick;
      • Training workers how to properly put on, use/wear, and take off protective clothing and equipment;
      • Allowing workers to wear masks over their nose and mouth to prevent them from spreading the virus;
      • Continuing to use other normal control measures, including personal protective equipment, necessary to protect workers from other job hazards associated with construction activities;
      • Advising workers to avoid physical contact with others and directing employees/contractors/visitors to increase personal space to at least six feet, where possible. Where work trailers are used, all workers should maintain social distancing while inside the trailers;
      • Promoting personal hygiene. If workers do not have immediate access to soap and water for handwashing, provide alcohol-based hand rubs containing at least 60 percent alcohol;
      • Using Environmental Protection Agency-approved cleaning chemicals from List N or that have label claims against the coronavirus; and
      • Encouraging workers to report any safety and health concerns.

The crux of any safety policy or training program involving construction workers is to “avoid physical contact” and implement physical distancing protocols.  If the work requires multiple crew members in close proximity, then steps should still be taken to avoid physical contact, as well as making sure the other hygiene recommendations are followed to minimize risk.

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.