We live in a world of e-mails, IMs, texts, Snapchats, TikToks, Instagrams and the occasional fax. Although information is transmitted instantaneously in today’s environment, proof of receipt of that information (often called “Notice”) remains subject to some very strict rules imposed by contract, case law or statute.
Notice of Claims. In a transportation case involving a personal injury, Department of Transportation v. Jones, the Court of Appeals of Georgia explained the importance of strict compliance with certain notice provisions. The plaintiff was injured in a single-car accident on State Route 42 and he sued the Georgia Department of Transportation (“GDOT”). The plaintiff claimed that GDOT’s improper maintenance of the roadway led to an accumulation of water, which caused his truck to hydroplane into a tree, severely injuring him. GDOT filed a motion to dismiss, arguing that the plaintiff failed to strictly comply with the notice provisions of the Georgia Tort Claims Act (“GTCA”). The trial court denied that motion and the Court of Appeals reversed.
The Green Card. The GTCA requires that notice of the claim be sent to “the Risk Management Division of the Department of Administrative Services.” At the hearing, the plaintiff presented the following evidence: (a) the notice letter; (b) the green return receipt card sent to the Commissioner of GDOT; (c) a response letter from the Risk Management Division acknowledging receipt of the notice letter; and (d) a U.S. Postal Service tracking document showing that “something was sent by certified mail to the Department of Administrative Services.
The Holding. Despite this evidence, the Court held that the plaintiff failed to strictly comply with the statute because there was no proof by the plaintiff that the letter was sent by certified mail to the Risk Management Division. The green card submitted showed proof of delivery to the Commissioner of GDOT. The attorney for GDOT admitted in court that the notice letter received by the Commissioner of GDOT was then sent internally by the Commissioner’s office to the Risk Management Division, which then sent the acknowledgement letter. Nevertheless, the plaintiff did not comply with the statute requiring that he sent notice of the claim to the Risk Management Division.
So What? While this may seem like a hyper-technical application of the rule, that’s precisely what “strict construction” means according to one court in George. Whether you are contractor, developer, specialty subcontractor, or professional service provider in the construction industry, the real lesson learned is to read the express terms of any applicable contract or statute when a dispute arises, and follow both “the letter and the spirit” of the law.
Long before I was an attorney, I heard this tale that if you endorsed a check that had the words “PAID IN FULL” written on the check, then you were accepting the check as full payment of whatever was owed. But I have never really thought about that legal principle because, “People don’t really do that, do they?”
In Triangle Construction Co. v. Fouches and Assoc., the Court of Appeals of Mississippi held that the PAID IN FULL principle—or what lawyers know as accord and satisfaction—barred a contractor’s claim for additional payment.
The Facts. The contractor won a bid to construct a water system in two local counties. Following completion of the project, the contractor filed a claim against the owner and engineer for damages allegedly resulting from the negligence of the owner and engineer.
Upon completion of the project, the owner sent contractor a check marked “Final Payment,” but the check did not compensate the contractor for its increased construction costs as a result of the delays or for the extra-contractual project expansion. The contractor conceded that it cashed the check, but argued that it repeatedly asserted to the owner—including in a letter sent to then engineer—that it did not consider the “final payment” to be final and that it would continue seeking the remainder of what it was owed.
The Court’s Ruling. The court disagreed. Under Mississippi law, despite what the parties may argue was their intent, cashing a check marked “final payment” constitutes an accord-and-satisfaction agreement, which precludes that party from bringing future claims for additional payment. In Triangle Construction, the court held that the contractor’s claims against the engineer were barred by the doctrine of accord and satisfaction.
So What? The “paid in full” principle is not just an old wives’ tale. Depending on your state’s law, if you negotiate a check that is marked “paid in full” or even “final payment” then you are risking the fact that you may be settling any claims you have. If you are a contractor that seeks to reserve those claims, then don’t cash the check if it is marked with special language on it.
It happens all the time! The owner-contractor agreement contains a “no damages for delay” clause; a clause requiring that all changes be in writing before work is performed; and a clause requiring partial lien waivers and releases with each periodic payment. And yet we see a claim for delays and extras filed at the end of a construction project that challenges these very contract provisions.
The Court of Appeals of North Carolina recently grappled with this exact scenario in Gamewell Mechanical, LLC v. Lend Lease Construction (Sept. 1, 2020) (PDF). The project involved the new construction of three buildings in Durham, North Carolina. The mechanical subcontractor filed suit against the prime contractor for $2.7m for breach of contract for nonpayment, claims for delay damages and enforcement of its lien rights. The prime contractor argued that subcontractor’s claim should be limited to its contract balance of approximately $500k in retainage. Ultimately, the trial court awarded the subcontractor more than $800k for its claims.
On appeal, the contractor argued that the award should have been limited to the $500k in retainage. By executing lien waivers and releases with each periodic payment, the contractor argued, the subcontractor had waived all of its claims other than retainage. The parties’ lien waiver contained language where the subcontractor could have reserved disputed claims, but the subcontractor never did so. The appellate court held that the trial court properly rejected a majority of the subcontractor’s claims that were subject to either the “no damages for delay” clause or the period lien waivers.
Notably, the trial court made a distinction for “day-to-day” or “daily” changes in the field for extra work, which was credited by the appellate court as follows:
[I]t is undisputed that there were delays, numerous Change Orders issued, re-sequencing, and coordination issues occurring throughout the project. Given the daily problems that arose as a result of these issues, [subcontractor’s] failure to reserve claims regarding the day-to-day miscellaneous items done in the field at the direction of [contractor] is not a material breach-of-contract. . . . The waiver and release documents submitted with each pay application could not cover claims not readily apparent due to daily changes on the job.
The appellate court held that competent evidence supported the trial court’s decision on each of these points.
The opinion is notable because of the court’s findings that are highlighted in bold and underline above. When I read the court’s opinion, I started to think: (1) Is there now a “daily changes” exception to lien waivers and releases? (2) Are day-to-day miscellaneous items compensable even where a party fails to reserve their rights on these type of cumulative claims? According to the court in Gamewell Mechanical, the answers these questions is yes. It would be interesting to see what other courts have reached similar conclusions.
Question: Do you know any similar cases? If so, please share in the comments below.
If you are left in the dark about something, you don’t have the information you should have to make an informed decision. Delay claims on a construction can be confusing, especially when you think about the delay to the work being performed and the disruption to other activities. A few years ago, I found a case the shed some light on the delay v. disruption distinction.
In County of Galveston v. Triple B Services, LLP, decided on May 26, 2016, the Court of Appeals of Texas reviewed a contractor’s claim for damages on a road expansion project. While the legal issue focused on the County’s right rely on the defense of sovereign immunity, the Contractor’s (and it expert’s) characterization of the damages was critical to the outcome of the case. Since the applicable statute waives a county’s sovereign immunity for breach-of-contract damages that are “a direct result of owner-caused delays,” the Court had to decide whether disruption damages—as opposed to delay damages—were recoverable.
The Contract. The County entered into an agreement with the Contractor to expand a three-mile stretch of road. Under the contract, the County was responsible for moving gas, water, and fiber-optic utilities. According to the Contractor’s expert, the contract established a “baseline schedule … created by the County’s engineer,” which showed a starting date with unhindered access along the area of the road where the utilities were located. The contract allowed for “delay damages” if the Contractor’s request for those damages “is determined to be compensable.”
Owner-Related Delays. Although the Contractor’s plans for the construction project anticipated that the County would move the utilities by a particular date, those utilities were moved almost one year later. Nevertheless, the Contractor completed its work within the contract time. According to the Contractor, it incurred additional costs to hand-form manholes, set and reset barricades, extended field office overhead, as well as additional labor, equipment, street cleaning, flagging, and traffic control—all of which resulted from the County’s delays in moving the utilities.
Sovereign Immunity Argument. The County argued that Section 262.007 of the Local Government Code waives a county’s sovereign immunity for construction contracts involving claims for delay damages. Here, the County relied heavily on the testimony of the Contractor’s expert witness who testified about the Contractor’s damages resulting from the County’s delays. Since the County did not timely move the utilities as anticipated in the original construction plan, that schedule of work was “disrupted.” By seeking disruption damages, the County argued, the Contractor sought damages that were excluded from recovery under the statute.
On appeal, the Contractor agreed that its “disruption damages” do not meet the definition of “delay damages” as traditionally understood in the construction law arena. However, it argued that the statutory waiver of sovereign immunity for damages that are “a direct result of owner-caused delays or acceleration” includes more than “delay damages” as defined under construction law: “Disruption and lost productivity costs are … recoverable damages under the clear meaning of the words of the statute.”
The Court turned to the construction law bible written by Phillip Bruner and Patrick O’Connor to address the inquiry, noting that delay damages have a technical definition distinct from disruption damages:
Delay damages refer to damages “arising out of delayed completion, suspension, acceleration or disrupted performance”; these damages compensate the contracting party that is injured when a project takes longer than the construction contract specified. . . .
Disruption damages, on the other hand, are for a project that may be timely completed but nevertheless includes disruption to the contractor and compensates it for “a reduction in the expected productivity of labor and equipment—a loss of efficiency measured in reduced production of units of work within a given period of time.” . . . Disruption damages can also be caused by an “event [that] both disrupts and delays a critical path activity….” A project that finishes on time but at greater expense because of disruptive events or scheduling errors presents a claim for disruption damages.
The Court’s Decision. Based upon a plain reading of the statute, the Court concluded that Section 262.007 allows a claim for disruption damages against a county “if the disruption damages directly result from the county’s delay in performance of its contractual obligations….” Significantly, the statute did not distinguish between “delay damages” and “disruption damages” that are directly caused by the breaching party’s delay.
Lesson Learned. According to the expert in this case, the Contractor incurred significant increased costs to finish the work on time. The Court’s opinion provides an excellent roadmap of the type of expert proof required to establish the damages sought by the Contractor, including the following:
Although the project in this case was finished on time and the Contractor never completely “stopped” its work, the Court readily found that the Contractor was “hindered” because of the County’s actions. Since the type of recoverable damages include those that are “a direct result of owner-caused delays,” the Contractor could recover its disruption damages.
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:
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:
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:
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.