The "before" picture often magnifies the significance of the "after" picture.  In other words, if you had only seen the "after" picture below, then you may think, Wow! How did that crane find its way into that nice pool of water? Perhaps it somehow fell into the water?

After: Crane in Pool of Water

Now check out the "before" pictures … which tell you exactly what happened.

The Before Pictures

Did you know photographs like the ones above are essential to the construction project management process?  The term project management includes: (1) establishing procedures to manage, monitor and document work and progress; (2) ensuring regular flow of information for project control and coordination; and (3) creating contemporaneous, accurate and complete record of job conditions and problems including their impact to the project.

But why are proper records so essential for claims and disputes?

  • To establish causal connection between the event and the damages
  • To establish reservation of rights or non-waiver of your claim
  • To properly identify actual costs and delays incurred

As a construction litigator, most of the claims that I handle involve breach of contract disputes.  The majority of them involved one of the above three issues, which must be established by some type of proof (i.e., testimony or letter or written change order or photograph).  Good record keeping will either prevent claims or preserve your rights. 

For all my Nashville and Middle-Tennessee friends, I want to take a moment to highlight two upcoming conferences.  Although the programs are geared towards construction lawyers, don’t shy away if you did not get a “shark degree” from Build ‘Em Big University … Each conference offers a little different glimpse depending on your career path.  What do I mean?

Attend the Fundamentals of Construction Law

The Fundamentals of Construction Law will be held on November 5, 2009 in Nashville, TN (…along with many other locations…) and is taught by leading construction lawyers.  This program presents a unique opportunity for new construction lawyers or experienced lawyers who occasionally practice construction law to learn the essentials from those who practice it daily at its highest levels. The program concisely covers the gamut of construction issues including:the roles of the key participants in a project, the structure of project delivery systems, the bidding and construction process, insurance and bonding and dispute resolution.

For the non-lawyer: This seminar will give you a great glimpse into the basic legal principles affecting your construction practice.

The Nashville conference is being coordinated by Joe Welborn, one of my partners (… and all-around-great-guy…).  If you have any questions about the program, then send Joe an email.

 

The second conference, the Tennessee Association of Construction Counsel Fall Meeting, will be held the very next day on November 6, 2009.  For the construction lawyers, there are three seminars right up your alley:

  • Litigation Strategies for the Construction Law Practitioner, by experienced litigator Andy Ness
  • Steel Structural Collapse of the Chicago Post Office Building, by engineer and expert Ian Chin (pdf)
  • Bankruptcy Law for the Construction Practitioner, by bankruptcy guru Dan Puryear

For the non-construction lawyer:  You will not want to miss the mock trial! Learn from the pros on how to best present your case.  Participants include: Davidson County Chancellor Ellen Hobb Lyle (as judge), Tim Gibbons and Todd Panther (as advocates), and Gary Parkes and David Wright (as fact and expert witnesses).

The TACC conference is being coordinated by Vic McConnell, another one of my partners ( …and another-all-around-great-guy…).  If you have any questions about the program, then send Vic an email.

Who knew that dispute resolution was a lot like ordering from a menu?  Would you like one arbitrator or a panel of three arbitrators?  Would you like your jurisdictional questions to be determined by the court or the arbitrator?  Which arbitration rules do you want to apply?  So many choices . . .

Do you want a "reasoned award" in arbitration?

Recently, the American Arbitration Association revised and amended its set of Construction Industry Arbitration Rules and Mediation Procedures, effective October 1, 2009, which addresses some of these menu options.  A summary of the most significant changes is available through AAA’s website.

One change that caught my attention involves L-6 Form of Award, which now reads: "In addition to the award requirements set forth in R-44 (a) and (b) unless the parties agree otherwise, the arbitrator shall issue a reasoned award."  A reasoned award?  What is that?  Why should you care?

Arbitration versus Litigation

First, let’s go back to the basics.  If you find yourself in court on a construction dispute, the winner at the end of trial is usually granted a judgment.  That judgment can be in the form of an award of money … a declaration of some finding (such as coverage under an insurance policy) … an injunction prohibiting or requiring some act … or any number of other remedies within the court’s power.  The court may or may not issue a written opinion explaining the rationale for its decision.

On the other hand, an arbitration proceeding generally results in an "award," which is the determination on the merits by the arbitrator or panel of arbitrators.  Depending on the parties’ contract or the applicable arbitration rules, the arbitrator can award the same or similar relief to that of a court.  Charles Resnick, former general counsel for Raytheon Company, has written a good article on whether to arbitrate or not to arbitrate.

Reasoned Award

While the law generally requires an arbitration award to be in writing, there is no consensus on what must be included in that award.  In fact, the traditional "default rule" has been that an arbitration award does not need to contain the reasons for the decision.  Thus, unless expressly required to do so by the parties’ contract or applicable rules, the arbitrator could issue a summary award with a simple finding in favor of one of the parties for a specific award of money—no further explanation was required.  For complex construction cases under the AAA Rules, the "default rule" now requires the reasoned award.

A "reasoned award" requires that the arbitrator explain the reasons for the final decision. The reasoned award answers the question of "why" and should give you the "because" factors.  It can be a summary decision or a more detailed decision that contains Findings of Fact and Conclusions of Law. So, would you like "reason" with your arbitration award?  Here are some considerations:

  • Since the reasoned award must be written by the arbitrator, it may take longer for the final decision to be issued. 
  • For this same reason, a reasoned award may also require additional arbitrator fees.
  • On one hand, the reasoned award may provide a solid basis for the award to stand on appeal in a confirmation hearing.
  • On the other hand, the reasoned award may provide fruitful ammunition for vacating the award.
  • Parties are more likely to accept the result if there is a reasoned award, which may lead to settlement even after the award is rendered. 

Overall, since the reasoned award will be written, it is likely that the arbitrator will more carefully review the facts and law, as opposed to simply finding a quick and equitable resolution (described by some as "splitting the baby" in arbitration).  

Requesting a "reasoned award" is only one of the many options on the arbitration menu.  It is important to know prior to the dispute arising what rules may apply and whether your contract changes any of the default procedures and processes.

This morning I read Brad Heath’s article in USA Today, suggesting that the stimulus funding for road repairs has detoured and by-passed large metro areas with significant road problems.

Stimulus Projects Shovel Ready?

According to the USA Today study, half of the nation’s worst roads will receive only about 20% of the stimulus money allocated for street repairs. The reason—the roads were not shovel ready and were in too bad shape:

“The problem is a byproduct of a stimulus package designed to spend as fast as possible to revive the economy. Many roads are in such bad shape that repairs would take too long and cost too much to qualify for funds, says John Barton, head of engineering for Texas’ Department of Transportation.

The result is that counties with the worst roads won’t get much more repair money than counties with better roads. The 74 counties with half of the nation’s bad roads will split $1.9 billion, records show; counties with no major roads in bad shape will split about $1.5 billion.”

Data compiled and reviewed by USA Today showed that many of the roughest roads needing repair were … let’s say … not ready for repair.  For example, state officials acknowledged that “Detroit’s roads are in dire need of work, but say they didn’t have enough ready-to-go projects there.”

According to Kent Starwalt, Executive Vice-President of the Tennessee Road Builders Association, the important question is not whether transportation projects are shovel ready, but rather, why weren’t these projects shovel ready?

“It would seem that if a jurisdiction’s roads are in really poor condition, they would have the necessary steps done to be able to move on projects when and if they did receive money. [Tennessee Department of Transportation] and many other state DOTs were well prepared for such a scenario. The cities were even given more time than the states in the stimulus bill to obligate any money they were to receive.”

This is more than just an issue of timing and money. One measure of the House transportation re-authorization bill includes the transfer of control from state departments to city and metropolitan planning organizations. However, Starwalt warns: “It should be obvious to everyone involved that the cities are not as efficient in getting projects out the door as state DOTs.”

This debate is interesting to those of us who follow the federal stimulus funds with the hopes that the funds actually impact the construction industry, the workers and employees involved in the projects and the local economies.

As a father of five children, I have fully prepared myself for "the" talk.  Already, I have discussed the various scenarios with my daughter about dating, courtship and marriage.  According to this eleven-year-old Princess, the line in the sand of appropriateness … is … "just holding hands."  (Whew!)

 Just Holding Hans ... ABC and AGC

Last week, the two primary construction industry groups in Tennessee—the Associated General Contractors (AGC) and the Associated Builders and Contractors (ABC)—began holding hands.  At the 2009 State AGC Convention in Nashville, leaders announced a new partnership between the state AGC and ABC organizations.  According to Ed Baldwin, President of AGC of Tennessee, "both groups have recognized the importance of partnering as a positive means to achieve excellence in construction and better represent the entire industry." 

The "holding hands" venture has been officially reduced to writing in a "Cooperation Statement" approved by leaders of both industry groups.  According to the statement, the groups have agreed to the following measures:

  1. Provide a forum to identify and discuss common areas;
  2. Endeavor to build trust and respect between the two groups; and
  3. Attempt to avoid surprises in their cooperative efforts.

In response to my inquiry, Dan Brodbeck, President of ABC of Tennessee, said, "Our group is excited about the cooperation agreement with AGC.  We look forward to opening the lines of communication with our partner to address those construction concerns that each of our members currently face." 

Is there any precedence for such a cooperative agreement?  Actually, these two organizations have done more than hold hands, kissed and dated … they got "hitched" in two states.  In 1994, the Arizona chapters of ABC and AGC merged to form a joint venture called the Arizona Builders Alliance.  More recently, TEXO: The Construction Association was formed in October 2008 as a result of a merger between North/East Chapter of the AGC of Texas and the ABC North Texas.

I was listening to Nashville Public Radio yesterday morning about a new competition brewing on the Internet.  This battle was not as fierce as the one to become the greenest state in the South.  It was more like a friendly exchange of "we’re not in competition with each other because we offer similar, but different services" battle.

The NPR story featured the two primary websites that assist in tracking stimulus dollars: www.recovery.gov and www.recovery.com.  (There is actually a third URL at www.recovery.org, which is the real face of the Dot-Com website.)  The Dot-Com and Dot-Org websites are owned by Onvia, a company that provides various public procurement and reporting services to business and governments.  Through its public spokesperson Erika Lindsay, Onvia responded to my inquiry about its stimulus tracking information: 

Recovery spending is a small subset of overall government spending that we already track. Each day we capture the [American Recovery and Reinvestment Act of 2009] funded project level events from all levels of government and from all geographies and present them real-time on www.recovery.org . This includes details on projects that have dollars committed but have not yet started (Allocated), formal bid requests and RFPs (Advertised) and contract award notices (Awarded).

The Obama Administration’s version of the stimulus-tracking database is maintained at www.recovery.gov, which was officially established as part of the American Recovery and Reinvestment Act of 2009:

The [Recovery Accountability and Transparency] Board shall establish and maintain…a user-friendly, public-facing website to foster greater accountability and transparency in the use of covered funds. The website…shall be a portal or gateway to key information relating to the Act and provide connections to other government websites with related information.

First, what’s the real difference between these two sites? The real difference appears to be the timeliness of the information that is publicly available for viewing.  The Dot-Com site is updated in real time as data is received about public lettings, awards and receipt of information about project spending … whereas the Dot-Gov site … well, is not so quick.  According to the NPR article, the commercial website "has spending information that the government won’t have until October."  The other major difference?  Onvia allows public comment on particular projects, which tends to generate a lot of buzz about the use of funds for certain projects.

Why is this important for the construction industry?

  • Setting aside the Dot-Com v. Dot-Gov distinction, both of these sites provide useful information on the status of stimulus funded projects. 
  • Although there appears to be more money in the pipeline for construction work (…which was supposed to lead to job creation…), the data that is available illustrates that the stimulus money is slow to reach the market.
  • Finally, information released on the sites actually supports the trend that is being reported about "lower bids" throughout the industry.  In other words, public contract awards are "coming in 16 percent lower than usual" according to www.recovery.com figures. 

The best part about the NPR story … one project that has already been awarded is an $18 million contract for a complete redesign of www.recovery.gov. 

Living in the SEC at this time of the year is exciting!  The competition is fierce and everyone has their favorite.  And I am not talking about football . . .

Will the Real Green Building Leader Please Stand Up?

Last week, I highlighted that Tennessee Lt. Governor Ron Ramsey was speaking to a group of contractors in Nashville at the annual convention for the Associated General Contractors of Tennessee.  At the same time Ramsey was commenting that Tennessee should be the "green leader in the South," a four-member panel in Birmingham, Alabama urged business leaders to take advantage of its central location and become "the epicenter of green for the South."

Going Green: Sustainability in Tough Economic Times, which was sponsored by the Birmingham Business Journal, featured a number of green business executives who touted the region’s ripeness for growth: "The Southeast is the fastest-growing area for green construction . . . . That is mostly because it is so far behind. However, Birmingham could tap into that growth."  Although many of the "going green" recommendations were about creating energy-efficient environments, one panelist believed that better siting should dictate the activities of business owners.  Chris Miller, co-founder of Piedmont Green Building Solutions, LLC, wondered why business wanted to build beyond the reach of downtown:

Birmingham-area business owners should focus on improving the city’s inner core instead of building in outlying areas, Miller said. It’s puzzling as to why a number of businesses build new facilities outside Birmingham on undeveloped land when there are plenty of opportunities to establish facilities in developed areas inside the city, he said.  “I wonder why people build outside of downtown when you already have this infrastructure in place,” he said. “It’s all about mindset and a culture change.”

The smack-down doesn’t end in Birmingham.  Beginning with a reception later this evening … and continuing all day tomorrow … the first-ever Tennessee Green Building Summit will focus on green building initiatives in a tight economy.  The following organizations have committed to participation:

While I am sure that both Tennessee and Alabama have something to offer to this "greenest leader in the South" competition, it is important to remember the distinction between goal and outcome.  With respect to green buildings, one of the litmus tests is the number of LEED certified buildings.  According to last week’s green building study by the Chicago Tribune, the only southern jurisdiction that made the "Top Ten U.S. Cities" was Atlanta. (Go Bulldogs!)  If you are talking about alternative and renewable energy legislation, then perhaps you will find most of the leaders outside the SEC.

You’ve read the play on words: LEEDing the way … In the LEED … LEEDership … and even LEEDigation.  In an address to a room full of contractors, suppliers, and (a few) attorneys on Thursday afternoon, Lt. Governor Ron Ramsey (R-Blountville) said that the state is committed to being a leader of sustainability in the South: "Honestly, I think we need to lead the wave of green."

Is Tennessee a LEEDer in the South?

Ramsey was the keynote speaker at the annual convention for the Associated General Contractors of Tennessee. His animated address focused on the pro-business initiatives throughout the state.  Ramsey said that Tennessee has traditionally been rated within the top three states in the country, alongside Texas and North Carolina, for its pro-business environment.  Ramsey also took the opportunity to publicly announce key appointments to various committees in the Senate.

During the Q&A session, I asked the Lt. Governor about the future of green building/alternative energy in Tennessee and where these issues fell with respect to his pro-business focus.

Ramsey smiled, commenting that as a "conservative Republican" most people would not imagine him "pushing green [programs]."  Ramsey then highlighted two major businesses that manufacture and build alternative energy solar products (Hemlock Semiconductor Group and Wacker Chemical) that have recently committed to investment in Tennessee.  The Lt. Governor also suggested that certain initiatives through the State Building Commission could help Tennessee lead the "wave of green" in the future.  In the end, Ramsey maintained his conservatism: "I’m not for more government regulation."  Instead, he suggested that results could be achieved through incentives and other programs.

While the Lt. Governor of Tennessee sees the state as being a "green leader" in the South, I am not sure it will be the "green LEEDer" until there exists a state-wide green building code.  And right now California stands alone on this issue.

Released in 1968, the lyrics from Steppenwolf’s psychedelic rock song blare out: "I like to dream, right between my sound machine…"  Yep, you remember … the Magic Carpet Ride!

Ready for a Magic Carpet Ride?

The Maryland Court of Appeals recently decided a construction case based upon a set of pre-contract discussions that Judge Harrell described as a "complicated series of events from which this appellate ‘magic carpet ride’ springs…"  In Questar Builders v. CB Flooring, the court upheld the duty to act in good faith and deal fairly in construction contracts. The appellate court reversed and remanded the trial court’s decision for a determination of whether the contractor (Questar) acted in bad faith when it terminated for convenience the flooring subcontractor (CB Flooring).

Questar received bids from three subcontractors to install the "magic carpet" in the luxury midrise apartment and townhome complex.  CB Flooring submitted a bid for $1.12 million and CTI submitted a bid for $1.24 million.  Interestingly, the third subcontractor’s bid was so low that it left Questar with the impression that the subcontractor misunderstood the scope of the project.    (…I wonder if all the low estimates being submitted on public contracts these days fall into this category? Certainly not! … Sarcasm … )

Ultimately, disputes arose between Questar and CB Flooring about design changes in the selection of the carpet and the resulting increases in the cost of work.  Questar reportedly used CB Flooring’s original bid to obtain CTI’s agreement to perform the same work for $1,000 less than the original winning bid.  Meanwhile, Questar terminated CB Flooring, alleging breach of contract, as well as a contractual right to terminate for convenience.

The trial court held that CB Flooring did not breach the subcontract agreement with Questar.  The court also rejected Questar’s claim that it had a right to terminate for any reason.  Based upon the evidence presented, the judge found that the subcontract was improperly terminated.

On appeal, the appellate court held that the termination for convenience clause "may" be enforceable, but that the trial court failed to determine whether the termination was made in good faith and in accordance with fair dealing.  Therefore, the case was remanded to the trial court for a determination of that issue.

The opinion is a long read (…50 pages…), but sheds some light on the limitations inherent in a contractual right to terminate:

"Questar’s contention that it was entitled to terminate the Subcontract for any reason whatsoever goes too far and is inconsistent with the terms of the Subcontract. To be sure, a right to terminate in the absence of the other party’s breach does not equate necessarily with the right to terminate based on a whim. We shall not read into the Subcontract such unfettered power."

This point was highlighed by the American Subcontractors Association, which filed an amicus brief in the appellate proceedings.  In its brief, ASA argued that an exception to the scope of the good faith and fair dealing covenant would "not only poison business relationships and eliminate business certainty, but also does great damage to the ability of subcontractors to rely on their signed contracts as a reliable indicator of future work and expected revenues" and would otherwise make subcontracts "illusory and meaningless."

This case provides a good warning to contractors: Beware of subcontractor shopping after you have already entered an agreement with another party.  While you may have the contractural right to terminate for cause, do not make a decision in haste without adequate basis for the termination.  These magic carpet ride cases often involve hotly disputed facts leading up to the termination and you may find yourself defending a lawsuit.

Finger Point Later?When my kids break something in the house, they immediately begin pointing the finger at the "alleged" responsible actor.  In the construction world, many times you will need to fix the problem first and then point the finger later. 

I read an article today by Jack Broom in the Seattle Times that illustrates this point.  The incident involved two massive tunneling machines that were damaged and awaiting costly repairs … 300 feet below ground!  The 17.5 foot diameter machines are supposed to be boring a 13-mile tunnel to take waste water to Puget Sound.  Rather than the five-feet-per-hour pace that these machines should be boring through compacted wet dirt, they are dead stopped awaiting repairs.  According to the article, more than 120 workers have been laid off until the machines are fixed and each day of delay adds to the owner’s more than $1.8 billion in escalating costs.  It may take another month or two before the machines can be fixed and start boring again.

This story represents what should be happening on the construction project gone wild scenario: 

For now, [according to the owner’s project manager], the county, the contractor and the machines’ manufacturer are working together on "getting the fix in place and getting these tunnel-boring machines moving again … It’s in everybody’s interest to complete this job as quickly as possible."

Although the parties are reportedly working to find a common solution to repair the two machines so that the contractor can complete the work, legal responsibility for the delays will need to be determined.  Including the legal questions highlighted in Broom’s article, a court may be asked to resolve the following:

  • Were there any subsurface reports performed prior to the start of the work?
  • Did the owner have any contractual responsibility for subsurface conditions?
  • Did the contractor have any contractual responsibility for its own inspection of subsurface conditions?
  • Did the owner/architect have any ongoing supervisory or inspection duties during performance of the work?
  • Were the machines properly mobilized and operated during construction?
  • Were the machines defective in any way?
  • Were there any other concurrent delays affecting the work?

For owners/developers, this incident is an example of how unexpected events on a construction project require a multi-phased approach to the problem.  Your situation may dictate that you quickly assess the extent of the damage, determine a workable and cost effective solution and fix the problem first … and leave leave the finger-pointing to later.  So long as you reserve your rights in accordance with the notice provisions of your contract, the project completion will be better served in this approach.

Contractors should take heed that when your work is delayed for reasons beyond your reasonable control, there may be contractual and legal defenses to an owner’s assessment of liquidated damages.  Of course, the immediate goal will be to get the project back on schedule … but remember the finger may be pointed at you sometime down the road.