The Construction Contract Review

Absolutely Free Home Remodeling – A Tough Way to Make a Living

Offering absolutely free home remodeling to consumers is a tough way to make a living.  But many home remodeling contractors are often at risk for doing expensive home repairs and remodeling without getting paid a dime – legally.

 

Numerous states have strict statutes that, in the name of consumer protection,

offer draconian remedies against what legislatures perceive to be unscrupulous contractors.  Honest, good-faith contractors, however, can get caught in some of these legislative traps if they are not diligent in their paperwork. 

 

The Illinois Home Repair and Remodeling Act (HRRA) is a good example of requirements for consumer contracts. For any home repair or remodeling contract over $1,000, a person engaging in the business of home repair and remodeling is required in Illinois to provide the consumer with a copy of the "Home Repair: Know Your Consumer Rights" pamphlet.  A clear, concise, and complete written contract that spells out the who, what, where, when, and total cost of the project is required.  In addition, the contract is required to give the name and address of the person engaged in the business of home repair or remodeling. If the contractor uses a post office box, mail service, or agent to receive business correspondence, the contract must state the contractor's home address. 

 

 

Related enforcement statutes and court cases interpreting these statutes have had some painful outcomes for contractors.  Failure to abide by the HRRA may preclude a contractor from recovering unpaid contract balances or extra work, force a return of any money received, open up a contractor to further damages, attorney fees or possible sanctions from the Attorney General.  Homeowners in Illinois have received FREE home additions from contractors who failed to follow some of these statutes. 

The attorneys at Mayfield | Broderick can help contractors develop consumer contracts and practical checklists for dealing with residential homeowners.  It would be a lot cheaper to pay us a small flat fee for this preventative consultation than to perform free work for a consumer – can’t make that up in volume.

Photo Credit: http://www.flickr.com/photos/nickdawson/522097877/

What You Need to Know About Independent Contractors

Independent subcontractors are common service providers in the construction and other industries.  It is critical that a business owner correctly determines whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

 

The Illinois Employee Classification Act, effective in 2008, establishes specific criteria to determine if an individual performing services for a construction contractor is an employee or an independent contractor. While targeted specifically at the construction industry and for the collection of unemployment taxes by the Illinois Department of Employment Security (“IDES”), the criteria identified are likely to be used as a guide by other administrative agencies and for other industries.  However, the substantial penalties and other remedies would apply only to the construction industry in Illinois. 

 

Under the law, an individual performing services for a contractor is presumed to be an employee unless:

 

1. the individual is free from control or direction over the performance of the service for the contractor;
2. the service performed is outside the usual course of services performed by the contractor and
3. the individual is engaged in an independently established trade, occupation, profession or business.

 

The IDES looks to the actual rather than the alleged relationship of the parties, and the designations and terminology used in any agreements or contracts between them are not controlling. 

 

Free from Direction or Control

In determining the relationship between the parties, "control" or "direction" means that an employer has the right to control and direct the worker, not only as to the work to be done, but also as to how it should be done, regardless of whether that control is actually exercised.  Some of the numerous relevant factors considered include the right to change work methods, a set schedule requirement, is the relationship permanent, can the subcontractor hire/fire/pay its own assistants,

 

If these and other factors lead to the conclusion that the individual hired is under the direction and control of the employing entity, than that individual will be considered an employee. 

 

Outside the Usual Course of Services

This factor is satisfied if the service provided by the individual is either outside the usual course of business of the employing entity or performed outside its place of business. A good example would be janitorial service to company that does not provide janitorial services - services which merely render the place of business more pleasant or are not necessary to the employing entity's business are outside the usual course of business.

 

Engaged in an Independently Established Trade, Occupation or Business

For determining independent contractor status, "engaged in an independently established trade, occupation, or business" is interpreted to mean that the individual has a proprietary interest in the business which he or she can sell, give away or operate without hindrance from any other party.  While no one factor will determine if an individual is engaged in an independently established trade, occupation, profession or business, the business reality or "totality of the circumstances" will determine the presence of this condition.  According to the regulations, the following factors are viewed to determine whether the individual is engaged in an independently established trade, occupation, profession or business:  whether the individual offers his services to the general public; has its own tax, unemployment, and other state accounts for the payment of its various taxes; existence of an independent office location; separate licensing, when appropriate; and the right to keep profits or losses from the activity. 

 

BOTTOM LINE

Illinois and many other states have a very narrow definition of what an independent contractor is.  The laws and regulations are slanted towards a finding that almost any worker is an employee and not an independent contractor.  The attorneys at Mayfield | Broderick can help you make these determinations and avoid the substantial penalties for misclassification of an employee as an independent contractor.

Top Questions About Winter Work Conditions

It was about -3 this morning while I was out shoveling the driveway.  Today seemed like a good day for a reminder about the hazards of working outside in the winter from OSHA:

A major winter storm can be lethal. Preparing for cold weather conditions and responding to them effectively can reduce the dangers caused by winter storms. The following frequently asked questions will help workers understand how winter storms may affect their health and safety.

General Information

What are some different types of winter storms?

Blizzards: Winds of 35 mph or more with snow and blowing snow reducing visibility to less than 1 mile for at least 3 hours.

Blowing Snow: Wind-driven snow that reduces visibility. Blowing snow may be falling snow and/or snow on the ground picked up by the wind. 

Snow Squalls: Brief, intense snow showers accompanied by strong, gusty winds. Accumulation may be significant.

Snow Showers: Snow falling at varying intensities for brief periods of time. Some accumulation is possible.

Snow Flurries: Light snow falling for short durations with little or no accumulation.

Ice Storms: May include freezing rain or sleet.

What types of winter storms are more common in the different areas of the United States?

Mid Atlantic and New England States: Heavy snow showers, blizzards, and ice storms.

Southeastern and Gulf Coast States: Ice storms, occasional snow.

Midwest and Plains States: Heavy snow showers, blizzards, and ice storms.

Rocky Mountain States: Heavy snow showers, blizzards.

Alaska: Heavy snow showers, blizzards.

What are public warnings for winter weather and what do they mean?

Winter storm watch: Be alert, a storm is likely.

Winter weather advisory: Winter weather conditions are expected to cause significant inconveniences and may be hazardous, especially to motorists.

Frost/freeze warning: Below freezing temperatures are expected and may cause damage to plants, crops, or fruit trees.

Winter storm warning: Take action, the storm is in or entering the area.

Blizzard warning: Snow and strong winds combined will produce blinding snow, near zero visibility, deep drifts, and life-threatening wind chill--seek refuge immediately.

Worker Safety and Health

What workers are at increased risk of injury during winter storms?

While most workers can stay inside during a winter storm, some workers may be required to go into the storm. These may include utility workers, law enforcement personnel, firefighters, emergency medical personnel, federal, state and local government personnel, military personnel, highway personnel, and sanitation workers.

What kinds of injuries are associated with winter storms?

According to National Weather Service about 70 percent of injuries during winter storms result from vehicle accidents, and about 25 percent of injuries result from being caught out in the storm. 

Some of the hazards associated with working in winter storms include:

• Driving accidents due to slippery roadways
• Carbon monoxide poisoning
• Slips and falls due to slippery walkways
• Hypothermia and frostbite due to the cold weather exposure
• Being struck by falling objects such as icicles, tree limbs, and utility poles
• Electrocution due to downed power lines or downed objects in contact with power lines
• Falls from heights (e.g. falls from roof or skylights while removing snow)
• Roof collapse under weight of snow (or melting snow if drains are clogged)
• Burns from fires caused by energized line contact or equipment failure
• Exhaustion from working extended shifts
• Dehydration
• Back injuries or heart attack while removing snow
• 
  What is wind chill?
  
  Wind chill is an estimation of how cold it feels outside when the effects of temperature and wind speed are combined. Unprotected portions of the body, such as the face or hands, can chill rapidly and should be protected as much as possible from the cold wind. A 10 mile per hour wind combined with a 30°F temperature can have the same chilling effect on the body as a temperature of 21°F in a calm atmosphere. The Weather Service issues this information as the wind chill index. For more information, see OSHA's The Cold Stress Equation. OSHA Publication 3156, (1999). Also available as a 21 KB PDF, 4 pages.
  
  What is frostbite?
  
  Frostbite is a severe reaction to cold exposure that causes freezing in the deep layers of skin and tissue. Frostbite can cause permanent damage. It is recognizable by a loss of feeling and a waxy-white or pale appearance in fingers, toes, nose, or ear lobes. For more information, see OSHA's The Cold Stress Equation. OSHA Publication 3156, (1999). Also available as a 21 KB PDF, 4 pages.
  
  What is hypothermia?
  
  Hypothermia occurs when the body temperature drops to less than 95°F. Symptoms of hypothermia include uncontrollable shivering, slow speech, memory lapses, frequent stumbling, drowsiness, and exhaustion. For more information, see OSHA's The Cold Stress Equation. OSHA Publication 3156, (1999). Also available as a 21 KB PDF, 4 pages.
  
  What can be done to avoid frostbite and hypothermia?
• • Recognize the environmental and workplace conditions that lead to potential cold-induced illnesses and injuries.
  • Learn the signs and symptoms of cold-induced illnesses/injuries and what to do to help those who are affected.
  • Train the workforce about cold-induced illnesses and injuries.
  • Select proper clothing for cold, wet, and windy conditions.
  • Layer clothing to adjust to changing environmental temperatures. Wear a hat and gloves, in addition to underwear that will keep water away from the skin (polypropylene).
  • Take frequent short breaks in warm dry shelters to allow the body to warm up.
  • Perform work during the warmest part of the day.
  • Avoid exhaustion or fatigue because energy is needed to keep muscles warm.
  • Use the buddy system (work in pairs).
  • Drink warm, sweet beverages (sugar water, sports-type drinks). Avoid drinks with caffeine (coffee, tea, or hot chocolate) or alcohol.
  • Eat warm, high-calorie foods like hot pasta dishes.

  Who is at increased risk of frostbite and hypothermia?
  
  Victims of hypothermia are often (1) elderly people with inadequate food, clothing, or heating; (2) babies sleeping in cold bedrooms; (3) people who remain outdoors for long periods - the homeless, hikers, hunters, etc.; and (4) people who drink alcohol or use illicit drugs. Victims may also include people with predisposing health conditions such as cardiovascular disease, diabetes, and hypertension, people that take certain medication (check with your healthcare provider and ask if any medicines you are taking affect you while working in cold environments), and people in poor physical condition or who have a poor diet. For more information, see A Prevention Guide to Promote Your Personal Health and Safety.
  
  How do I treat a person with frostbite or hypothermia?
  
  If frostbite or hypothermia is suspected, begin warming the person slowly and seek immediate medical assistance. Warm the person's trunk first. Use your own body heat to help. Arms and legs should be warmed last because stimulation of the limbs can drive cold blood toward the heart and lead to heart failure. Put person in dry clothing and wrap their entire body in a blanket. Never give a frostbite or hypothermia victim something with caffeine in it (like coffee or tea) or alcohol. Caffeine, a stimulant, can cause the heart to beat faster and hasten the effects the cold has on the body. Alcohol, a depressant, can slow the heart and also hasten the ill effects of cold body temperatures.
  
  How do I walk safely on snow and ice?

  • Walking on snow or ice is especially treacherous and wearing proper footwear is essential. A pair of well insulated boots with good rubber treads is a must for walking during or after a winter storm. Keeping a pair of rubber over-shoes with good treads which fit over your street shoes is a good idea during the winter months.
  • When walking on an icy or snow-covered walkway, take short steps and walk at a slower pace so you can react quickly to a change in traction.
  • When walking on a sidewalk which has not been cleared and you must walk in the street, walk against the traffic and as close to the curb as you can.
  • Be on the lookout for vehicles which may have lost traction and are slipping towards you. Be aware that approaching vehicles may not be able to stop at crosswalks or traffic signals.
  • At night, wear bright clothing or reflective gear, as dark clothing will make it difficult for motorists to see you.
  • During the daytime, wear sunglasses to help you see better and avoid hazards.

  What hazards are associated with repairing downed or damaged power lines?
  
  The work activities involved with repairing downed or damaged lines entail many of the activities involved in installing and removing overhead lines and in general maintenance on overhead lines. The crucial difference is that in emergency conditions, such as winter storms, there are unknown hazards and the potential for changing hazards as work progresses. Under these conditions workers must be extra vigilant and cautious. 
  
  Potential hazards include:

  • Electrocution by contacting downed energized lines, or contacting objects, such as broken tree limbs, in contact with fallen lines.
  • Falls from heights.
  • Being struck or crushed by falling poles, towers or parts thereof, tree limbs, ice accumulation on lines, towers and poles.
  • Being injured in vehicular accidents when responding to an emergency situation.
  • Burns from fires caused by energized line contact or equipment failure.

  What protective measures should be utilized when working on or around downed or damaged power lines?
  
  Stay well clear of any downed or damaged power lines. Establish a safe distance from the lines and report the incident to the responsible authority. Only properly-trained electrical utility workers should handle damaged power lines.
  
  Electrical utility workers should first assess the hazards present in order to minimize the chances of exacerbating the situation. Ideally the lines involved should be de-energized, but this may not be possible in all situations. 
  
  When working on downed or damaged power lines, electrical workers should utilize proper electrical safety work practices and personal protective equipment, as usual. However, as mentioned previously, extra caution should be exercised when working in winter storms, due to the adverse conditions present.
  
  What hazards exist during removal of downed trees during a winter storm, and what safety precautions should be taken?
  
  Clearing downed trees is a critical job during a winter storm. When winter storms occur, downed trees can block public roads and damage power lines. Emergency crews are often sent out to clear downed trees during a winter storm.
  
  Potential hazards include:

  • Electrocution by contacting downed energized lines or contacting broken tree limbs in contact with fallen lines.
  • Falls from trees.
  • Being struck or crushed by falling tree limbs or ice.
  • Being injured by emergency equipment such as chain saws and chippers.

  Proper PPE including gloves, chaps, foot protection, eye protection, fall protection, hearing protection and head protection should be worn by workers using chainsaws and chippers to clear downed trees.
  
  Only appropriate power equipment that is built to be used outdoors and in wet conditions should be used. All saws, chippers, and other tools should be used properly and according to their intended application. It is important that all equipment is well-maintained and functioning correctly in order for use. In addition, all equipment should have proper guarding, working controls, and other safety features as installed by the manufacturer.

via www.osha.gov

Photo Credit: http://www.flickr.com/photos/cabotaj/3303678421/

Got Conflicting Information in Bidding Documents? How to Avoid a Differing Site Condition Dispute.

A contractor was hired to remove DDT from contaminated soil at a Navy facility in California.  One of its subcontractors claimed that the soil encountered onsite had a higher than expected clay content resulting in extra costs incurred. The contractor sued to recover these unexpected costs on behalf of the subcontractor claiming the sub relied on one of two bidding documents relating to soil content in preparing its bid.  There was no specific differing site conditions clause in the contract, so the contractor’s theory was one of misrepresentation of the site conditions by incorrectly representing the amount of clay in the contaminated soil. 

 

In order to prevail on such a site conditions claim, a contractor must establish four elements.

1. The contractor must prove that a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions - that the contract contained some identification of the conditions to be encountered at the site;
2. The contractor must prove that the actual site conditions were not reasonably foreseeable to the contractor, i.e., that the contractor "reasonably relied" on the representations given all information available to the contractor when bidding;
3. The contractor must prove that it in fact relied on the contractual representation; and
4. The contractor must prove that the conditions differed materially from those represented and that the contractor suffered damages as a result. 

The Court rejected the claim because it did not find the contractor proved that the specific contract documents actually represented site conditions, failing to satisfy the first requirement above.  But moreover, the contractor failed to prove the second requirement because the Court determined that the contractor’s reliance on the soil information was not reasonable.  Two bidding documents containing information on soil content were in “direct contradiction,” and the contractor could not claim a reasonable reliance on one but not the other. 

 

With 20/20 Hindsight….

 

This claim was lost at the time the bid was submitted.  Testimony emerged at the trial that the contractor itself questioned some of the data.  The classic “should have been a warning” was used by the Court in describing what conflicting reports represented to a “reasonable contractor.” 

 

Obviously, the contractor made a determination based on the data that turned out to be wrong.  However, given the importance of the soil characteristics to the success of the treatment methodology employed, the contractor could have negotiated better contractual protections in its contract.  The importance of the soil condition and the technical assumptions made should have been incorporated into the construction contract.  At a minimum, the contractor should have identified the contradiction and explained its reliance on one document over the other in its bid.  20/20 hindsight is pretty easy. 

 

The Construction Contract Clock:

Work Order to Court decision: 10 years

 

The case is known as Int'l Tech. Corp. v. Winter, 523 F.3d 1341 (Fed. Cir. 2008)

4 Things You Must Show If Claiming a Constructive Change

A constructive change occurs where a contractor performs work beyond the contract requirements without a formal order, either by an informal order or due to the fault of the Government.   Equitable adjustments are corrective measures that make a contractor whole when the government modifies a contract.  A contractor is entitled to an equitable adjustment for a constructive change when it is required to perform more or different work not called for under the terms of its contract.

 

Several categories of constructive change have been identified in existing case law:

• disputes over contract interpretation during performance;
• government interference or failure to cooperate;
• defective specifications;
• misrepresentation and nondisclosure of superior knowledge; and
• acceleration.

 

The doctrine of constructive change serves to

(1) remediate contractor claims for extra work, and (2) permit contractors to perform disputed work without having to risk abandonment of their contracts to preserve their claims. The theory underlying the constructive change concept is that where the government "should have" issued a change order authorizing the extra work in the first place, the court or board [of contract appeals] may direct the government to do what "should have been done" by directing the government to issue a formal change order. The doctrine in its modern guise is the embodiment of the ancient principle that "what should have been done will be done."

Philip L. Bruner & Patrick J. O'Connor, Jr., Bruner and O'Connor on Construction Law § 4.25 (2002) as quoted in Metric Constr. Co., Inc. v. United States, 80 Fed. Cl. 178 (2008). 

 

In order to recover for a constructive change, a contractor typically must show:

1. The work performed was not included in the original scope of work
2. All contractual or statutory notice requirements were satisfied
3. The owner required the change and was not volunteered by the Contractor
4. Contractor tracked its additional costs incurred due to the change

A constructive change situation can sneak up on a contractor or an owner.  All four of these elements are usually required to be shown in order for a contractor to recover.  Therefore, be sure to contact an attorney early in the project if you are working without a formal change order.

Or even better, send us your contract before you submit your bid and we can provide a comprehensive attorney review, highlighting the risks to you and suggest some negotiating strategies.  Click here for more details.

Review of the Green Building Addendum from ConsensusDOCS

ConsensusDOCS is an organization that has developed construction contracts endorsed by 23 leading industry associations representing owners, contractors, subcontractors, designers and sureties. ConsensusDOCS states that its contracts protect the best interests of the project rather than a singular party, yielding better project results and fewer disputes.  ConsensusDOCS seeks a broad range of industry viewpoints when drafting its standard contracts, “ensuring an equitable balance of risks and responsibilities and an appropriate baseline for the parties’ legal relationship.”  It publishes a comprehensive catalog of standard contract documents that now includes a Green Building Addendum.   

 

The Green Building Addendum attempts to provide “a contractual mechanism to identify clear objectives, and assign roles and responsibilities to achieve green goals” for use on “projects with green building elements, particularly those seeking a third-party green building rating certification such as LEED.”

Sections of The Green Building Addendum

1. General Principles – lays out broad goals for the Addendum
2. Definitions – defines specific terms that are used elsewhere in the Addendum as capitalized terms
3. Green Requirements and Procedures – identifies the specific regime to be used on the project
4. Green Building Facilitator – introduces and defines a point person/entity for green issues and coordination
5. Green Status – process for selecting a specific green certification regime
6. Green Measures – process for identifying responsibilities for implementation of green certification
7. Plans and Specifications – how the green steps are to be incorporated into the plans and specifications
8. Risk Allocation – confirms the allocation of risk laid out in the underlying contractual documents between parties

Pros of Green Building Addendum

• Regime Agnostic

  The Green Building Addendum does not incorporate any particular “Green Status” from any specific organizations, such as the USGBC’s LEED standard or Green Globes from the Green Building Initiative.  This gives the Addendum staying power for new standards where none currently exist, flexibility for future revisions, and is not beholden to one set of certification regime or processes. 

• Seamless Integration 

   As would be expected, the Green Building Addendum is designed to integrate seamlessly with existing ConsensusDOCS contract documents and procedures.  If one is familiar with ConsesnusDOCS, one will be comfortable with this Green Building Addendum. 

• Clarity

  The Green Building Addendum provides clear processes and who is responsible for identifying green certifications, communicating steps towards green goal achievements and how/if any green issues affect the underlying relationship between the parties in the construction project. 

Cons of Green Building Addendum

Many of the weaknesses below are inherent in attempting to be an industry standard form in an industry that is by definition constantly being redesigned. 

• Vaguenes

  As a noted strength, the Green Building Addendum is “regime agnostic,” therefore the processes defined are generic.  Something along the lines of “A goes to B who has 30 days to respond to [generic process]” as opposed to “A submits [LEED process] to B”

• Length

  It is a contract so the definitions are very lengthy and could be confusing to non-attorney users.  The Addendum itself is 10, single spaced pages.  There is room for condensing sections and tightening of the language, in my opinion.  This, in and of itself, may limit its use to larger projects that warrant large documentation packages. 

• Requires More

  The Green Building Addendum is not a stand alone document, nor is it intended to be.  Underlying contracts are required between all the various parties, including the new Green Building Facilitator, if an additional party. 

As with any industry form or other construction contract, parties are encouraged to consult competent legal, insurance and surety advisors before using, modifying or completing the Green Building Addendum.  Everything needs a first step.  The availability of the Green Building Addendum will help speed up the incorporation of green and sustainable construction practices in the industry.

Green Construction Not Enough

 

Construction of a three-story, 1.3-million-square-foot mall expansion, the largest building project in Syracuse in 19 years, came to a halt in June after Citigroup refused to loan any more money to the developer.  The project was designed to showcase "state-of-the-art" green technology, renewable energy resources, and sustainable design for both construction and operations. The project was to include an innovative design combining research, retail, entertainment, dining, hospitality and tourism. The project has created expectations to create tens of thousands of jobs, attract millions of visitors to an otherwise economically depressed region, and add millions of dollars annually into the local and state government economy.  Drawing in part on public funding, it had become known as the model "private - public partnership" for economic development, for green development and for sustainable development. 

 

The Post-Standard reported that Citigroup said the project was at least $15 million over budget and a year over schedule -- and had no tenants signed up despite the expenditure of millions of dollars on marketing. It demanded that the developer put up $15 million more of his own money, on top of $40 million he already has put into the construction.

 

The project was being financed by the developer’s own $40 million, $170 million from the sale of Syracuse Industrial Development Agency bonds and a $155 million loan from Citigroup. The $210 million in SIDA bond proceeds and the developer's own money have already been dispersed and are not at issue in the dispute.

 

When the bank stopped funding the construction, the developer sued the bank, saying Citigroup reneged on the loan agreement because of its own financial problems - problems that prompted the federal government to give the bank $45 billion to keep it afloat.  The bank countered that as a result of a loan "Deficiency", the bank had no further obligation to fund the construction loan agreement until the "Deficiency" was fully resolved and the developer was in default on interest payments.  Citigroup also attempted to argue that because there were allegedly no signed leases and because - in their opinion - the project was a "failure", that there should be no obligation to further fund the project.  According to the Court, the bank sought to rewrite the loan agreement because there was no requirement that there be any tenants whatsoever at this stage of the construction. There was no requirement that - at this stage - the project be a success or otherwise. The first net operating income test from the loan agreement did not come effect until some six months in the future. The court concluded that the bank’s arguments were “specious, without substance in law and fact, and irrelevant to the issues before this Court.”

 

The practice of the loan funding was to pay interest payments from the funding.  If the funding did not come in, the developer was unable to make the interest payment.  By stopping the funding, the bank created the deficiency itself. 

 

The Court ruled that the bank broke the loan agreement and ordered it to resume lending the remaining $68.4 million yet to be advanced on the loan, starting with an immediate payment of $29 million. Citigroup obtained a stay of the ruling while it appeals the order.

 

One can have a nice green construction project, but that doesn’t isolate the project from larger economic forces, bad management or stingy bankers.  I probably didn’t need to tell you that though, did I?

Are there “green” provisions in a proposed contract you are bidding on?  Have you identified the risks of those clauses and are you prepared to handle those new contractual risks?  Click here to send us your contract and we will provide a complimentary attorney review.

Construction Contract Review for Week of October 31, 2009

Some of the construction news I encountered or collected last week that I found interesting.

• I will file this story under “Just in Time”: A joint venture of St. Louis-based Alberici Constructors Inc. and Archer Western Contractors, a division of Chicago's Walsh Group, will reinforce New Orleans levees damaged by Hurricane Katrina as part of a contract that could be worth nearly $300 million. The joint venture is expected to complete the project by June 1, 2011. 

 

• A report found that for every $1 billion invested in public transportation capital and operations, an average of 36,000 jobs are supported. These jobs result in about $3.6 billion of business sales and generate nearly $500 million in federal, state and local tax revenues.

 

• REJournals.com, choose to use the word “Highlights” when describing these statistics from The McGraw-Hill Companies, 2009 Chicago Construction Outlook: Mid-Summer Update:
  • Residential construction starts will decline 22 percent to $2.6 billion, with the greatest drag coming from the multifamily sector, which will drop 26 percent. Single family housing starts are expected to decline 20 percent.
  • Nonresidential building sector starts are expected to fall a precipitous 59 percent to $4.5 billion in 2009, led by declines in the manufacturing and healthcare sectors.

Just Get the Construction Bond

I’ve done a lot of legal work for environmental remediation companies and others doing underground construction so I am always interested in court decisions that arise from those sorts of disputes.  A recent case in Massachusetts (but applying Louisiana law) provided a painful lesson for a subcontractor. 

 

Project Dispute

A Property Owner hired a General to perform environmental remediation, including the excavation and removal of contaminated soil, on real property in Massachusetts. General entered a written subcontract with Sub, wherein Sub agreed to supply a bond, labor, equipment, and materials to General for the environmental remediation over the course of about 90 days.  In return, General agreed to pay Sub $2,136,194.

 

About nine months after the originally scheduled completion date, General issued a cure notice and subsequently terminated Sub. 

 

Cross Claims

In letters written back and forth around the time of termination and, ultimately, in the ensuing litigation, General asserted that Sub breached “its subcontract in that it has failed to prosecute the work with diligence so as to ensure completion of the project in accordance with the Schedule." Additional alleged breaches included Sub's failures to: comply with the performance requirements of the Subcontract, meet the Subcontract deadline, submit a revised schedule that included a new completion date, and provide the bonds.

 

As with most cases like this, Sub presented an alternative point of view.  Sub disagreed with the termination and claimed that “site conditions, defective specifications, and schedule impacts/business interruptions, not [Sub], have delayed the project schedule."

 

Each party filed Summary Judgment motions against the other (in other words, “even assuming the other side’s version of events is correct, or based on facts that we agree on, I should still win because…”). 

 

What the Court Did

There were numerous parties involved in this litigation – in addition to the General and Sub, parties included the property owners, replacement contractors, sub-subcontractors, and equipment suppliers.  The main dispute, however, is simply between the General and the Sub. 

 

There were lots of intricate details as to why the project was unsuccessful.  There were sufficient disputes between Sub and General about what occurred (defective plans or ineffective implementation of plans?) such that the court said it couldn’t rule without more information.  The Court simply skipped the messy “he said/she said.” 

 

However, what was not in dispute was that the Sub never provided the contractually required performance bond.  The Court held that in construction contracts, the "failure to furnish and maintain payment and performance bonds or insurance specified by the contract documents is deemed invariably to constitute a material breach of the contract."  A material breach is one that "goes to the heart of the contract" and this breach was material because "[b]onds and insurance constitute significant instruments of risk allocation that, if not procured or maintained in force, materially shift to the owner the risk of nonperformance."  Due to this material breach by the Sub, General was justified in terminating the contract. 

 

Essentially, Sub never got the chance to prove it’s version of events because Sub never got the bond it was supposed to.  Ouch for Sub. 

 

The Construction Contract Court Clock

Contract to Decision: 3 years 2 months

Protect Your Green by Protecting the Green

Two stories hit my desk on the same day that I found interesting for construction companies.  First, California adopted stricter pollution discharge rules that will require more aggressive monitoring of construction projects.  The California State Water Resources Control Board’s new General Permit for Storm Water Discharges from Construction imposes a significantly different permitting framework from the Current General Permit that has been in place for the last 10 years.  As reported by Morrison Foerster back in May, when still in draft form, the “new framework includes mandatory BMPs, two forms of numeric discharge limitations, and onerous monitoring requirements that could be costly for developers in California and raise a significantly higher risk of encountering enforcement actions and citizens’ lawsuits in the future.”

 

Highlighting the risk of enforcement actions is the second story I encountered.  The Florida Department of Environmental Protection fined a construction contractor $1,700,000 for alleged violations of its Stormwater Pollution Prevention Plan.  During construction of the Panama City-Bay County International Airport in Florida, there were heavy rains this spring.  Temporary soil stabilization methods (covering the soil with a synthetic covering or hydroseeding, in this case) should have been employed per the SWPPP, but were not, according to DEP and reported by The News Herald.  The DEP estimated that the contractor saved about $950,000 by not installing the erosion matting – the contractor is disputing the violations.  The contractor claims that drainage problems elsewhere on the site are contributing to the failure of the designed runoff prevention system. 

 

If you are trying to run a sustainable or green construction business, you probably already know that nonpoint source pollution is one of the leading causes of water quality problems and that these pollutants can have harmful effects on drinking water supplies, recreation, fisheries, and wildlife.  It is a good thing to protect the green around our jobsites but also rewarding to protect the green in your wallet by following your stormwater pollution prevention plans.