The Construction Contract Review

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.

Green Updates: Construction Contract Review For November 2009

A few updates or interesting items I encountered this month:

Green Mall Expansion

In November, I wrote about a troubled mall expansion in Syracuse intended to showcase green construction technologies.  The Wall Street Journal reported that the New York State Supreme Court Appellate Division, affirming a lower court decision, ruled that Citigroup must continue to fund a $155 million construction loan to Destiny USA Holdings.  The developer must post a $15 million bond before the bank must fund the remainder of the project.  Look out for changes in determination of default criteria in construction loan agreements. 

Clean Diesel

The Associated General Contractors of America and the Clean Air Task Force lobbied Congress to let states mandate the use of clean-diesel equipment for federally funded highway construction.  The New York Times reported that the two groups want new legislation to authorize states to require diesel emissions reductions at construction sites and to cover the cost of retrofitting or repowering equipment manufactured to meet earlier emissions standards.  Under the plan, states would first require contractors who successfully bid for a project to identify the off-road diesel equipment they plan to use during the construction process. States would then consider a U.S. EPA-approved measure for cutting emissions from the equipment and issue orders to the contractors requiring that they pursue the best of the emissions-reducing options.  Federal funds would be used to reimburse the contractors, according to the Times.  Anti-idling and alternative fuel policies are easy to implement and cost effective.  Are you ready now for these guidelines?  Why not?

Emission Footprint Tool

The Rocky Mountain Institute has developed an assessment tool for reducing carbon emissions from building construction projects called Green Footstep.  According to the website, the Green Footstep tool can be used on residential and commercial new and retrofit building construction projects, from pre-design through occupancy. The tool assesses design's total carbon footprint due to site development, construction, and operation; helps designers and other project stakeholders set carbon emissions goals and design targets; identifies ways to meet the Architecture 2030 Challenge, earn credits in green building rating systems, and achieve other goals; and compliments a financial model (based on life cycle cost analysis) to provide the most comprehensive support for building design decisions.  The tool is online and FREE.

2 Great Books If You Enjoy Construction

I’m starting to get asked what I would like to receive for the holidays.  As a construction attorney, I cannot say that a lot of my work reading is done for pleasure.  However, these two books made it on to my reading list and were thoroughly enjoyable.  If you enjoy construction issues like I do (and if you don’t, you probably should not be reading a blog called “The Construction Contract Review” - really, what are you doing here?), you will probably enjoy these books.  Drop a hint at the Thanksgiving Day dinner and see if one of these ends up in your stocking. 

 

I am not a professional book reviewer, and I’ve never played one on TV.  Accordingly, I will simply refer to the blurbs from Amazon.com, and no, I will not get any referral or commission from the sale of these books. 

The Path Between the Seas: The Creation of the Panama Canal, 1870-1914 by David McCullough. 

I just saw this news story, and was reminded how much I enjoyed this related book:  Construction of a new set of locks for the Panama Canal will begin in January.  According to the Amazon.com review: “The story of the Panama Canal is complex, full of heroes, villains, and victims. McCullough's long, richly detailed, and eminently literate book pays homage to an immense undertaking.” 

 

I found this book absolutely fascinating.  In a history class, one learns about the events, whereas in this book, McCullough tells about the personalities around the events.  He tells a great story.  If you’ve read any of his other books, you’ll probably enjoy this one. 

The Pentagon: A History, by Steve Vogel

When the Washington Post reviewed this book, they stated: “The Pentagon was built upon a foundation of lies, secrecy and cost overruns.”  Publishers’ Weekly stated: “Vogel traces the politics and design considerations involved in planning a new home for the previously scattered War Department … in the early 1940s. Wartime conservation subsequently forced builders to use the least amount of steel possible, and much concrete. The Stripped Classical building - erected in 16 months at a cost of $85 million - was made with five sides chiefly because it lay on remnant acres between five appropriately angled roads. At the time, it was a massive undertaking: five concentric rings of offices, 17.5 miles of corridors and a five-acre central courtyard.”

 

Like McCullough’s book above, Vogel does an excellent job of telling the story of the characters in this event.  Booklist recounted: “Vivid portraits are drawn of other key figures in the drama, among them Franklin D. Roosevelt, the president who fancied himself an architect; Secretary of War Henry L. Stimson and Army Chief of Staff General George C. Marshall, both desperate for a home for the War Department as the country prepared for battle; Colonel Leslie R. Groves, the ruthless force of nature who oversaw the Pentagon’s construction (as well as the Manhattan Project to create an atomic bomb); and John McShain, the charming and dapper builder who used his relationship with FDR to help land himself the contract for the biggest office building in the world.”  Anyone ever involved in a change order should read this book!

 

I wasn’t alone in enjoying both of these books, apparently.  The Kirkus Reviews wrote about The Pentagon: A History: "Among books dealing with seemingly impossible engineering feats, this easily ranks with David McCullough’s The Great Bridge and The Path Between the Seas, as well as Ross King’s Brunelleschi’s Dome." 

I have not yet read The Great Bridge or the Ross King book.  Hint, Hint.

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.

Losing a Public Bid Due to Online Reputation

If you are trying to show someone that you are not litigious, waving around one of your recently filed lawsuits its probably not the best strategy.  But that is just what a contractor did in Texas in a case decided this summer in a federal court. 

 

Responsible Bidder

The contractor tried to make some constitutional retaliation arguments that may be interesting to lawyers.  So read the case if you care about those issues.  What interested me, however, was the criteria used by the public entity to choose a responsible bidder. 

 

A City’s project involved the installation of approximately ten miles of pipe at depths of up to forty-five feet, improving the city's storm water drainage. The city council considered it a high profile project, requiring attention to safety as well as adroit coordination of construction activities with environmental and regulatory authorities, affected landowners, and the public. Under applicable Texas law, the city council was obliged to select a winning bid from the "lowest responsible bidder or . . . the bidder who provides goods or services at the best value for the municipality," basing the assessment on factors including price, reputation, and quality.

 

Bid Protest

The aggrieved contractor bid $23.5 million, beating the next highest bidder by about $2.2 million.  After receiving bids, the City surveyed the contractor’s references.  Raving reviews received by the City about the contractor included: "[Contractor was v]ery lawsuit happy--Sued water district for $ 4 mill on a $ 6 mill project" and "Has both positives and negatives about them. Owner has been threatened with lawsuits several times during job when things did not go their way."  Remember, these were the bidders own references.  Additionally, the City reviewed other information submitted by the Contractor as well as publicly available information and referenced in a memo "serious safety and environmental concerns and public relations concerns," resulting from OSHA and TCEQ run-ins. 

 

The City awarded the construction agreement to the next highest bidder in part about litigation concerns – those concerns mostly being related to the cost of an unrelated lawsuit the City was involved in.  After the award and during its efforts to convince the City it should be awarded the contract, Contractor appeared before the council and “[i]ts effort did not take a form likely to persuade that it was not litigious.  Rather the opposite, as [Contractor] made it a point to lift up the El Paso suit in a thinly disguised effort to infect the award decision.”  So....to show it was NOT litigious, the contractor waved around his other lawsuit.  Shockingly, the contractor eventually filed various lawsuits on various theories, all of which have been unsuccessful to date. 

 

May be strange coming from a construction litigator, but what is your litigation reputation?  Do you have an on-line presence?  Is your company on twitter, Youtube, Linkedin, Facebook or some other social networking site my kid can tell me about?  What is on the first result page when you Google your own company?  When assessment factors include reputation, you should care about that.  If nothing else, know what your own references will say about you. 

 

The Construction Contract Court Clock

Contract to Decision: 3 years 7 months

Reasonable Dogs and Public Bids

Open bidding for construction projects should be easy.  A company submits the lowest bid, it is automatically awarded the construction agreement for the public project, right?  But municipal and federal contracts are routinely the subject of bid protests by aggrieved bidders.

In most jurisdictions, the lowest responsible bidder is the party awarded the contract.  Responsible bidder is one of those great legal catch all (mush?) words such as reasonable, or fair.  These sorts of words drive non-lawyers crazy because everyone understands their own sense of what is reasonable, but never seem to understand why someone else seems to have a different standard.  But that is what

judges are for, and attorneys to advocate their own clients’ version of reasonable.  It also leads to cases about what a reasonable dog would do.

In Illinois at least, in order for an aggrieved bidder to successfully protest a bid, it needs to show first that it was a responsible bidder.  Responsible bidder usually means it met all of the qualifications of the bid, bid the project exactly as requested and can successfully complete the project, as determined by the public body.  The awarding entity can consider both the bidder's financial responsibility and its ability to perform satisfactorily under the contract.  In some circumstances, a public body can consider public interest and social responsibility when determining what a responsible bidder means.  The next hurdle to overcome is a showing that the aggrieved bidder was unjustifiably prevented by the awarding entity from being awarded the contract.

While a public entity does not have free reign to define its own reasonable dog standard, courts often defer to the discretion of public officials.  Exceptions exist where one can show fraud, corruption, unfair dealing or favoritism, gross injustice, illegality, palpable abuse of discretion, or arbitrary, capricious action.  If you suspect one of these scenarios in your public bid, contact an attorney to discuss how best to prove it.  If you can’t prove it, your protest will be all bark and no bite.

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