Turning Off the Spigot of Damages in Construction Cases: The Doctrine of “Avoidable Consequences”

Jeff Wertman | Berger Singerman LLP | February 15, 2018

“Damage control” is often associated with measures taken to offset or minimize damage to reputation, credibility, or public image caused by a controversial act, remark, or revelation. However, the concept of damage control has been and continues to be prevalent in construction cases.

The doctrine of “avoidable consequences”, also sometimes referred to as the “duty to mitigate” damages, is an affirmative defense in construction cases and prevents a party from recovering those damages inflicted by a wrongdoer that the injured party could have reasonably avoided. Under the doctrine of avoidable consequences, a party must make reasonable efforts and exercise reasonable care to reduce the resulting damages as much as is practicable under the circumstances of the particular case or that party cannot recover damages flowing from consequence which reasonably could have avoided. However, a party need not make extraordinary efforts, including those which would require undue effort or expense.

A recent Florida case, Penton Business Media Holdings, LLC v. Orange County, Florida, Case No. 5D16–3935, 2018 WL 559684 (Fla. 5th DCA Jan. 26, 2018), illustrates why it is critical for a plaintiff seeking damages in a construction case to reasonably avoid the consequences of the damages caused by a wrongdoer.

The lawsuit in Penton arose out of an incident at the Orange County Convention Center (the “Convention Center”), which is owned by the plaintiff, Orange County. The defendant, Penton, leased several exhibit spaces from Orange County for a trade show at the Convention Center. Penton, in turn, leased one of the exhibit spaces to co-defendant, Ultratec. Penton advised exhibitors, including Ultratec, prior to the show that demonstration rooms (rooms for exhibitors to demonstrate or test their products) were also available for the show. Penton and Ultratec discussed the use of a demonstration room for a flame test display Ultratec wanted to conduct at the show. Thereafter, Ultratec hired co-defendant, Art F/X, to obtain a permit from Orange County, for the flame test. The permit was approved by Orange County and stated the flame test would involve the use of different theatrical flame effects.

Ultratec conducted its flame test and the display was monitored and supervised by the Orange County Fire Department. The sprinkler system became activated during Ultratec’s flame test. Although Orange County was in control of the demonstration room and owned the Convention Center, it did not initially know how to turn off its sprinkler system. As a result, the sprinkler system ran for approximately 30 minutes causing substantial water damage. Orange County subsequently sued based on theories related to strict liability and negligence against the lessee, Penton; the entity that obtained the permit, Art F/X; and the exhibitor, Ultratec.

Penton alleged in one of its affirmative defenses, the doctrine of avoidable consequences – the County’s damages to its property were created or enhanced by its failure to shut down or disengage the sprinkler system when reasonably possible. According to Penton, had the Convention Center shut off the sprinkler system when reasonably possible, its damages would be significantly less.

In its written opinion, the appellate court reversed part of the final summary judgment, which awarded damages to the County, concluding the County had not conclusively refuted Penton’s affirmative defense that the County failed to exercise ordinary and reasonable care in disconnecting the sprinkler system and had it done so, the water damage could have been avoided.

The doctrine of avoidable consequences is sometimes confused with the doctrine of comparative negligence. Both doctrines are affirmative defenses in construction cases which must be alleged and proven by a defendant, however, the avoidable consequences doctrine pertains to a plaintiff’s duty to prevent further injury and applies after a legal wrong has occurred. In contrast, the doctrine of comparative fault, which allows partial liability to be assigned to multiple parties, involves a party’s duty not to contribute to causing the initial injury.

The doctrine of avoidable consequences can have a substantial impact limiting damages in construction cases. Construction participants, including owners, developers, contractors, and sureties, should be familiar with this important principle.

“Good Faith” May Not Be Good Enough: California Supreme Court to Decide When General Contractors Can Withhold Retention

Erinn Contreras and Joy O. Siu | Construction & Infrastructure Law Blog | March 7, 2018

It is industry standard in California for owners of a construction project to make monthly payments to a contractor for work it has completed, less a certain percentage that is withheld as a guarantee of future satisfactory performance. This withholding is called a retention. Contractors generally pass these withholdings on to their subcontractors via a retention clause in the subcontract. Under such clause, if a subcontractor fails to complete its work or correct deficiencies in its work, the owner and the general contractor may use the retention to bring the subcontractor’s work into conformance with the requirements of the contract.

When and how retention payments must be released are governed by, among other statutes, Civil Code section 8800 et seq. Specifically, Civil Code section 8814, subdivision (a), states that a direct contractor must pay each subcontractor its share of a retention payment within ten days after the general contractor receives all or part of a retention payment. Failure to make payments in accordance with Section 8814 can subject an owner or a contractor to a (1) two percent penalty per a month on the amount wrongfully withheld, and (2) claim for attorney’s fees for any litigation required to collect the wrongfully withheld retention payments. (Civ. Code, § 8818.)

However, there exists an important exception to the ten-day deadline: whenever a “good faith dispute exists between the direct contractor and a subcontractor,” a direct contractor may withhold from the subcontractor’s retention an amount not in excess of 150 percent of the estimated value of the disputed amount. (See Cal. Civ. Code, § 8814, subd. (c) (Section 8814(c)).) There is very little in the statute or case law, however, defining what constitutes a “good faith dispute” sufficient to justify withholding funds from the retention.

The California Supreme Court has decided to fill this void, and granted a petition for review in United Riggers & Erectors v. Coast Iron & Steel, Case No. S231549 (United Riggers). The California Supreme Court certified the issue of whether “a contractor [may] withhold retention payments when there is a good faith dispute of any kind between the contractor and a subcontractor, or only when the dispute relates to the retention itself in the case of.”

In United Riggers, 243 Cal.App.4th 151 (2015), the General Contractor, Coast Iron & Steel Co. (Coast), entered into a direct contract with an owner and a subcontract with United Riggers & Erectors (United). After the work was completed, and after Coast received its retention from the owner, Coast continued to withhold United’s retention on the ground that United had submitted various change order requests and damage claims that Coast disputed, citing Section 8814(c)’s good faith provision.

The Court of Appeal disagreed with Coast and held that this was not permissible under Section 8814(c), holding “a contractor is entitled to withhold a retention payment only when there is a good faith dispute regarding whether the subcontractor is entitled to the full amount of the retention payment.” (Emphasis added.) The Court of Appeal then remanded for an assessment of interest and attorney’s fees due to United for the delayed retention payment claim. In reaching this conclusion, the Court of Appeal reasoned that “[t]o excuse Coast in this case from paying United the retention payments would unduly increase the leverage of owners and primary contractors over smaller contractors and subcontractors by discouraging subcontractors from making legitimate claims for fear of delaying the retention payment.” Such a consequence was not to be borne, the Court of Appeal explained, in light of the “broader remedial purpose of the prompt payment statutes” to “encourage general contractors to pay timely their subcontractors and to provide the subcontractor with a remedy in the event that the contractor violates the statute.”

This policy concern was the primary focus of the California Supreme Court at the oral argument in United Riggers, which took place on March 6, 2018. Coast’s counsel began with a “plain meaning” analysis of Section 8814(c), juxtaposing its language with Civil Code section 8812—which expressly states that retention payments may only be held when “there is a good faith dispute between the owner and direct contractor as to the retention payment due.” (Emphasis added.) This predicated Coast’s argument that if the Legislature intended to limit the scope of disputes between direct contractors and subcontractors to those relating to the retention itself in Section 8814, the Legislature would have done so as it did in Section 8812 related to owners and direct contractors. The Court pushed back against this construction of the statute, positing whether under such interpretation, a general contractor would be able to withhold retention payments for a dispute related to any issue, even one outside the scope of the contract, such as a property border dispute. If this were the case, Justice Kruger cautioned, such interpretation would allow contractors to leverage the disbursement of retention payments to resolve separate disputes on unrelated projects.

The case has been submitted, and an opinion is expected to be issued in approximately 90 days. The opinion will certainly have wide-reaching effects in the construction industry. Namely, in the common event of contractor and subcontractor disputes, contractors will have to be cautious in assessing offsets against the retention, particularly in situations where the dispute involves mixed claims of changed and delayed work and subcontractor deficiencies, lest they be liable for prompt payment penalties and attorneys’ fees.

Additional Insured Status: Playing The Speak-Out Game On A Construction Project

Matthew DeVries | Best Practices Construction Law | February 21, 2018

Last weekend we played Speak-Out: Kids versus Parents, a game where you use a plastic thingy to obstruct your speech capabilities.  The winning team is the one that guesses the most phrases.  Reading and understanding an insurance policy on a construction project can be a lot like understanding my kids playing Speak Out.

Proper insurance coverage is an important risk management tool for contractors, subcontractors, project owners/developers and design professionals. Whether you are required by contract or law, purchase and maintaining the appropriate coverage can help you avoid catastrophe on your project.  Since there are so many types available, it is important to understand what is being covered…and what is not.

This was a hard lesson learned by a contractor recently in Vivify Construction v. Nautilus Insurance Co., a recent decision issued by the Appellate Court of Illinois.  In that case, the contractor and subcontractor (and their insurance carriers) were pointing the finger at each other for injuries sustained by an employee of the subcontractor.

The subcontract agreement required the subcontractor to indemnify and hold harmless the contractor against claims of bodily injury resulting from the subcontractor’s work.  The subcontract also required the subcontractor to include the contractor as an “Additional Insured” on its policy.

The insurance policy provided “Additional Insured” coverage for the contractor.  But it also contained an endorsement that included an “employee exclusion,” which stated that the policy did not apply to bodily injury to the subcontractor’s own employees.

The Court was required to parse through the applicable contract and insurance provisions.  In the end, the Court found that—despite the “Additional Insured” status of the contractor—the subcontractor’s insurance policy contained the broadened employee exclusion provisions.  This ultimately negated coverage.

Vivify Construction addresses such a small portion of insurance coverage disputes on construction projects, but the lesson is far more impactful.  Despite the difficulty in reading and understanding insurance coverages on a project, you are advised to specify in your contracts what types, amounts, and limitations are acceptable for a project. While cumbersome, don’t just rely on a certificate of insurance provided by a party, but ask them to get you a copy of the actual policy to review.  Don’t try to figure out what was said after the dispute arises.

Pay-if-Paid Enforced Opening Door to Subcontractor Claim Against Owner

Katharine E. Kohm | The Dispute Resolver | February 24, 2018

In Superior Steel, Inc. v. Ascent at Roebling’s Bridge, LLC, No. 2015-SC-000204-DG, 2017 WL 6380218 (Ky. Dec. 14, 2017), a subcontractor and a sub-subcontractor sued the general contractor and owner for the failure to pay for extra work. The general contractor and owner cross-claimed against the other for, inter alia, indemnification.  At the jury trial, the subcontractors recovered under theories of implied contract and unjust enrichment.  All parties appealed, in particular, as to the pay-if-paid jury instruction. The Court of Appeals vacated the judgment and remanded.  In turn, all parties petitioned to the Supreme Court of Kentucky.
The key questions in the petition were whether the pay-if-paid provision was enforceable as between the general contractor and subcontractors and, if so, whether the subcontractors could pursue the owner directly for payment notwithstanding the lack of privity between owner and subcontractors.
The Supreme Court concluded that, as a result of the pay-if-paid clause, the general contractor had not breached subcontract for the failure to pay for the subcontractor’s extra work.  The relevant subcontract provisions stated:
  • “no compensation . . . for any claim arising out of the performance of this Subcontract, unless the Contractor has collected corresponding additional compensation from the owner, or other party involved”
  • And more directly – “payment [to] the Contractor from the Owner for the Subcontractor Work is a condition precedent to payment by the Contractor to Subcontractor. The Subcontractor hereby acknowledges that it relied on the credit of the Owner, not the Contractor for payment of the Subcontract Work.”
Reading these together, the Supreme Court agreed that the general contractor’s receipt of payment from owner was a condition precedent to its obligation to pay the subcontractors.  Because the general contractor did not receive payment from the owner, there could be no breach. The Court did note that “pay-if-paid clauses have fallen out of favor in some states, [but] the prohibition against their use has come from the legislature rather than the courts.” In Kentucky, no such statutory prohibition existed.
However, because the subcontractors were left with no useful contract remedy against general contractor, the Court held that the subcontractors were not barred from bringing unjust enrichment claims against the owner.  The Court acknowledged that typically “unjust enrichment is unavailable when the terms of an express contract control.”  But noted that, here, the “adequacy” of a “legal remedy” (or the “actual realization of that contractual remedy”) was absent due to the “contractual gridlock” caused by the owner.  Indeed, if the contract was the only avenue for the subcontractors to obtain relief, that result would allow the owner to take advantage of its own failure to pay after receiving “a substantial benefit” from the subcontractors’ work.

Robots Are Coming to the Construction Site

Kendall Jones | Construct Connect | February 23, 2018

In a recent post, we discussed the likelihood of robots replacing human labor on the construction site. While there may be some attrition in the future, the most likely scenario is that robots will be used alongside human workers to augment their work, keep them safer and boost productivity. The current capabilities of existing robot combined with a growing labor shortage will probably lead to robots handling some of the more menial repetitive tasks, leaving the human worker to focus on other aspects of their job.

Here are some of the robots making their way to a construction site near you:

Doxel AI

Doxel is using robots and artificial intelligence (AI) to monitor jobsite progress with real-time, actionable data. The technology uses autonomous drones and rovers equipped with high-definition cameras and LiDAR to photograph and scan the construction site each day with pinpoint accuracy. Their AI then uses those scans to compare against your BIM models, 3D drawing, schedule and estimates to inspect the quality of the work performed and to determine how much progress has been made each day.

The AI uses deep-learning algorithms to identify and report errors in work performed. This can be anything from the excavation and site work to the mechanical, electrical and plumbing systems. The AI can recognize a building component based on its shape, size and location even if only a portion of the component is visible.

By classifying and measuring quantities installed, Doxel can tell you how much work was done each day which it can then compare against your construction schedule and alert you if your project is falling behind. The AI also detects deviations between installed components and onsite work with models so you can quickly identify errors and avoid costly rework.

The main goal of Doxel is to improve productivity, eliminate rework and help deliver projects on time and within budget. Doxel was used on a recent project for Kaiser Permanente in San Diego and was able to help the bring construction in 11% under budget and improved labor productivity by 38%. Doxel has recently raised 4.5$ million in funding.

Built Robotics

Built Robotics’ Automated Track Loader, or ATL, was developed to excavate smaller construction sites. The system uses specially designed LiDAR to accommodate for vibrations in order to see where it is going and to measure the material being excavated. Augmented GPS, a combination of onsite base stations and satellites, are used to geofence the site and to move the track loader around the site with precision accuracy.

Instead of building an entirely new piece of heavy equipment, the electronics for the ATL are housed in a cargo carrier that attaches to the cab to retrofit existing compact track loaders. The system also has a collision detection system to prevent the loader from coming into contact with workers or other equipment on the construction site. The ATL also has a kill switch for the person supervising the work should it be needed.

Input from equipment operators was used in designing the software running the ATL and the machine operates at about the same speed as a human operator. Built Robotics has been tested out on a few pilot projects in the San Francisco area and has raised $15 million in funding.


A rebar tying robot might not seem that glamorous, but it does fill a very specific need on construction sites where labor is short. Developed by Advanced Construction Robotics, Inc., the TyBot can continuously tie rebar with only one worker needed to oversee the work.

Once the rebar for a bridge project has been placed, the TyBot can be set up using the existing bridge infrastructure and set to work. The robot moves along a gantry to identify each intersection of rebar, ties it and then moves on to the next intersection. The TyBot frame can expand to accommodate a bridge span of 145 feet.

The TyBot has a couple of clear advantages. One, it will allow a crew to be more productive because once they placed the rebar, they can move on to the next job while the TyBot does its work. Bending over and tying thousands of rebar intersections is back-breaking work that can lead to strains and other injuries.

The TyBot was used to tie rebar on a bridge in Beaver County, PA last November and in addition to renting it out for use, the company is currently taking purchase request with plans to begin delivering the robots in July.

You can check out more examples of robots in construction here.