Is My Bid Binding?

Brian Gaudet | International Law Offices | August 13, 2018

For those in the construction industry, you are probably familiar with the concept of negotiating contract terms, either in writing or just a discussion, and when the two parties agree to terms, either in writing or with a handshake, then a deal is a deal. This follows the legal concept of a contract, which requires an offer, acceptance, consideration and a meeting of the minds. What if you are a trade contractor and submit a bid that a general contractor relies on to win a contract. Is that bid a contract? Is it binding? Even if the bid does not meet the elements of a contract, it can still be binding. Courts apply the doctrine of promissory estoppel to hold parties to their bids in the absence of a contract.

The Restatement (First) of Contracts, Section 90 describes the legal premise: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” In the highly cited case of Drennan v. Star Paving Company 333 P.2d 757 (En Banc 1958), the Supreme Court of California explained “When [the contractor] used [the subcontractor’s] offer in computing his own bid, he bound himself to perform in reliance on [subcontractor’s] terms. Though [the subcontractor] did not bargain for this use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary, it is reasonable to suppose that [the subcontractor] submitted its bid to obtain the subcontract…[The Subcontractor] had reason not only to expect [the Contractor] to rely on its bid but to want him to. Given this interest and the fact that [the Contractor] is bound by his own bid, it is only fair that [the Contractor] should have at least an opportunity to accept [Subcontractor’s ] bid after the general contract has been awarded to him.”

As usual, there can be different treatment of this concept in various jurisdictions and differences in the facts of each case which may affect the outcome, but as a general rule, when you submit a bid, you should expect it to be binding.

7 Ways Technology is Changing Construction

Eric Weisbrot | Construction Law in North Carolina | July 5, 2018

It is difficult to argue that technology is having minimal impact on society as a whole. Not only are digital enhancements making waves on the consumer side of the line, but businesses are feeling the effects as much if not more in recent years. The construction industry is no exception to this technological shift, but the influence the change is having on licensed construction contractors and long-standing businesses is far-reaching. Here are several ways technology is disrupting construction on a day to day basis.

 #1.  Autonomous Equipment.  One of the most notable changes in construction is the addition of autonomous equipment on job sites. Several technology-focused companies are currently testing and perfecting construction machines that require no human interaction to operate. The hope behind this shift is to reduce the impact of the labor shortage in the industry while improving efficiency and productivity on each job.

#2.  Wearable Technology.  Technology is also having an impact on individual workers and how they stay safe and productive each day. Wearable technology, including hard hats, protective eyewear, and gloves are all being developed and rolled out to contractors throughout the country. This digital change offers construction management an easy and efficient way to monitor workers’ production and progress from afar.

#3.  Use of Materials.  Technology is also being used to improve the materials used in building and maintaining structures. The most significant shift in this arena is the use of 3D printing to create materials both on- and off-site, faster and in a more cost-effective way than traditional methods. Carbon fiber through 3D printing allows for the simple production of a variety of materials, including turbine blades, lighting, and pavement.

#4.  Productivity.  Construction sites have seen an influx of drone use as well for a variety of reasons. Drones may be used to identify production issues or monitor progress over time, without the need for the site manager to be physically present. The use of drones in construction has also been touted as a more efficient way to recognize hazards and weather issues that often deter job completion. 

[Editor’s note: there are several legal issues involved with the commercial use of drones.  We have a legal presentation on this topic– if you are in North Carolina and want us to present it to your organization, give me a shout out!]

#5.  Training and Safety.  The use of augmented and virtual reality is also making its way to the construction industry. Both technologies give construction workers a realistic view of a project before it even begins, aiding in creating accurate timelines and budgets. However, more importantly, augmented and virtual reality resources are able to provide a method of training for a higher level of safety on each job site. This has the potential to reduce the total cost of operating a construction project and save lives in the process.

 #6.  Analytics.  Big data is a buzzword throughout the technology landscape, but it does have real implications for construction businesses. The ability to gather data from wearable technology, drones, AR and VR platforms, and even autonomous equipment can be a game changer for site managers. The details included in the data may be used for current and future decision-making, helping construction projects run more efficiently.

 #7.  Running the Business.  Finally, technology in construction is making a significant change in how companies are run. Whether large or small, construction businesses have countless digital tools to help with tasks from accounting and payroll to inventory and timeline management. The technology behind these software platforms is becoming less expensive to create as more companies utilize their power, giving most businesses an opportunity to take advantage.

It may seem like a far-fetched idea to see technology influencing nearly every corner of the construction world, but the reality is this shift has already taken place in a significant way. Construction site managers, large companies, and individual contractors alike can and should jump on the digital bandwagon in ways that best suit their needs in an effort to stay profitable and competitive.

Successful Assertion of a Professional Liability Claim

Michael L. Meyer | Taft Stettinius & Hollister LLP | July 25, 2018

Perhaps you are a general contractor whose project has suffered a catastrophic failure due to a problem with an engineer’s calculations. Maybe you are an owner and you have just learned your new building sits partially on adjacent property due to an error by the surveyor. Or possibly you are a construction manager accused of mishandling safety governance, leading to an injury on the job site. These are just some of the many ways in which the players in construction projects may interface with professional liability. Understanding professional liability and how it can impact your business operations is a critical risk management tool.

A professional liability claim is a claim that involves a mistake in a technical or highly skilled area of a project. In construction “professional” service providers can include architects, engineers, land surveyors, construction managers, and others performing services that require advanced skill or professional training. Often, but not always, professional services are those performed by individuals that must be licensed by a state or governing board. Whether or not an act is that of a “professional” service provider is based on the nature of the work performed, not the performer’s title.

There are two important distinctions that make a claim of professional liability different from other claims. The first involves what a plaintiff must prove in order to win his or her case. The second is how professional liability claims are covered by insurance. Whatever your role on a project, a basic understanding of these variables is important.

Most commercial property owners have experienced a claim for premises liability. A typical case may involve a patron who files a lawsuit after being injured while on the property. To win, the patron must prove that the owner owed a legal duty to keep the premises safe, and failed to do so, causing an injury. The same basic elements apply to a professional liability claim, with one critical difference. An expert’s opinion is required to establish whether the “professional” failed in carrying out his or her legal duty.

In the basic premises liability case a defendant is held to the standard of care of a reasonable person under the circumstances. In a professional liability case, however, the standard of care is that of a reasonable member of the profession. In other words, a plaintiff claiming an engineer’s negligence must prove that the engineer’s conduct fell below the standard of care for a typical engineer. To establish that standard, a plaintiff must rely on expert testimony. Establishing the appropriate standard of care and demonstrating a violation could require many hours of work by the expert. This translates into significant expense for a plaintiff… an expense that is often not recoverable in the lawsuit.

In addition to considerations about the cost, a potential plaintiff must also be concerned about the availability of the professional’s insurance to cover that claim. Likewise, a professional service provider must understand the scope of their insurance, including those claims that are not covered. Policies contain numerous exclusions and exceptions that can take a claim out of the scope of coverage. If the claim is large, this could result in the professional being unable to satisfy a judgment.

Many insurance policies define professional services to limit the type of services to which the insurance applies. An architect or engineer may perform a variety of tasks as part of his or her engagement on a project. But tasks that do not require any specialized knowledge or advanced training may not qualify for coverage under a professional liability policy. For example, an engineer’s miscalculation of wind tolerances, leading to a partial collapse of a building during a storm, may qualify as negligence in performing professional services. By contrast, an engineer’s failure to supervise on-site movement of materials, leading to a personal injury when two trucks collide does not require a professional degree or designation. It is not likely to qualify as professional negligence.

Another consideration for both plaintiffs and professional service providers is the coverage period of the policy. Many general liability policies are “occurrence” policies, meaning they cover losses that occur during the policy period. By contract, professional liability policies are often “claims made” polices covering only claims actually made during the policy period. If a potential plaintiff waits too long to make a claim, they may find that professional no longer has coverage. An example would be where a professional service provider ceased operations years earlier.

Yet another consideration is the eroding or “wasting” limits of a professional liability policy. Unlike general commercial liability policies, a professional services policy often includes the cost of defense of the lawsuit in the overall policy limits. This means that the cost of the professional’s attorney fees to defend the case reduces the overall amount of insurance available to pay a judgment against the professional.

Understanding how a professional liability claim differs from a general negligence claim, and how it is covered differently by insurance, is critical to successfully defending or prosecuting such a claim. In short, professional liability claims are often more difficult to prove. Insurance coverage is available, but subject to certain limitations that narrow coverage.

A Guide to Obtaining Payment for Changed Work Not Expressly Authorized

Eugene Polyak | Smith Currie & Hancock | July 30, 2018

Changes in the work are common on construction projects. But not all changes are handled in strict accordance with the contract’s changes clause. For contractors, it is essential to be paid for the extra work caused by changes. This can become a problem if the change has not been expressly authorized by the owner or the owner’s designated representative. Before doing extra work, contractors should make sure that the work has been properly authorized. This also does not always happen. Performing extra work without obtaining proper authorization is risky—it diminishes the likelihood of getting paid for the extra work. All, however, is not necessarily lost. This article demonstrates how the legal concepts of express, implied, and apparent authority can facilitate payment for changed work performed on a project.

Express authority

The simplest way to be paid for changed work is to follow the written directions of someone expressly authorized to issue changes to the work. Ascertaining proper authorization starts with the contract. Every contract should set forth the names of the parties’ authorized representatives and should detail the extent of their authority. Ascertaining express authority is particularly important in public contracting where contractors are held to very strict standards by the courts in order to prevent misuse of public funds.

Consider the following scenario. Contractor begins work clearing the site and discovers that actual conditions do not match the site plan. The contractor calculates the discrepancy will require clearing and grading an additional acre of ground. The contractor needs a change order.

The contract states:

The owner shall designate in writing a representative who shall have express authority to bind the owner with respect to all matters requiring the owner’s approval or authorization.

The contractor checks its file and determines the owner has never designated a representative. The contractor, who has been dealing with the owner’s architect, tells the architect there is an issue with the plans and the extra clearing and grading is going to cost more money. The architect does not agree that the plans are erroneous, but tells the contractor to do the work and states that payment will be taken care of at the end of the job. The contractor bills the owner for the changed work at the end of the job. The owner refuses to pay on the grounds that the architect did not have authority to order changes to the work.

The above hypothetical demonstrates the importance of verifying that changed work has been properly authorized. Unless the contract delegates express authority for the architect to bind the owner, the contractor should obtain the owner’s written authorization to proceed with extra work.

Having failed to obtain express authorization, the contractor may still assert implied authority; apparent authority; or ratification or estoppel to demonstrate that the work was in fact authorized and should be paid for. The bad news: the contractor will probably need to hire a lawyer to make these arguments.

Implied authority

Showing that the architect had implied authority to bind the owner is one avenue for recovery in the scenario presented above. Implied authority is actual authority inferred from circumstances. For example, if the owner, as principal, has the architect perform acts on behalf of the owner, this may demonstrate the owner’s consent to have the architect act as the owner’s agent. Implied authority can be inferred when the actions of the architect are incidental to the authorized conduct and further the owner’s interests. Generally, an agent is authorized to do anything which is reasonably incidental to the work specifically directed or which is usually done in connection with such work. To demonstrate implied authority in the above scenario, the contractor would need to show that it was entitled to draw an inference from the particular relationship and conduct between the owner and architect. For example, the contractor might show that the architect had previously approved change orders with the owner’s knowledge and consent.

Apparent authority

Another way to establish that the work was properly authorized is to prove that the architect had apparent authority to bind the owner. Apparent authority exists when a principal, here the owner, holds another party, the architect, out as having authority to bind the principal. If the owner held out the architect as its agent with authority to approve changes to the work, apparent authority can be established. Apparent authority will not help, however, if the above fact pattern involved a public contract. This is because public bodies are not bound by the apparent authority of their agents. In public contracts, proper authorization to execute change orders must be based on express authority.

Other theories facilitating recovery for extra work

In addition to express, implied, and apparent authority, principles of ratification and estoppel can be used to recover the cost of changed work. Ratification may occur when the owner expressly approves the contractor’s unauthorized acts. Ratification may also occur when the owner has full knowledge of the architect’s acts and fails to disavow the architect’s authority to perform those acts. Estoppel can be found when the contractor has changed his position in detrimental reliance on the owner’s actions or inactions, in which case the owner may be prevented from taking a contrary position after the fact. Under the scenario presented above, suppose the contractor notified the owner in advance that it was proceeding with the changed work based on the architect’s instructions and the owner allowed the contractor to proceed or simply did not respond. Under such facts, the owner may be estopped from denying that it authorized the contractor to proceed.

Conclusion

Failure to obtain proper authorization before performing changed work is risky business. The safest way for a contractor to get paid is to not perform extra work without a properly authorized change order. There will be times, however, when the overall circumstances dictate that the work must proceed. In such cases, the contractor may need to rely on the doctrines discussed above to get paid for the changed work.

Consequences for Exceeding the Limit…Maybe…

I’Ashea Myles-Dihigo | Leitner, Williams, Dooley & Napolitan | August 3, 2018

Sometimes I speed…okay, most times I speed.  Not anything dangerous, but I do keep up with the flow of traffic on the interstate.  Don’t judge.  With a daily commute into the office that is always over an hour, any bit of time savings is justified in my opinion.  
While I may be able to justify exceeding the speed limit as I travel down the interstate, the Tennessee Court of Appeals has recently clarified the effects of exceeding the monetary limits of your general contractor’s license in its holding in Pickens v.  Underwood.  In that case, timing was everything.  General contractor, Pickens, entered into a contract to construct a house for the Underwoods. Pickens v. Underwood, No. E2017-02120-COA-R3-CV, 2018 Tenn. App. LEXIS 322, at *2-3 (Ct. App. June 12, 2018).  The parties entered into their contract on June 2, 2008. Id.   The dispute over final payment arose on May 9, 2009.  Id. at *3.  At the time the parties entered into the contract, Pickens’ limit on his contractor’s license was $350,000, yet at the time the project was complete, the final bill was over $670,000.  Id. When the Underwoods failed to pay for the work, Pickens filed suit for breach of contract, unjust enrichment, promissory fraud and mechanics’ and materialmen’s lien. Id.
The Underwoods counter sued for fraud, cost overruns, violations of the Tennessee Consumer Protection Act and for entering into a contract in excess of the contractor’s license limit. Id. The complaint in this matter was filed on July 21, 2009. Id. at *32. Counsel for Pickens agreed to stipulate that he was an unlicensed contractor and thereby agreed to limit his damages to actual documented expenses.  Id. at *3.  The trial court disagreed with the stipulation and confirmed that Pickens, though over the monetary limit of his contractor’s license, was licensed for purposes of Tennessee Code Annotated §§ 62-6-101, et seq. Id. at *4.  The Underwoods appealed.
The Court of Appeals affirmed. They reasoned that just prior to the filing of the parties’ complaint, the Legislature made a substantive change to Tennessee Code Annotated § 62-6-103 which governed the monetary limits on contractors’ licenses. Id. at *32.  The effect of the amendment expanded the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules whereas before the limitation only applied to unlicensed contractors. Id.
The Court held that the date the parties entered into the contract was controlling regarding which statute should apply in the case. Id. When Pickens entered into the contract and performed the work, he was not subject to the limitation because he was properly licensed under the old Tenn. Code. Ann. § 62-6-103.  The Court declined to apply the new code changes retroactively to the pre-existing contract.  Therefore, his recovery would not be limited to actual documented expenses as reflected in the new schematic. Id. at *33.
While it is never a good idea to exceed the monetary limits of your contractor’s license, if you happen to find yourself in that position, you may still be able to recover the full contractual price as damages.  Based on the holding in Pickens, the Court will look to the law in effect at the time of the contract to determine whether or not your recovery is limited.