Beware of the Risks! No Ownership, No Lien

Andrew Atkins, Peter Marino and Patrick Wilson | Smith Anderson

A recent North Carolina Court of Appeals decision reiterates the importance of knowing who you are dealing with when undertaking work or selling materials in connection with any construction or development project in our state. In Davis & Taft,1 the Court of Appeals found that the design firm that performed design services for a prospective property purchaser could not properly assert a lien on the property, given the design services were never actually used to improve the property. While this case involved a design firm, the lesson of this case extends to any party providing labor or materials on any type of construction or development project in the state.

N.C. Gen. Stat. § 44A-7(6) defines the owner of real property as a “person who has an interest in the real property improved and for whom an improvement is made and who ordered the improvement to be made.” N.C. Gen. Stat. § 44A-7(3) defines an improvement as, among other things, an “improvement upon, connected with, or on or beneath the surface of any real property, . . . .” In Davis & Taft, the Court noted that the terms “labor” and “improve” contemplate actual work upon the subject property performed by the person claiming the lien. 

The design firm in the Davis & Taft case contracted with a company interested in buying the subject property. The sale fell through, but before it did, the design firm performed $230,000 in design work, $80,000 of which remained unpaid. The design firm filed a lien on real property and sued to enforce the lien. The trial court dismissed the lien claim at summary judgment, and the Court of Appeals affirmed this decision.

The Court reasoned that since the design services were under contract to a prospective buyer and not an “owner” of the property at issue, and because the design was never actually used to “improve” the property as required by the statute, that no lien on the property was permissible.

A key takeaway for construction and design industry professionals is to ensure the entity that hires you or your company actually owns the subject property. If they don’t, then you may not be able to rely on lien rights as a basis for recovery. Concerned parties can also protect their interests by confirming whether the project is protected by payment and performance bonds.  

This case highlights the risks parties take with respect to contracting with potential future owners and with respect to performing design or construction related activities in connection with a project that never materializes.

1 Davis & Taft Architecture, P.A. v. DDR-Shadowline, LLC, 835 S.E.2d 473, 475 (N.C. Ct. App. 2019).

“Wait! Do You Have All Your Ducks in a Row?” Filing of a Certificate of Merit in Conjunction With a Complaint

Rahul Gogineni | The Subrogation Strategist

In Barrett v. Berry Contr. L.P., No. 13-18-00498-CV, 2019 Tex. LEXIS 8811, the Thirteenth District Court of Appeals of Texas considered, among other things, the procedural timing requirements of filing a certificate of merit in conjunction with a complaint. The court concluded that the proper reading of the statute requires a plaintiff to file a certificate of merit with the first complaint naming the defendant as a party.

In Barrett, after sustaining injuries while working at a refinery, David Barrett (Barrett) filed suit against Berry Contracting, LP and Elite Piping & Civil, Ltd. on July 6, 2016. In Barrett’s first amended complaint, which he filed on August 23, 2016, Barrett added Govind Development, LLC (Govind) as another defendant. Barrett subsequently filed a second amended complaint (omitting Govind) and, on December 27, 2017, shortly before the statute of limitations ran, a third amended complaint (reasserting claims against Govind). On January 28, 2018, after the statute of limitations period ran, Barrett filed a certificate of merit. Govind filed a motion to dismiss the claim, asserting that Barrett violated the statute that required a certificate of merit to be filed with the complaint, Tex. Civ. Prac & Rem. Code §150.002.

Tex. Civ. Prac. & Rem. Code §150.002(a) states,

In any action or arbitration proceeding for damages arising out of the provision of professional services by a licensed or registered professional, a claimant shall be required to file with the complaint an affidavit of a third-party licensed architect, licensed professional engineer, registered landscape architect or registered professional land surveyor…

There is an exception to the requirement that the certificate of merit be filed contemporaneously with the complaint. Specifically, if the complaint is filed within ten days of the expiration of the statute of limitations and the plaintiff specifically pleads that he or she cannot obtain a certificate of merit in such a short period of time, then the plaintiff can supplement his or her pleading with a certificate of merit, so long as it is filed within 30 days of the date of the filing of the complaint. Tex. Civ. Prac. & Rem. Code §150.002(c).

Although the exception exists, in Barrett the court of appeals clarified that §150.002(c) only applies to the first time a defendant is named in a complaint. Accordingly, if a plaintiff names a defendant in a complaint without including a certificate of merit and, subsequently, within ten days of the expiration of the statute of limitations period, files an amended complaint that also names the defendant, the plaintiff is not protected by §150.002(c)’s 30 day-extension period for filing the certificate of merit. Because the court of appeals found that Barrett should have filed a certificate of merit when he first named Govind as a defendant on August 23, 2016, the court upheld the trial court’s dismissal of the claims against Govind.

This case serves as a good reminder that before a lawyer files suit against a professional such as an engineer or architect, the lawyer should review the applicable jurisdiction’s procedural rules for specific certificate of merit requirements. Absent compliance with a jurisdiction’s procedural rules, a lawyer’s temptation to file suit against all parties that may possibly be liable could lead to unintended consequences, including preclusion of a valid claim.

Standard of Care

Jay Gregory | Construction Law Blog

One of the key concepts at the heart of Board complaints and civil claims against a design professional is whether or not that design professional complied with the applicable standard of care. In order to prevail on such a claim, the claimant must establish (typically with the aid of expert testimony) that the design professional deviated from the standard of care. On the other side of the coin, to defend a design professional against a professional malpractice claim, defense counsel attempts to establish that – contrary to the claimant’s allegations – the design professional, in fact, complied with the standard of care. Obviously, it becomes very important in such a claim situation to determine what the standard of care is that applies to the conduct of the defendant design professional. Often, this is easier said than done. There is no dictionary definition or handy guidebook that identifies the precise standard of care that applies in any given situation. The “standard of care” is a concept and, as such, is flexible and open to interpretation. Traditionally, the standard of care is expressed as being that level of service or competence generally employed by average or prudent practitioners under the same or similar circumstances at the same time and in the same locale. In other words, to meet the standard of care a design professional must generally follow the pack; he or she need not be perfect, exemplary, outstanding, or even superior – it is sufficient merely for the designer to do that which a reasonably prudent practitioner would do under similar circumstances. The negative or reverse definition also applies, to meet the standard of care, a practitioner must refrain from doing what a reasonably prudent practitioner would have refrained from doing.

Although we have this ready definition of the standard of care, in any given dispute it is practically inevitable that the parties will have markedly different opinions as to: (1) what the standard of care required of the designer; and (2) whether the defendant design professional complied with that requirement. The claimant bringing a claim against a design professional typically will be able to find an expert reasonably qualified (at least on paper) who will offer an opinion that the defendant failed to comply with the standard of care. It is just as likely that the counsel for the defendant design professional will be able to find his or her own expert who will counter the opinion of the claimant’s expert and maintain that the defendant design professional, in fact, complied with the standard of care. What’s a jury to think?

The concept of standard of care is intertwined with the legal concept of negligence. In the vast majority of law suits against design professionals, a claimant (known as the plaintiff) will assert a claim for negligence against the design professional now known as the defendant.1 As every first year law student learns while studying the field of “Torts,” negligence has four subparts. In order for a defendant to be found negligent, the claimant must establish four elements: (1) duty; (2) breach; (3) causation; and (4) damages. In other words, to establish a claim against a defendant design professional, a plaintiff must demonstrate that the defendant owed the plaintiff a duty of care but breached that duty and, as a result, caused the plaintiff to suffer damages.

This formulation of a negligence claim is universal – it applies to claims against reckless drivers as well as claims against design professionals. In a situation in which a claimant is bringing a claim against a design professional the concept of the standard of care applies in the first two elements (i.e., duty and breach). Take for example a typical construction accident in which a worker is injured during the construction phase of a project. Depending upon the severity of the injury, a lawyer for the injured worker will sue some or all of the participants in a construction project.2 Imagine a situation in which an iron worker falls off a beam during construction, drops ten feet to the floor below, and breaks some bones. This worker will have a worker’s compensation claim against his employer regardless of fault. Even if the worker fell from the beam as a result of his dancing drunk, he is entitled to receive worker’s compensation benefits. After processing the workers compensation claim, the injured worker’s enterprising lawyer will often look to other participants in the design and construction process and assert what is known in the industry as a “third party claim.” If this lawyer sues either the architect or engineer (typically structural), he will make an argument that the design professionals owed the worker a duty (i.e., the first of the four negligence elements) to ensure that the work site was reasonably safe. The lawyer will craft an argument that the design professionals failed to meet this duty by either designing an unsafe building (a difficult argument to make especially if the accident happened during the construction phase) or will argue that the design professionals breached their duty by “allowing” a dangerous condition to exist on the site. In either case, to prevail on his claim, the plaintiff’s lawyer will have to establish that either one or both of the design professionals owed a duty to the worker as a result of application of: (1) the standard of care; or (2) as a result of contractual obligations.

As most design professionals would agree, it is extremely rare throughout the country that a designer is responsible on a project for site safety or for controlling the means, methods, sequences, techniques, or procedures of construction. Thus, it would be extremely difficult for a plaintiff’s counsel to locate a qualified expert who would venture an opinion that the standard of care required an architect or engineer to protect the injured iron worker.

This example of the injured iron worker highlights an important aspect of the concept of duty. As most design professionals understand and appreciate, standard form agreements typically emphasize the fact that design professionals have no obligation to ensure construction means and methods or to ensure site safety during the construction phase. Typically, the contactors (i.e., the entities most capable of controlling construction and site safety) are exclusively responsible therefore. What this means in practical terms is that in any construction accident case the best defense for a design professional is typically found in the construction agreements for that project.

Just as contractual provisions protect a design professional; the wrong provisions can also inadvertently create exposure for a design professional by, among other things, heightening the standard of care. This issue is not present in most cases in which standard form agreements are used. In cases in which an owner has modified a standard from agreement or uses his or her own contract language, be wary of contractual provisions that specifically increase the standard of care applicable to a design professional. For example, some owners insert in their contracts provisions requiring that the design professional perform its services consistent with the “best” practices employed in the design community or must use “superior” or “maximum” efforts. Contract provisions such as these are problematic for a number of reasons. First, such provisions can effectively increase the standard of care applicable to a design professional over and above what would apply in a specific situation. Looked at using the legal terms referenced above, by agreeing in a contract to use “best” or “superior” efforts, a design professional will increase or heighten the duty which he or she owes on a particular project. In such a situation, it is no defense to a negligence claim to argue that a design professional complied with the applicable standard of care and did exactly what a reasonably prudent practitioner would and should do. If by contract a design professional is obligated to use “best” efforts, then anything less (even if it complies with the standard of care) would represent a breach of the contract and, as a result, would create exposure for the design professional.

These types of contract provisions which heighten the standard of care are also problematic as they may inadvertently jeopardize insurance coverage. Most professional liability policies cover a design professional’s negligence. As noted above, generally speaking, a design professional is negligent when he or she fails to comply with the standard of care. When a claimant asserts a claim against a design professional, the insurance company will review the allegations in the complaint to determine if the claimant is alleging that the insured design professional was negligent or is alleging something else such as an intentional wrong (not covered), breach of contract (not covered), or violation of a consumer protection act such as chapter 93A (not covered). If a claimant asserts a claim that the design professional failed to comply with its contractual obligations to use “best” or “superior” efforts, then the insurance company has a valid argument that there is no insurance coverage. An insurance company in such a situation could deny coverage on the basis that the design professional is not being accused of negligence (a covered claim) but, instead, is being accused of breaching its contract (not covered). In this regard, most professional liability policies include a provision specifically excluding from coverage any obligation assumed by the design professional in its contract.3


1 For reasons that are not entirely clear, in the context of an arbitration proceeding, the person asserting the claim is the claimant, while the target of the claim is the respondent.
2 Unfortunately, there is typically a direct relationship between the severity of an injury and the number of parties whom the plaintiff will sue. In other words, the greater injuries, the more defendants will be included in the law suit.
3 Other examples of such exclusion are indemnity provisions. Design professionals have to be extremely careful when agreeing in a contract to defend or indemnify the client or a third-party. Unless the indemnity provision is carefully written, it can create an obligation on the part of the design professional which is not covered by professional liability insurance.

Single Contractor Not Precluded from Providing Both Design and Construction Services

Jennifer Brandenburg, Michael Maurer and Gary Schons | Best Best & Krieger | December 4, 2019

A contractor that had two separate contracts with a school district — one for preconstruction services and the other for construction services — did not have a disqualifying conflict of interest, a California appellate court held. The decision provides an important clarification for public agencies that want to hire the same contractor for both the design and construction stages.

In California Taxpayers Action Network v. Taber Construction, Inc., the First District Court of Appeal on Wednesday found that, because Mount Diablo Unified School District hired Taber Construction in a single procurement for both construction phases, the construction company was not in a position to influence how the public entity spends the public’s money. Government Code section 1090 prohibits public officials and employees, including certain independent contractors and consultants, from having a financial interest in government contracts made in their official capacities. Taber, therefore, could not have used its preconstruction consulting work to influence the school district to hire it for the construction phase because the school district had already selected Taber to perform that work. (Note that school districts may procure construction contracts without awarding to a low bidder by using the lease-leaseback method.)

The court’s opinion never explicitly mentions Davis v. Fresno Unified School District, but it serves as a much-needed clarification of the 2015 Davis opinion. Davis involved similar but distinguishable facts. A school district first hired a contractor to perform preconstruction services, and then subsequently hired the contractor to perform construction work through a lease-leaseback procurement. The Davis court held that the mere allegation that the contractor had a hand in designing and developing the plans and specifications was sufficient to bring a lawsuit under section 1090. The court left open the question as to whether the plaintiff could actually prove that the contractor had a conflict of interest.

Two key distinctions separate the Taber case from the Davis case. The first is factual: the school district selected Taber through a single Request for Qualifications/Proposal process. Thus, Taber was never in a position where it could influence the transaction until it was confirmed to provide work in both phases. This differs from Davis where work on the preconstruction phase led to the offer of a construction contract. The second distinction is analytical. Both cases rely on the case of Stigall v. Taft, which held that section 1090 precludes an official who performs preliminary discussions and drawings of plans and specifications from bidding on future contracts for that work. But where Davis simply concluded there may be a conflict of interest, Taber took a more logical and analytical approach, holding that Taber only provided services to the school district, not as a de facto official of the school district. That is, participation in the design phase does not automatically preclude work in the construction phase. The question under section 1090 is whether the contractor performed design work as a public official and had the opportunity to improperly influence the public agency to hire it for the construction work.

Taber provides an important clarification because there may be value in having the construction contractor perform preconstruction services. In the case of Taber, the preconstruction services included scheduling, estimating, constructability review and development of a guaranteed maximum price; i.e., work that the construction contractor is uniquely able to perform. Beyond the lease-leaseback context, Taber’s analysis of a “one transaction” procurement for multi-phased work provides a framework for public agencies to utilize a single independent contractor without the independent contractor improperly influencing the public agency.

If you have any questions about this new decision or how it may impact your agency, please contact the authors of this Legal Alert listed to the right in the firm’s Municipal Law practice group, or your BB&K attorney.

How Algorithmic Design Improves Collaboration in Building Design

Aarni Heiskanen | AEC Business | April 30, 2019

Design, like everything else in a construction project, is a collaborative effort. Even with digital tools, collaboration across design disciplines is not yet optimal. An experimental project thus set out to test whether algorithmic design could help streamline the interaction between architects and structural engineers.

Design data originating from an architect is used in several engineering tools for visualization, analysis, and calculation. Ideally, changes in the architect’s design would propagate automatically across all the software. Unfortunately, the process is in fact mostly manual. Hence, the design data is seldom, if ever, in perfect sync on all systems.

Two companies, A-Insinöörit and Geometria Architecture, joined forces to test algorithmic design collaboration to see if it could solve many of today’s data exchange problems. They found their solution could speed up the process, eliminate many errors, and alleviate the frustration of doing updates by hand. It could also have a positive effect on the final outcome of the project.

Karjalainen and Wikar
Petteri Karjalainen and Markus Wikar

The Emerging Algorithmic Design

Petteri Karjalainen is a structural engineer at A-Insinöörit. He has been working over the last two years in the company on international projects, especially with industrial clients. He’s also involved in developing algorithmic design process, the theme of his recently completed master’s thesis.

“We have been speeding up our efforts in this field. Our company leadership sees potential in the practice and has encouraged me and our computational design team to apply more and more of these advanced methods to company’s daily routines,” says Karjalainen.

Algorithmic or computational design uses sets of instructions to perform certain tasks, for example, to generate a digital model of a structure. The instructions have parameters that generate variations of the same code. Algorithmic design is especially suited for architectural forms that are non-conventional and that can be constructed from repeatable elements.

A design algorithm example
Design algorithm, example

Experimental Architecture

Demanding, non-traditional forms are the bread and butter for Geometria Architecture, the brainchild of two architects, Markus Wikar and Toni Österlund. The company is both a design practice and a consultant for architects, engineers, and contractors. They cover parametric modeling, algorithm-aided design, and digital fabrication.

“At Lahdelma & Mahlamäki architects, my previous employer, I was in charge of the warped geometries of POLIN, the Museum of the History of Polish Jews in Warsaw,” Wikar explains. “Today, the company is our client.”

Algorithmic design opens new perspectives for architectural expression. It makes the use of non-conventional forms feasible and cost-efficient to build. In addition, it gives designers freedom to test and present dozens of alternative solutions, which in a traditional process would be very time-consuming or simply impossible to do.

A FEM model
A FEM model

Experimenting with Algorithms

In February 2018, A-Insinöörit and Geometria Architects started experimenting with how to use algorithmic design for collaborations between architects and structural engineers. The project got funding from the national KIRA-digi digitalization program.

They chose to experiment with an imaginary building, specifically a swimming pool covered with a steel-structured curved roof. The aim was to test typical design tasks and data exchange between the designers. The platform that the experimenters used was Grasshopper, an extension of the Rhinoceros software.

The design process
The roof design process

The architect designed several variations of the roof. The final design was formed with parable arcs, generated through so-called dynamic relaxation. This resulted in an optimized structural system.

After the architect had algorithmically created the curved roof and generated the line geometry, the structural engineer took over the data. They used Grasshopper-RFEM Link; an extension developed by A-Insinöörit. This allowed them to analyze and dimension the structural steel framework created in Grasshopper. Furthermore, they used Trimble’s Grasshopper-Tekla Live Link to build a BIM model of the structure.

Making Data Flow Between Systems and Processes

The experimenters needed a way to exchange algorithmic data between the architect and the structural engineer over the design life-cycle. They chose Speckle, a cloud-based platform. It links the data intelligently between design parties and models.

Speckle allows designers to share geometric data across several design models and to create an aggregated model from discrete parts. This means that when, for example, the architect changes the original geometry, the data is automatically updated wherever it has been referenced. After the engineer has designed the structural model, they, in turn, can provide the architect with the updated data.

In its purest form, all design data resides in the algorithms and the traditional BIM model is generated only if and when it’s needed. However, at the moment, a combination of algorithms and models seem to work best.

Data transfer
Data transfer

The Automated Future

“Imagine we modeled a double-curved shell exactly as it will be built. Say, someone then comes up with a change that implies a one-degree change to every rod of the structure. With traditional methods, the change would imply a huge job, but with an algorithm, it would be a breeze,” Karjainen proclaims.

Both Wikar and Karjalainen believe that the use of algorithms and artificial intelligence represents a huge potential for the whole industry. They will not only enhance collaboration, but also free designers from routine tasks that in many cases constitute the larger part of their work. Furthermore, algorithmic design makes digital fabrication a reality. Building parts can be robotically manufactured in factories and installed at the construction site.

After the KIRA-digi experiment, Geometria Architecture has continued to collaborate with A-Insinöörit around the Helsinki–Tallinn tunnel project. It will be the world’s longest undersea railway tunnel.

“We have been thinking through the data interfaces with the around 10 disciplines involved. We’re figuring out the smallest common design denominators or parameters that need to be exchanged between parties,” says Wikar. “Our goal is to allow the experts to focus on their core competence areas and not to have to struggle with software issues,” he concludes.

Algorithmic design

The project illustrations are courtesy of A-Insinöörit and Geometria Architecture