There is No Crying in Baseball . . . Facility Construction

Mark O. Morris and Zaven A. Sargsian | Snell & Wilmer | September 25, 2018

The Utah Court of Appeals recently decided Camco Construction, Inc., et al. v. Utah Baseball Academy, Inc., et al., 863 Utah Adv. Rep. 58, 2018 UT App 78. The case involved the plan of Athletic Performance Institute LLC (“API”) to build an indoor athletic facility, which it would then lease to the Utah Baseball Academy Inc. (“UBA”). Robert Keyes owned both API and UBA. Unfortunately, the baseball facility was not built and no one came. Rather, the project became mired in a dispute and litigation.

API’s plan to build an indoor athletic facility began smoothly. To obtain financing for the project, API reached out to a banking institution (the “Bank”). The Bank agreed to provide API a 12-month construction loan, which would then convert to a 20-year, $1.9 million loan. Mr. Keyes and UBA guaranteed the loan to API, and hired Camco Construction as its general contractor for the project. After beginning construction, things took a turn for the worse. The project faced several difficulties, including funding issues and a floor elevation issue that made the sports facility suitable for only baseball—even though the plan was to make the facility usable for basketball and other sports.

When API and Camco could not resolve the construction-related dispute, Camco filed a mechanic’s lien and, eventually, a lawsuit against API. The legal battle, however, spread to the Bank. After Camco filed its mechanic’s lien, the Bank refused to fund API’s draw request. This refusal became a source of conflict between API and the Bank, and API, UBA, and Mr. Keyes (collectively, “Owner”) asserted multiple claims against the Bank in the litigation. Among its many claims, Owner claimed that the Bank caused intentional infliction of emotional distress, breached the loan documents, acted in bad faith by failing to fund its draw request, failed to cooperate with Owner’s attempt to refinance, and demanded a larger payoff than the Bank what was actually due.

The Bank ultimately prevailed on all counts. During a long and complex case, the trial court struck Owner’s jury demand, granted the Bank summary judgment on several of Owner’s claims and, after a bench trial on the remaining claims, ruled in favor of the Bank. Owner appealed from the ruling, raising numerous issues on appeal. Although many of the issues were easily affirmed by the Court, and do not deserve attention in this article, there are three things that can be learned from the Court’s opinion.

First, a claim by a corporation of intentional infliction of emotional distress (IIED) is not viable. At the district court, API and UBA had argued that the Bank’s failure to fund its draw request was “outrageous conduct” giving rise to an IIED claim. This claim was dismissed on summary judgment and the Court of Appeals affirmed. After noting that API and UBA were both corporations, the Court held that corporations cannot suffer emotional distress. The Court explained that it “is a logical tenet . . . because a corporation lacks the cognizant ability to experience emotions,” and therefore “cannot suffer emotional distress.”

Second, jury waivers are enforceable against sophisticated parties, even if the parties, as a matter of fact, did not—but had the chance to—read the waiver. Here, although Owner had signed multiple jury waivers in the loan documents with the Bank, Owner argued that the “right to a jury trial may only be waived if done knowingly and intentionally.” Owner argued that if the documents containing the jury waiver were not read, then the right to jury could not have been knowingly and intentionally waived. In discussing Owner’s argument, the Court of Appeals assumed the federal requirement that a jury waiver be made knowingly and intentionally applies in Utah for purposes of deciding the case. The Court, however, rejected Owners’ substantive argument. The Court explained that it has repeatedly held that a sophisticated party cannot assert failure to read a contract as a defense to a claim that it waived its rights. In this case, the Court was incredulous as the jury waiver was contained in 20 of the loan documents. The Court stated that, to the contrary, Owner’s failure to read a jury waiver, 20 times, operated to support the trial court’s decision to strike Owner’s request for a jury.

Third, attorneys need to adequately brief all arguments on appeal. No less than seven times, the Court of Appeals refused to consider Owner’s arguments because they were inadequately briefed. This included (1) Owner’s challenge to the district court’s dismissal of their fraud claim; (2) that the jury waiver provision was an adhesion contract; (3) that the jury waiver was overbroad and ambiguous; (4) that there was a fiduciary relationship between the Bank and Owner; (5) that the Bank failed to cooperate in the refinance process; (6) that the Bank breached the loan documents by demanding more than it was due; and (7) that Owner was entitled to a mistrial. The Court cautioned that “[a]n adequately briefed argument contains the contentions and reasons of the appellant with respect to the issues presented with citations to the authorities, statutes, and parts of the record relied on. . . . A reviewing court is not simply a depository in which the appealing party may dump the burden of argument and research.” Thus, attorneys need to adequately brief all issues raised on appeal lest potentially winnable arguments are disregarded by the Court.

3 Commercial Construction Issues to Hammer Out Before the Shovel Hits the Ground: Insights from Chris Papavasiliou

Chris Papavasiliou | Nutter McClennen & Fish LLP | September 10, 2018

All of the parties involved on a project should agree on the following: 1) price and method of compensation; 2) the scope of the project; and 3) timing for completion.

Q: What are the three issues that all parties need to agree on before embarking on a commercial construction project? Christopher W. Papavasiliou: Often times, construction projects need to move quickly and there is little time to get a construction contract in place. But, you can do yourself a favor and avoid future disputes by making sure you and your contractor are on the same page on the following: 1) price and method of compensation; 2) the scope of the project; and 3) timing for completion. Even if a project is moving quickly on bare-bones AIA form documents (i.e., form documents created by the American Institute of Architects), those three items will let everyone know who’s doing what by when and what the costs will be.

Q: Could you explain the difference between Lump Sum compensation and Guaranteed Maximum Price compensation? CWP: Guaranteed Maximum Price and Lump Sum contracts share some similarities in that they limit the exposure of the owner for cost overruns, but they differ substantially in practice.

A Guaranteed Maximum Price contract (also known as a GMP Contract) has four main components: 1) The “Cost of the Work,” which is the actual cost to complete the work. There is a give-and-take on what is excluded, i.e., bonuses, main office salaries, and other items; 2) The “Fee,” which is generally a percentage of the Cost of the Work; 3) The “Guaranteed Maximum Price,” which is the maximum amount that the contractor will charge; and 4) “Savings,” in the event of the Cost of the Work being less than the Guaranteed Maximum Price. Savings are allocated between the owner and contractor on a pre-determined percentage breakdown. Because compensation is based on the contractor’s actual costs incurred, a Guaranteed Maximum Price contract requires that the owner review requisitions in detail, including invoices, and is administratively more time consuming for the owner.

On the other hand, a Lump Sum contract (also known as a Stipulated Sum contract) is easier to administer. It boils down to the contractor saying “I’ll build the project for $X.” The owner knows how much the project will cost, and all cost savings inure to the contractor. Lump Sum contracts are often favored due to their simplicity.

Keep in mind that the Guaranteed Maximum Price and Lump Sum amount will increase for change orders.

Q: How can the owner ensure that the project is completed in a timely manner? CWP: Approximately 95% of the time, the construction contract will be based on standard AIA documents. These forms cover the basics, but are a little light on the owner’s recourse if the contractor is late in timely completion. Two options on how to handle timely completion are incentives/cost savings and liquidated damages. Cost savings under a Guaranteed Maximum Price contract often get divvied up between the owner and construction manager. One way to incent the contractor to achieve early completion is to alter the percentage rate of savings going to the contractor based on when substantial completion is reached. Usually, liquidated damages are assessed on a day-for-day basis.

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.

Is My Bid Binding?

Brian R. Gaudet | Kilpatrick Townsend & Stockton LLP | July 24, 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. Court’s 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.

Legal Implications of 3D Printing in Construction Loom

Aldo E. Ibarra | Engineering News-Record | June 28, 2018

Imagine a printer in the middle of a construction site programmed with a designer’s plans and specifications to build an entire home from scratch. As concrete is fed into the printing device, a technician hits enter on her computer and a 3D printer starts fabricating the structure’s walls and roof.

The final product will be created almost entirely by pre-programmed software and a movable printer injecting concrete, with no need for human construction workers. This isn’t science fiction, it’s a reality on the cutting edge of construction and technology.

The use of 3D printers in the construction industry will have legal implications that will affect owners, contractors, manufacturers and software developers.

The additive manufacturing boom has reached the construction industry and will certainly impact the way construction projects are managed. The rise of 3D printers will translate into fewer workers on construction sites, as printers will be automated and largely autonomous. Projects will be completed faster, as 3D printers will be capable of working at all hours, and will not require overtime.

Current concrete-injection 3D printers developed by WinSun Decoration Design Engineering, in China, have the capacity to print small houses, including walls and roofs, at a pace of up to 10 small houses in 24 hours.

3D printing capabilities go beyond just concrete. The team of MX3D, in Amsterdam, is currently working on delivering the first completely 3D-printed steel bridge. U.S.-based Contour Crafting is developing 3D and autonomous construction technologies that would allow for the construction of tall concrete towers, such as wind turbines, using climbing robots that would “print” the contour of the structure as they move upward.

Developers have positioned 3D printers tailored to the construction industry to work almost like robots. That is, the 3D printer is not just printing a door or a beam that will later be installed by construction workers, although that capability certainly exists, it is effectively installing the printed component in-place.

For example, in the case of steel structures, a 3D printer/robot can print a small section of steel using metallic powders and a “printer” head in a process known as direct metal laser sintering that uses a welding arm that will move along over that portion to create the next one, and so on, until the structure is completed. The result is an entirely new structure constructed wholly by the 3D printer.

Innovation and disruptive technology bring new legal risks and implications. In the context of construction defects claims, 3D printers will expose manufacturers and developers to liability and claims that would normally be attributed to human error.

Instead of human workers building a structure, a 3D printer will additively manufacture it after a pre-generated plan is uploaded to the printer’s software. How will liability be apportioned when the finished structure is found to have cracks, be uneven, improperly thick or have the wrong finish?

Whether the 3D printer is owned by the contractor, is being leased as equipment or is the equipment of a subcontractor will affect who can be found liable.

If the defect is the result of the printer’s malfunction, the contractor will have warranty and indemnity claims against the manufacturer arising out of privity from purchasing or leasing the 3D printer.

If the defect is the result of a software malfunction, that could open the developer to negligence and warranty claims for the value of the defects in the project at issue.

If there is an independent technician, acting as a subcontractor, feeding the plans into the 3D printer could also be open it to liability if the defect was the result of improperly uploading those plans or operating the 3D printer.

In addition to claims against the contractor, the owner could also have claims against the manufacturer or software developer for economic loss, even in the absence of direct privity, if the owner can show the damage to his property caused by the 3D printer was foreseeable.

The case Biakanja v. Irving (1958) 49 Cal. 2d 647, 649 gives courts a roadmap even if they didn’t foresee technology such as additive manufacturing.

When faced with a construction defect caused by a 3D printer used by the contractor or one of its subcontractors, the owner will certainly have, at the very least, an argument that the manufacturer of the printer or developer of the software should have been aware that a malfunction of its hardware or software would, in turn, impact the owner’s property.

Increased prevalence of this emerging technology will also have an impact on material suppliers. If 3D printers will be used in a specific project, designers and contractors should provide proper specifications for material compatible with the specific 3D printer. Material suppliers will also have to certify their materials as compatible with the printers.

Failure to do so could open designers and material suppliers to liability for construction defects resulting from the incompatibility of the material with the specific 3D printer.

The use of 3D printers in construction projects is also likely to conflict with current licensing and permit regulations.

For example, California Code of Regulations, Title 24, Building Standards Code, Section 110 et seq. provides for different types of inspections that are necessary before the government certifies a structure for use and occupancy. The increased speed with which 3D printers can complete projects could be slowed down by current inspection requirements and inspection scheduling procedures.

As the use of 3D printers becomes more common, government agencies in charge of inspecting construction projects will have to adapt to the faster-paced construction offered. In the ideal scenario, governmental agencies would embrace the new technologies in the construction industry and, for example, invest in automated scanner drones that could inspect an automated 3D printer’s work and, immediately thereafter, send the inspection’s result to the governmental agency for certification.

Such advances, however, may be difficult to achieve unless states, cities and counties make significant investments in infrastructure.

As 3D printers/robots become more commonplace on construction projects, contractors should be mindful of including express warranty clauses in purchase and leasing contracts for 3D printers.

Designers and material suppliers will have to confirm that construction materials under plans and specifications will be compatible with 3D printers; and governmental agencies will have to adapt to the fast production rate of 3D printers.