Technology and the Environment Lead Construction Trends That Will Continue Through 2019

Ryan Gould | Construction Executive | March 20, 2019

There are common factors that have always defined trends in the construction industry. Elements such as labor (be it shortages or surpluses), the economy and technology determine what gets built where, when and how. 

These elements have led to the rise of entire philosophies to boost profits and maximize value, such as the lean construction movement. Often these trends appear in the form of answers that help construction companies eliminate waste, curb overproduction, use talent properly, manage inventory more effectively, boost process workflow, reduce defects, and help to plan and schedule projects more efficiently. 

In 2019, two factors are driving trends that are overtaking the industry: technology and the environment. They’re not only informing construction industry trends today, but they’re going to last and evolve into the foreseeable future. 

OFFSITE CONSTRUCTION BECOMES STANDARD

Obviously, this isn’t a new trend. The earliest origins of this method, at least in North America, date to colonists importing pre-packaged construction materials from Europe to the New World in the 17th century. Then there were the kit homes sold by Sears, Roebuck, and Co. at the turn of the 20th century. And of course, the trend reached its zenith in the World War II construction boom with pre-fab companies selling ready-to-go homebuilding components to builders. 

Now with the advent of new technologies, offsite is going to be an integral and permanent part of the 21st century construction landscape. This obviously coincides with the development of energy-efficient products such as structural insulated panels. However, there are also other factors driving this trend, including labor shortages. The more the lean movement grows, the more owners are going to require prefab on their projects.

AI BECOMES A PERMANENT PART OF AEC

There’s a major trend occurring right now that shows the architecture/engineering/construction sector adopting artificial intelligence technologies across all stages. This includes tech solutions using AI-based algorithms being used in everything from preconstruction to operations and asset management levels. This technology helps solve a number of problems and address many challenges, such as scheduling and budget issues and workplace safety concerns. 

According to a report by McKinsey, while there is widespread interest in AI solutions, few owners in the construction industry possess the capabilities to implement them on a large scale. However, because this technology is helpful to stakeholders across the entire project lifestyle, from contractors to service providers, it’s expected to be the norm as AI becomes an industry-wide staple. In other words, AI isn’t just the for the silicon tech companies anymore. 

GREEN TECHNOLOGY GROWS LARGER

The construction industry is in a bit of a quandary. This sector is responsible for about a third of global C02 emissions responsible for climate change, yet there is a worldwide need for more buildings. The solution, therefore, lies in green construction. Now, this isn’t a new trend—the benefits of green technology in the construction sector have been touted for years. It’s a growing industry responsible for creating millions of jobs, and it’s here to stay. 

What the future of green technology looks like is where the real excitement lies. Expect to see more energy-efficient green building retrofits, more focus on sustainability, an increase in zero-net-energy buildings and more solar use in buildings. Ultimately, expect green building to continue to increase building performance, which thus results in lower operating costs. 

BIM ADOPTION BECOMES STANDARD

For a long time, BIM was a tool used by architects to showcase the buildings they were designing in three dimensions. However, because BIM goes beyond merely 3D design, and can create digital representations of structures down to its physical characteristics, it’s being adopted more and more in the construction industry. 

Stakeholders can now create a digital model that will tell them how certain building materials will wear out over time. This will make it easier to select the right materials and identify problems before they even arise, which will result in greater cost efficiency in construction.

INCREASED CONSTRUCTION COSTS

To the above point, the need to maximize cost efficiency regarding building materials is more crucial because those same materials are getting more expensive. The construction industry saw a nearly 10 percent rise in material costs from 2017 to 2018 and this upward trend is expected to continue from 2019 to 2020. This is due to a number of factors, including new tariffs imposed by the United States on a number of key trading partners. But stakeholders can offset these costs by investing in technologies mentioned above, including AI and BIM adoption. 

CONCLUSION

The trends above are poised to be an integral part of the construction industry 10, 20 and even 30 years from now. That means those in this sector—be they contractors, owners or marketers—need to start leveraging things like green technology, cutting-edge project management solutions and offsite construction methods. To not do so risks an operation being shut out of the construction industry today, tomorrow and beyond.

It’s My Party (Wall) And I’ll (Sue) If I Want To

Victor Metsch | Smith Gambrell & Russell | May 20, 2019

Party walls shared by adjoining townhouse are ubiquitous in Manhattan and, as recent case illustrates, are an invitation to litigation– especially where a sale at an astronomical price is followed by a massive top-to-bottom renovation.

Kai and Doris Chang own a townhouse on East 92nd Street. A limited liability company (LLC) owns the townhouse next door. The party wall is 40 feet high and was originally one foot thick.

The LLC hired Trident Restoration to do extensive renovations on its property, including relocating the bathrooms and kitchen and altering the building’s plumbing.

The Changs discovered a hole in the third-floor bedroom of the their townhouse; pipework anchored brackets installed on their side of the party wall, running the full height of the building; and another hole on the second floor, directly under the third-floor breach.

The Changs’ professional engineer found that substantial portions of the party wall had been removed; the renovation failed to conform with the plans and drawings filed with the Department of Building; and compromised the fire separation rating of the party wall in violation of City building codes.

The Changs sued for trespass damages, and injunction and restoration of the party wall.

The LLC hired an engineer. The two engineering firms inspected the work and prepared reports regarding the fireproofing and integrity of the party wall. The Changs’ engineer found areas of missing brick within the property line of the Changs’ townhouse that should be replaced. The LLC engineer’s responsive report stated that “[w]hile the wall structural integrity has not been compromised, the contractor will repair all locations where openings [in the brick] were noted.”

The Changs reported additional damage: six new holes in a third-floor room. The LLC and Trident conceded that the holes were drilled in error and offered to repair the holes at their cost.

The Changs alleged that the LLC and Trident had built an additional wall (which they refer to as a “concrete masonry unit” wall) on top of the party wall on the roof; the additional wall encroached onto their side of the party wall by two inches; and the encroachment existed along 55 feet of the party wall. They also alleged that a new cable box rested on their side of the party wall.

The Changs later discovered new damage to the fourth floor of their townhouse—the attachment of a cable to the new cable box, and the fastening of the cable to their rooftop gutter. The Changs claimed that the cable prevented them from properly cleaning the gutter, causing the gutter to overflow and cause water damage on their side.

The Court could not determine whether that work had been completed. And the LLC and Trident did not establish that the party wall in its current form matched the drawings filed with the DOB.

The LLC and Trident asserted that the reports exchanged between the engineers demonstrated that the party wall was not load-bearing and that its structural integrity remained intact. The Court was unpersuaded.

The Court found that some of the LLC and Trident’s’ alleged conduct, in drilling through the party wall and installing pipework, was an encroachments/ trespass or private nuisance.

The Real Property Actions and Proceedings Law provides that “[a]n action may be maintained by the owner of any legal estate in land for an injunction directing the removal of a structure encroaching on such land.” So the Court found that the Changs could seek injunctive relief to abate a private nuisance.

When Do Defects Prevent Practical Completion?

Julian Bailey, Emma Knight and Helena Payne | White & Case | April 4, 2019

Practical completion represents the physical completion of works on construction projects. Despite its importance, it is not a legal term of art, and whether or not practical completion has been achieved requires determination on a case-by-case basis.

The recent judgment in Mears Ltd v Costplan Services (S.E.) Ltd [2019] EWCA Civ 502 provides an important analysis of the interplay between patent defects and practical completion. In this case, the Court of Appeal confirmed that a material defect does not necessarily prevent practical completion from being achieved.

Key facts

In Mears v Costplan, the Court of Appeal considered the meaning of ‘practical completion’ in the context of the construction of student accommodation and a related agreement for lease.

PNSL, the employer, contracted with Pickstock, the contractor, for the design and build of student accommodation. Separately, Mears, the tenant, entered into an agreement for lease (“AFL“) with PNSL and Pickstock to take a long lease of the property following completion.

The AFL contained a longstop provision that permitted the tenant to terminate the AFL if the practical completion certificate had not been issued by the longstop date.

Further, the AFL prohibited variations to the works that materially affected the size of the accommodation rooms. It considered a reduction in size by more than 3% from the relevant drawings as material. In the event, of the intended 348 bedrooms plus kitchens and certain other rooms, 56 rooms were built more than 3% smaller than the relevant drawings. These breaches were irremediable: there was no prospect of the building being torn down and re-built.

The tenant alleged that any breach of the 3% tolerance was a material and substantial breach of the AFL, meaning that (i) it was entitled to terminate the AFL and (ii) practical completion could not be certified. At first instance, the judge ruled in favour of the employer / landlord, noting that it would be ‘commercially absurd’ if the breach of the 3% tolerance made practical completion impossible and allowed the tenant to terminate the AFL and walk away.

The tenant’s appeal was dismissed by the Court of Appeal, which held that:

  • The failure to meet the 3% tolerance was a breach of contract, but not automatically a material breach of contract allowing the tenant to terminate. The question of materiality related to room size and not to the resulting breach of contract. If the parties were to be taken to have agreed that any failure (no matter how trivial) to meet the 3% tolerance amounted to a material breach of contract, it would lead to a very uncommercial result.
  • Practical completion is a question for the certifier. Whether a derogation / breach is so material as to preclude practical completion is a matter of fact and degree in each case. Patent defects regarded as ‘trifling’ cannot prevent the certification of practical completion, whether the defect is capable of economic remedy or not. Whether the 3% tolerance breach was trifling was not a matter for the court here. The issue of economic remedy goes to the proper measure of loss, and not to the issue of practical completion.

The meaning of ‘practical completion’

The Court of Appeal reviewed the current state of the law on practical completion, making the following observations:

  • Practical completion is easier to recognise than define, and there are no hard and fast rules as to when practical completion is (or is not) achieved;
  • The existence of latent (i.e. unknown) defects cannot prevent practical completion (as they are unknown to the certifier);
  • In relation to patent (i.e. known) defects, there is no difference between uncompleted items of work and an item of defective work that requires to be remedied;
  • Some authorities suggest the existence of patent defects prevents practical completion, however the preferred view (which has been adopted in almost all cases) is that the existence of ‘trifling’ patent defects does not preclude practical completion;
  • Whether an item is ‘trifling’ is a matter of fact and degree to be measured against the intended purpose of the works; and
  • The mere fact that a defect is irremediable does not mean that works are not practically complete.

Comment

The achievement of practical completion is primarily a question of fact and judgment, which is to be determined having regard to what the contractor promised to supply, the definition (if any) of “practical completion” in the relevant contract, and whether what the contractor has supplied substantially corresponds with what the contract required so as to constitute “practical completion”. The intents and purposes of the project will be important to consider when addressing the question of whether practical completion has been achieved.

However, the Court of Appeal made clear that, in this particular case, the mere fact that the accommodation was habitable did not mean the works were practically complete. It is a question of whether any patent defects could accurately be described as trifling. If parties intend for practical completion to be dependent on certain aspects of the work being completed in accordance with the letter of the contract, they should draft carefully for this.

In contrast, a more precise approach to completion is often taken in contracts for mechanical plant or similar facilities, such as power stations. On these projects, ‘completion’ is only taken to occur if, amongst other things, certain testing and commissioning is completed satisfactorily, based on defined benchmarks. Liquidated damages may also be payable if the plant does not function according to a performance specification. Furthermore, completion may also be dependent upon the provision of “as built” documents, operation and maintenance manuals and other documents.

Exactly when practical completion will have occurred is dependent on the nature of the asset, its intended purpose and any relevant contractual provisions. Certainty on exactly when completion is achieved is important given its consequences: the commencement of the defects liability period, the potential end of liquidated damages, the possible impact on retention monies, and the movement of risk to the Employer, to name a few.

Mears v Costplan helpfully clarifies the approach that the English courts will take to determining controversies over the achievement of practical completion. But ultimately, if the contractual criteria for ‘practical completion’ are defined in only general terms, what this will mean is that disputes over the achievement of practicalcompletion will continue to arise in practice.

Timely Legal Trends and Developments for Construction

Matt Viator | Construction Executive | January 17, 2019

The construction industry is broad and the legal concerns of industry members can be far-reaching. What seems like tomorrow’s problem often jumps to the forefront and becomes a high priority today. 2018 was full of moments like these – and it’s important to keep track of legal developments for a glimpse at what may be waiting around the corner. With that in mind, here are some of the most important legal developments for the construction industry from the second half of 2018.

SURETIES AND LITIGATION – A BROAD TOPIC

Sureties play a vital role on construction projects. On federal jobs and state, county or municipal jobs, surety bonds are typically required. That means it’s important to stay on top of how the courts are treating surety agreements. 

RECENT LEGAL TRENDS FOR SURETIES

A recent decision in the Federal Circuit of the United States Court of Appeals went a long way to show how important payment and performance bonds are on federal jobs. In K-Con, Inc. v. Secretary of the Army, the court found that despite the fact that the Army had not mentioned payment and performance bonds in the contract, K-Pon was still required to produce them, as set out under the Miller Act. That shouldn’t come as a huge surprise – when federal projects are in play, abiding by the Miller Act should be expected. Still, this case shows that the obligations created under the Miller Act are serious and contractual terms won’t do much to affect those obligations.

Another recent opinion swings quite the other way when discussing obligations under contract vs. the Alabama Little Miller Act. In Keller Construction Company of Northwest Florida, Inc. v. Hartford Fire Insurance Co., the Alabama Court of Civil Appeals found that a pay-if-paid clause between the contractor and subcontractor prevented the subcontractor from making certain bond claims. Specifically, the subcontractor made a claim for the payment of retainage from the contractor where the contractor’s retainage payment was withheld by the city for whom work was being performed. Ultimately, it came down to the fact that the contingent payment clause had been clearly expressed in the contract. The court found that the contractor was not liable for payment due to the pay-if-paid clause, and as a result, the surety was not liable either.

Finally, and back to federal projects, a case in the United States District Court for the District of Columbia has indicated that sureties might run into previously unforeseen liability under the False Claims Act. In United States ex rel. Scollick v. Narula, a contractor allegedly created an LLC and assigned a disabled veteran as the leadership of the LLC strictly in order to become eligible for benefits in the bidding process for acquiring federal jobs. Of course, when a federal job is in play, bonding is required under the Miller Act – and where fraud has taken place, that fraud could also implicate the surety. In this suit, the court contemplated whether the surety who provided that bonding could be held responsible under the False Claims Act rather than just the contractor alleged to have committed the fraud. While the surety avoided liability here, it did not shut the door to potential future liability for similarly situated sureties – and that could be something to keep an eye on.

WORKING ON PUBLIC PROJECTS

Speaking of sureties and public projects, there are a number of current events that may affect contractors, subcontractors and suppliers. Specifically, the border wall, government shutdown and procurement methods for public jobs have all been the subject of discussion of late.

Regarding the border wall, several large contracts have been awarded in anticipation of construction. In Rio Grande Valley, a Texas contractor was awarded $145M to construct six miles of the wall. Another contract was secured for at least $172M in Arizona for 14 miles of wall – and the total contract value could reach as much as $324M if all options are granted under the contract. These are huge numbers and the question remains – where is all this money going to come from?

TROUBLE AHEAD? IMPACT OF THE GOVERNMENT SHUTDOWN

That question leads to another development-the government shutdown. The shutdown, of course, is centrally focused on funding for the border wall. At the time this is being written, the government has been shut down for about two weeks, and there’s no immediate end in sight. But what exactly does that mean for industry members? 

Unfortunately, a government shutdown will probably mean the receipt of a stop work order and result in a project in limbo. When a shutdown is in place, payments stop flowing and projects are delayed – and those (necessary) project delays will result in even more costs. But remember, the payment chain sprawls. Shutdowns impact contractors, but subcontractors, sub-subs and suppliers feel the hit that much more. With a shutdown in play, the money will stop flowing down the payment chain to these parties, and things can get uncomfortable in a hurry. With notoriously thin margins, many links in the construction payment chain will be put in jeopardy. For those performing work on federal jobs, the only option might be to sit tight or to focus resources on those jobs that are still progressing and resulting in payment. By the time this is posted, in all likelihood, the government shutdown will have reached a conclusion. However, with shutdowns more frequent these days, it’s important for those performing work on federal jobs to anticipate the potential for a shutdown at some point during the life of the project. 

OTHER RECENT HOT TOPICS

According to the Washington Post, natural disasters caused $155 billion in damages in 2018. The construction industry is in a unique position when these disasters strike. The aftermath of a disaster provides construction participants the rare opportunity to increase business while also providing an opportunity to rebuild communities – beyond just the buildings that house them. Of course, with the current rate at which disasters strike, it’s important that structures aren’t simply rebuilt in order to only suffer when the next disaster strikes. Rather, building to withstand the next disaster should be paramount. The contractors, subcontractors and suppliers best suited to build disaster-resistant improvements will be primed for success in the aftermath of the California fires and while rebuilding communities affected by the active 2018 hurricane season.

Finally, Opportunity Zones have been a new topic of discussion in late 2018, construction projects specifically tailored for these zones may take off going forward. With the passage of 2017’s Tax Cuts and Jobs Act, these zones were created to give preferential tax treatment to those making investments in distressed communities. It should be no surprise that, following natural disasters, the areas most affected have been designated as Opportunity Zones. Because of the tax benefits associated, these zones are fertile ground for construction and development projects – and substantial investment and development is expected. Naturally, greater investment and land development is music to the ears of contractors, subs and suppliers. So be on the lookout for opportunities to perform work in one of these zones. A map of designated Opportunity Zones is available at the Department of Treasury’s website.

Top 7 Sources Of Uncertainty In Building Design And Construction

George M. Nicholos | Vandeventer Black | December 7, 2018

Recently the American Institute of Architects (AIA) and Dodge Data & Analytics and other allied construction industry parties conducted research to identify the top sources of uncertainty in design and construction along with best practices for managing associated risk.

And the top (7) are:

  1. Owner-driven changes: Instances where the owner’s requirements were not clearly initially defined, or subsequently modified resulting in added costs, design/construction effort, and schedule impact.
  2. Design omissions and communication gaps: As a rule, design documents do not contain information regarding each component in a building. Absent being a savant mind-reader, open and ongoing communication between parties is key to a successful project especially where fee crunch results in less and less information being provided or fully resolved by designers.
  3. Construction coordination: Buildings are a collection of thousands of components and ideas where opportunities for omissions and mis-communications are around almost every decision. Once again, open and on-going communication is key to a successfully managing construction coordination among the parties
  4. Unknown site or building conditions: These types of unknown conditions typically related to geotechnical issues and renovation projects. Related risks are usually allocated as part of the parties’ contract negotiations, requiring careful consideration since such unknown conditions can drastically affect project costs and construction schedules.
  5. Design or documentation mistakes: Few things are perfect, and perfection rarely exists with construction plans or specifications. However, unless accepted as a contracted risk, designers are not held by the law to the standard of perfection. The identification of and response to discovered mistakes is assisted greatly by good communication, and all parties to a project should remain vigilant reviewing, questioning, and coordinating between themselves to address errors and omissions when they appear.
  6. Accelerated design and construction schedules: There are a variety of reasons to expedite design and construction activities; however, a hurried project is increasingly susceptible to costly mistakes. Elevated alertness and coordination is important to help avoid such mistakes, or if they develop, to resolve them. Contractual risk allocation for expedited design and construction activities should be evaluated beforehand.
  7. Delays in procurement, fabrication or assembly: Delays can be born from labor uncertainties or material shortages/uncertainties. These can arise from a broad range of uncertainties including changing political tariff policies or market shortages resulting from the impact of severe weather events like hurricanes that can drain labor and materials and result in unanticipated cost increases. By their nature, these occurrences often cannot be known, but their risk allocation should be evaluated and negotiated because they may occur.

Key strategies for managing these and other project uncertainties include such things as: clear and direct leadership by each party, early assembly of the entire project team, and open communication. Parties should always be proactive and attempt to resolve uncertainties at the lowest level of management and as quickly as possible. Kicking the can down the street almost always results with magnified risk and damages, and often further detrimentally impacts party relationships. Formal documentation of these types of project events, and of the decisions regarding them, helps avoid later disagreements about when and what happened and is typically contractually required. Being proactive can avoid dispute escalation, which can adversely affect projects in so many ways. Finally, read carefully and follow your contract respecting such issues.