What California’s COVID-19 Reopening Means for the Construction Industry

Garret Murai | California Construction Law Blog

This past Wednesday, Governor Newsom announced that California would reopen after being in lockdown for over a year due to COVID-19. Gone is Governor’s Stay at Home Executive Order. Gone is California’s Blueprint for a Safer Economy. And gone is the state’s somewhat confusing four-tier, yellow (minimal), orange (moderate), red (substantial) and purple (widespread), risk-level mapping system. 

So what does this mean for the construction industry?

Well it’s not quite business back to usual. CalOSHA’s Standards Board voted this past Thursday to pass revised COVID-19 Emergency Temporary Standards (“Revised Standards”). That same day, Governor Newsom signed Executive Order N-09-21 implementing the Revised Standards immediately while they are being reviewed by the Office of Administrative Law.

When Do the Revised Standards Take Effect?

The Revised Standards take effect immediately, although they are subject to review by the Office of Administrative Law, so there could be changes in the future.

Who Do the Revised Standards Apply to?

The Revised Standards apply to all employers in California.

What are the Requirements Under the Revised Standards?

The Revised Standards include the following requirements:

  • Face Coverings:  Workers without COVID-19 symptoms, whether indoors or outdoors and irrespective of vaccination status, will no longer be required to wear face coverings except in the case of an outbreak (i.e., 3 or more cases in an exposed group of employees), and in certain settings when required by the California Department of Public Health (CDPH), such as public transit, K-12 educational facilities, etc.. 
  • Respirators: Employers are required to provide respirators for voluntary use to all workers who are not fully vaccinated and who are working indoors or in vehicles with more than one (1) person and to all workers, irrespective of vaccination status, during a major outbreak (i.e., 20 or more cases in an exposed group of employees). Respirators must be a respiratory device approved by the National Institute of Occupational Safety and Health (NIOSH) to protect the wearer from particulate matter, such as an N95 filtering facepiece respirator.
  • Physical Distancing: Physical distancing and barriers are no longer required. However, employers are to evaluate whether to implement physical distancing and barriers during an outbreak, and during a major outbreak, employers must implement physical distancing and barriers.
  • Cleaning Procedures: Employers are required to continue identifying and regularly cleaning frequently touched surfaces and objects. Employer are required to inform employees and authorized employee representatives of cleaning and disinfection protocols including the planned frequency and scope of cleaning and disinfecting.
  • COVID-19 Prevention Program: Employers are still required to maintain a written COVID-19 Prevention Program. However, employers must now review the  CDPH’s Interim Guidance for Ventilation, Filtration, and Air Quality in Indoor Environments. COVID-19 prevention training must also include information on how the vaccine is effective at preventing COVID-19 and protecting against both transmission and serious illness or death.
  • Exclusion from the Workplace: Fully vaccinated workers who do not have COVID-19 symptoms no longer need to be excluded from the workplace after a close contact (i.e., within six (6) feet of a COVID-19 case for a cumulative total of 15 minutes or more during any 24-hour).

Where Can I Get Further Information?

CalOSHA has published a FAQ on the Revised Standards. Because the Revised Standards were only implemented yesterday it is expected that the FAQs will be updated regularly.

Not All Design-Build Projects Are Created Equal

Nicole Markowitz and Richard Robinson | Peckar & Abramson

As the need for faster and more efficient construction increases, design-build agreements are growing in popularity. Design-build projects may account for 44% of nonresidential building in the United States this year. However, contractors who venture into a “design builder” role may unexpectedly become liable for design errors/omissions that are not covered by their insurance policies.  In turn, they may expose themselves to liability and insurance risks that are neither insured nor managed.

In this article, we’ll discuss how the contractor who becomes a design-builder, or performs design-related work through subcontractors, faces potentially unmanaged risk.  We will also explore indemnity, warranty, and insurance traps by paying attention to contract language in both traditional design-build and design-assist scenarios.

Contractors Acting As Design-Builders Face Design Liability From Inherent “Holes” in Insurance Coverage

Under the design-build arrangements most commonly used in the United States, the contractor is obligated to provide design services for the project. The inevitable question that follows is “how are design builders managing that risk?”  Often the answer lies in the two most common risk management approaches contractors employ – subcontracting and insuring.  But are those risk management tools working as expected?

Contractors may have licensed design or engineering professionals in-house or contractors may subcontract design services through a licensed design-professional. In both situations insurance for the risk is central, either to protect the contractor from errors by its in-house designers or to ensure that funds are available in the event of design errors when subcontracting design services.   There may, however, be significant gaps when relying on such insurance in these situations beyond the limitations commonly known about such insurance policies, such as “claims made” limitations, coverage amounts, and deductibles.

Although Professional Liability policies are at times called “E&O”, or errors and omissions, policies, often professional liability policies do not insure against all defects or deficiencies in the designer’s work.  Instead, the policies are drafted to insure against a finding of liability on the part of the designer, and that liability is based on the failure to meet an applicable standard of care.

Implicit in this critical distinction is the potential for errors to have occurred, but if those errors were not within the designer’s standard of care, there would be no liability. And since the insurance covers “professional liability,” not merely an error, there could be no insurance coverage.

Architects often assert that their standard of care is not one of perfection, specifically stating that errors are permissible to a “reasonable” degree.  Where courts embrace that standard, there could be an error, but no liability for that error and therefore no insurance coverage.

A design build contractor, however, may be fully liable nonetheless if it accepts a different standard.  When that occurs, the two most common mechanisms of risk management anticipated by design-builders, assuming that the risk was shifted to the designer or through insurance, may not function as expected.  In turn the design-builder may face an unmanaged risk.

Design-Build Insurance Solution 

Contractors in design-build agreements may encounter difficulty negotiating contract language to address this problem.  What, then, is a contractor to do?

In those situations, contractors in design-build projects are encouraged to consider Contractors Protector Professional Insurance (“CPPI”).  In general, CPPI coverage is intended to directly insure the design builder from design risks, including some described here, however such policies need to be carefully analyzed since holes can exist in CPPI coverage was well.

A well-developed CPPI policy can offer various avenues of coverage.  First, CPPI provides standard professional liability coverage.  Depending on the wording of the policy, the gaps described in this article can be mitigated.

Second, CPPI provides mitigation, or rectification, coverage. With mitigation coverage, if the contractor/design-builder learns of a design error during construction, it can proactively correct that error or omission prior to the assertion of any claim by the owner. Contractors should be aware that many carriers require immediate notification and may require carrier approval before any money can be spent to mitigate the design errors or omissions.

Lastly, CPPI provides protective coverage.  Protective coverage supplements the design professional’s professional liability insurance coverage by providing direct benefits to the contractor/design-builder for any downstream claims for costs above what will be paid by the design professional’s liability insurance.

Contract Wording Can Create Problems For Contractors Acting as Design-Builders 

When contractors assume design-build obligations, careful attention to contract language is needed to see where exposure for design liability may exist.  For example, two widely used design-build forms include either “design” or “design services” in the definition of the design-builder’s “Work.” Design-build forms created by large institutional or public owners often include similar language. In such cases, warranty and indemnity provisions may be the culprit in creating unmanageable liability for the contractor.

Warranty Problem 

If a contractor’s “Work” in a design-build agreement includes design services, and if the design-build contractor agrees to warrantee that the “Work” will be free from any defects or deficiencies,” a trap could be created.  Another equally dangerous way that such a provision might be phrased is for the design-build contractor to guarantee that it will correct “Defective Work.”  Either one of these provisions could be interpreted to impose the warrantee or guarantee on all defects in the design, and, as discussed above, insurance policies may not cover all defects or errors. Instead, they may only cover the defective work or design errors/omissions if the error was outside of the standard of care for the architect hired by the contractor.  In turn, the contractor may face exposure to uninsured liability.

Warranty Solution 

During contract negotiations in a design-build agreement, a best practice is for the contractor to insist that its warranty of the “Work” be defined to include construction labor and materials but not design services. The contractor can also provide the owner with a separate and insurable standard of care for design services performed by its architect, which would be separate from the warranty. Experienced construction counsel could be of help in making certain that contract language, which protects the contractor, is included prior to execution of a design-build agreement.

Indemnity Problem 

Indemnity clauses are common in construction contracts, typically to trigger insurance coverage for bodily injury and property damage claims, but too often they are drafted more broadly than is necessary for that purpose. For example, when a contractor must indemnify an owner against claims “that may arise from the performance of the “Work,” and “Work” includes design services, the contractor can be seen as effectively providing the owner with complete protection against design errors and omissions by its architect. As  described above, the architect or design-builder may not be insured under its professional liability coverage to the same extent required by such a broadly drafted indemnity clause.  In fact, this is exactly why designers often refuse to accept such broadly drafted indemnity clauses.

Indemnity Solution 

A solution to the indemnity trap is to address it during contract negotiations. By removing design services from the definition of “Work,” and creating a separate indemnity of the Owner against design errors and omissions by the architect, the contractor optimizes the chances that there is parity between liability for a design error or omission and coverage under the architect’s professional liability insurance. As with the warranty trap, experienced construction counsel in the negotiation process can be helpful.

Design-Assist vs Design-Build 

Unlike design-build agreements where the contractor takes the reigns and leads the design and build process—and may carry the lion’s share of responsibility and liability—design-assist agreements can involve a more collaborative framework and do not carry the same level of potentially uninsurable liability.  Design assist is a collaborative model, in which the role of the contractor is one of assisting in the development of the design, but not assuming responsibility for the design.  However, a word of caution is advisable in regard to “design-assist,” because while the term is used with some frequency, it is often used inadvisably or without clear definition.

As a result of the potential cloud regarding the proper use of “design-assist,” contractors need to be wary of the risks posed by unfavorable contract language.  Loose or sloppy language from design-build agreements can find its way into design-assist agreements and create the same assumption of liability and gap in insurance coverage contained in the design-build agreement.  For example, if the owner’s architect for a design-assist project is not required to fully coordinate the work of the design-assist contractors, liability for coordination of design-assist services could arguably fall upon the contractor.

To protect against unexpected and possibly uninsured liability, contractors must strive for contract documents that are carefully drafted to outline and delineate the design liability for design defects/failures of each party involved in the design-assist process.  The contract documents must be clear that the contractor will not take on additional liability for their advisory involvement in the design process and that the risk of liability for design errors and omissions remains with the owner or its designer.

More specifically, in design-assist agreements, special care must be taken to ensure that the contractor: 1) does not inadvertently waive the owner’s implied warranty of the plans and specifications; and 2) requires that the owner’s architect assume responsibility for and coordinate the design services of all design-assist subcontractors.

Surety Solution 

Increasingly, subcontractor trades or crafts may assume design-build responsibility as part of their work.  Although designers do not often provide Performance Bonds, subcontractors commonly do.  A risk management technique for contractors facing potentially uninsured design risk is to mitigate that risk through the combination of imposing similar terms on a design-build subcontractor and requiring that the subcontractor provide a performance bond standing behind that obligation.

In other words, include similar warranty and indemnity obligations in the subcontract, coupled with a bond that would honor the subcontractor’s obligation.  Of course, the amount of the bond, duration and relevant terms should also be considered.

Conclusion 

While both design-build and design-assist agreements present liability challenges, there are ways that savvy contractors can protect themselves from unexpected liability for design errors or omissions.  Most importantly, design-build contractors must be aware of the traps that may exist in relevant agreements, as well as the weaknesses that may exist in risk management strategies previously thought to be sufficient.

Courts Will Not Rewrite Your Post-Loss Property Insurance Obligations

David Adelstein | Florida Construction Legal Updates

In the preceding posting, I wrote about making sure you comply with your property insurance policy’s post-loss policy obligations.  By failing to comply, you can render your policy ineffective meaning you are forfeiting otherwise valid insurance coverage, which was the situation discussed in the preceding posting.  As an insured, you should never want this to occur!

In another case, discussed here, the property insurance policy had a preferred contractor endorsement.  This means that instead of paying the insured insurance proceeds, the insurer could perform the repairs with its preferred contractor.   Typically, the insured will pay a discount on their premium for this preferred contractor endorsement.  The insurer elected to move forward with the repairs based on the preferred contractor endorsement but the insured performed the repairs on his own and then sold the house.  By doing this, the appellate court held the insured rendered his policy ineffective by breaching his own policy (and failing to allow this post-loss obligation to take place).  The explicit terms of the policy allowed the insurer to perform the repairs instead of paying the insured insurance proceeds.  The court could NOT rewrite the post-loss obligations in the policy by requiring the insurer to pay insurance proceeds when the insurer, per the preferred contractor endorsement, elected to perform the repairs.

Your insurance policy is a contract and will be treated as a contract.  Please make decisions with this in mind and consult counsel before taking positions that may be violative of your own contract and render your policy ineffective.

Federal Circuit Affirms That The Government Not Liable For Contractor’s Costs Of Dealing With Outbreak

Lori Lange | Peckar & Abramson

In an earlier blog, we wrote about the Civilian Board of Contract Appeals’ (CBCA) decision denying a contractor’s claim for the costs of demobilizing from a construction site due to concerns about performing work during an Ebola virus outbreak in Appeal of Pernix Serka Joint Venture v. Department of State, CBCA No. 5683 (April 22, 2020). The Pernix case was of interest to many government contractors because it was an indication of how the Government was likely to respond to contractor claims for additional costs due to COVID-19.

In Pernix, the contractor sought to recover its additional costs resulting for a shutdown and remobilization due to an Ebola outbreak. The contracting officer had provided the contractor with a time extension but denied the contractor’s cost claim stating that there was no contractual basis for a price adjustment. The contractor appealed the contracting officer’s final decision to the CBCA who ultimately granted the Government’s motion for summary judgment and dismissed the appeal.

The CBCA held that the Default clause, FAR 52.249-10, explicitly addressed how acts of God, epidemics, and quarantine restrictions were to be treated – the contractor was entitled to additional time, but not additional costs. It held that the contractor had not identified any clause in the contract that served to shift the risk to the Government for any costs incurred due to an unforeseen epidemic and rejected the contractor’s arguments that there was a constructive change to the contract. As the contract was firm, fixed-priced, the CBCA concluded that the contractor bore the additional costs of contract performance even if the contractor did not contemplate dealing with an Ebola outbreak at the time it submitted its proposal or at contract award.

The contractor filed an appeal with the Court of Appeals for the Federal Circuit. Among other arguments, the contractor asserted that the CBCA erred when it dismissed the contractor’s constructive change claim. The contractor argued that it was pressured by the Government to resume work as soon as possible. On July 9, 2021, the Federal Circuit summarily affirmed the CBCA’s decision. The Federal Circuit’s decision seems to confirm that contractor’s seeking to recover for COVID-19 costs will have a difficult time recovering money from the Government absent an affirmative direction from the Government to make changes to the contract.

Ohio Bill Shortening Statute Of Limitations Goes Into Effect

Alayna Bridgett and Gregory Thompson | Hahn Loeser & Parks

Yesterday, June 14, 2021, Ohio Senate Bill 13 went into effect. This bill shortens the statute of limitations for breach of written contract actions from eight years to six and, for oral contracts, from six years to four.

As we shared with readers earlier this year, while S.B. 13 amends the statute of limitations for contract claims in general, it is important for construction project stakeholders to consider provisions within their own contracts that limit contract claims periods. Nearly every construction contract will include provisions shortening the time frame in which a party may bring a claim (oftentimes to just days). These provisions provide a period much shorter than the enumerated statute of limitations. It is important to remember that, regardless of whatever appears in the Ohio Revised Code, parties must comply with the claims provisions provided in their contracts.