Monthly Archives: April 2012

A Case for Expanding the Use of Pass-Through Claims

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Benton T. Wheatley & Jessica Neufeld – April 18, 2012

In construction cases, owners must often deal with claims made against it by contractors, despite the fact that the claim may really be a design professional’s fault. Common contracts may also prevent all three parties — contractor, owner, and design professional — from resolving the dispute in one lawsuit or arbitration. This result may require two separate lawsuits to resolve, or require one lawsuit with an extra party, which really has no stake in the claim. This wastes the resources of everyone involved, and solves nothing.

Subcontractors encounter similar difficulties when they have a claim that results from the owner’s breach of contract with its general contractor. In the case of the subcontractor claim, courts have routinely solved this problem by allowing the contractor to present the subcontractor’s claim to the owner via a method called pass-through claims. However, pass-through claims have traditionally been limited to a claim by a subcontractor, through a general contractor/intermediary, against an owner.

Pass-through claims should be universally applicable to all contractual relationships on a construction project. For example, a general contractor should be able to make a claim through the owner as intermediary, against a design professional. What makes a pass-through claim viable is not the label or position in the pecking order of the party making the claim, but the money and time saved by having one lawsuit instead of two, so long as all of the procedural safeguards of pass-through claims are complied with.

Pass-through claims are equitable because they prevent the responsible party from receiving a windfall if the responsible party was somehow not responsible to the damaged party, or the intermediary for damages suffered under a contract. Pass-through claims preserve judicial and client resources, by allowing what is really only one lawsuit to be solved in one lawsuit, and not two.

The few courts that have examined the expansion of pass-through claims have uniformly found that the equitable nature of the claims and the public policy of judicial efficiency supports their use. For these reasons, anyone who is involved in the construction or real estate industry should advocate for the expansion of the use of pass-through claims.

via A case for expanding the use of pass-through claims – Lexology.

OSHA Extends Enforcement Measures in Residential Construction

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Clair E. Wischusen – April 18, 2012

Occupational Safety Health and Administration (OSHA) will extend its temporary enforcement measures in residential construction for an additional six months. Originally set to expire on March 15, 2012, the temporary enforcement measures have been extended through September 15, 2012.

The following general policy guidance is to be followed for enforcement of the new residential fall protection directive (Compliance Guidance for Residential Construction, STD 03-11- 002) and for compliance assistance related to that directive.

OSHA has made it a priority for its Compliance Assistance Specialists (CASs) to provide assistance to the residential construction industry. Residential fall protection requests have been made the CASs’ highest priority. In addition, excluding imminent danger situations, requests from residential construction businesses have been made their highest priority for receiving an on-site visit.

During inspections of employers engaged in residential construction who are not complying with the new residential fall protection directive, but are following the old directive (Plain Language Revision of OSHA Instruction STD 3.1, Interim Fall Protection Compliance Guidelines for Residential Construction, STD 03-00- 001), the Regional Administrators and Area Directors will take the following actions:

Area Directors will allow an additional good faith reduction in penalties of up to 10 percent for employers engaged in residential construction. In addition to the safety and health management system good faith determination in Chapter 6 of the Field Operations Manual, the Area Director shall consider examples of attempting to comply in good faith to include requesting and scheduling an on-site consultation visit, ordering protective fall equipment for its employees or performing a documented evaluation of feasible means of abatement. This good faith reduction does not apply in cases of a fatality, catastrophe or serious injury resulting from a fall during residential construction activities.

Area Directors will allow residential construction employers at least 30 days to correct fall protection violations identified under the new residential fall protection directive. During that time, if such employers are not in compliance at that site or another site, no additional citations or repeat citations shall be issued. This policy does not apply in cases of a fatality, catastrophe or serious injury resulting from a fall during residential construction activities.

All of the measures described in this policy apply only to employers that are, at a minimum, following the old directive (STD 03-00-001). If the employer is not complying with either the new directive or the old directive, the Area Director shall issue appropriate citations.

Over the past year, OSHA has worked closely with the residential construction industry, conducting more than 1,000 outreach sessions nationwide to assist employers in complying with the new directive. OSHA will continue to work with employers to ensure a clear understanding of, and to facilitate compliance with, the new policy.

OSHA’s website also has a wide variety of educational and training materials to assist employers with compliance, including multiple easy-to-read fact sheets, PowerPoint and slide presentations, as well as other educational materials. To access these materials, visit OSHA’s Fall Protection in Residential Construction page.

via OSHA extends enforcement measures in residential construction – Lexology.

11 Hidden Costs Of Owning A Home

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Michele Lerner – April 23, 2012

Low mortgage rates and more affordable home prices in some housing markets are creating renewed interest in homeownership, especially among young renters who are tired of seeing their rent costs rise every year. Homeownership can be a path to a solid financial future because each monthly mortgage payment will lead to increased home equity and rising home values will eventually add to your asset. However, potential buyers who are unprepared for the true cost of owning property may be shocked by the bite homeownership can take out of their wallet in addition to their mortgage payments.

Inspection and Appraisal Fees

Before you purchase a home, you need to pay for a home inspection, an appraisal and perhaps additional inspections for pests or radon. The costs of these inspections are borne by buyers and are a necessary protection to avoid buying a flawed property or paying too much.

Closing Costs

Some buyers are able to negotiate with the seller for a contribution for these costs, but buyers need to be prepared with the cash for anywhere from 2% to 4% of the mortgage balance depending on your area.

Taxes

As a homeowner, you’ll need to pay property taxes, which are generally part of the escrow you pay into each month. Remember, even if you have a fixed-rate home loan, your property taxes could go up and increase your monthly housing costs.

Insurance

Your lender will require home insurance, which could be costly depending on a variety of factors including the construction materials of your home and the location. Even if you have renter’s insurance, you’ll find that home insurance costs more because you are paying for the ability to rebuild your home in addition to replacing your personal possessions. Insurance costs can also rise over time, and you may need supplemental insurance if you live in a flood or earthquake zone.

HOA and Condo Fees

If you buy a home within a homeowners’ association or a condominium association, you’ll be required to pay a monthly or quarterly fee. These fees can rise, or your association may need to charge a special assessment for projects such as repaving the parking lot or repairing a roof.

Moving Costs

Not only will you need to pay a moving company or rent a truck to move your belongings, but you may need to make deposits to start your utilities.

Utility Bills

Depending on where you live now, your costs for electricity, gas and water could be higher when you move into your own home. You may also need to pay for garbage collection along with your Internet, cable and phone bill.

Furniture and Decorative Items

While this is essentially a discretionary expense, most people who move from a small apartment to a larger home need to buy at least some new furniture. You can keep your expenses in this category in check by waiting for a year or two to buy extra things and carefully comparing prices before any big purchases.

Lawn Care

Whether you handle your yard work yourself or hire a professional, you will have to pay something to keep your landscaping in check. Lawn equipment can be costly and, if you have a lot of land, you may need items such as a snow blower or a leaf blower, too.

Maintenance

Interior home maintenance costs both time and money. While you may be able to change your furnace filters, clean your gutters and keep your appliances running smoothly yourself, you may also need to hire a contractor to clean and inspect your chimney and to keep your heating and air conditioning system in top shape.

Repairs

While maintenance tasks can be predictable, the most costly part of homeownership typically comes with unexpected repairs such as replacing or repairing the roof, fixing loose tiles in the shower, removing an overgrown or dead tree, or paying for mold mitigation in a damp basement. The list of possibilities is endless, so the best thing homeowners can do is to set aside savings for an emergency. Some financial experts suggest budgeting for 1% or 2% of your mortgage balance as a yearly maintenance and repair fund, but the amount you save depends on the age, condition and size of your home.

The Bottom Line

While buying a home may cost a little more than you think, the investment in property can still be worthwhile as long as you buy what you can afford, budget for expected and unexpected expenses and hold onto your home for at least seven to 10 years.

via 11 Hidden Costs Of Owning A Home.

Late Bids/Proposals

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Jay R. Houghton – April 6, 2012

Proposing or bidding on federal government contracts requires that a contractor strictly comply with multiple regulations, as well as the requirements stated in the agency’s solicitation (“RFP” or “IFB”). If a contractor fails to do so, the likely result is that the expensive and time consuming proposal effort is wasted because the submission is rejected as nonresponsive. Although a proposal can be rejected as non-responsive for numerous reasons, one of the more easily avoided grounds for rejection is because it was submitted late. The recent decision, Watterson Construction Co. v. United States, 98 Fed. Cl. 84 (2011), illustrates an agency’s literal application of the rule that a proposal must be submitted on time. Fortunately, in that case the contractor’s proposal was eventually accepted, albeit one year later. However, it still presents a very serious lesson regarding the timely submittal of proposals or bids.

In Watterson Construction the offerors were allowed to submit proposals to the Corps of Engineers (“COE”) by hand delivery, regular mail, or e-mail. The proposals were due on or before 12:00 p.m. on March 16, 2010. Watterson Construction sent the e-mail containing its proposal at approximately 11:01 a.m. on that date. The proposal did not arrive at the relevant COE e-mail in-box until 12:04 p.m. and it was rejected as late.

Unbeknownst to Watterson Construction, the COE’s e-mail server was inundated by e-mails at that particular time. The resulting e-mail storm slowed the COE’s servers to a crawl delaying the delivery of all e-mails.

Although the end result was that the contractor’s proposal was ultimately found to be timely, that did not happen until more than one year later and only after Watterson Construction incurred significant expenses working to overturn the rejection decision. But why did the COE reject the proposal even after realizing that the delayed delivery was not Watterson’s fault and that it had actually sent the proposal almost an hour early? Simply put – because the COE strictly interpreted the Federal Acquisition Regulation (“FAR”) governing the submittal of proposals to federal agencies as meaning that Watterson’s proposal had not “reached” or been “received” by the designated government office (in this case the e-mail in-box) before the deadline.

Fortunately, Watterson Construction clarifies how the rules governing electronic proposal submissions should be handled by the federal government. The rule that was unclear before this case states that the proposal must reach or be received by the designated government office before the deadline. Watterson argued that the designated government office was the COE’s server, not the actual designated e-mail in-box. Watterson also argued that, even if their proposal was late, the “Government Control” exception should be applied such that it should be considered because the proposal had been received at the “government installation designated for receipt of offers and was under the government’s control prior to the time set for receipt of offers.”

In the end, the court concluded that the proposal should be accepted because the “Government Control” exception for late submittals applied and the designated government office was the COE server. The Watterson Construction opinion contains a much more detailed analysis of a number of other applicable rules but this is a key point. But the lesson to be learned is that government agencies strictly interpret the rules governing the submittal of proposals.

Although Watterson was eventually able to have its proposal considered, the lesson here is that the earlier contractors submit their offers the better. Some might say that goes without saying. However, it all too often happens that proposals are submitted at the very last minute due to the nature of compiling sub-contractor’s proposals and finalization of the proposal. It is imperative that a contractor plan for last minute contingencies when compiling and submitting a proposal in response to a RFP on an IFB.

So, what can a contractor do to ensure the timely submittal and acceptance of a proposal?

Closely review the solicitation and confirm (then reconfirm) the due date and time, the location to which it must be delivered, and the form in which it must be delivered;

Ensure that all sub-contractor’s proposals are received as far in advance of the proposal deadline as possible;

Plan for the technology being used to submit the final proposal may break down or not be available. Redundancy is the key here. For example, have a back-up copier, computer, fax machine, and/or printer, make sure all the relevant individuals’ cell phones are charged, save multiple copies of the proposal on various media such as a hard drive and a memory stick;

If hand delivering the proposal, ensure that there are multiple ways of getting to the delivery point in case there is a traffic or security access delay; and

Last, but not least, as a general rule of thumb, assume that what can go wrong, will go wrong.

via Late bids/proposals – Lexology.

Contractual Indemnity

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Hubert J. “Hugh” Bell, Jr. – April 6, 2012

Two recent decisions by Georgia appellate courts have addressed the issue of contractual indemnity. The Supreme Court of Georgia in the Kennedy Dev. Co., Inc. v. Camp, 290 Ga. 257 (2011) found that an indemnity provision in an assignment and assumption agreement was unenforceable. Kennedy, the developer of an upstream subdivision, assigned all of its rights and responsibilities to the upstream subdivision’s homeowners’ association. The previous owner of the land of the subdivision had entered into agreements with a downstream subdivision and its homeowner’s association to permit the future upstream subdivision to use the lake on the downstream subdivision as its detention pond in exchange for a promise to make certain repairs and improvements to the pond and to maintain the pond. Camp owned some property adjacent to the downstream subdivision and alleged that the excess storm water from the upstream subdivision significantly increased the amount and velocity of the runoff from the downstream subdivision’s lake which drained into a creek on Camp’s property, resulting in erosion, tree loss, and other damage.

Georgia’s Anti-Indemnity Statute Interpreted

The assignment agreement by Kennedy to the upstream subdivision’s homeowners’ association included a provision providing that the homeowners’ association would hold Kennedy harmless from any debts, claims, actions, damages, judgments, or costs which arose prior to and after the agreement and are related to the construction, maintenance, repair, or operation of the subdivision. Georgia has a “anti-indemnity” statute which makes certain indemnity agreements unenforceable if they meet two requirements. The provision must relate in some way to a contract for “construction, alteration, repair, or maintenance” of certain property and promises to indemnify a party for damages arising from that party’s sole negligence. The first part has been interpreted broadly, including real property leases, design contracts, contracts with subcontractors, commercial and residential leases, in addition to traditional construction contracts.

The Georgia Supreme Court found that the agreement satisfied the first part of the test and also satisfied the second part in that the agreement provided that the homeowners’ association will indemnify and hold harmless Kennedy as to “any” or “all” claims, “no matter the origin of the claim or who is at fault.” Therefore, the agreement satisfied both conditions for application of the anti-indemnity statute and the provision was therefore invalid.

The teaching point here is that an indemnity provision may not be enforceable if it relates to the expansive view of construction, alteration, repair, or maintenance of property set forth in the Kennedy decision and if it purports to indemnify against the indemnitee’s sole negligence.

Indemnity Enforced

The Georgia Court of Appeals in JNJ Foundation Specialists, Inc. v. D.R. Horton, Inc., 717 S.E. 2d 219 (Ga. App. 2011) found a contractor liable to the owner for damages claimed by a person injured in an automobile wreck. The injured person claimed that traffic control at the project was inadequate. The contract between the owner and the general contractor had a provision with language similar to that in the Kennedy case. It required Horton to indemnify and defend the owner as indemnitee for “any claims” arising out of or connected with the construction work. This indemnity agreement did not limit the contractor’s liability to claims for which it or its subcontractors had been at fault. The Court of Appeals found that the indemnitor contractor had a duty to defend and hold harmless regardless of fault or causation.

Since the contractor’s CGL insurance policy covers harm caused by negligent acts but not the breach of a contractual duty, there may be no insurance coverage where the contractor’s actions or inaction did not contribute to the harm. When such a broad indemnity provision is included in a contract, legal counsel should be consulted before executing the contract to modify the indemnification provision to provide that some act of the contractor must have contributed to the harm.

via Contractual indemnity – Lexology.