Monthly Archives: October 2018

New Speakers Added to 4th Annual Northwest CDDC

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Jeff Childs | Advise & Consult, Inc. | October 31, 2018

Due to some unfortunate health issues with two of our speakers, we have had to substitute with two new speakers and topics.

David L. Mefford will address the topic of Replacement Cost Estimates vs. Reality. This course is designed to help us understand estimating, how mistakes occur, how reality increases repair costs, and how to protect clients and help them deal with unexpected repair costs.

Jeff Childs discusses the Top 5 Key Factors to Consider for More Effective Online Writing. Do you write online articles or have you thought about creating an online presence? Through this course we will better understand how the internet looks at our articles and how to write with these factors in mind to maximize our efforts and make it easier for our readers and the internet to read and understand our online articles.

With top-notch speakers and an enthusiastic crowd, it’s sure to be a good time. There isn’t a better way or time to get 6 CLE/CE credits (including 1 ethics credit) and have a great time doing it. For the cost of $147 you will get those credits, networking, knowledge as well as a delicious lunch!

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Check out this awesome agenda!<-

8:30 AM – Check-in begins

9:00 AM – 10:00 AM
Insurance Issues Arising from Construction Defect Claims
Thomas Lether | Lether & Associates

10:05 AM – 11:05 AM
Adjusters Beware: New WA Case Law on Suits Against Claims Professionals
Betsy Gillaspy | Gillaspy & Rhode

11:10 AM – 12:10 PM
Visualizing Your Construction Defect Case for Mediation or Trial
Tyler Weaver and David Filippini | Cogent Legal

12:10 PM – 12:45 PM
Lunch

12:45 PM – 1:45 PM
Replacement Cost Estimates vs. Reality
David Mefford | DLM, Inc.

1:50 PM – 2:50 PM
What Happens When Lawyers Get into Trouble and 
How to Prevent it From Happening to You
Janette Keiser | J. Keiser & Associates LLC

2:55 PM – 3:55 PM
Top 5 Key Factors to Consider for More Effective Online Writing
Jeff Childs | Advise & Consult, Inc.

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November 16th, 2018 | Washington State Convention Center

A Word to the Wise: The AIA Revised Contract Documents Could Lead to New and Unanticipated Risks – Part II

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George Talarico | Construction Executive | September 18, 2018

Part I addressed general conditions, revised insurance terms, revisions that affect owner’s required insurance and revisions that affect contractor’s required insurance.

REVISIONS THAT AFFECT DISPUTE RESOLUTION

A seemingly minor but noteworthy change is to the definition of “Claim.” Under Section 15.1 a “Claim” is defined to:

  • include a request for a modification of contract time; and
  • exclude any requirement that an owner must file a claim to impose liquidated damages.

Notably, any request relating to contract time must be brought within the specified time period for Notice of Claim1 and in the prescribed manner2. There are at least two traps for the unwary. First, even though email is regularly used for communications among the parties, the revised contract documents do not recognize email as an acceptable form of delivery of a Notice of Claim. Second, an unwary contractor may wrongly assume that an owner’s failure to assert a claim for LDs means that LDs will not be imposed. This may lull the contractor into failing to timely assert its own claim for a time extension and thereby waiving its ability to do so.

There have not been any major revisions to the arbitration provisions of Section 15.4. Other changes, however, will influence dispute resolution. As before, a condition precedent to commencing Mediation and thereafter a possible arbitration or litigation, Claims must first be submitted to the Initial Decision Maker3. The IDM is normally the architect as the architect is designated as the default IDM4. The 2017 revisions, however, now include strong exculpatory language protecting the IDM from liability “for results of interpretations or decisions rendered in good faith5.” This broad protection from liability could place the architect (acting as IDM) in an uncomfortable and possible conflicted position if, for example, the Claim infers liability on the part of the architect (such as improper or defective design). Moreover, it raises possible struggles to ascertain the meaning of ‘good faith’ in the context of the architect’s actions6.

REVISIONS THAT AFFECT SUPERVISION AND CONSTRUCTION PROCEDURE

In circumstances where the specifications do not prescribe construction means and methods, these remain the responsibility of the contractor. It appears, however, that the contractor is now being burdened with some of the architect’s design responsibilities, in circumstances where the specifications and/or drawings “give specific instructions concerning construction means, methods, techniques, sequences or procedures7.” Previously, if the contractor determined that the specified means, methods, techniques, sequences or procedures were unsafe, the contractor was required to provide the architect with timely notice and then stop the work it deemed to be unsafe, while awaiting further written instructions8. Now the contractor does not have the right to stop work and it is incumbent upon the contractor and not the architect to propose alternate means, methods, techniques, sequences or procedures9. The architect’s role has been diminished and is only required to review the contractor’s proposal, solely for “conformance with the design intent for the completed construction10.”

REVISIONS THAT AFFECT SHOP DRAWINGS

Another change which could shift some design responsibility from the architect to the contractor is contained in the section on Shop Drawings. On one hand this section adds an assurance that in preparing Shop Drawings the contractor is “entitled to rely upon the adequacy” of the architect’s design criteria, yet on the other hand it removes the language stating that “[t]he contractor shall not be responsible for the adequacy of the” design criteria contained in the Contract Documents11. This modification could be interpreted to mean that through submittal of Shop Drawings, the contractor is taking on responsibility for design criteria.

REVISIONS THAT AFFECT CONTRACT TERMINATION

Another deletion that could prove troubling for the contractor involves contract termination by the contractor. Both the prior and current versions are consistent in that each allows the contractor to terminate the contract if work is stopped for 30 consecutive days, for certain specified reasons, i.e. court order. The difference is that the prior version limited this option only to circumstance where the delay was not caused by the contractor, a subcontractor or “entities performing portions of the Work under direct or indirect contract with the contractor12.”The latest version deletes the underlined words and therefore implies that the contractor has no right to terminate if the delay is caused by any party performing work on the project regardless of whether or not the contractor has any control over that party.

In instances where the owner terminates ‘for convenience’ the contractor will no longer be permitted to receive payment for overhead and profit on work that the contractor performed as a result of the termination unless the contract otherwise provides. Since the contractor is entitled to a termination fee included the contract13, it is important that a contractor negotiate for inclusion of overhead and profit in its calculation for a termination fee.

While many of the 2017 revisions to A201 appear to be stylistic in nature, there are some changes which could affect the liability of the architect, owner and the contractor (including its subcontractors). In order to prevent unpleasant surprises, the parties need to recognize those revisions that:

  • effect the claims process;
  • increase and/or limit costs;
  • shift liability; and
  • change deadlines.

This will allow them to negotiate around the revisions, i.e. included overhead and profit in termination fee) and/or perform the contract in a manner that anticipates the impact of the revisions, i.e. filing a claim for contract time extension without awaiting the owners claim for LDs.

1 “Claims by either party under Section 15.1.3.1 shall be initiated within 21 days after occurrence of the event giving rise to the Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.” A201-2017 § 15.1.3.1.

2 Pursuant to A201-2017 § 1.6.2 Notice of Claims must be delivered by registered or certified mail or by courier.

3 Note that there is no requirement that Claims submitted after the correction of work period be submitted to the IDM. A201-2017 § 15.1.3.2.

4 A201-2017 § 1.1.8.

5 Id.

6 See, e.g., MECO Systems, Inc. v Dancing Bear Entertainment, Inc., et al., 948 SW2d 185, 1997 Mo. App. LEXIS 1191 (the architect’s “actions raise genuine issues of fact regarding the architect’s partiality and good faith.” where the architect failed to demonstrate its compliance with contract provisions on timeliness and the contractor raised claims that construction delays were caused by the architect).

7  A201-2017 § 3.3.1.

8  Id.

9  Id.

10 Id.

11  A201-2017 § 3.12.10.1.

12  A201-2007 § 14.1.1 (emphasis added).

13 A201-2017 § 14.4.3.

Who Decides Arbitrability? Judge Or Arbitrator? (Again)

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Mack Sperling | North Carolina Business Litigation Report | September 12, 2018

Having a client required to arbitrate a case — even though that client never signed off on an arbitration provision — is nothing new.  Judge Conrad dealt with that situation late last month in Charlotte Student Housing DST v. Choate Construction Co., 2018 NCBC 88, where he said:

Because arbitration is a matter of contract, the usual rule is that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960). In an appropriate case, though, “a nonsignatory can enforce, or be bound by, an arbitration provision within a contract executed by other parties.”  Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 , 415 (4th Cir. 2000).

Op. ¶14.

Plaintiffs, who had acquired a Charlotte apartment complex from its original owner, were suing the architect, general contractor and two subcontractors over design deficiencies in the construction.

Plaintiffs had not signed the Construction Contract containing the arbitration provision, but Judge Conrad ruled that they were required to arbitrate their claims.

He said that:

estoppel is dispositive here. In short, “[a] nonsignatory is estopped from refusing to comply with an arbitration clause when it receives a direct benefit from a contract containing an arbitration clause.” Int’l Paper, 206 F.3d at 418 (quotation marks omitted). It would be manifestly unfair to permit a party to take the benefit of the contract “despite [its] non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract.” Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 517–18 (5th Cir. 2006); see also Int’l Paper, 206 F.3d at 418. That is what Plaintiffs seek to do here, and they are therefore estopped from refusing to arbitrate their claims against [the Defendants].

Op. Par. 23

Since the Plaintiffs were claiming that the Defendants had not performed their work in accord with the “Contract Documents,” they were bound by the terms of those documents, which contained the arbitration provision.

But what about that tricky question: who decides whether a matter should be arbitrated: Judge or Arbitrator?  Judge Conrad here seized the right to make that decision for the Business Court.  I’ve written about a Business Court decision on that point once before.  The short answer is that it has to be “clear and unmistakeable” that the parties intended for the arbitrator, not the Court, to decide the question of arbitrability.

It was certainly clear and unmistakeable that the parties signing the contract containing the arbitration provision had delegated authority to determine arbitrability to the arbitrator.  The arbitration clause invoked the AAA’s Construction Industry Rules, expressly delegate to the arbitrator “the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.”

But that wasn’t enough to bind the Plaintiffs, who were not signatories to the document referencing the Construction Industry Rules.

Those of you who aren’t at home hunkering down in fear of the impending hurricane are wondering why the Plaintiffs, who were found to beobligated to arbitrate, weren’t also obligated to have the arbitrator (as opposed to the Business Court Judge) decide whether they had to  arbitrate the case in the first place.

Well, even though bound by the arbitration provision, there was nothing to show that the Plaintiffs shared the intent of the signatories to have the arbitrator decide the issue of arbitrability.  As noted by Judge Conrad, “[c]ourts have generally found that agreements that do not mention or reference a particular non-signatory do not clearly or unmistakeably evidence an agreement by that non-signatory to have an arbitrator determine whether the agreement is arbitrable.” Op. ¶19 (quoting McKenna Long & Aldridge, LLP v. Ironshore Specialty Ins. Co., 2015 U.S. Dist. LEXIS 3347 at *14-15 (S.D.N.Y. Jan. 12, 2015).

Georgia Court Finds Contamination Clause Ambiguous in Meth Lab Claim

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Ashley Harris | Property Insurance Coverage Law Blog | October 28, 2018

A federal court in the Northern District of Georgia recently found that State Farm’s contamination clause was ambiguous regarding its application to a meth lab claim.

In Cochran v. State Farm Fire & Casualty Company,1 the Plaintiffs owned a rental property in Atlanta, Georgia. While the rental dwelling policy was in effect, the Drug Enforcement Administration executed a search warrant at the rental property, seizing a clandestine methamphetamine laboratory with an estimated yield of 260 kilograms of crystal methamphetamine. The agents processed approximately 200 gallons of hazardous liquid methamphetamine solution, approximately seven pounds of finished crystal methamphetamine, and approximately two additional gallons of liquid methamphetamine in a pot on a propone stove next to the kitchen.

Following the raid, the DEA informed Plaintiffs that the property was not safe to enter due to the presence of toxic and/or hazardous materials because of the meth lab. Testing revealed methamphetamine levels well over the allowable exposure limit mandated by the EPA, thus the property was uninhabitable following the loss.

Plaintiffs immediately submitted a claim to State Farm for the damages to their rental property. State Farm denied the claim based upon its contention that the hazardous methamphetamine residue constitutes “contamination” within the meaning of the policy, and that, therefore, the loss was not covered.

Plaintiffs filed suit, contending that the loss was a result of vandalism, a covered peril under the policy. On cross-motions for summary judgment, the issue before the trial court was whether the loss resulted from “vandalism” or “contamination.” The court found that the language of the policy regarding coverage for the loss was ambiguous.

Even after applying the canons of construction, the court was unable to resolve the ambiguity as a matter of law and left the question of coverage to the jury.

The Order also highlights that a majority of courts considering similar policy provisions in relation to both meth lab and marijuana grow operations have found the contamination clause does not apply to preclude coverage.

While this federal trial court order did not resolve the issue for the State of Georgia, this order, along with out-of-state appellate opinions cited in the trial court order, provide strong persuasive arguments for policyholders in this unfortunate situation.
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1 Cochran v. State Farm Fire & Cas. Co., No. 1:17-cv-00984 (N.D. Ga. August 22, 2018).

Almost Nothing is Impossible

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Smith Currie | October 22, 2018

In today’s ever-changing legal and political climate, contractors are being forced to deal with events and circumstances that seemed improbable just a short time ago. These changing circumstances have led some contractors to question whether they are required to continue performing in the face of uncertainty and, in many cases, potentially large losses. The doctrines of impossibility and impracticability, if proven, can serve as powerful defenses and excuse performance of a construction contract. However, contractors should exercise great caution before relying on these defenses as an excuse for nonperformance, as the consequences of stopping work without proper justification can be disastrous.

One of the hottest topics in the business world today is trade and tariffs, and what impact the various proposed U.S. tariffs on foreign materials, such as steel and aluminum, will have on the construction industry. Will tariffs lead to across the board price increases and materials shortages? Will contractors and subcontractors have to bear these added costs? If so, do the doctrines of impossibility or impracticability offer contractors and subcontractors a defense to excuse performance?

The doctrine of impossibility excuses contractors from performing if something unexpected occurs that is not addressed by the contract or custom, and makes performance commercially impracticable. Put another way, if the question of how to deal with an unexpected event, like an unforeseen tariff on foreign steel, can be answered by referring to the construction contract, then the doctrine of impossibility is unlikely to excuse performance.

As it relates to material cost increases and/or shortages that might result from the imposition of tariffs, the vast majority of construction contracts today contain clauses that specifically address and allocate risk for these issues from both a cost and scheduling standpoint. Notably, some construction contracts address these issues through the definition of “force majeure” by specifically excluding materials cost increases and material shortages from the definition. Thus, assuming the construction contract at issue contains clauses that allocate risk for material cost increases and shortages, or otherwise addresses these issues, impossibility is unlikely to succeed as a defense to performance. Depending on the language in the contract, contractors and subcontractors may have to shoulder these added costs.

The related doctrine of impracticability may apply irrespective of contractual language and excuses performance where changed conditions make the cost of performance excessive or unreasonable. The key words here are “excessive or unreasonable.” So unless the unexpected imposition of a tariff results in added material or time-related costs that are “excessive or unreasonable,” contractors and subcontractors will not be able to assert impracticability as a defense. And while there is no magic number at which point the costs of performance become excessive or unreasonable, case law is full of examples where contractors and subcontractors are required to absorb costs that significantly exceed that which they anticipated due to circumstances beyond their control. In short, the doctrine of impracticability should not be thought of as an insurance policy against losses, even heavy losses.

Another issue facing the construction industry is labor shortages. Can a contractor or subcontractor successfully assert the defense of impossibility or impracticability in a circumstance where new immigration policies reducing the number of visas for foreign workers result in across the board labor shortages that lead to added costs? Possibly, but similar to the discussion above regarding tariffs, unlikely. Again, most construction contracts contain specific provisions that allocate labor requirements and risk, or otherwise address labor shortages through definitional exclusions related to force majeure. Thus, the doctrine of impossibility will likely not be applicable. And even though labor shortages resulting from unexpected changes in immigration policies could result in increased costs to contractors and subcontractors, only in the rarest of circumstances it is likely that such increased costs will meet the definition of “excessive” or “unreasonable.”

This is not to say that there are absolutely no circumstances in which imposition of tariffs, changes in immigration policy, or any number of other unexpected events could result in a situation where the doctrines of impossibility or impracticability could be successfully asserted as a defense to performance of a contract. Nor is it to suggest that contractors and subcontractors have no other defenses in the face of new tariffs or immigration policies that affect their work, as many construction contracts would consider these actions a change in law under which relief may be available. But by and large, circumstances under which new tariffs or changes in immigration policy would permit a contractor to successfully assert the defense of impossibility or impracticability and excuse performance are probably the exception, not the norm.

Remember, a contractor’s defense of impossibility is an owner’s claim of abandonment. The consequences of improperly relying on the defenses of impossibility or impracticability as an excuse to stop work and walk off of a job can be disastrous, resulting in liability for all costs of completion of the contract and, in the case of public work, possible debarment or disqualification from future work. Contractors and subcontractors should exercise extreme caution and seek legal advice before relying on the defenses of impossibility or impracticability.