Why are we so divided? Why do so few people step up when the situation demands it? Why is it so difficult to find consensus about what is right? In this fun and exciting Ethics and Elimination of Bias webinar, Timothy Velner addresses these questions through the lens of social psychology and mindfulness. He walks the listener through how the answers to these questions create blind spots in our awareness and then provides practical tools through which we can increase both our individual and company awareness to mitigate risk and do the right thing. His webinar is based off his book Waking Up Work – Using Mindfulness to Uncover the Unknowns and Do the Right Thing.
About Timothy R. Velner
Timothy R. Velner has been an attorney for over twenty-five years managing transactions, litigation and disputes at various law firms, companies and clinics ranging from a division of the largest privately held corporation in the United States to the Legal Aid Society. In late 1990s he took a brief hiatus to study religion and spirituality at the Graduate Theological Union in Berkeley, California. Through this unique experience and his capacity to see first-hand when things go wrong, he has distilled commonality to risk and how it can be mitigated through awareness.
If you are reading this article, the chances are high that you have more than a passing interest in dispute avoidance, mitigation, and resolution particularly as it relates to the construction industry. While there are many technical, operational, and legal processes and best-practices that aim to assist contractors and owners in reducing the likelihood of a dispute or to mitigate the overall risk associated with a dispute, a topic that is less frequently discussed in relation to dispute avoidance, though no less important – is that of leadership.
As an MBA alumnus, I have the privilege to stay involved with the business school by serving as a leadership coach for current students. This involves facilitating groups of students as they work through simulations designed to replicate real-world dilemmas. The purpose of these simulations is to teach students to navigate the challenges associated with leading groups, make timely decisions based on incomplete data, and balance individual motivations with team objectives.
If you read the previous sentence and immediately thought, “That sounds like what I deal with every day” — you are not alone!
Construction’s Unique Challenges
Construction leaders, both in the office and in the field, face a unique set of challenges when compared to other industries. A prime example is the sheer number of stakeholders involved in a construction project – ranging from those funding the project to the sub-tier contractors physically putting steel and pipe in place.
Each stakeholder has their own set of interests, stressors, and goals. While the developer of the project site may be focused on the timing of completion, the lease-up of the facility, and the status of their relationship with city officials, the surety may be primarily concerned with the performance and financial health of the contractor.
As if that were not complex enough, it is also true that even within the same company different individuals can have personal goals that do not necessarily align. Consider the electrical subcontractor’s Project Manager whose immediate career trajectory may be determined by the financial success her company has on the project. This can be contrasted with the Project Executive who is entirely focused on the relationship with the general contractor to increase the chances of landing a future project. The situation is further complicated by the fact that construction project teams are rarely repeated from one project to the next.
This means that not only do the collaborators involved in a construction project have individual goals that may or may not be aligned with one another, but many of the team members have never worked together in the past! These factors, coupled with the capital-intensive (i.e. expensive) nature of construction are a combination which, if not managed properly, can lead to disastrous results – as evidenced by the billions of dollars of construction currently in some form of dispute resolution. So, the question becomes:
How can construction project teams appropriately balance individual objectives with overall project goals in order to create a shared future that considers all stakeholder interests and produces innovative solutions? Oh – and that all needs to be done quickly because according to the schedule you are already behind! The Missing Piece
As many of the MBA teams discover in the simulations, there is a common theme that emerges which explains many of the pain points and failures experienced by both the MBA and construction teams…
Or rather, a lack of trust.
Tell me if this sounds familiar to you,
“I felt like our discussions were guarded and we were all holding something back.”
This is a quote from a current MBA student during a recent simulation. This reflection hits the nail on the head. It reminded me immediately of countless OAC (Owner-Architect-Contractor) and subcontractor meetings that I have attended in the past.
In his book, The Five Dysfunctions of a Team, Patrick Lencioni astutely places the “Absence of Trust” at the base of his pyramidal model for the common pitfalls individuals and organizations fall into – which lead inevitably to a lack of effective teamwork.
As can be seen in Lencioni’s model, the absence of trust on a team is directly linked to several other ‘dysfunctions’ that hinder project success – fear of conflict, lack of true commitment, etc.
So, what exactly is an “Absence of Trust”?
Put simply, it means that the individuals comprising the team are not comfortable being their true authentic selves and are unwilling or unable to be vulnerable to each other. Team members who are not open with one another about their own mistakes and shortcomings make it impossible to build a foundation for trust.
As Lencioni puts it in his book,”As ‘soft’ as all of this might sound, it is only when team members are truly comfortable being exposed to one another that they begin to act without concern for protecting themselves. As a result, they can focus their energy and attention completely on the job at hand, rather than on being strategically disingenuous or political with one another.”From a dispute avoidance perspective, the above quote is particularly relevant and is critically important to understand. This is because while the vast majority of contractors and owners naturally desire to avoid damaging relationships with clients and/or costly litigation, an extreme focus on protecting only oneself and keeping project team members at arms reach in an attempt to stem off a potential dispute never allows the project team to become “High Performing”. Ironically, this less-productive, low-performing team that hasn’t cultivated the foundation of Trust necessary to effectively communicate issues within the pressurized environment of a construction project is actually more likely to find themselves heading into a dispute!
This is not to say that the members of the project team should abandon the processes, procedures, and best practices developed to protect themselves in the event of a dispute. Simply that a focused effort must be made by the project executives, managers, and field supervision to ensure that while following these procedural best-practices, authentic relationships built upon mutual trust, are still fostered among all project stakeholders.
How to Identify if Trust is Lacking
Below are a few additional red-flags that may indicate the level of trust within your team is lacking.
1. Communication is “guarded”: Team member’s true motivations or intentions are not openly discussed – which can result in other stakeholders making inaccurate assumptions or even projecting their own motivations;
2. No safe space for conflict: Team members do not feel comfortable disagreeing with one another. This leads to false consensus – team members not truly buying in to the plan even though they “agreed” to it;
3. Hesitate to offer help outside their own areas of responsibility; and
4. Dread meetings and find reasons to avoid spending time together.
Teams with a lack of trust tend to spend far too much time managing the way they interact within the group rather than focusing on the overall objectives of the team.
If a lack of trust is evident within your project team, the logical next question is: How do we create trust?
One of the key lessons for any leader to know about building trust is that as leaders, it is our job to cultivate an environment in which trust can flourish. This means creating an atmosphere in which our team members feel safe to give their true, unedited thoughts and opinions. Often, this means being the first person to show vulnerability – speaking up when you need help, openly discussing your motivations, giving the other people on the team a glimpse at the real you and putting aside your own need to be invulnerable in the eyes of your team mates.
This may seem counter-intuitive when considered through the lens of dispute avoidance, mitigation, and resolution. Indeed, the ability to balance the necessary legal and procedural best practices to protect one’s own interests while simultaneously building authentic, trust driven, relationships with other project stakeholders is one of the most difficult to finesse. Mastery of this skillset separates the good leaders in construction from the very best.
Unfortunately, as we all know, trust is not built overnight. In the construction industry, project teams are rarely the same from one project to the next and with today’s aggressive construction schedules, there is no time designated for “building trust” – despite its criticality. This is one reason it is so crucial for construction teams to utilize the most effective and proven methods available for building highly performing teams and to make conscious efforts to foster trust within the project team from day one.
Among many things to look forward to in 2021, we can add a new lien law to the list. Effective January 1, 2021, Georgia’s Lien Statute will be modified so that lien waivers and releases are limited to “waivers and releases of lien and labor or material bond rights and shall not be deemed to affect any other rights or remedies of the claimant.” O.C.G.A. 44-14-366(a). This would mean that lien waivers only waive lien or bond rights and do not waive contractual rights to collect payment.
The new law is in reaction to a decision from the Georgia Court of Appeals in ALA Constr. Servs., LLC v. Controlled Access, Inc., 351 Ga. App. 841 (2019). In that case, a contractor signed an interim lien waiver at the time it submitted an invoice. The contractor did not receive payment, and it failed to timely record an affidavit of non-payment or a claim of lien. Subsequently, the contractor filed suit for breach of contract. The Georgia Court of Appeals held that the statutory form lien waiver was binding against the parties “for all purposes” and not just the purpose of preserving the right to file a lien. By such sweeping logic, the contractor’s breach of contract claim was denied.
Fortunately, the new law prevents such a scenario. For liens and releases signed pursuant to O.C.G.A. 44-14-366, the rights of the claimant will only apply to lien and bond rights. All other rights and remedies with regard to the amount allegedly owed will not be impacted. The law also extends the deadline to file an affidavit of non-payment from 60 days to 90 days, meaning owners must now wait a full 90 days for lien waivers to become fully effective.
While the new law gives something to lien claimants, it also takes something away. A potential trap for the unwary lies in the fact that filing a lien will no longer have the simultaneous effect of dissolving a previously executed lien waiver. Therefore, a contractor who has executed a lien waiver and subsequently fails to receive payment must file an affidavit of non-payment to prevent the waiver from becoming effective; the filing of a lien, without more, will not suffice.
Contractors need to keep in mind that the ALA Construction decision still governs for the remainder of 2020. Contractors and owners need to familiarize themselves with the revised lien and bond waiver forms and Affidavit of Non-payment Forms found in O.C.G.A. § 44-14-366(c), (d), and (f). If you have any questions or wish to speak with an attorney, feel free to contact any of our associates.
All Class A commercial contractors in Virginia are required to have a minimum level of Commercial General Liability (CGL) coverage. As a general rule, this insurance is there for damage to property or persons arising from an “occurrence” that is covered by the policy. Many cases that are litigated relating to coverage for certain events under a CGL policy turn on the definition of “occurrence” and whether the event leading to a request for coverage constitutes an “occurrence.”
A recent case in Fairfax County, Virginia, Erie Insurance Exchange v. Spalding Enterprises, et al., is just such a case. In the Spalding Enterprises case, the Court considered the following scenario. A homeowner, Mr. Yen contracted with Spalding Enterprises to fix some fire damage at his home. Spalding promised the repairs would be complete in October of 2019. However, after Mr. Yen paid a $300,000.00 deposit, Spalding Enterprises stated that the work would not be completed until November of 2019. Yen then fired Spalding Enterprises and sued for breach of contract, constructive fraud, and violation of the Virginia Consumer Protection Act. Spalding Enterprises sought coverage from Erie Insurance for the claim and Erie denied coverage and sought a declaratory judgment that the events alleged in the Complaint by Mr. Yen did not fall under the definition of “occurrence” in the CGL policy held by Spalding Enterprises.
After discussing the definition of occurrence in the policy and the law in Virginia that generally precludes intentional acts from that definition where the result of the intentional act is a natural or probable consequence of that intentional act, the Court stated:
Here, Mr. Yen’s detrimental reliance is unquestionably a natural or probable consequence of the misrepresentations made upon which Mr. Yen was intended to rely. It follows that any alleged constructive fraud in the complaint is not an occurrence under Spaulding Enterprise’s CGL policy with Erie.
Because the fraud allegations (set out in more detail in the opinion) stated that the damages directly arose from the actions of Spalding Enterprises, the Court agreed with Erie and stated that the allegations in the factual allegations found in the Complaint did not constitute an “occurrence” under the policy.
The takeaways (aside from having an experienced Virginia construction attorney assist with any of these tricky issues) are 1. CGL policies do not cover everything and 2. be sure to carefully read any policy documents because the Virginia courts will look at the specific language very carefully in determining if coverage applies.
The Sixth Circuit recently reversed a decision from an Ohio federal court related to whether a party waived its arbitration rights through posturing correspondence written prior to the filing of litigation or arbitration. In Borror Property Management, LLC v. Oro Karric North, LLC (No. 2:19-cv-04375), the Sixth Circuit upheld the defendant’s contractual right to arbitration by concluding that no waiver of such right had occurred.
Oro Karric North, LLC and its related entities (entered into contracts with Borror Property Management, LLC, for Borror to manage Oro’s residential apartments. Each management contract included an arbitration provision stating, in essence, that disputes between them would be determined by arbitration unless they first resolved the dispute among themselves.
When a dispute arose, Oro asserted in a letter that Borror was in breach of contract and stated that it planned “to proceed directly to litigation in either state or federal court” as the contracts “do not limit litigation exclusively to arbitration.” Borror then filed a lawsuit in court. Oro then moved to compel arbitration, but the district court denied that request. The question on appeal was whether Oro waived its otherwise enforceable right to arbitration by its pre-litigation conduct.
Federal law looks favorably upon arbitration, and any waiver of that right “is not to be lightly inferred.” A party waives its arbitration right only when (1) the party’s acts are “completely inconsistent” with its arbitration right, and (2) the party’s conduct is prejudicial to an opposing party (such as by significantly delaying one’s asserting the right to arbitrate).
The Sixth Circuit concluded that Oro did not waive its right to arbitration. It found that Oro’s “litigation-threatening” correspondence did not amount to conduct “completely inconsistent” with its arbitration right. Pre-litigation letters serve a variety of purposes — from identifying a party’s concerns to foreshadowing litigation to articulating a path to settlement. These letters, as the Sixth Circuit noted, are often more rhetorical art than legal science. And because a party’s true intentions in crafting such correspondence cannot be known, courts are reluctant to give those letters the same legal force as it might give a party’s representations in other settings.
Even if it were to find Oro’s letter entirely inconsistent with its arbitration rights, as the Sixth Circuit noted, Borror was not materially prejudiced by Oro’s actions. Typically, in this context, prejudice appears when one party spends substantial time or money in litigation before an arbitration right is invoked. Such was not the case here.
Having determined that Oro’s pre-lawsuit communications were neither inconsistent with its arbitration right nor prejudicial to Borror, the Sixth Circuit held that there was no waiver of Oro’s arbitration rights. Concluding otherwise, as the Sixth Circuit reasoned, would make it much more difficult for parties to work out their differences short of litigation, which would, in turn, unnecessarily increase the load on the judicial system.
This opinion supports the freedom to negotiate, posture, and act in one’s interest when faced with a dispute. While there is always some risk that pre-lawsuit or pre-arbitration conduct could result in a waiver, such is not the result preferred by the courts. By enabling parties to speak freely prior to filing suit, courts are facilitating out-of-court resolutions of their differences.