Terminating a contract is a serious and sometimes risky decision. Whenever a client seeks advice regarding termination, a lawyer should stress the importance of strict compliance with the contractually specified termination provisions. One misstep by a terminating party who otherwise did nothing wrong could be a material breach of contract exposing the terminator to potentially large damages, even if the party being terminated first failed to perform under the contract. Is termination less risky with contracts that do not include any termination provisions? A Connecticut Supreme Court decision recently addressed this question and its ruling could have significant impacts.
The court ruled in Centerplan Construction Co. v. City of Hartford, 343 Conn. 368 (2022), that when a contract is silent as to termination notice and cure rights, a right to cure within a reasonable time is implied as a matter of law, unless that right is expressly waived. Notice and cure rights are thus implied in every contract and noncompliance with this unwritten requirement exposes a terminator to damages as if it had not followed the actual written provisions. This presumably applies not only to every proposal, purchase order, and short form contract, but also to oral agreements. Even if a party is in default and the project is delayed, Centerplan holds that it is entitled to notice and an opportunity to cure within a reasonable time before it may be terminated. The court provided no guidance on how long is “reasonable” to cure, so allowing an unreasonably short cure time before termination could conceivably expose the terminator to liability as well.
All may not be lost if a terminator doesn’t provide notice and the right to cure within a reasonable time, though it may involve a lawsuit. A terminator may have defenses against a claim for wrongful termination if, for example, a breach is truly incurable or the opportunity to cure is futile. The terminator would bear the burden of proving such defenses in court. The better approach would be to avoid this issue altogether by including language in every contract either incorporating notice and cure obligations (so they can be followed in the event of termination) or expressly waiving them.
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Construction scheduling specifications regularly include provisions for dealing with time extension requests, often referencing use of a Time Impact Analysis (TIA) methodology. According to guidance provided by an industry recommended practice, AACE International Recommended Practice No. 29R-03, a TIA is a modeled technique used for proving entitlement for time extensions. While TIAs are well known in our industry and commonly used, the scheduling specifications sometimes fail to prescribe the timing of when a TIA must be submitted. This lack of information can further exacerbate a time extension dispute between the owner and contractor.
TIAs can be employed either prospectively (real time, before or at the same time as a delay event) or retrospectively (after the delay event has occurred). These two different applications of TIAs are not equally useful to the owner in evaluating delay entitlement. Nor do they present a contractor with the same opportunity to receive early relief (and potentially compensation) from excusable project delays. Because the timing of the TIA can lead to different outcomes, it is important to understand the differences in employing a prospective or retrospective analysis to allow parties to make better decisions when project delays are encountered.
We will review two case examples (below) to show some of the differences between a prospective and retrospective TIA analysis. To aid in understanding these examples, it is helpful to have the following working knowledge of the TIA methodology. A TIA creates a new set of activities to detail the added or changed work being evaluated. These new activities are inserted into the contemporaneous CPM schedule, creating an ‘impacted’ schedule. After this impacted schedule is re-calculated, using the schedule software, the completion date of the impacted schedule is compared to the unimpacted schedule. If the impacted completion date is later than the unimpacted schedule, a time extension for the increased time may be warranted. If the impacted completion date remains the same as the unimpacted schedule, then the changed or added work being evaluated can be performed within the original contract time and no time extension is warranted. This is a very simplified explanation of TIAs to aid the reader’s understanding of the two case examples that follow. The evaluation of real-world TIAs often deals with more complex situations and schedule models that complicate decision making about warranted time extensions.
Case Study 1:
The first case study presents a prospective TIA analysis for a bridge project. During pile installation the contractor encountered two differing site conditions. Figure 1 shows the bridge project’s contemporaneous CPM schedule update immediately prior to encountering the differing site conditions (“impact events”). At that time, the project was 29 days late (reference Activity ID A1130 with -29 days of total float).
Figure 1 – Bridge project schedule before impacts
The contractor submitted its TIA analysis to request a time extension after discovering the differing site condition issues. In its TIA analysis (Figure 2), the contractor inserted activities (TIA001 and TIA002) representing each differing site condition impact event into the Figure 1 schedule. The contractor also re-sequenced its remaining contract work activities and rescheduled the project. [Note: Rescheduling the project means using the schedule software to re-calculate the schedule, including the inserted impact activities, to determine the revised activity dates and project completion date.
Figure 2 – Bridge project TIA schedule with inserted delay activities
The Figure 2 impacted schedule shows that the project completion activity (A1130) is now forecast to be 115-days late. This is 86 days later than the unimpacted schedule (115 days less 29 days). The contractor’s prospective TIA analysis demonstrated that the differing site conditions impacted the project’s critical path and extended project completion by 86 days. And, because its narrative included a thorough explanation of the contractor’s re-sequencing and mitigation efforts, the contractor was able to successfully negotiate an appropriate time extension before starting the remedial work.
Case Study 2:
The second case study presents a contractor’s retrospective TIA analysis for a luxury condominium project. This project experienced delay impacts due to the owner’s design changes and added city holidays. In the months after the impacts, the contractor submitted 5 separate TIAs, requesting a total of 43 days of time extension. In the owner’s review of the TIAs, it was determined that the contractor did not accurately represent the work performed on the project in its TIA submissions. Further, three of the five separately submitted TIAs had overlapping time periods. In response to the owner’s initial review, the contractor revised its TIA submissions and reduced its time extension request to 27 days.
Figure 3 shows the project’s contemporaneous CPM schedule update at the time the design changes occurred. The project was 2 days early (reference Activity ID A1150 showing 2 days of float) just prior to the impact events.
Figure 3 – Condo project schedule before impacts
Once the design change impacts occurred, the contractor chose to hold off submitting a TIA analysis until late in the project, rather than promptly submitting it. In its retrospective TIA analysis, the contractor inserted schedule impact activities shown in Figure 3 for each design change and new city holiday. Figure 4 shows the contractor’s recalculated TIA schedule, including these impacts and holiday changes.
Figure 4 – Condo Project TIA schedule with inserted delay activities
In its time extension request, the contractor submitted the impacted schedule in Figure 4 showing the updated project completion forecast as 27 days late. In its TIA review, the owner evaluated the accuracy of the contractor’s impacted TIA schedule (Figure 4) by updating the submitted schedule with as-built dates and recalculating the schedule. Figure 5 shows the results of the owner’s analysis of the impacted schedule with as-built dates.
Figure 5 – Condo Project TIA schedule updated with as-built dates
Figure 5 shows that once the submitted TIA schedule was updated with as-built dates, project completion was actually forecast to be 5 days late, not 27. In this example, the contractor only received 5 days of time extension of the 27 requested days. Because the contractor’s TIAs were submitted after the delay events, the contractor and owner had the benefit of hindsight, so the use of as-built dates was both possible and appropriate. The contractor did not consider extended durations of other contract work or mitigation efforts it was able to achieve as part of its TIA analysis. The retrospective TIA analysis in this case example required that the contractor evaluate more aspects of the project work than in the prospective analysis in Case Study 1.
What is the Takeaway?
While the cases presented in this blog post were simplified, the discussions offer appropriate conclusions in comparing TIA retrospective analysis with prospective analysis. A TIA that is done prospectively has the benefit of being simpler. Impact activities are typically inserted into update schedules already accepted by the owner. A prospective analysis is a forecast. It represents the contractor’s best estimate at that time as to impacts on the affected work, while assuming other downstream activities happen as planned. Performing retrospective TIA analyses often require more evaluation by the contractor of other project conditions and delays. The benefit of hindsight can cut both ways being a positive or a negative in these situations, depending on the specifics of a project.
When creating or reviewing contracts, counsel should always carefully review the TIA clauses. Consider the timing of when TIAs need to be submitted relative to the triggering events. Paying attention to this seemingly small detail at the start of the project can help owners and contractors eliminate unnecessary aggravation in addressing time extension issues during a project. It may also save both parties time and money in negotiating time extensions by eliminating unnecessary timeliness disputes associated with the TIA analysis.
A double-breasted operation is when a firm has two entities, and one entity performs work under collective bargaining agreements and the other does not. While this type of operation is not outright prohibited, it is often subject to a variety of challenges and scrutiny. To legally run a double-breasted operation, the two companies must remain separate and distinct. If the companies are not sufficiently separate and distinct from one another, the National Labor Relations Board (“NLRB”) or a court may find that the two companies are operating as a single entity or that the non-union company, or also known as the open shop, is merely an alter ego of the union company and, therefore, bound by the terms of the collective bargaining agreement.
In order to determine whether the companies are sufficiently separate and distinct, the two entities must pass either the single employer test or the alter ego test depending on the nature of the double-breasted operation. Typically, the single employer test is used when the two entities run parallel operations, and the alter ego test is used when the open shop replaces the union company. Under the single employer test, the NLRB or courts will generally consider four factors: (1) the interrelation of operations; (2) common management; (3) common control of labor relations; and (4) common ownership. The alter ego test does not require a finding that the companies are a single bargaining unit, but analyzes to what extent the two entities have substantially identical management, business operation and purpose, business equipment, customers, and ownership. While common ownership is a factor considered under both the single employer and alter ego tests, common ownership alone is not dispositive of whether the companies are sufficiently separate and distinct. In other words, the NLRB and courts do not simply look for common ownership to determine whether the double-breasted operation is lawful. It is merely one of many factors to consider.
The Double-Breasted Operation Must Establish And Maintain Separateness
An obvious challenge with a double-breasted operation is establishing and maintaining separateness. When a firm wants to open another entity, the firm may retreat to using its management, employees, equipment, finances, etc. This will result in an investigation from the NLRB. Therefore, it is advisable that in order to achieve and maintain the required separateness, the firm consider the following:
Establishing Separate Management: Establish two separate companies with different individuals serving as the officers, board of directors and other upper management for each company.
Establish Separate Labor Relations: There should be two different individuals in charge of labor relations within each company. The companies should establish separate compensation and benefits packages, hiring and firing procedures, employee handbooks, safety rules and regulations, training criteria, etc. The companies should have separate and distinct workforce and the employees should not interchange from company to company, nor should the companies share resources.
Separate Operations: The companies should: have their own equipment; obtain their own licenses and required certifications; have their own bylaws and other governing documentation; identify separate registered agents (especially if the ownership is listed as the agent); maintain separate administrative staff, office space, marketing/advertising materials and payroll accounts; and should not file joint taxes.
Establish Separate Finances: The two companies should avoid any financial dependency and should establish separate bank accounts, lines of credit, personal guarantors, financial records, and use separate certified public accountants and other financial professionals. A useful tip in ensuring that financials are never comingled is to use a different bank altogether. The companies should have separate insurance policies and bonding, as well as professionals related to the same.
Miscellaneous: Little details are often forgotten in maintaining separateness. The two entities should have different phone numbers and addresses. The stationary used should be different for both entities. The two companies should have different email addresses so there is never an accidental sharing of private communications. Any association memberships should be under the entities’ name that plans on participating and paying the dues.
While satisfying these considerations does not provide a guarantee for the successful establishment of a double-breasted operation, it would significantly increase the firm’s chances of surviving a challenge to its operations.
Consider The Benefits And Disadvantages To Double-Breasted Operations.
The primary reason to have a union and non-union entity is so the firm can profit from both union and nonunion work in the same region. A double-breasted operation can provide the firm with the option to enter an area of work that may have originally been considered financially too risky to enter, and provide the firm with options to succeed in a market that constantly fluctuates.
The most notable disadvantage for a double-breasted operation is facing significant liability in terms of ERISA contributions. For example, if the open shop is not properly separated from the union company, this could expose the open shop to liability under the collective bargaining agreement of which the union company is a signatory, which may include paying welfare, health and pension benefits required by the union. Moreover, a double-breasted operation can get expensive. The firm must adequately allocate resources to the double-breasted operation, which includes time and money, at the inception of the entity. If the firm does not have resources to allocate to the new entity, it will spread itself too thin, thus risking the success of the firm. Lastly, the double-breasted operation can expose the open shop or the union entity to lawsuits which could bankrupt the entire firm. Though these outcomes are not common, they are a possibility, and therefore, it is important for the firm to take appropriate steps in ensuring that the firm’s double-breasted operation is a viable option and that the firm is taking all steps to ensure that it operates legally.
Conclusion
While establishing a lawful double-breasted operation opens the doors for more opportunity, that opportunity does not come without risks. It is important that any firm deliberating on whether to open a business with double-breasted operations first speak with legal counsel familiar with the vast amount of caselaw surrounding double-breasted operations. This article has only provided you with a brief overview of factors for consideration. Each situation should be closely reviewed and analyzed based upon the facts and circumstances of the individual case.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.
Budd v. Kaiser Gypsum Co., Inc., — Wn. App. 2d –, 505 P.3d 120 (Wash. Ct. App. 2022). (1) Courts must ensure that juries are randomly selected to provide a fair and impartial jury. (2) While the Sixth and Fourteenth Amendments prohibit the systematic exclusion of distinctive groups from jury pools, Washington Courts’ COVID-19 policy to excuse people who were ages 60 and older and did not wish to report for duty was not a “systematic” exclusion.
Raymond Budd developed mesothelioma after working with a drywall product called “joint compound” from 1962 to 1972. He sued Kaiser Gypsum Company, Inc. and others for damages, contending that the company’s joint compound caused his illness. A jury returned a verdict in Budd’s favor and awarded him nearly $13.5 million. Kaiser appeals, claiming (1) insufficient randomness in the jury-selection process, (2) erroneous transcription of expert testimony, (3) lack of proximate causation, (4) lack of medical causation, (5) an improper jury instruction on defective design, (6) improper exclusion of sexual battery and marital discord evidence, (7) improper admission of post-exposure evidence, (8) improper exclusion of regulatory provisions, and (9) a failure to link its product to Budd’s disease. The Court of Appeals, Division 1, affirmed the verdict in favor of Budd.
Though all of the nine bases for error raised by Kaiser merit discussion, the jury-selection process issue is most probative here. Kaiser made three challenges against the jury selection process.
First, Kaiser challenged the jury selection process as being insufficiently random because the jury services department mailed summonses to those who had deferred service before. Pursuant to the trial court’s records, the court explained that the jury services department mailed summonses to over 1,000 potential jurors; that the potential jurors were those who had had their service deferred before, each summons requested that the recipient contact the court by e-mail, by phone, or in person; that of those potential jurors, about 183 responded by e-mail; that the jury services department then sent questionnaires to those 183 people by e-mail; that about 77 people responded to the questionnaire; and that those people were placed on the jury list in random order. The Court of Appeals affirmed that “there can be numerous reasons why a juror defers service; Kaiser offers no information to suggest that the pool of over 1,000 people was less random than a venire another process would yield nor does it cite authority supporting such a contention.”
Second, Kaiser argue that the jury pool was not sufficiently random because the jury services department sent questionnaires only to those for whom it had e-mail addresses. The Court of Appeals found that the trial court’s comments make clear that those were the potential jurors who had responded to the mailed summons, and the record does not suggest that any potential jurors responded through another mode of communication. In other words, “the jury services department did not unilaterally decide to contact only potential jurors with e-mail addresses.” Although Kaiser argued that only a trial court, not the jury services department, has the power to excuse jurors for cause, the Court of Appeals noted that “the jury services department did not excuse jurors for cause; it sent summonses to potential jurors who had deferred service before and then sent questionnaires to potential jurors who responded to the summons.” Because Kaiser provided no authority supporting its contention that this rendered the jury selection process insufficiently random, the Court of Appeals was not persuaded by this argument.
Finally, Kaiser argued that the jury selection process was invalid because it “constructively” excluded a cognizable class of individuals: people ages 60 and older. Because of the COVID-19 pandemic, Washington Courts suspended jury trials in early 2020. When jury trials resumed, the presiding King County Superior Court judge sent a memorandum to bar associations saying that jurors could be excused from jury duty if they are “age 60 or older and [ ] do not wish to report for jury duty.” A Supreme Court order about modification of jury trial proceedings similarly stated, “Any process for summoning potential jurors must include the ability to defer jury service by those who are at higher risk from COVID-19 based on their age or existing health conditions.” The court continued, “[h]owever, no identified group may be per se excused from jury service on this basis.” This policy was implemented via the questionnaire the jury services department distributed. The Court of Appeals held that to be unconstitutional, the exclusion must be “systematic,” noting that Kaiser cited no law that “constructive” exclusion is sufficient. Citing State v. Clark, 167 Wn. App. 667, 674, 274 P.3d 1058 (2012), aff’d, 178 Wn.2d 19, 308 P.3d 590 (2013). The Court of Appeals found that because the policy allowed for jurors to be excused if they were 60 years or older and did not wish to report for duty, this “did not automatically exclude every person 60 years and older.” The Court of Appeals, concluded that the trial court acted within its discretion in rejecting Kaiser’s challenges to the jury selection process.
Commentary: The COVID-19 pandemic has raised concerns about due process. However, the policies enacted by the Courts to navigate these waters have been generally upheld on appeal and are unlikely to be constitute procedural grounds for parties to avoid unfavorable rulings.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.
Being served with a lawsuit is typically not a welcomed experience. However, a construction professional that has been proactive in an early investigation of the claim will be better equipped to defend the case. The following best practices should be used by construction professionals as soon as a potential claim becomes evident.
NOTIFY
Immediately after the receipt of a claim or notice of an incident, efforts should be made to notify all essential parties. This includes any potential insurers that may provide coverage for the claim as well as any parties to whom notice may be required or warranted under the project contract and/or scope of work. Some construction contracts contain an insurance clause that requires one party to provide additional insured coverage under its liability policy to another party. Notice should be given to any insurer that potentially provides additional insured coverage as soon as possible. The failure to provide an insurance company with prompt notice of a potential claim could result in the denial of the claim.
Many construction contracts, especially between a general contractor and subcontractors, include indemnity provisions. For example, a contract may state that the subcontractor will indemnify and defend the general contractor for any loss, claim or litigation arising from the subcontractor’s work. Contracts also may include mutual indemnification clauses, where each party owes the other party a duty to defend and indemnify in various scenarios. Even in the absence of an express indemnification clause in the contract, a factual basis may exist for holding a third party liable for the claim. Prompt consideration should be given as to whether any other parties may be at fault. An entity that is owed contractual indemnification from another should immediately send a “tender letter,” which tenders the defense of any claim or subsequent lawsuit to the other party and demands that it be indemnified for any amount for which it may be found liable.
IDENTIFY AND SAVE THE PERTINENT PROJECT DOCUMENTS
Obvious documents to preserve are the contracts related to the project, including contracts between the general contractor, various subcontractors, owners and any other relevant vendors. While these underlying project contracts are important to a claim’s defense, equally important are the subsequent communications generated during the course of the project, including change orders, billing records, emails, text messages, incident reports and witness statements. Photographs should immediately be taken, and surveillance video (if applicable) should be pulled. Project schedules, employee logs, inspection checklists, maintenance records, permits, government approvals and daily reports should also be pulled and preserved. As a general rule, it is better to err on the side of caution and save anything remotely related to the project. Do not post anything regarding the incident to social media and be cognizant that anything said in an email or text may end up as an exhibit in a lawsuit.
Preserving as much evidence as possible is a best practice, but once litigation is “contemplated or pending,” preserving the evidence is legally required to avoid sanctions related to the destruction of, or failure to preserve, evidence. Referred to as “spoliation” in the legal industry, the failure to preserve all evidence related to the project could be a costly mistake detrimental to a construction professional’s defense. Common spoliation sanctions include the presumption that the party is liable and a jury instruction that the missing evidence would have been harmful to the “destroying party’s” defense. Juries often view such failure to preserve evidence as a “cover up.”
CONSIDER EXPERTS EARLY
Many construction claims require an immediate analysis of what happened and why. In claims involving a catastrophic construction event, an expert may need to observe the scene firsthand and conduct immediate testing before the scene is modified. In this scenario, an expert can provide a crucial analysis of what went wrong, who is (or is not) at fault and what needs to be done to rectify the situation and resume work on the project. The outside expert can also serve as a buffer between the constructional professional and any government agencies that may be onsite at the scene.
Even if the claim does not involve a catastrophic construction event, early use of an expert can be beneficial to a construction professional’s defense by providing an initial opinion as to whether the construction professional reasonably complied with industry standards.
Another consideration is whether to retain an attorney early in the process. An attorney can assist in directing the investigation and in protecting evidence and communications under the attorney-client privilege and anticipation of litigation doctrine.
A construction professional that has been proactive in responding to a claim will be better suited to defend it. Prompt notification to the essential parties, identification and preservation of the project documents, and early consideration of the use of experts are the first steps that every constructional professional should take after receiving notice of a claim.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.
