{"id":897733,"date":"2020-07-22T09:49:45","date_gmt":"2020-07-22T15:49:45","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=897733"},"modified":"2020-07-22T09:49:49","modified_gmt":"2020-07-22T15:49:49","slug":"hedging-position-defense-speculative-event","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/hedging-position-defense-speculative-event\/","title":{"rendered":"Think Twice Before Hedging a Position or Defense on a Speculative Event or Occurrence"},"content":{"rendered":"\n<p>David Adelstein | <a rel=\"noreferrer noopener\" href=\"https:\/\/www.floridaconstructionlegalupdates.com\/think-twice-before-hedging-a-position-or-defense-on-a-speculative-event\/\" target=\"_blank\">Florida Construction Legal Updates<\/a><\/p>\n\n\n\n<p>Sometimes, hedging a position on a potential occurrence is not prudent.\u00a0 Stated differently, hedging a position on a contingent event is not the right course of action.\u00a0 The reason being is that a potential occurrence or contingent event is\u00a0<strong>SPECULATIVE<\/strong>. \u00a0 The <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/defective-work-michigan-is-occurrence\/\" target=\"_blank\" rel=\"noreferrer noopener\">occurrence<\/a> or event may not take place and, even if it does take place, the impact is unknown.<\/p>\n\n\n\n<p>An example of hedging a defense on such a potential occurrence or contingent event can be found in a construction dispute involving a federal project out of the Eastern District of Virginia,&nbsp;&nbsp;<em>U.S. f\/u\/b\/o Champco, Inc. v. Arch Insurance Co<\/em>., 2020 WL 1644565 (E.D.Va. 2020).&nbsp;In this case, the prime contractor hired a subcontractor to perform electrical work, under one subcontract, and install a security system, under a separate subcontract.&nbsp; The subcontractor claimed it was owed money under the two subcontracts and instituted a lawsuit against the prime contractor\u2019s&nbsp;<strong>Miller Act payment bond<\/strong>.&nbsp; The prime contractor had issued the subcontractor an approximate $71,000 back-charge for delays.&nbsp; While the subcontractor did not accept the back-charge, it moved for summary judgment claiming that the liability for the back-charge can be resolved at trial as there is still over $300,000 in contract balance that should be paid to it.&nbsp; The prime contractor countered that the delays caused by the subcontractor could be greater than $71,000 based on a negative evaluation in the&nbsp;<strong>Contractor Performance Assessment Reporting System (\u201cCPARS\u201d)<\/strong>.&nbsp;&nbsp; A negative CPARS rating by the federal government due to the delays caused by the subcontractor would result in a (potential) loss of business with the federal government (<em>i.e<\/em>., lost profit) to the prime contractor.&nbsp;&nbsp; The main problem for the prime contractor:&nbsp; a negative CPARs rating was entirely speculative as there had not been a negative CPARs rating and, even if there was, the impact a negative rating would have on the prime contractor\u2019s future business with the federal government was unknown. &nbsp;&nbsp;To this point, the district court stated:<\/p>\n\n\n\n<p><strong>In this case, [prime contractor\u2019s] claim for damages is wholly speculative.&nbsp; [Prime contractor] has not produced any evidence that its stated condition precedent\u2014a negative CPARS rating\u2014will actually occur&nbsp;<em>and<\/em>&nbsp;will have a negative impact on its future federal contracting endeavors. Specifically, [prime contractor] has not identified any facts that indicate that it will be subject to a negative CPARS rating or any indication of the Navy\u2019s dissatisfaction with its work as the prime contractor on the Project\u2026 Further, a CPARS rating is only one aspect taken into consideration when federal contracts are awarded.&nbsp; In sum, there is no evidence of the following: (1) a negative CPARS rating issued to [prime contractor]; (2) [prime contractor\u2019s] hypothetical negative rating will be the result of the delay [prime contractor] alleges was caused by [subcontractor]; or (3) [prime contractor\u2019s] hypothetical negative CPARS rating will result in future lost profits.<\/strong><\/p>\n\n\n\n<p><em>U.S. f\/u\/b\/o Champco, Inc., supra<\/em>, at *2 (internal citation omitted).<\/p>\n\n\n\n<p>The prime contractor hedged its defense on the potentiality that it would receive a negative CPARs rating and, if it did, it would lose business with the federal government. &nbsp;Based on this, the prime contractor decided to withhold more than $300,000 in contract balance over and above the $71,000 in delay damages it could prove. &nbsp;The district court saw right through this argument by finding it wholly speculative and granting summary judgment in favor of the subcontractor for the subcontract balance over and above the $71,000 that the prime contractor did not have an objective basis to withhold.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>David Adelstein | Florida Construction Legal Updates Sometimes, hedging a position on a potential occurrence is not prudent.\u00a0 Stated differently, hedging a position on a contingent event is not the right course of action.\u00a0 The reason being is that a potential occurrence or contingent event is\u00a0SPECULATIVE. \u00a0 The occurrence or event may not take place&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/hedging-position-defense-speculative-event\/\">Continue reading <span class=\"screen-reader-text\">Think Twice Before Hedging a Position or Defense on a Speculative Event or Occurrence<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9914],"tags":[9895,10727,11234],"class_list":["post-897733","post","type-post","status-publish","format-standard","hentry","category-insurance-coverage","tag-advise-consult","tag-occurrence-2","tag-speculative-event","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Think Twice Before Hedging a Position or Defense on a Speculative Event or Occurrence - Advise &amp; 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