Everything’s Bigger in Texas, Including the Construction Litigation (Part 2 of 3)

This is the second of a three-part series exploring the Texas Supreme Court’s decision in Zachry Construction Corp. v. Port of Houston Authority of Harris County.  A summary of the case can be found at Part 1 of the series.  Part 3 will address the lien waiver issues raised by the decision.  This post considers the “no-damages-for-delay” aspects of the case, specifically exceptions to enforcement of such contract clauses.

What Zachry Says About No-Damages-for-Delay Clauses

The Texas Supreme Court began its analysis by noting that as a general rule, a contractor can assume the risk of, and not seek damages for, construction delays by agreeing to a no-damages-for-delay clause (“NDFD clause”) in a construction contract.  The court, however, then went on to note five “generally recognized exceptions” to the enforcement of such clauses:

  1. When the delay is not intended or contemplated by the parties to be within the purview of the NDFD clause;
  2. When the delay results from fraud, misrepresentation, or other bad faith on the party seeking the benefit of the NDFD clause;
  3. When the delay has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract;
  4. When the delay is not within the specifically enumerated delays to which the clause applies; and
  5. When the delay is based upon the active interference or other wrongful conduct of the party seeking the benefit of the NDFD clause, including arbitrary and capricious acts in willful disregard of the rights of other parties.

Monday MemoThe jury in Zachry had found that the “bad faith” and “active interference” exceptions (i.e., the Port Authority’s interference with Zachry’s means and methods for performing changed work after initially accepting Zachry’s proposal and work plan) applied and awarded Zachry delay damages, despite the NDFD clause in its contract with the Port Authority.  The Texas Court of Appeals reversed, “[a]s harsh as this result seems,” because it believed the parties intended to include the kind of misconduct found by the jury within the ambit of the NDFD clause.

By reversing the Court of Appeals and reinstating the jury’s verdict in favor of Zachry, the Texas Supreme Court adopted the rule that pre-breach waivers of future liability for intentionally damaging the other contracting party violate both the law and principles of public policy.  As a result, the Court refused to enforce the NDFD clause.

The State of “No-Damages-for-Delay” in North Carolina

The Texas Supreme Court noted that at least 28 other American jurisdictions have determined that NDFD clauses cannot shield one party from deliberately and wrongfully interfering with another party’s work.  Unfortunately, North Carolina is not among those 28 jurisdictions.  Indeed, a review of the case law reveals that North Carolina appellate courts have yet to consider the “bad faith” and “active interference” exceptions to NDFD clause enforcement at all.  Here’s what we do know about the state of NDFD clause enforcement in North Carolina:

  • In APAC-Carolina, Inc. v. Greensboro-Highpoint Airport Authority, 110 N.C. App. 664, 431 S.E.2d 508 (1993), the North Carolina Court of Appeals (“COA”) considered the “not within the contemplation of the parties” exception to NDFD clause enforcement, holding that because the prime contract called for unclassified excavation and since wet weather was predictable, the undercut and erosion control work performed by the contractor was within the contemplation of the parties.  The COA therefore rejected the exception and enforced the NDFD clause.  The North Carolina General Assembly, however, responded to the decision by enacting N.C. Gen. Stat. § 143-134.3, which bars enforcement of NDFD clauses in contracts between public owners and prime contractors.  Note, however, that the statute’s protection extends neither to prime contracts for private projects nor to subcontracts for private or public projects.
  • In Watson Electrical Construction Co. v. City of Winston Salem, 109 N.C. App. 194, 426 S.E.2d 420 (1993), the COA avoided consideration of either the “not within the contemplation of the parties” or the “active interference” exceptions to NDFD clause enforcement by finding that the contractor was not seeking to apply an exception, but rather pursuing damages for the owner’s failure to approve a time extension required by the contract.  The COA concluded the contract was ambiguous as to what damages the contractor could recover as a result of the owner’s failure to approve the time extension, and remanded the case to the trial level for findings of fact on the issue.
  • In Southern Seeding Service, Inc. v. W.C. English, Inc., 217 N.C. App. 300, 719 S.E.2d 211 (2011), the COA held that an equitable adjustment clause “trumped” the subcontract’s NDFD clause, so that the subcontractor in question could recover its increased material and labor costs arising from unforeseen circumstances.  I blogged about the Southern Seeding decision when it was issued, and you can find my analysis here.

It could be argued that both the Watson and Southern Seeding cases stand for the proposition that the North Carolina appellate courts do not favor NDFD clauses and might be open to applying all of the five “generally recognized exceptions” to NDFD clause enforcement, including the “bad faith” and “active interference” exceptions.  The absence of much case law authority on the subject, however, makes it difficult to predict how the COA might handle Zachry-type issues.

The Upshot for Contractors Building in the Tarheel State

So where does that leave construction contractors and subcontractors (and the lawyers who represent them)?  In a state of limbo, that’s where.  Until our appellate courts wrestle with the same issues the Texas courts addressed in Zachry, it’s not possible to predict with much accuracy the extent to which they might apply the “bad faith” and “active interference” exceptions to enforcement of NDFD clauses.  That, in turn, means a couple of things for you and your construction company:

  • The safest course of action is to strike NDFD clauses during the contract drafting stage.  If the party above you in the contractual chain won’t consent to that change, consider proposing language that would include the five exceptions to NDFD clause enforcement within the NDFD provision.
  • If you’re performing a contract containing an NDFD clause and are impacted by delays beyond your control, and for which one or more parties above you in the contractual chain might be responsible, document the facts and circumstances of the delay, as well as your damages, carefully.  Send notice letters, take pictures, keep impeccable logs and meeting minutes, segregate and track your delay costs, etc.  The better developed the factual record, the better the opportunity to successfully argue an exception to NDFD clause enforcement later on.

UPDATE 8:42 a.m. 1.15.2015.  My Twitter feed delivered this yesterday:

The linked article discusses a June 2014 decision of the Supreme Court of North Dakota refusing to enforce a no-damages-for-delay clause based on the active interference exception.  As in Zachry, the active interference in question was the owner’s meddling in the contractor’s means and methods.  Texas and North Dakota appear to be the 29th and 30th jurisdictions, respectively, to acknowledge the active interference exception to no-damages-for-delay enforceability.

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Filed under Case law from other states, Delay Claims, NC case law, No Damages for Delay Clauses

Inspiration to Help You Keep Your 2015 Construction Risk Management Resolutions

Well, the first full business week of 2015 is nearly in-the-books.  How are you doing with those risk management resolutions of yours?  Holding steady?  Or do you need a pep talk?  If it’s the latter, my Twitter feed is here to help.

Friday ForumThat’s because a number of my fellow AEC twerps had risk management, including successful project management, on the brain this week, and I’d like to use the Friday Forum to share some of their unique insights.

So without further ado, let’s get things started with this greeting from XL Insurance Group (@XL_Insurance):

I encourage you to give the blog post linked in the tweet a read.  It makes the case that effective risk management is all about making sound decisions — and, perhaps just as importantly, avoiding bad ones:

Why do people make poor decisions when it comes to risk?  Sometimes it’s because we have a tendency to be overly optimistic. We subconsciously minimize things that are unpleasant to confront.  “It’ll be OK,” “We’ll be good” and other rationalizations can fool us into thinking that if we say it enough, those thoughts will hold true.  At other times, people make poor decisions because we’re in a rush or elect not to analyze available data.  In between unbridled optimism and pure analytics is a healthy balance that can help us make better decisions.

The author goes on to argue that risk can only be managed when it’s properly understand, which makes thorough data gathering and analysis a vital precursor to effective action.

Moving on, fellow construction attorney and Duke ’94 alum Chris Hill (@constructionlaw) chirped these musings this week:

Chris’s tweet links to his March 15, 2010 blog post with valuable tips for running a construction project smoothly.  That post, in turn, links to a white paper authored jointly by the Associated General Contractors of America (@AGCofA), the American Subcontractors Association (@ASAUpdate) and the Associated Specialty Contractors entitled Guidelines for a Successful Construction Project.  If you’ve never seen this resource before, you should take a peek.  Its 80 pages are chock-full of advice on successful project execution, covering such topics as project relationships, effective project communications, best practices for change orders, proper scheduling, your rights and responsibilities in the payment cycle, and so much more.  Mandatory reading for project executives, managers and supers.

Next up is this tweet from a ConstructionChat (@ConstructChat), a U.K. organization that facilitates relationship-building between young professionals and construction organizations:

This tweet links to a PowerPoint presentation by PricewaterhouseCoopers (@PwC_LLP) entitled Project Risks and Controls — Slaying the Dragon.  It’s such a great introduction to thinking about and addressing project risks, I thought I’d make it easy for you to view it by posting it below:

Finally, there’s this bon mot from IRMI President & CEO (and self-professed “risk and insurance geek”) Jack Gibson (@UGAJack), who makes an elegantly simple (simply elegant?) risk management case:

Friday Forum MicrophoneWhat about you?  How do you intend to minimize risk and maximize profits in the year ahead?  Don’t be shy — share your wisdom by leaving a comment below.  That’s what the Friday Forum is for — and the microphone is all yours.

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It’s Not Enough to Read Before Signing; Always Strive to Understand Before Signing

An unpublished decision from the North Carolina Court of Appeals yesterday demonstrates how important it is to not only read, but also to fully understand, legally binding documents before signing them.

In Pattison Outdoor Advertising, LP v. Elevator Channel, Inc., Defendant agreed to build and manage a network of digital advertising and other content for Plaintiff billboard company.  Under the parties’ Services Agreement, Plaintiff would provide all content for the network, while Defendant would install and manage the network and provide customer service.  The alternative dispute resolution (“ADR”) clause of the Services Agreement called for direct negotiations, then mediation, then arbitration in the event of a dispute.

The parties entered into Amendment 1 to the Services Agreement, by which Defendant agreed to deliver various intellectual property and software to Plaintiff in exchange for an advance payment of $154,500.  Plaintiff made the advance payment of $154,500.  However, for reasons not set forth in the decision, the parties subsequently decided to abandon the entire deal, executing a memorandum of understanding (“MOU”) which provided that the entire Services Agreement would be terminated and “both parties will be released of any and all responsibilities/obligations (financial, operational, or other),” with one exception:  Defendant would reimburse the advance payment of $154,500 to Plaintiff by a certain date, at which point Plaintiff would return to Defendant the intellectual property and software discussed in Amendment 1.

Plaintiff demanded return of the advance payment in accordance with the MOU, but for reasons not apparent in the decision, Defendant did not comply.  When Plaintiff sued for return of the advance payment, Defendant moved to dismiss, contending that Plaintiff could not sue until it had participated in the ADR activities recited in the Services Agreement.  Its motion was denied, however, with the trial court finding that the MOU constituted a release of the ADR obligations set forth in the Services Agreement.  The Court of Appeals agreed, finding that “there is no enforceable agreement between the [p]arties with respect to alternative dispute resolution.”

I have no reason to doubt that Defendant in Pattison honestly believed, and argued in good faith, that the ADR provision of the Services Agreement survived the MOU.  Unfortunately for Defendant, that’s not what the MOU said.  Instead, the MOU clearly indicated that all obligations, except for one, were released; its plain language evidenced an intention by both parties to release the contractual obligation to engage in ADR in the event of a dispute.

Wednesday WisdomThat’s the key lesson here.  Courts will look to the plain language of parties’ agreements in divining their intentions and construing their rights and responsibilities in the event of conflict.  That obviously places a premium on making sure that the plain language of whatever contract or other instrument you might be asked to sign is consistent with your intentions.

While Pattison is not a construction case, its lesson is certainly applicable to the commercial construction industry.  There are dozens of situations where your reading must be mindful in order to mitigate risk on a construction project.  Here are just a few examples:

  • If you sign that subcontract as-is, are you going to have difficulty recovering damages for delay?  Are you agreeing to indemnify the prime contractor against non-insurable risks?  And are you consenting to bear the risk of owner non-payment?
  • If you sign that change order calling for additional compensation but no additional time, will you have the ability to later obtain additional time to perform the changed work?
  • If you sign that lien waiver, are you relinquishing your right to seek additional compensation and/or additional time for changed or delayed work encountered during this or prior pay periods?

Contracts and other construction documents can be tricky.  If you have any questions about the potential legal consequences of signing a construction document, an experienced construction attorney undoubtedly would be willing to guide you through the minefield.

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Filed under Indemnity Claims, Lien Law, NC case law, No Damages for Delay Clauses

Everything’s Bigger in Texas, Including the Construction Litigation (Part 1 of 3)

Because my practice is focused almost exclusively on construction projects in North Carolina, I focus far more attention on local case law developments than on appellate decisions from other states.  But every now and again, a decision from some far-flung jurisdiction gets published that is just too big, too fascinating and too important to overlook.

Zachry Construction Corp. v. Port of Houston Authority of Harris County, handed down by the Supreme Court of Texas (the “Texas Supreme Court”) on August 29, 2014, is just such a decision.  The case deals with two primary issues: (1) whether a general contractor (“GC”) could avoid a no-damages-for-delay clause based on the public owner’s alleged active interference with the GC’s work; and (2) whether the GC relinquished its claim for release of liquidated damages (“LDs”) based on lien waivers it had executed in exchange for periodic payments.

At the trial level, the jury awarded approximately $17.6 million to the GC, but the intermediate Court of Appeals reversed the verdict, concluding that the Owner was entitled to just over $2.2 million in LDs, just under $1.0 million for construction defects, and just under $10.7 million in attorneys’ fees.  In other words, by the time the Texas Supreme Court was asked to weigh in, the GC had gone from nearly an $18-million winner to a $14-million loser!  That’s a huge swing, one likely to present an existential crisis for many small- and medium-sized commercial construction contractors.

Zachry represents a massive construction litigation roller-coaster.  Image by nitli via pixabay.com

The Zachry litigation was a long, wild ride.  Image by nitli via pixabay.com

Fortunately for the GC, the Texas Supreme Court saw things its way, reinstating the jury award.  The victory, however, was not exactly decisive: 5 justices agreed with the GC, but 4 sided with the Owner.  It doesn’t get any closer, or more dramatic, than that.

While the Zachry decision is not binding on North Carolina courts, it nevertheless illustrates how judges struggle to resolve prickly construction contract issues and previews how similar legal questions might be resolved here in the Old North State.  With these realities in mind, I present to you this three-part series unpacking the decision.

This post, Part 1 of the series, fleshes out the key facts of Zachry and summarizes the respective contentions of the parties.  Part 2 will untangle the GC’s ultimately successful circumvention of the contract’s no-damages-for-delay clause and relate this outcome to the current state of North Carolina law on the subject.  Part 3 will discuss issues raised by the lien waivers executed by the GC and highlight some best practices Tarheel contractors might want to consider before signing these oft-overlooked documents.

Summary of Key Facts

Zachry Construction Corp. (“Zachry”) contracted with the Port of Houston Authority of Harris County (the “Port Authority”) to build a 1,660-foot, concrete-deck wharf for $62,485,733.  Zachry’s plan called for a “freeze wall” approach that involved constructing an 8-foot-wide earthen berm with soil dredged from the shipping channel and then installing a refrigerated pipe system in the wall carrying supercooled brine, which would freeze the wall and make it impenetrable to water.  This plan would allow Zachry to excavate the jobsite and build the wharf “in the dry,” saving time & money.  Time, of course, was of the essence of the contract, and Zachry faced LDs of $20,000 per day if an interim milestone — specifically, completion of two sections of the wharf by February 2006, so that a ship from China could dock and deliver cranes to be used on the wharf — and/or final completion were missed.

Monday MemoNine months into construction, the Port Authority realized it needed two additional berths to accommodate the ships it expected to service at the wharf.  Zachry, however, could only meet the interim milestone if a second freeze wall were constructed to facilitate the proposed additional work.  The Port Authority wasn’t thrilled with Zachry’s proposal — its engineers expressed concerns about the potential effect on newly installed piers — but it ultimately relented, issuing a change order to Zachry for just under $13 million.

Two weeks later, however, the Port Authority reversed course, ordering Zachry to proceed with the additional work without installing a second freeze wall.  Zachry protested, citing a contract clause giving it exclusive domain over its means and methods; the Port Authority, however, wouldn’t budge.  Zachry was forced to perform its work “in the wet,” which led to delays and additional costs.  The ship from China docked late, and the Port of Authority withheld $2.36 million in LDs from Zachry’s periodic payments.  Zachry completed the project in January 2009, more than 2.5 years after the contract deadline.  It claimed approximately $30 million in delay damages and demanded to be paid the LDs it contended had been wrongfully withheld.

The Port Authority’s Case

With respect to Zachry’s delay claim, the Port Authority principally argued that such damages were barred by the contract’s no-damages-for-delay clause, which stated as follows:

[Zachry] shall receive no financial compensation for delay or hindrance to the Work.  In no event shall the Port Authority be liable to [Zachry] or any Subcontractor or Supplier, any other person or any surety for or any employee or agent of any of them, for any damages arising out of or associated with any delay or hindrance to the Work, regardless of the source of the delay or hindrance, including events of Force Majeure, AND EVEN IF SUCH DELAY OR HINDRANCE RESULTS FROM, ARISES OUT OF OR IS DUE, IN WHOLE OR IN PART, TO THE NEGLIGENCE, BREACH OF CONTRACT OR OTHER FAULT OF THE PORT AUTHORITY.  [Zachry’s] sole remedy in any such case shall be an extension of time.

The Port Authority also argued that even if the no-damages-for-delay clause could not be enforced, the doctrine of sovereign immunity shielded it from any damages for delay.

With respect to Zachry’s claim for release of LDs, the Port Authority argued that Zachry effectively abandoned this claim by executing lien waivers in connection with certain periodic payments from which the Port Authority had withheld LDs.  The waivers stated, in pertinent part, as follows:

[Zachry] hereby acknowledges and certifies that [the Port] has made partial payment to [Zachry] on all sums owing on Payment Estimate Number [–––] and that it has no further claims against [the Port] for the portion of the Work completed and listed on the Schedule of Costs in Payment Estimate Number [–––].

Zachry’s Case

With respect to the Port Authority’s no-damages-for-delay argument, Zachry principally argued that the contract clause could not be enforced due to the Port Authority’s arbitrary and capricious decision to actively interfere with Zachry’s means and methods (i.e., its plan to build a second freeze wall to facilitate performance of the change order work).  It also argued that the Port Authority waived sovereign immunity under pertinent Texas statutes governing the liability of governmental entities entering into contractual agreements.

With respect to the Port Authority’s argument that Zachry’s lien waivers constituted an abandonment of Zachry’s entitlement to contract funds withheld by the Port Authority as LDs, Zachry argued that the lien waiver language cited by the Port Authority applied only to lien claims, and not to any other claims for payment.

The Outcome

As mentioned above, Zachry ultimately prevailed on both its no-damages-for-delay and lien waiver arguments.  The next installment in this series will explore the no-damages-for-delay aspects of the case.  Stay tuned!

In the interim, please feel free to comment below.  And, if you’ve got 50 minutes to burn, I invite you to watch the parties’ oral arguments here.

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Filed under Case law from other states, Delay Claims, No Damages for Delay Clauses

New Year, New OSHA Injury and Illness Reporting Requirements

Happy new year, everybody, and for many of you, welcome to your first day of work in 2015.  Now that the champagne toasts have been made, sundry objects have been dropped from cranes and some old acquaintances have been forgot, it’s time to get down to business.  Serious business.

Specifically, the business of OSHA compliance.

Friday ForumThe new year has ushered in a new era of workplace injury and illness reporting that you need to know about as your crews return to their jobsites.  The new rule requires reporting to OSHA of all work-related fatalities within 8 hours and all in-patient hospitalizations, amputations and loss of an eye within 24 hours.  Previously, OSHA had required all employers to report to OSHA all work-related employee fatalities or the hospitalization of three or more employees from a single incident within 8 hours of the accident.  It is important to note that while the new rule doesn’t alter the routine injury reporting exemption enjoyed by companies with fewer than 10 employees, such employers must report any severe injuries covered by the new rule.

The U.S. Department of Labor (@USDOL) tweeted a reminder about the change earlier this week:

The Department also has issued a fact sheet explaining the new regulatory framework; here are some of the highlights:

As of January 1, 2015, all employers must report:
  • All work-related fatalities within 8 hours.
  • All work-related inpatient hospitalizations, all amputations and all losses of an eye within 24 hours.
  • You can report to OSHA by:
    • Calling OSHA’s free and confidential number at 1-800-321-OSHA (6742)
    • Calling your closest OSHA Area Office during normal business hours
    • Using the new online form that will soon be available
As most of you are aware, North Carolina administers its own OSHA program through the state-level Department of Labor (@NCDOL).  That agency has issued its own flow-chart facilitating compliance with the new rule in the Tarheel State:

NC Injury ReportingIt also tweeted out a helpful 1-minute YouTube video summarizing the changes:

A “quick card” from The North Carolina Department of Labor’s website provides the following definitions for “in-patient hospitalization” and “amputation”:

In-patient hospitalization is a formal admission to the in-patient service of a hospital or clinic for care or treatment.
An amputation is the traumatic loss of a limb or other external body part.  Amputations include a part, such as a limb or appendage,that has been severed, cut off, amputated (either completely or partially); fingertip amputations with or without bone loss; medicalamputations resulting from irreparable damage; amputations ofbody parts that have since been reattached.  Amputations do not include avulsions (tissue torn away from the body), enucleations (removal of the eyeball), deglovings (skin torn away from the underlying tissue), scalpings (removal of the scalp), severed ears, or broken or chipped teeth.

Friday Forum MicrophoneWhat steps has your organization taken to prepare for the new requirements?  Do you anticipate the change having much impact on your company’s operations and/or costs?

I would love to hear from you.  The Friday Forum microphone is all yours!

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N.C. Supreme Court Reverses the Court of Appeals, Holds a 20-Year Warranty Means What It Says

In September 2013, I blogged about the decision of the North Carolina Court of Appeals (“COA”) in Christie v. Hartley Construction, Inc., which held that owners of an improvement to real property could not recover money damages under a supplier’s express 20-year warranty because the lawsuit was filed outside of North Carolina’s applicable six-year “statute of repose.”  That statute, codified at N.C. Gen. Stat. § 1-50(a)(5), bars damages actions arising from improvements to real property asserted more than six years after substantial completion.  The COA’s Christie decision effectively meant that the statute of repose trumped an express warranty of a longer duration.

As I mentioned in my prior blog post, however, one of three COA judges on the Christie panel dissented from the majority’s opinion, giving plaintiffs the right to appeal to the state’s Supreme Court.  They did.  And that Court reached the opposite conclusion of the COA majority, ruling that the protection provided by the six-year statute of repose could be waived without violating North Carolina public policy.

Let’s break down the North Carolina Supreme Court’s decision in Christie:

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Filed under NC case law, policy & news, State law, Warranty Claims

Construction Bonds Come With Strings Attached. Make Sure You Know What They Are.

When serious trouble befalls a bonded contractor, its surety might be called upon to shoulder significant risk both downstream (i.e., payment obligations to subs & suppliers) and upstream (i.e., performance obligations to the owner, if the bonded contractor is prime, or to the prime, if the bonded contractor is a sub).

Yet even when adversity strikes, sureties don’t expect to suffer a loss, as counter-intuitive as that might sound.  That’s a feature of suretyship distinguishing it from insurance (for a handy, 1-page chart summarizing other distinctions, see page 6 of this 18-page surety primer by CNA Surety).

How do bonding companies seek to avoid losses on troubled construction projects?  One of the most significant weapons in the surety’s loss-avoidance arsenal is the “general indemnity agreement” or GIA, an instrument that virtually every surety requires each bonded contractor, the contractor’s owners and the owners’ spouses to sign as a condition of surety credit extension.  The GIA vests in the surety numerous rights and remedies against the corporate and individual indemnitors, which are typically triggered once trouble starts brewing.

Here are some of the key rights enjoyed by sureties under a typical GIA:

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Custom-Build Your Next Arbitration Clause

Image by Tingeling via Pixabay.com

Image by Tingeling via Pixabay.com

Of all the great AEC content in the Twitterverse this week, the following chirp from Kansas City construction attorney Rob Pitkin (@KCconstrlawyer) really piqued my interest:

Rob’s tweet links to this article from Gary Rubin, a New York construction lawyer, about how to make arbitration more cost-effective.  Gary discusses how parties can use the contract negotiation phase of their relationship to craft a better arbitration provision.  He even suggests helpful language aimed at curtailing the duration of the hearings and the arbitrators’ authority to award certain types of damages.

All of which crystallized something I’ve been thinking about in recent years: arbitration is not a “one-size fits all” deal.  While in theory arbitration presents construction industry stakeholders with an attractive alternative to the very public, very long and very expensive litigation process, in practice, arbitration procedures and costs often elude the parties’ control. These are by no means novel thoughts on my part; a number of other observers have raised similar concerns (see here and here for a couple examples).

Now for the good news.

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Paying Twice For the Same Work is Horrendous. What Can You Do About It in North Carolina?

If you’re a prime contractor on a private, commercial construction project, your contract with the owner likely includes a provision requiring you to bond off or otherwise dispose of real property liens filed by your subs & suppliers.  And if you’re a prime contractor on a bonded public project, the agreement of indemnity between you and your bonding company makes you ultimately responsible for any bond claim the surety might pay.

Either way, you’re exposed to financial loss arising from the lien & bond claims of second-tier and more remote subs & suppliers, even if you faithfully pay your first-tier subs each and every time payment is due.

So what can you do about the risk of double payment in North Carolina?

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Filed under Lien Law, Payment Bonds, Subcontractors

Courts Generally Will Enforce North Carolina’s Anti-Indemnity Statute, But How Far?

Back in March, I wrote about the role of North Carolina’s anti-indemnity statute in the construction industry.  The statute, codified at N.C. Gen Stat. § 22B-1, appears below (you can click the image for a larger version):

Anti-Indemnity Statute

As my previous blog post indicated, the statute prevents “one party from shifting the entire risk of its own negligence to another.”  A recent case from the U.S. Bankruptcy Court for the Eastern District of North Carolina demonstrates how courts utilize the so-called “blue pencil” doctrine to accomplish that goal.

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Filed under Federal case law, Indemnity Claims, State law, policy & news, Subcontractors