Category Archives: Construction Risk Management

The Subcontract’s Unsigned, the Work is Complete and a Dispute Has Arisen — Now What?

In order for an agreement to constitute a valid contract that courts or arbitrators will enforce, both parties to the agreement must mutually assent to all of the terms of the deal.  The fancy Latin term for this mutuality requirement is “aggregatio mentium;” we Americans call it a “meeting of the minds.”  And as between general contractors and subcontractors in the construction industry, the signatures of the parties typically signify their mutual intent to be bound.

But what if the subcontract isn’t signed, and the parties proceed with performance of the underlying scope anyway?

That’s the conundrum the North Carolina Court of Appeals (“COA”) confronted in its April 19, 2016 decision in Southeast Caissons, LLC v. Choate Construction Company.

The general contractor and caisson subcontractor in that case went back and forth repeatedly on various drafts of a written subcontract.  The sub’s scope was commenced — and completed about three months later — without a final deal being reached on all terms.

When the subcontractor wasn’t paid, it sued for breach of contract (among other claims) in the Forsyth County Superior Court.  The unsigned subcontract called for dispute resolution in Wake County, prompting the general contractor to move for dismissal of the sub’s suit or, in the alternative, a change in venue.  The trial court determined that the subcontractor was not bound by the unsigned subcontract, and that venue was proper in Forsyth County.  The GC appealed.

In affirming the trial court’s Order, the COA relied on the rule that the absence of a signed, written instrument is evidence of the parties’ intentions not to be bound by the proposed contract.  On  the rights set of facts, that evidence could be outweighed by other evidence demonstrating that both parties accepted and acted upon the unsigned terms.  That wasn’t the case in Southeast Caissons, however — to the contrary, the COA concluded that virtually all of the evidence suggested that the parties never achieved a “meeting of the minds” on all of the subcontract’s terms.

Does that mean no deal existed between the GC and the sub?  Not necessarily.  The COA remanded the case back to the trial court for a determination of whether a contract “implied-in-fact” existed between the parties by virtue of their actions.  Even in the absence of a contract implied-in-fact, the subcontractor might still prevail on its payment claim under an equitable quantum meruit (i.e., unjust enrichment) claim for relief.

The takeaway?  Southeast Caissons makes it clear that general contractors seeking to utilize their standard subcontract forms should insist upon a signed agreement before permitting work to begin.  Allowing your subcontractor to proceed with its scope without first obtaining its “John Hancock” risks losing the benefits of those favorable subcontract terms your construction attorney spent so long drafting for you.

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Filed under Construction Risk Management, Forum Selection Clauses, Local law, policy & news, NC case law, State law, State law, policy & news, Subcontractors

Improving the Odds for a Jackpot Year for Your Commercial General Contracting Business

Wednesday’s Powerball drawing promises the winner a $1.3 $1.5 billion (yes, that’s “billion” with a “b”) jackpot.  Unfortunately, your odds of picking the winning numbers are about 1 in 292 million, or roughly the same odds as an architect acknowledging a deficiency in construction plans & specifications (I kid!).  Buying a few extra tickets might “improve” your chances, but they’ll remain infinitesimally small.

Fortunately, there are some steps you can take to improve the odds your commercial general contracting business will have a jackpot year in 2016.  These five tips spring to mind:

  1.  Know who you’re doing business with.  One bad project can spoil the gains from ten successful ones.  Do your homework on the owners who want you to build their projects.  Avoid owners who insist on oppressive contract terms, have a history of problem jobs, and/or just don’t seem to know what they’re doing.  Sometimes the best contracts are the ones you don’t sign.
  2. Buy out subcontracts thoughtfully.  Just as you need to be careful picking & choosing the jobs you bid, you should be equally careful about selecting your downstream dance partners.  First-tier subcontractors offering you a price advantage might not necessarily be reliable team players down-the-road.  Balance price with dependability. 
  3. Cultivate a culture of jobsite safety.  Having a track record for operating safe jobsites makes your company more attractive to the best owners, keeps your workers’ compensation mod rate in-check, and decreases the chances you’ll be spending time & money this year defending against claims.  Safety first, every day.
  4.  Secure your payment rights.  In North Carolina, that means filing a Notice to Lien Agent as your work begins, informing suppliers of the identity of the lien agent, guarding against double payment liability through the Notice of Contract procedure, and enforcing your lien rights timely, when necessary.  If you’re unaware of how any of these tools work, call your construction attorney immediately.  Speaking of construction lawyers…
  5. Rely on your lawyer for more than just dispute resolution.  Construction attorneys do more than resolve claims.  We draft & review contracts (as well as construction forms) and provide counseling throughout the construction phase of a project and beyond.  Make an experienced construction attorney your partner in profitability all year long.

Good luck, both with Wednesday’s drawing and with the year ahead.  As always, comments welcome!

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Filed under Construction Risk Management, Contract Review & Negotiation, Lien Law, OSHA

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…

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Filed under Construction Management, Construction Risk Management

Subcontract Negotiation Is a Question of Leverage. Leverage Is a Function Of . . .

Two tweets touching upon subcontract negotiation dynamics jumped out at me this week.  The first was from zlien founder Scott Wolfe, Jr., who linked to his recent blog post about general contractors who demand that their subcontractors sign away their lien rights:

Money quote from the post:

General contractors scream that relationships are important, but really, it’s relationships on their terms.  …  In reality, however, the subcontractor is likely feeling a bit abused.  They accommodate because of the general contractor’s influence and contracting power.

The second tweet was from good friend and Virginia construction attorney Chris Hill, who linked to fellow Virginia attorney Juanita F. Ferguson’s piece discussing (among other things) forum selection clauses in subcontracts between out-of-state prime contractors and local subs:

Money quote from the post: “local contractors must be savvy in negotiating contracts with out-of-state companies.”

Which, in turn, begs the Friday Forum money question:

What factors impact the relative bargaining power of primes and subs when it’s time to make a deal?

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Filed under Construction Risk Management, Contract Review & Negotiation, Forum Selection Clauses, Subcontractors

When Resolving Construction Disputes, Three Is Company, Too

You’re a general contractor on a large commercial construction project impacted by significant delays.  You place most of the blame for the delays on the project architect, who you contend issued a wrongful stop work order arising from the performance of one of your subcontractors and performed other construction administration services negligently.  Both you and the sub have incurred significant extended general conditions as a result of the work suspension, and you invite the sub to make a delay claim you intend to pass through as a component of your own claim to the owner, who, under the contract documents, is legally responsible for the acts of its architect.

The sub wants to participate in a pre-litigation mediation you’ve scheduled with the owner, but you’re hesitant to oblige.  The owner, after all, will spend mediation blaming your sub for the issues giving rise to the stop work order, and you worry your sub’s presence could actually hamper, rather than facilitate, the settlement negotiations.

Wednesday WisdomAre you better off refusing the sub’s request to participate in the mediation, trying to settle with the owner first, and then circling back to resolve open issues with your sub once things are squared away up-the-chain?

That would be a risky play, as a 2011 North Carolina Court of Appeals decision demonstrates.

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Filed under Construction Risk Management, Damages, Delay Claims, NC case law

4th Circuit: Substantial Completion Occurs When Your Contract Says It Occurs

There is no milestone more significant to a commercial construction project than substantial completion.  For an owner, it’s the long-awaited moment it can make beneficial use of its investment.  For prime contractors, it’s the moment the owner’s rights to terminate and/or assess liquidated damages is cut off.  For subcontractors, it’s the moment contractual warranties typically begin to run.  The list goes on and on.

Monday MemoIn light of how many legal rights and defenses are tied to the moment of substantial completion, you would think that contracting parties would take extra care to (1) define what constitutes “substantial completion” and (2) ensure that “substantial completion” is achieved in accordance with that carefully crafted contractual definition.

That’s not always the case, as a 2013 decision from the U.S. Court of Appeals for the Fourth Circuit (which includes North Carolina) reveals.

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Filed under Construction Risk Management, Contract Review & Negotiation, Damages, Delay Claims, Federal law, policy & news

The Last 1%: The Virtues of an Effective Strategy for Achieving Final Completion

It’s always an honor and a pleasure to guest post over at Christopher Hill’s Construction Law Musings, easily one of the most informative, thought-provoking and regularly updated construction blawgs out there.

Photo by Sura Nualpradid / FreeDigitalPhotos.net

Photo by Sura Nualpradid / FreeDigitalPhotos.net

This time around, I’ve penned a brief thought piece on why contractors should make project close-out a top priority, focusing on how finishing strong can impact your bottom line, liability exposure and business reputation.

I hope you’ll check it out.

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Just Got Terminated for Convenience? Five Steps You Should Take Right Now.

Image by Hans Braxmeier / Pixabay.com

Did your contract just get axed? Read on. (Picture by Hans Braxmeier / pixabay.com)

Most private owners negotiate for a contract clause permitting them to terminate a construction agreement without regard to the quality of the contractor’s performance.  These so-called “termination for convenience” clauses come in handy when, for example, an owner’s financing runs dry and a project must be halted.  A termination for convenience clause allows an owner to cancel a project without materially breaching the contract and avoid paying the contractor its anticipated lost profit on unperformed work.

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Filed under Construction Risk Management, Termination Claims

When the Plans & the Code Don’t Mix, Can a Sub Sue a Design Professional for Negligence?

Photo by CGehlen via Flickr

Photo by CGehlen via Flickr *

Talk about being stuck between a rock and a hard place.

You’re an electrical sub who notices during your performance that installing certain light fixtures per plans would run afoul of the manufacturer’s instructions and violate the building code.  You bring the issue to the attention of your general contractor, who submits an RFI.  The architect’s response directs you to proceed per plans.  The system later malfunctions, and you incur significant cost researching the problem, ultimately concluding that the installation method directed by the architect is the culprit.  The architect refuses to pay your costs for researching the issue.

Might you have a claim for negligence against the architect?

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Filed under Building Codes, Construction Risk Management, NC case law, Subcontractors

When the Well Runs Dry: Seven Tips for Guarding Against a Failure in Project Financing

Photo by inkknife_2000 via Flickr *

Photo by inkknife_2000 via Flickr *

Last Thursday, November 14, 2013, I participated in a webinar hosted by Engineering News-Record® on “The Five Risks You Never Saw Coming,” which is still available on-demand and free to the public on ENR’s webinar page.

The first risk addressed by the panel is the subject of this post: the risk that a private owner’s financial well might run dry.

As one of the panelists, Atlanta construction attorney Gina Vitiello (@GinaVitiello on Twitter), discussed, project funding can fail for a number of reasons.  The owner might run out of capital funds, perhaps because it overestimated the availability of project funding or underestimated the total costs of the endeavor.  Or the owner might lose its financing, for example by defaulting on its loan obligations.  Or the lending institution financing the project might fail.

No matter how or why the financial well might run dry, the consequences for the prime contractor, construction manager at risk or design-builder can be catastrophic.  What can be done to guard against this risk?

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Filed under Construction Risk Management, Contract Review & Negotiation, Feature story