Category Archives: Feature story

February 2, 2012 · 7:58 AM

An Ounce of Claims Prevention Worth a Pound of Cure?

I spent last Thursday and Friday at a continuing legal education program offered by the Fidelity & Surety Law Committee of the American Bar Association’s Tort Trial & Insurance Practice Section (“TIPS”) at the Waldorf-Astoria Hotel in Manhattan.

One of the many highlights of the excellent two-day program was a panel discussion on Thursday featuring general counsel and risk managers from five large general contractors: The Walsh Group, Kiewit Corp., Turner Construction Co., Skanska USA and Granite Construction Inc.

During that panel discussion, Mr. Kenneth M. Smith, Assistant General Counsel of Granite, spoke about a topic near and dear to my heart:  in-project claims prevention.  Mr. Smith spoke about how claims prevention begins with the contract review process, which should feature a thorough identification and analysis of key contract clauses to ensure an appropriate allocation of contract risk between the parties.  Legal counsel should follow that review with training of key project staff to ensure that they understand all key contract terms, such as claim notice provisions.

Mr. Smith then spoke about his company’s implementation of monthly impact reports to and/or conference calls with legal counsel to provide a periodic check-up on the health of a project.  Are an excessive number of change orders creating a risk of cumulative impact damages?  Is the project on budget?  If not, in which cost codes can the cost overruns be found?   Is the project falling behind schedule?  Are there personality conflicts on-site that are preventing effective communication between and among project participants?

The purpose of getting answers to these types of questions on a periodic basis is threefold.

Continue reading →

Leave a comment

Filed under Contract Review & Negotiation, Feature story, Project Counseling

Tagged as , , , , , , ,

December 31, 2011 · 9:08 AM

Rock the New Year With a Few Resolutions

Image by Idea go via FreeDigitalPhotos.net

A new year is upon us, with decidedly tempered expectations for the national construction industry.  Indeed, a poll of ENR Southeast readers does not disclose much optimism for significantly increased construction activity in the region.

All the more reason to be as vigilant as ever in the coming year.  Here are a few suggested resolutions to assist you in navigating the choppy waters that may await in 2012:

(1)  Do not to treat partial lien waivers lightly.  There are potentially very real consequences in representing that payment in full, less retainage, has been received through a certain date — particularly if at the time the representation is made, claims for extra work or delay damage exist.

(2)  Before you sign, read each line.  Construction contracts are risk allocations that courts and arbitrators are loath to alter once executed.  You need to understand how the participant above you in the contractual chain is seeking to allocate risk before you sign and mobilize.

(3)  Beware the subcontract buyout process.  If a subcontractor’s price appears too good to be true, it probably is.  And the potential legal headaches on the back-end are likely not worth it.  In other words, qualifications matter.

(4)  Report claims that may be covered by an insurance policy in a timely manner.  When things go bump in the night, you don’t want to be left holding the bag when your carrier argues that it was prejudiced by a late notice of claim.

(5)  Tread very carefully before terminating someone for cause.  The law abhors a forfeiture, and courts and arbitrators are likely to ensure that each and every contractual condition precedent to termination has been satisfied before concluding that a termination was proper.

I resolve to making N.C. Construction Law, Policy & News a vital and timely resource for a growing audience of construction industry participants and their counsel here in the Old North State.  I’m still on the blawging learning curve, but the foundation has been laid, and I expect to come “out of the ground” strong in 2012.

Until my next post, Happy New Year!

Leave a comment

Filed under Feature story, Market Trends

Tagged as , , , , , , , , ,

December 28, 2011 · 10:28 AM

COA: “No Damages For Delay” Clause Does Not Defeat Equitable Adjustment Clause

“Time is money.”  Sure, it’s an overused cliché.  But as construction industry participants know better than just about anyone else, there’s a whole lot of truth in those three simple words.  When projects run late, completion costs invariably rise, frequently resulting in the assertion of delay claims (and counterclaims.  And third-party claims.  And cross-claims … you get the picture).  “No damages for delay” clauses in construction contracts seek to manage loss exposure arising from delay by limiting a contractor’s remedy for delay to a time extension only.  A typical “no damages for delay” clause might read as follows:

The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays.  The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.~ Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)

Such clauses aren’t always enforceable.  In fact, under North Carolina statutory law, “no damages for delay” provisions are unenforceable in prime contracts between public owners and general contractors.  See N.C. Gen. Stat. § 143-134.3.  But in all other cases where such clauses are enforceable, do they provide an impenetrable defense against increased costs arising from project delay?  Not necessarily. Continue reading →

2 Comments

Filed under Delay Claims, Feature story, Material Cost Escalation, NC case law

Tagged as , , , , ,

November 2, 2011 · 8:19 PM

Material Price Escalation Puts Contractors At Risk, But The Law Offers Little Reprieve (Part I)

According to AGC’s Chief Economist, Ken Simonson, construction material prices for the 12-month period from October 1, 2010 – September 30, 2011 increased 8.1%, while the prices charged by general contractors for non-residential construction increased between 2% – 3%.  In the AGC’s October 18, 2011 press release, Mr. Simonson was quoted as saying the following: “Feeble demand for construction is forcing contractors to absorb the bulk of materials price hikes, instead of passing them along to owners.  This pattern has persisted for more than two years, and many contractors are increasingly at risk of going under.”

The AGC’s press release reminded me of 2003-2006, when the price of steel in particular was going through the roof, driven to a large extent by international demand (I’m looking at you, China!).  While material cost escalation today may not be quite as dramatic as what the industry went through in the middle of the last decade, it does beg the question: what can the law do to help alleviate the pinch?

Short answer: not much.  Contractors resorting to common law contractual defenses (such as impossibility, impracticability and frustration of purpose) and contract provisions (such as force majeure clauses) have found little success shifting the risk of cost increases on fixed price contracts to project owners.  Part II of this series will discuss the limitations of existing law in obtaining judicial relief for material price increases.  Part III will discuss how to manage your risk in light of these limitations.

Stay tuned in the days ahead for more.

Leave a comment

Filed under Feature story, Material Cost Escalation

Tagged as , , , , , , , , ,

October 30, 2011 · 11:30 AM

Construction Management-Agency v. Construction Management At-Risk: Apples and Oranges

Construction attorneys learn early on that there are two forms of “construction management” – “pure” construction management, where the construction manager is an agent of the owner (“CM-Agency”); and construction management “at-risk,” where the construction manager is legally responsible for delivering the project on-time and on-budget (“CM At-Risk”).   A CM-Agent helps the owner manage/make critical decisions about a project, but does not actually commit to delivering the project on-time or on-budget, and does not enter into subcontracts with trade contractors.  Compare the CM At-Risk, who is “at risk” to the owner for the project schedule and cost and also “at risk” to the subcontractors for timely payments down the chain.

Seems simple enough.  But what does this distinction actually mean in the real world?  I recently stumbled upon this concise, helpful article from a representative of Holder Construction in Atlanta clarifying the practical differences between CM-Agency and CM At-Risk.  The article emphasizes that CM-Agency is a method for managing a construction project, while CM At-Risk is a project delivery system (competing with other methods such as single prime, multi-prime, design-build, etc.).  That distinction is critical, and demonstrates that comparing CM-Agency and CM At-Risk is a lot like comparing apples and oranges.

Assume you’re an owner in the early stages of planning a new project and assembling the project team.  Maybe you don’t have in-house staff with construction management experience, or maybe (if you’re REALLY fortunate in these difficult times) you have multiple projects to manage but insufficient staff to handle all the decision-making and day-to-day responsibilities those projects entail.  You might be in the market for a “pure” construction manager, someone who is in your corner and serving your interests exclusively throughout the project, including hiring the design team, evaluating what industry form contracts to utilize and managing day-to-day construction operations once the shovels hit the dirt.

The CM-Agent can also help you decide early on what project delivery method to utilize.  And if the project is on a fast track schedule, requiring timely budgetary input from the builder during the design phase, the CM At-Risk project delivery system might be the CM-Agent’s recommendation.   Unlike the CM-Agent, the CM At-Risk is not, from a project relationship perspective, entirely in the owner’s corner.  Because it serves as the guarantor of the project’s schedule and budget, the relationship between the owner and the CM At-Risk, no matter how strong the team approach to the project may be, is inherently adversarial.

Viewed in light of this hypothetical, then, CM-Agency and CM At-Risk are not opposites.  “CM-Agency v. CM At-Risk” is not an either-or proposition.   Project owners should not think in terms of choosing between CM-Agency and CM At-Risk.  Instead, and under the right set of circumstances, they can be complimentary project management and delivery tools, utilized together to ensure a successful project.

1 Comment

Filed under Construction Management, Feature story, Project Delivery Systems

Tagged as , , , ,

October 8, 2011 · 4:52 PM

CASE LAW SPOTLIGHT: Court of Appeals Holds That Partial Lien Waivers Do Not Reset The Date-of-First-Furnishing Clock

Fall is here, and in four short weeks, daylight savings time will “fall back” to eastern standard time.   Many of us will mark the occasion by checking the batteries in our smoke detectors, getting a much-deserved extra hour of sleep, and then awakening to the harsh reality that darkness will arrive an hour earlier than the day before, and will continue to descend earlier and earlier until Old Man Winter is finally upon us.   After enduring that chilling thought, we’ll walk through our respective homes and make sure all of our clocks, appliances and VCR’s (yep, I still have one) are set back an hour, to the proper time.

Filing a mechanics’ lien is a little bit like setting the clock back each Fall.  Sure, the date stamp applied by the clerk of court upon docketing a Claim of Lien bears the date of filing, but the contractor’s security interest in the property actually “falls back” to an earlier point in time — specifically, the date of the contractor’s first performance as recited in the Claim of Lien itself.  It is that date — and not the date of filing — that will establish the contractor’s priority in the property that is the subject of the contractor’s improvement vis-à-vis all other competing interests.

Or so we all thought, before the Business Court ruled in April 2010 that every partial lien waiver executed by a contractor in exchange for periodic payment effectively resets the date of first furnishing.  In all candor, many of my fellow construction law practitioners and I were shocked by that result.  Fortunately, order was restored this past July, when the Court of Appeals reversed the Business Court and held that a partial lien waiver does not affect a contractor’s place in the priority line.  Still, the Wachovia v. Superior Construction case discussed in this Case Law Spotlight article should serve as a “check-the-batteries-in-the-smoke-detector” moment for all contractors across the State: now would be a good time to make sure the partial lien waivers you execute every month aren’t too overbroad.   Details and analysis follow after the jump.

Continue reading →

Leave a comment

Filed under Feature story, Lien Law, NC case law

Tagged as , , , ,

October 2, 2011 · 4:10 PM

CASE LAW SPOTLIGHT: Court of Appeals Wades Boldly Into “Your Work” Waters

Photo by pdufour via Stock.XCHNG

In a pair of recent decisions, the N.C. Court of Appeals has clarified that an “accident“ or “occurrence” may arise from faulty construction, ruled that the “your work” exclusion is not so broad as to exclude from CGL coverage damage to property other than the faulty work product itself, and held that lost revenue and other consequential damages may be recoverable against a CGL policy, even if such damages arise from the defective construction itself.   Taken together, the two opinions narrow the reach of the “your work” exclusion in North Carolina, and should preclude the type of firestorm that engulfed the contracting community, insurance industry and legislature in South Carolina earlier this year, when its Supreme Court came to virtually opposite legal conclusions.

You’ll find a full discussion and analysis of both decisions, including their potential impact on the construction industry here in North Carolina, after the jump.

Continue reading →

Leave a comment

Filed under Construction Defects, Feature story, Insurance Issues

Tagged as , , , , ,