February 8, 2012 · 10:52 AM

Did the Court of Appeals Unwittingly Increase the Risk of Surety Companies Issuing Payment Bonds in North Carolina?

My recent musings about the Court of Appeals’ December 6, 2011 Southern Seeding decision (my original blawg post about the case is here; a longer treatment in this quarter’s Change Order, published by the Construction Law Section of the North Carolina Bar Association, can be found here) neglect to address the opinion’s implications for surety companies issuing payment bonds in North Carolina.

Those implications are profound and potentially far-reaching, and certainly worthy of discussion.  So for those of you, like me, who have a keen interest in North Carolina suretyship law, you’ll definitely want to keep reading.

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February 6, 2012 · 12:39 PM

Conversion of I-95 To Toll Road Likely To Be Controversial

As reported in the Fayetteville Observer over the weekend, the N.C. Department of Transportation (“NCDOT”) is moving forward with its $4.4 billion (yep, that’s “billion” with a “b”) plan to widen I-95 from four to six lanes through implementation of tolling on this critical 182-mile transportation corridor.

Why tolls?  To quote the story:

The reason is money.  [NCDOT] figures show the state has roughly $45 billion in projects to complete by 2020.  But the state expects to have only about $9 billion to spend on those projects.  The funding gap would mean many key projects would have to be postponed for years.

To the extent current conditions, anticipated usage and a comparison of the available alternatives dictate that lane expansion is necessary — issues I have not researched thoroughly and therefore cannot opine upon — I can understand why NCDOT officials are seeking federal approval for converting I-95 to a toll road.  The divisive political environment pervading our nation’s capital virtually guarantees that no new federal infrastructure investment, beyond what the state is already receiving year-in and year-out on average, can be expected anytime soon.  That means end-users, and not taxpayers, are going to have to foot the bill if this ambitious widening project is to move forward now.

However, with the price of 87-octane currently hovering around $3.70 per gallon, I suspect the public’s reaction to the tolling plan could be vocally negative.  We’ll know shortly whether these suspicions are confirmed, as the NCDOT is conducting informal hearings up and down the corridor between tomorrow and February 27.  If you’re interested in attending, a complete calendar of the hearings can be found here.  And for more information, including a chance to review the “I-95 Corridor Planning & Finance Study Environmental Assessment” recently authored by NCDOT’s consultants, head on over to www.driving95.com.

What’s my view on this as a construction law matter, as opposed to a public policy and/or political matter?  Well, I’ve spent a bit of time perusing those portions of the Study related to the financing of the project, keeping in mind that other states have utilized public-private partnerships (“PPPs”) in the design and construction of new toll facilities.  Under a PPP, one or more private partners invests up-front in the design and construction of the infrastructure in question, and is subsequently reimbursed though (and profits by) tolling.  As best as I can tell, however, the Study does not indicate whether NCDOT is still considering the PPP option.

I’m curious about this angle to the story, since PPP’s introduce a host of issues of interest to construction law attorneys:  Would the construction contract(s) be awarded to the “lowest responsible bidder” within the statutory sealed bid framework, or by some other competitive or negotiated process?  How transparent would the procurement process be?  Would statutory bonding requirements for public projects apply?  What project-level communications challenges might be created through the involvement of a private partner?  Would the government, its private partner or both have authority to terminate a contractor for cause?  How might typical contractual risk allocations be shifted?  I’m sure my fellow construction law practitioners could suggest a score of others.

I’ll be keeping my eyes on both the PPP-angle to this story and other developments, so please stay tuned.

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February 3, 2012 · 4:32 PM

Green Shoots?

Caterpillar is expanding its Clayton facility, waterfront development adjacent to the new Wilmington Convention Center is moving forward, and the national economy netted an additional 240,000 jobs in January, including 21,000 jobs in the construction sector.

Some of this evidence might be anecdotal.  Still, pretty good week.  May it be followed by many more.

February 4, 2012 Update:  Let’s end the week acknowledging three other noteworthy development projects about which the News & Observer reported within the last two weeks:  out-of-state developers have broken ground on a $37 million, 291-unit apartment complex in Raleigh’s Briar Creek neighborhood; Greenfire Development is set to begin construction on a $10 million, 88-unit apartment complex in downtown Durham; and Capitol Broadcasting is set to break ground this spring on Diamond View III, a 130,000 square foot office building behind left field of the Durham Bulls Athletic Park (or “D-bap” to us locals).

Holy moly — new office building construction, in a central business district, in this economy?!  Again, maybe it’s only anecdotal evidence of a meaningful, lasting recovery.  But I’ll take it.

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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.

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January 11, 2012 · 7:28 AM

Friendly Reminder

Unless you think you might enjoy a federal wire fraud conviction, don’t use construction loan proceeds for anything other than the costs of construction.

 

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January 3, 2012 · 6:28 AM

Cell Phone Ban for Commercial Vehicles Takes Effect TODAY

A new year ushers in new laws, and one potentially applicable to participants in the construction industry is the new regulation from the Federal Motor Carrier Safety Administration (FMCSA) and the Pipeline and  Hazardous Materials Safety Administration (PHMSA) prohibiting interstate truck and bus drivers from using hand-held cell phones while operating their vehicles.

The new rule prohibits commercial drivers from using a hand-held mobile telephone while operating a commercial truck or bus.  Drivers who violate the  restriction will face federal civil penalties of up to $2,750 for each offense  and disqualification from operating a commercial motor vehicle for multiple  offenses.  Additionally, states will suspend a driver’s commercial driver’s license (CDL) after two or more serious traffic violations.  Commercial  truck and bus companies that allow their drivers to use hand-held cell phones while driving will face a maximum penalty of $11,000.

The rule also applies to intrastate drivers who operate commercial vehicles transporting a quantity of hazardous materials requiring placarding under 49 CFR Part 172 or any quantity of a material listed as a select agent or toxin in 42 CFR part 73.

Note that the rule applies to the popular “push-to-talk” devices frequently utilized in the construction industry.

Under the new regulation, a driver can only initiate, answer or terminate a call by touching a single button on a mobile telephone, earpiece, steering wheel or instrument panel.

Employers should consider establishing policies or practices that make it clear that its employees and agents are neither required nor allowed to use hand-held mobile telephone devices while driving a commercial vehicle.

For more on the new rule, see the attached link announcing the rule and an accompanying FAQ.

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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!

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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 →

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December 27, 2011 · 12:41 PM

Jackson County Public Library Wins Outstanding Facility Award

There is not such a cradle of democracy upon the earth as the Free Public Library, this republic of letters, where neither rank, office, nor wealth receives the slightest consideration.

~ Andrew Carnegie

My wife is one of the most ardent supporters of public libraries I know.  So with her passion for books and her enthusiasm for local libraries in mind, I am pleased to pass along this story from the Sylva Herald, announcing that the Jackson County Public Library has been awarded the Outstanding Facility Award in the “large” category by the N.C. Public Libraries Directors Association.

Congratulations to the Jackson County Public Library (owner), McMillan Pazdan Smith Architecture (designer) and Brantley Construction Company (general contractor) on this achievement.

I haven’t been out to Sylva in over a year, but I will definitely be checking out both the new library complex and the newly renovated County Courthouse to which the library is adjacent the next time I’m in town.

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December 15, 2011 · 11:31 AM

Court of Appeals Issues Lien Priority Decision Arising From Scrivener’s Error in Deed

Here’s a fact pattern worthy of a bar exam question:

A Trust intends to convey to Developer a 100%, undivided fee simple interest in a tract of land (for the non-lawyers, Trust seeks to convey the whole kit-and-kaboodle to Developer).  Unfortunately, whoever prepares the deed effectuating this transaction is a tad sloppy, and mistakenly describes the estate conveyed as a “one-half fee simple interest,” rather than the full, undivided interest actually intended by the parties.

Along comes Lender, apparently unaware of the scrivener’s error, who provides construction financing to Developer for planned improvements to the parcel.  The loan is secured by a deed of trust, of course, which describes Lender’s collateral as Developer’s full, undivided interest in the parcel (which, unbeknownst to Lender, Developer does not actually have, at least not yet).

Contractor then begins making improvements to the parcel, under the belief that Lender has a first-position priority interest in the parcel that pre-dates Contractor’s commencement of work.  Contractor, however, is completely unaware of the scrivener’s error in the deed from Trust to Developer.

In time, Trust and Developer realize the error and record a corrected deed.  When Lender catches wind of what has occurred, it, too, heads to the Registry of Deeds, re-recording its original deed of trust on the parcel.  Ultimately, Contractor alleges it’s been stiffed by Developer, files a claim of lien, and then files a civil action to enforce its mechanic’s lien rights.  The action names Lender for the purpose of determining the relative priorities in the parcel, as Contractor seeks a judgment that its mechanic’s lien rights are  superior to Lender’s deed of trust, at least with respect to the one-half undivided interest that was not originally conveyed from Trust to Developer.   Which party stands higher on the priority ladder with respect to that one-half interest — Lender or Contractor?

Pens down, bar examinees!

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