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.
That’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…
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.
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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:
It’s typical for subcontracts to include a clause binding the subcontractor to the decisions of the project architect. Such terms help general contractors and construction managers at-risk avoid obligations to subs below that can’t be passed through to owners above. That’s a sensible and enforceable risk allocation most of the time.
But not all of the time.
Sometimes, the architect doesn’t play fairly. Sometimes, the prime contractor fights hard for itself, but not hard enough for its subs. And sometimes, a statute might provide a remedy when the subcontract does not.
On such occasions, as discussed below, subcontractors might avail themselves of an escape hatch:
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Construction is a relationships-driven business. The most successful companies understand that rising to the top requires developing and nurturing solid relationships up and down the contractual chain, both before the contract is signed and throughout the period of performance. It’s the ticket to generating repeat business, increasing bonding capacity, maximizing profit and thriving over the long haul.
Of course, a relationship between two corporate entities represents the sum of the interpersonal interactions between and among the owners and employees of the respective companies to the relationship. Unfortunately, those interactions might not always be pleasant. They might even become downright abusive. And when one company’s agent harasses another company’s employee, the employer of the aggrieved employee could face hostile workplace liability.
That’s the unmistakable message driven home by the April 28, 2014 Fourth Circuit Court of Appeals’ published decision in Freeman v. Dal-Tile Corporation.
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It’s springtime in the construction industry, my friends. Banks are lending again, optimism has returned and the private, non-residential sector is heating up. Good news all.
But before you mobilize the yellow steel to your next jobsite, the deal’s gotta get done. And so ’tis the season of contract negotiation — which, if you’re not careful, could lead to the season of your discontent. That’s because some crazy stuff might be lurking in the document the party above you in the contractual chain wants you to sign.
Just ask Birmingham, Alabama construction attorney Burns Logan, the inspiration behind this post and its cheeky title:
There’s only one way to suss out the crazy in your construction contracts, and that’s by carefully reviewing them, as Sage Construction reminded us this week:
One of the three reasons cited in the linked blog post is “owners are pushing risk to GC’s.”
Tell me about it!
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The Monday Memo in recent weeks has focused on North Carolina laws and policies bearing on the Tar Heel State’s construction industry. Today I turn my gaze to our nation’s capitol, where public hearings are underway on OSHA’s proposed rule to lower the permissible exposure limit (“PEL”) for airborne crystalline silica, a by-product of such common construction operations as concrete and stone cutting.
The hearings began on Tuesday, March 18 and continue through Friday, April 4, with a variety of construction industry and safety voices scheduled to be heard.
Here are five key points to bear in mind as the process moves forward:
If I were to tell you that unforeseen subsurface conditions — for example, wetter-than-expected soils requiring a change to a building’s foundation — resulted in a substantial cost-overrun on a publicly bid project, you’d probably say, “that’s lousy news.” In the context of that one project, I’d have to agree with you; unexpected cost increases can create uncomfortable financial, PR and political pressures for a public project’s participants, not to mention unwelcome additional costs for John Q. & Jane Q. Taxpayer.
But what if I told you that the contractor’s entitlement to increased compensation on that one project would ultimately save the government much more money on future projects? “Sounds great,” you might respond, “but I don’t believe in fairy tales.”
You don’t have to. You just have to believe in the differing site conditions (“DSC”) clause.
While many construction industry participants favor the finality of binding arbitration, some are put out by the inability to appeal an unfavorable award (see my previous blog post for more on the limited bases for challenging arbitration awards in court).
Photo by Eric Kilby via Flickr *
The American Arbitration Association® (“AAA”) has announced a new set of rules intended to bridge that gap. As of November 1, 2013, the AAA has made available for use its “Optional Appellate Arbitration Rules,” the purpose of which was articulated by AAA in its press release:
The objective of arbitration is a fair, fast and expert result that is achieved economically. Consistent with this goal, an arbitration award traditionally will be set aside by a court only where narrowly defined statutory grounds exist. Sometimes, however, the parties may desire a more comprehensive appeal of an arbitration award within the arbitral process. … In order to provide for an easier, more standardized [appellate] process, the AAA has developed these Optional Appellate Rules.
I greeted news of the Appellate Rules with much curiosity and, truth be told, a fair amount of skepticism: how could AAA marry up a meaningful appellate process with the streamlined nature of arbitration? And so before reviewing the new rules, I jotted down a list of questions I hoped they would address. Those questions, and what I discovered upon reviewing the rules, follow:
1. Scott Wolfe of Zlien.com tweeted about the pros and cons of filing a claim of lien on real property in advance of a construction mediation. The linked blog post notes that while a claim of lien might enhance the claimant’s negotiation leverage, it might simultaneously generate adversarial tension up the chain, which in turn could make a mediated resolution more difficult to achieve.
It’s an interesting strategic question, particularly now that N.C. Gen. Stat. § 44A-23(d) expressly gives subs and suppliers the option to file their lien claims within 120 days of the prime contractor’s date of last furnishing, as opposed to their own date of last furnishing. More than ever, timing is everything. Continue reading