Common Sense Construction Practical Guide for the Construction Professional

Common Sense Construction Law A Practical Guide for the Construction Professional by Thomas J Kelleher Jr and G Scott Walters

Contents of Common Sense Construction Law

Legal Context of Construction
Introduction
Contract Law
Breach of Contract
Implied Contract Obligations
Evolution of Construction Law
Torts
Intentional Torts
Negligence
Strict Liability
Statutory and Regulatory Laws Affecting Construction
Points to Remember
Alternative Contracting Methods
Traditional Approach to Construction: Advantages and
Disadvantages
Multiprime Contracting and Fast-Tracking
Construction Management
Agency Construction Management
Program Management
Construction ManagerGeneral Contractor
Design-Build Contracting: What Works to Avoid Disputes
The Design-Builder’s Perspective
The Owner’s Viewpoint
The Successful Design-Build Project
Design Professional Liability Issues in
a Design-Build Project
CONTENTS
Design-Build Aspects of Traditional Construction
Performance Specifi cations
Shop Drawings
Secondary Design Review
The Interpretations Clause
Identifi cation of Patent Defects
Compliance with Permits, Codes, and Regulations
Contractor Liability Issues
Engineer-Procure-Construct
Limitations of Liability
Liquidated Damages
Private Public Partnerships
Points to Remember
Preparing to Work in a New State: Preproposal and
Performance Considerations
Qualifying to Do Business
I State Registration Requirements: Bonds to Secure
Payment of Taxes
State Licensing and Qualifi cations
Public Construction Awards
State Statutes and Policies Affecting Contract Terms and
Conditions
Subcontractor General Contractor Relationships
Contract Award Preference Regulations
Public Policy Limitations on Contract Clauses
Impact of New Legislation
Preservation of LienBond Rights
Preconstruction Knowledge of Lien Law Peculiarities Is Essential
Lien Law Protections and Procedures Vary Greatly from
State to State
“Almost Right” Is Almost Always Not Good Enough
A Valid Claim of Lien Does Not Guarantee Payment
Arm Yourself Early with Accurate
Lien Law Information
Risk Assessment Checklists
Information Sources
Points to Remember
Competing for the Contract
Introduction: Sealed Bids to Negotiated Best-Value Awards
I General Considerations in Bids for Public Contracts
The Responsible Bidder
The Responsive Bidder
The “Lowest And Best” Bidder
Negotiated “Best Value” Selection Process
Electronic Bids
Reverse Auctions
General Considerations When Competing on Private Contracts
Effect of Past Performance Evaluations on Award Process
Past Performance Evaluation Procedures
Challenges to Past Performance Evaluations
Contractor Bid Mistakes
Elements for Relief from Bid Mistake
Owner’s Duty If Bid Mistake Is Suspected
Withdrawal versus Reformation of Bid Mistake Bid Protests
Protests on Federal Government Contracts
Protests before or after Receipt of Bids or Offers
Protests to the Contracting Agency
Protests to the Comptroller General
Bid Protests in Court
Bid Protests on State and Local Public Contracts
Bid Bonds
“Bid Shopping”: What Is the Obligation of the Prime Contractor to the Subcontractor Submitting the Lowest Price?
Holding SubcontractorsVendors to Their Bids
Promissory Estoppel
Elements of Promissory Estoppel
Statute of Frauds Issues
I Damages
Points to Remember
Intepreting the Contract
The Importance of Contract Interpretation
I What Is a “Contract”?
The Goal of Contract Interpretation
Defining Contract Terms
Terms Defined by the Parties
Technical Terms
Generally Accepted Defi nitions
Interpreting the Contract’s Wording
The Contract Must Be Considered as a Whole
Specific Terms versus General Terms
Handwritten, Typed, and Preprinted Terms
Order-of-Precedence Clause
The Facts and Circumstances Surrounding Contract Formation
Discussions and Conduct
The Parties’ Prior Dealings
Industry Custom and Usage
Limitations on the Use of Facts and Circumstances
Surrounding the Contract
Resolving Ambiguities
Construing the Contract against the Drafter
Duty to Request Clarifi cation
Implied Contractual Obligations
Duty of Good Faith and Fair Dealing
Duty to Cooperate
Warranty of Plans and Specification
The Spear in Doctrine
Contractual Obligations Arising by Operation of Law
Points to Remember
The Uniform Commercial Code and the
Construction Industry
The Uniform Commercial Code
I Applicability of the UCC to Construction
Determining When Article Applies
Modifying UCC Obligations
Contract Formation under the UCC
Agreement on All Terms and Conditions Is Not Required
Methods of Acceptance
Requirement for a Written Contract
Withdrawal of an Offer
Filling Gaps in Essential Contract Terms
Risk of Loss
Inspection, Acceptance, Rejection, and Revocation of Acceptance
Inspection of Goods
Rejection of Goods
Acceptance and Notice of Breach
Seller’s Right to Cure
Revocation of Acceptance in Whole or in Part
Warranties under the UCC
Warranty Disclaimers
Warranty Limitations
Statute of Limitations and Commencement of the Warranty Period
Performance Issues
Anticipatory Repudiation Adequate Assurance of Performance
Dealing with the Other Party’s Insolvency
Excuse of Performance by Failure of Presupposed
Conditions
Buyer’s Remedies
Seller’s Remedies
Points to Remember
Authority And Responsibility of the Design Offi cial
Overview
I Standard of Care and Professional Responsibility
Authority of the Design Professional
Actual Authority
Implied Authority
Apparent Authority
Ratifi cation of the Design Professional’s Authority
Supervisory and Administrative Functions of the Design
Professional
Interpretation of the Plans and Specifications
Review and Approval of Shop Drawings and
Submittals
Inspections and Testing
Issuance of Certificates of Progress or Certificates of
Completion and Certificates for Payment
Resolution of Disputes between the Owner and the Contractor
Other Duties of the Design Professional
The Design Professional’s Liability to the Contractor
Negligence and the “Economic Loss Rule”
Intentional Torts
Third-Party Beneficiary Theory
Professional Liability Coverage
Statutes of Repose
Effects of Contractual Limitations on Design
Professional Liability
Assumption of Design Liability by the Contractor
Recent Standard-Form Contract Efforts Regarding Shared
Responsibility and Risk
The Design Professional’s Copyright for Design Documents
Points to Remember
Subcontract Administration and Dispute Avoidance
Dispute Avoidance Begins at the Bidding Stage
The Importance of the Low Price
Know the Other Parties
Problem Areas in Subcontract Bidding
I Preparation of the Subcontract Agreement
“Flow-Down” Obligations
Scope of the Work
Payment Obligations
Subcontractor Termination
No Damages for Delay, Except as Paid by the Owner
Changes
Subcontractor’s Indemnifi cation of the Contractor
Labor Affi liation
Disputes Procedures
J. Federal Government Projects
Should Subcontractors Be Bonded?
Dispute Avoidance by Diligent Project Administration
General Contractor’s Duty to Coordinate the Work
Implied Duty to Cooperate
Implied Duty to Coordinate
Limitation of Liability
Pay Applications and Partial Lien Waivers
Prime Contractor Financing of Subcontractors
Remedies for Defective Performance
Remedies for Delayed Performance
Relationship between Subcontractor and the Owner: Can the Prime Contractor Assert the Subcontractor’s Rights against the Owner?
J. Prime Must Be Liable to the Subcontractor for the
Pass-Through Claim: The Severin Doctrine
K. States Have Adopted the Severin Doctrine
L. Conclusion
Points to Remember
Contract Changes
What Is a Changes Clause?
I Recovery under the Changes Clause
Is There a Change to the Contract Work?
Deductive Changes
Who Is Authorized to Order Changes?
Implied Authority
Apparent Authority
Alternatives to Demonstrating Authority
Written Documentation of Changes
Written Directives
Requirements for Written Notice of a Change
Constructive Changes
Informal Extra Work Directives
Defective Plans and Specifi cations
Misinterpretation of Plans and Specifi cations by the Owner
Acceleration
Cardinal Changes
The Impact of Numerous Changes on Unchanged Work
ImpossibilityImpracticability
Points to Remember
Differing Site Conditions
“Differing Site Condition” Defi ned
I Responsibility for Differing Site Conditions
Standard Differing Site Conditions Clauses
Federal Government Contracts
Consensus DOCS
Other Standard Forms
Types of Conditions Covered
Type I and Type II Changed Conditions
Notice Requirements
Operation of the Differing Site Conditions Clause
Recovery for a Type I Changed Condition
Recovery for a Type II Changed Condition
Stumbling Blocks to Recovery
Site Investigations
Exculpatory Clauses
Notice Requirements
Relief in the Absence of a Contract Provision
Misrepresentation
Duty to Disclose
Breach of Implied Warranty
Mutual Mistake
Points to Remember
Schedules, Delays, and Acceleration
Developments in Contractual Risk Allocation
“Time Is of the Essence” Clause
Contract Commencement and Completion Dates
Substantial Completion and Final Completion
Typical Contract Time and Scheduling Clauses
I Use of Schedules In Project Management
Types of Delays
Excusable Delays versus Nonexcusable Delays
Excusable Delays
Compensable Excusable Delays
Nonexcusable Delays
Typical Causes of Excusable Compensable Delay
Defective Drawings or Specifi cations
Failure to Provide Access and Improper
Site Preparation
Failure to Supply Materials or Labor
Failure to Provide PlansApprove Shop Drawings
Failure to Coordinate Prime Contractors
Failure to Give Timely Orders for Work
Failure to Make Timely Payments to Contractors
Failure to Inspect
Suspensions
J. Excessive Change Orders
K. Failure to Accept Completed Work
CONTENTS
Concurrent Delay
Traditional View: No Recovery by Either Party
Modern Trend: Apportionment of Delay Damages
Noncompensable Excusable Delays
Weather
Acts of God
Labor Problems
Acceleration
Directed Acceleration
Constructive Acceleration
VContractual Limitations to Recovery
Requirement for Written Notice
No-Damages-for-Delay Clauses
Trade-to-Trade Clauses
Delay Claims and the Use of CPM Schedules
Delay Claims Supporting Documentation
Points to Remember
Inspection, Acceptance, Warranties, and Commissioning
Inspection
Introduction
Standard Inspection Clauses
Safety-Related Inspection Obligations
Costs of Inspection
The Owner’s Right to Inspect
Rejection and Correction
Limitation on Owner’s Inspections
Inspection by the Design Professional or Inspector
Inspection by the Contractor
I Acceptance
Overview
Types of Acceptance: Formal versus Constructive
Authority as an Element of Constructive Acceptance
Limitations on the Finality of Acceptance
Contract Provisions Related to the Finality of Acceptance
Substantial Completion
Final Completion
Revocation of Acceptance
Contractual Warranties
Express Warranties
Implied Warranties
Statutory Warranties
Project Commissioning and Post-acceptance
Facility Operations
Commissioning Programs
Bonding Considerations
Points to Remember
Management Techniques to Limit Risks and
Avoid Disputes
Construction: A Risk-Prone Business
I Qualifying the Project and the Participants
Qualifying the Project
Qualifying the Project Participants
Qualifying the Site and Locale
Defi ning Rights, Responsibilities, and Risks: Parties and
Their Contracts
Contract Framework
Standard Contract Forms
Critical Contract Provisions
Avoiding and Preparing for Disputes through Proper Management
and Documentation
Prudent and Responsible Estimating
Establishing Standard Operating Procedures
Establishing Lines of Communication
Project Documentation
Electronic Communications on Construction Projects
Industry Forms Addressing Electronic
Communications
Web-Based Project Management Systems
Building Information Modeling
Collaborative Uses of BIM
BIM’s Legal Implications
Cost Accounting Records
Monitoring the Work through Scheduling
Preserving Electronically Stored Information
Conclusion
Points to Remember
Consensus DOCS
Contractor’s Statement of
Qualifications for a Specific Project
Checklist: PrebidProposal Environmental
Considerations
Checklist: Contracts in Foreign States
Logs and Forms
Payment Bonds
Payment Bonds Required by Statute
The Miller Act
Little Miller Acts
I Payment Bonds on Private Projects
Qualifying for Payment Bond Coverage
“Subcontractors” and “Suppliers”
Suppliers of Customized Materials
“Substantiality and Importance” of Relationship with
Prime Contractor
“Dummy” Subcontractors, Alter Egos, and
Joint Ventures
Claimants on Private Payment Bonds
Work Qualifying for Payment Bond Coverage
Labor and Materials
Equipment Repairs and Rental
Recovery under Payment Bonds for Extra Work, Delay Damages, or
Lost Profi ts, and Other Costs
Extra Work
Damages for Delay and Lost Profi ts
Attorneys’ Fees and Other Costs
Distinguishing between Payment Bond Claims and
Performance Bond Claims
Procedural Requirements
Time of Notice
Time of Lawsuit
Surety Response to Notice of Claim
Effect of Payment Bonds on Lien Rights
The Surety’s Defenses to Payment Bond Liability
Pay-If-Paid Clauses
Misrepresented Status of Payments
Claim or Lien Waivers
Points to Remember
Performance Bonds and Termination
Surety Performance Bonds
Fundamentals of Suretyship Law
Extension of Performance Bond Surety’s Liability to
Third Parties
Increase of the Surety’s Liability under a Performance Bond
Surety’s Defenses to Performance Bond Liability
Surety Entitlement to Contract Funds
Industry Performance Bond Forms: A Comparison
Effect on the Surety of Arbitration of Construction
Disputes
Alternatives to Bonds: “Subguard” Programs
I Termination
Overview
Termination for Default
Standard Form Contracts: Grounds for Default Termination
Defenses of the Contractor
Contractor Response to Termination Notices
Remedies of the Owner
Termination for Convenience
Convenience Termination Costs
Points to Remember
Proving Costs and Damages
Basic Damage Principles
The Compensatory Nature of Damages
Categories of Damages
Causation
Cost Accounting Records
Mitigation of Damages
Betterment
I Methods of Pricing Claims
The Total Cost Method
Segregated Cost Method
Modifi ed Total Cost Method
Quantum Meruit Claims
Contractor Damages
Contract Changes and Extras
Wrongful Termination or Abandonment
Owner-Caused Delay and Disruption
CONTENTS x
Owner-Caused Acceleration
Defective Drawings or Specifi cations
Ineffi ciency Claims
Owner Damages
Direct Damages
Consequential Damages
Liquidated Damages
Points to Remember
Construction Industry Environmental and
Safety Concerns
Sources of Environmental Regulation and Liability
Encountering Hazardous Materials on a Construction
Site—CERCLA Liability
Water Quality
Air Quality
I Minimizing Environmental Risks
Conduct a Prebid Environmental Review of the
Contract Documents
Contract Provisions and Indemnifi cation
Insurance
Proper Management Techniques
Management Review of Environmental Risks
Have a Response Plan
Immediately Stop Work in the Affected Area
Provide Immediate Notice
Do Not Resume Work without Proper Authorization
Mold: Developing a Program to Limit Liability
Environmentally Friendly Construction: Green Buildings
LEED Certifi cation
Design and Construction Issues Affected by Green Building
Construction
Bearing the Risk: Legal Issues Raised by LEED
V Construction Safety
Sources of Safety Requirements: OSHA-Specifi c
Project Procedures
Successfully Working with OSHA
Who Is Responsible for Project Safety?
Indemnifi cation
Workers’ Compensation Statutes
Points to Remember
Construction Insurance
Importance of Insurance Planning
I Types of Insurance
Commercial General Liability
Builder’s Risk Insurance
Errors and Omissions Insurance
Alternatives to Traditional Insurance Programs
Contract Requirements for Insurance
Standard Contract Clause
Waiver of Subrogation
Proof of Insurance
Prompt Action to Protect Potential Coverage
Sensitivity to Insurance Issues
Immediate Notice
Insurer’s Response to Claims
Reservation of Rights
Litigation with the Insurer
Routine Coverage Issues
CGL Coverage Issues
Builder’s Risk Coverage Issues
Concurrent Causes
Construction Insurance and Mold Claims
The Insurance Industry Responds
Mold Claims: Establishing whether Coverage is Available
Points to Remember
Labor and Employment Issues Affecting the
Construction Industry
Immigration Issues
Immigration Documentation and Control
Responses to Immigration Inquiries
Immigration Issues in Public Contracting
I Employee Safety and Health
Wage and Hour Requirements
Basic Calculation
Overtime Calculation
Independent Contractor Status Considerations
Government Contracts
Employee Benefi ts: ERISA
Employment Discrimination
Equal Employment Opportunity Commission
Title VII of the Civil Rights Act of
Americans with Disabilities Act
Age Discrimination in Employment Act
Discrimination and Public Contracting
Offi ce of Federal Contract Compliance Programs
Executive Order
Uniform Service Employment and Re-Employment Rights
Act
Family and Medical Leave Act
Union Activity
Union-Organizing Tactics
Appropriate Employer Responses to
Union Activism
Utilizing Employee Background Investigations
Points to Remember
Bankruptcy in the Construction Setting
Introduction
I The Players
Bankruptcy Code
Chapter Reorganization
Chapter Liquidation
Automatic Stay
Sanctions for Violation of Automatic Stay
Relief from the Automatic Stay
Preferential Transfers
Exceptions to the Preferential Transfer Rule
Discharge
Nondischargeable Debts
Status of the Debtor’s Contracts
Executory Contracts
Affirmance or Rejection
Assignment
Minimizing the Impact on Executory Contracts
Status of Materials and Equipment
Property of the Debtor’s Estate
Supplier’s Right to Recover Goods
Stored Materials
Voiding Unperfected Security Interests
Status of Contract Funds
Unearned Contract Funds
Earned but Unpaid Contract Funds
Other Sources of Funds
Performance and Payment Bond Claims
Mechanic’s Liens
Guarantors
Points to Remember
Resolution of Construction Disputes
Early Claim Recognition and Preparation
I Early Involvement of Experts and Attorneys
Demonstrative Evidence
Contemporaneous Records
Components of a Well-Prepared Claim Document
Calculating and Proving Damages
Pursuing Negotiation and Settlement
Alternatives to Litigation
Dispute Review Boards
Minitrials Summary Jury Trials
Mediation
Arbitration
Time and Costs of Arbitration
Selection of Arbitrators
Informality and Limited Appeals in Arbitration
Enforceability of Agreements to Arbitrate
Special Problems Involving Multiple Parties to
Arbitration
Med-Arb
Arbitration Agreements and Procedures
American Arbitration Association Rules and Procedures
Center for Public Resources Rules and Procedures
International Chamber of Commerce Rules and Procedures
Party-Drafted Arbitration Agreements: Federal and State Law
Considerations
Litigation
Profile of the Construction Trial
The Court System
Federal Rules of Civil Procedure
Discovery
Judge or Jury?
Alternative Dispute Resolution in the Courts
Trial
Live Testimony
Points to Remember
Federal Government Construction Contract Disputes
Historical Overview
I Scope of the Contract Disputes Act
The Freedom of Information Act: A Claim Preparation Tool
Contractor Claims
When Must a Claim Be Submitted?
Notice Requirements
Who May Submit a Claim?
What Constitutes a Claim?
Written Submission to the Contracting Officer
Elements of a Claim
Certification Requirement
Monetary Threshold for Certification
Modification of Claim Amount
Certification Language
Supporting Data
Who Can Certify the Claim?
Other Certification Requirements
Certification of Subcontractor Claims
Government Claims
Contracting Offi cer’s Decision
Time Allowed for Issuing the Decision
Contents of the Final Decision
Appeal Deadlines
Choosing a Forum: Board or Court of Federal Claims
Transfer and Consolidation of Cases
ADR and Government Contract Disputes
I Recovery of Attorneys’ Fees in Government Contract Claims
False or Infl ated Contract Claims
Points to Remember