Tuesday, April 1, 2025

Message from the Chair: Kelsey Funes (Volume VI)

Kelsey serving as a judge at the 2025 Trial Academy
This is my last post as the Chair of Division 1. I want to start by saying thank you for supporting me and this Division to plan and execute all our activities and content. The energy and generosity of our members is what makes Division 1 the best place to be in the Forum! I am so proud to have been a small part of it. I also want to thank the Steering Committee and every person who volunteered to plan a social event, a lunch presentation, a social media post, a Toolbox Talk, a blog post or a Practicum. We could not accomplish all that we do without the countless hours donated by our smart and creative volunteers. I am indebted to each of you.

Taking stock of all the people who volunteer their time to make Division 1 so prolific reminds me of the sage advice I got from Ava Abramowitz, a long time Forum member. In 2018, I had the good fortune to moderate a Diversity Lunch panel discussion featuring four women who had been early leaders in the Forum—Deborah Griffin, Deborah Ballati, Ava Abramowitz and Leslie King O’Neil. Among the many pearls of wisdom these ladies had to share, the one that has really stuck with me is Ava’s comment that the way to build relationships in the Forum is by doing the work. Man, was she right.

It has been an honor to do the work of D1 and I look forward to many more years of Forum work because with every project, I learn something new, and I meet someone new. I encourage each of you to raise your hands and roll up your sleeves because there is much work to be done in the divisions, the standing committees and the Forum at large. I can confidently tell you that raising my hand has helped me to get the most out of my Forum membership. My membership in the Forum has made me a better construction lawyer and helped me to build relationships that I treasure.

Dinner with a few Forum friends in Dallas, Texas
I also want to highlight the great things D1 has planned for the Annual Meeting in Austin, Texas. First, on Wednesday, April 23 we will be wrapping up our practicum series on discovery with the program: Mastering Expert Discovery. Our experienced practicum team will guide the participants through how and when to use experts in a construction case from the start of the dispute through discovery and trial. Next, grab your cowboy boots and join us on Thursday night, April 24, at Guero’s where we are joining with Divisions 4, 5, 6, 8 and 9 for a fajita dinner, leather branding bar, and live music. Finally, join us on Friday, April 25 for a joint lunch with Division 11 for a presentation on Multi-Party Mediation. Austin is sure to be a great time with our Forum friends!

In closing, I want to give my best wishes for a successful and productive term to the next D1 Chair, my friend Joe Imperiale. Division 1 is in excellent hands as I know that Joe and the rest of the Steering Committee will continue to make Division 1 the best place to learn about resolving construction disputes. If you have not volunteered before, I hope you will raise your hand to help Joe and the D1 team continue the fabulous D1 programming. I know that I will.


Kelsey Kornick Funes is a partner in the Baton Rouge office of Phelps Dunbar. She represents owners, contractors, subcontractors, suppliers and design professionals in state and federal courts in Louisiana, as well as mediation and arbitration across the Gulf Coast region. She can be reached at kelsey.funes@phelps.com.

Editor-in-Chief Marissa L. Downs is a construction attorney in Chicago, Illinois where she has been practicing law since 2009. Marissa is a partner at Laurie & Brennan, LLP and represents owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. Marissa can be contacted at mdowns@lauriebrennan.com.

Thursday, March 27, 2025

How Not to Frustrate an Arbitrator: Common Mistakes Attorneys Should Avoid in Arbitration

A recent federal court ruling held that an arbitration award would be enforced under the facts of that case, regardless of whether the parties considered the award “good, bad or ugly.” See RSM Production Corp. v. Gaz du Cameroun, S.A., 117 F.4th 707, 714 (5th Cir. 2024). As explained below, we suggest that “good, bad or ugly” can describe other aspects of arbitration.

In our combined 20-plus years of experience as arbitrators, we have been surprised and frustrated when “good” construction advocates engage in counterproductive conduct that may accurately be described as bad or even ugly. Optimistically, we offer the following suggestions to improve counsel’s performance in arbitration. 

Mind your ABCs. Always be credible.

An arbitrator’s ability to rule on an issue depends, in part, on the credibility of the parties' communication of evidence and law. From initial filings to the last argument, attorneys must maintain consistent credibility. 

Most obviously, counsel should not overstate or misstate accusations of an opponent’s misconduct, promises of what they intend to prove, the applicable law or the content of the record. Such inaccuracy, especially if repeated, will be obvious to the tribunal or exposed by an opponent and erode that party’s credibility on those crucial and frequent issues where the tribunal needs to make close calls.

Less obvious, but equally important, is that counsel should avoid making a bad impression on the tribunal; no one, including arbitrators, appreciates someone acting like a jerk.

The golden rule of doing unto others as you would have them do to you is honored in cultures across the globe, and for good reason. So, a tribunal wants counsel to be courteous and becomes annoyed with and doubtful of the motivations of those who engage in sharp practices. While attorneys must not allow themselves to be bullied, absent undue prejudice, they should graciously agree to cooperate, give accommodations and never engage in vituperation or personal attacks on anyone—especially witnesses—whether or not they are justified.

There is no chance such an attorney’s client will achieve a more advantageous result in the long run from such unsavory tactics. On the other hand, a tribunal is more likely to indulge a party’s need for an unforeseen accommodation when that party has treated its opponent graciously.

Be effective and economical in resolving pre-hearing and evidentiary disputes.

Too often, the promised benefits of arbitration are undermined by counsel’s needless motion practice. Construction disputes can be expensive to resolve; consequently, clients include arbitration clauses in their contracts to provide for a dispute resolution process that is more economical and efficient than litigation. Yet many attorneys engage in needless discovery disputes, doomed dispositive motions and unnecessary evidentiary wrangling, mistakenly thinking that they are advancing their client’s interests. They are not, because the benefits of such behavior are seldom worth the costs in time, expense and negative impact on the tribunal’s opinion of the advocate’s tactics.

Few motions are specifically allowed by most organizational arbitration rules. Thus, at the preliminary conference with the tribunal, ask whether emails, rather than formal motions, are the proper way to bring pre-hearing disputes to their attention. Then, before raising any procedural or discovery disputes, the parties should truly attempt to resolve their disagreements; a simple “check the box” representation of conferral is easily detected by the tribunal and reflects badly on the party seeking a ruling.

Counsel should be equally cautious when raising evidentiary disputes. Given arbitration’s relaxed evidentiary rules and a tribunal’s reasonable reluctance to preclude witnesses or categories of evidence, counsel might better tailor evidentiary objections in a common sense, targeted manner. For example, instead of asking to exclude an expert witness, counsel might seek to limit the scope of the expert’s testimony.

Similarly, counsel should hesitate before objecting to evidence on the grounds that its prejudicial effect outweighs its probative value. A tribunal of seasoned arbitrators will be able to accept “hot” evidence and weigh the extent to which any of it is probative. Arguments suggesting that the arbitrators will be confused or led astray by such evidence rarely have purchase and may appear presumptuous.

This is not a jury trial; find out what the arbitrators want, and plan hearing strategy accordingly.

It is of utmost importance for counsel to find out how the tribunal wants the parties to present their evidence, and to adhere to these preferences, because the tribunal knows what it needs for its deliberations. Too often, counsel act as they would in trial, even to the point of failing to treat seriously the tribunal’s directions on how to present their arguments, exhibits and other evidence.

In addition to following the preferences of the tribunal, because there is no jury and no judge constrained by litigation rules, there are other ways in which counsel should present their evidence that should be dramatically different than if they were in trial. 

A properly prepared tribunal will have read the parties’ pre-hearing submissions and have a handle on the basics. Therefore, counsel should explore with other counsel and the tribunal in advance of the hearing the possibility of stipulating to certain testimony, or at least quickly leading witnesses along in proving the preliminary aspects of their proof. For issues that are not in dispute, the parties may simply refer the tribunal to the appropriate evidence in the hearing binder rather than putting on one “ministerial” witness after another. Experienced arbitrators do not need “the show” of multiple background witnesses to understand a party’s case.

However, for contested issues, counsel should not spare or fail to use knowledgeable fact witnesses; they are indispensable to the credibility and persuasiveness of each party’s case.

Although there is no jury, arbitrators are human and need counsel to lead them through the evidence on issues of contested fact so that the arbitrators understand each side’s proof and are comfortable deciding whether they have met whatever burden of proof they may have to provide on their respective claims or affirmative defenses. Arbitrators get presented with huge swaths of information during a hearing. Crisp, focused examinations and cross-examinations can carry the day. 

Additionally, too many attorneys develop great materials prior to the arbitration that are not used effectively during the hearing. Photos and demonstrative evidence such as chronologies, graphs, charts and reconstructions can pack as much of a punch with arbitrators as with a jury. But counsel err when they simply put such exhibits in evidence via a thumb drive or notebook of documents, or do no more than cite them in an expert’s report or post-hearing brief. Counsel need to explain the relevance and importance of key exhibits with knowledgeable fact witnesses in real time. While Hollywood-type antics are inappropriate in front of a tribunal, counsel never should forget to keep the tribunal engaged. Arbitrators always welcome hearing from witnesses who know what they are talking about via careful, non-leading questioning on the core issues in dispute. 

Expert testimony is another area of proof where counsel are too often ineffective. They would be wise to seek the direction of the tribunal on how and when experts should testify. Counsel need not lead expert witnesses through a mind-numbing exposition of their education and experience or the foundational assumptions for their opinions. With agreement from opposing counsel and the tribunal, experts’ CVs and reports should be placed in evidence, with the focus of the experts’ oral testimony on the factual basis for and expert analysis of the issues that the tribunal and the parties know are relevant and in controversy.

The tribunal also should be asked whether they would prefer that experts on the same issue testify back-to-back at the end of the hearing after all factual evidence relevant to the experts’ opinions is in the record. Also, the tribunal may prefer that such experts meet, confer and then prepare and provide the tribunal and parties with a joint report in advance of the hearing, highlighting their areas of agreement and disagreement and identifying the evidentiary bases for their disagreement.

Provide sufficient proof and explanation of damages claims and defenses.

We agree with the often-stated observations that “the weakest part of most hearing presentations in a complex construction case concerns damages” and that experienced construction counsel repeatedly “fall flat” in proving or refuting the cause and effect and quantum of the claimed losses.[1]

Counsel must remember that it is not enough to establish or raise concerns about issues of liability; they must also prove—or defend against—causation and quantum of damages. Arbitrators are unlikely to award damages if they cannot understand how or in what amount those damages were caused by the opposing party.

Consequently, we cannot stress enough how crucial it is that the tribunal be provided proof of a party’s damages arguments via evidence that is factually based on live testimony and documents that clearly support their damages claims and defenses.

In meeting these important burdens of proof, parties should not default to demonstrative PowerPoints or thick exhibit notebooks containing documents that are neither substantiated by direct testimony of fact witnesses nor tested by cross-examination or rebuttal testimony. Parties also should understand that often the summary testimony of hired experts alone will not be sufficient to carry their burden of proof on damages. The tribunal may want to question the fact witnesses and experts about their damages analyses and calculations, and they cannot do so if they do not have knowledgeable and competent witnesses to question.

Reserve enough time for the hearing.

Often parties realize, too late, that they have run out of hearing time to put on their cases effectively, especially in large, complicated disputes. When reserving hearing time months in advance of when they actually know what their proof and rebuttal evidence will be, parties should consider reserving a reasonable amount of time in addition to what they think they will need. Factual, legal and procedural issues often arise during a hearing that cause delays, and neither counsel nor the arbitrators should be rushed in addressing legal issues, examining the witnesses and reviewing exhibits as they are offered. Parties should not default into thinking they can make up for missing hearing time by filling in evidentiary gaps in post-hearing briefs.

Good is better.

In summary, while we cannot guarantee that a given arbitration will be good, we hope that this guidance will help keep an outcome from being bad or ugly.


This article was first published by JAMS on March 10, 2025. It has been reprinted here, courtesy of JAMS. 

Co-Author Patricia H. Thompson is a full-time arbitrator and mediator at JAMS, concentrating her practice in construction and surety claims, employment discrimination, wage and non-compete disputes, fidelity and business insurance coverage analysis, and other complex commercial disputes. Patricia is based out of Miami, Florida.

Co-Author, Hon. Nancy Holtz (Ret.) is also a full-time mediator, arbitrator, neutral evaluator, and hearing officer at JAMS. Prior to joining JAMS, Nancy spent 15 years on the Massachusetts Superior Court where she presided over a wide range of complex cases, including construction litigation disputes. Nancy is based out of Boston, Massachusetts.

[1] Construction Arbitration – The Advocates Practical Guide, 184 (A. Ness and J Foust, Eds, ABA 2023).

Tuesday, March 25, 2025

Toolbox Talk Series: Direct Versus Consequential Damages--Is There a Clear Demarcation?

In Hadley v Baxendale, 9 Ex. 341 [1854], of 1L Contracts lore, the Court of Exchequer set out the dichotomy of direct damages and consequential (or indirect) damages. In the 170 years that have followed, lawyers on both sides of the Atlantic have sought to parse out what are direct damages and what are consequential damages. In the March 20, 2025 installment of the Toolbox Talk Series, Gaetano P. Piccirilli and C. Quincy Conrad discussed this frequently disputed and convoluted classification of damages as direct or consequential in construction disputes.

Gaetano and Quincy noted the traditional explanations of direct and consequential damages almost invariably use those terms without explaining how the differ. For example, direct damages are frequently described as "necessary and usual" flowing from the breach. Consequential damages are described as "naturally, but not necessarily" flowing from the breach. Gaetano and Quincy recommend avoiding the use of whether the damages are "foreseeable." 

Instead, they offer a more streamlined and intuitive approach to classifying damages:

Direct: Relating to the value of the breaching party's performance.

Consequential: Collateral to the value of the breaching party's performance. 

When using the above framework, categorizing damages becomes easier to work through. For example, a contractor's delay causes a building not being ready for leasing may cause the owner to lose rental income. Because rental income is not part of the contractor's performance, the lost income are consequential damages. Conversely, if an owner terminates the contractor because of the unacceptable delays, the increased costs of performance to hire a replacement contractor directly relate to the original contractor's performance. Accordingly, those damages would be direct damages. These two examples also illustrate why using "foreseeability" as a dividing line can be problematic; lost income from construction delays is foreseeable, but rental income is not the performance the Owner expects from a contractor. 

The distinction between direct and consequential damages often is critical because industry contracts frequently contain waivers of consequential damages. As a direct damage, an owner could recover the increased costs of performance. However, the lost rental income, as a consequential damage could be non-recoverable as a consequential damage. Accordingly, parties negotiating a construction contract should pay close attention in defining consequential damages and any exceptions to a waiver of consequential damages. 

Thanks to Gaetano and Quincy for their insights and discussion on the classification of damages.

Tuesday, March 18, 2025

Subcontractor Default Insurance (“SDI”): What Is It?

While general contractors are planning for successful completion of their projects, they unfortunately must also account for risks associated with subcontractor defaults. General contractors have to understand their options for minimizing losses arising from subcontractor defaults and must take proper steps to protect their interests and ensure project completion. General contractors primarily minimize loss through contracts, bonding, and insurance. While there are many ways to manage and protect against the risk of loss from subcontractors, Subcontractor Default Insurance (“SDI”) is one product that can help.

A. Subcontractor Bonds

At the outset, it is important to note that SDI is not a bond. A subcontractor performance bond is a surety bond required by general contractors for subcontractors to guarantee their performance on a project. It is a three-party relationship between the principal, the surety, and the obligee. The principal (the subcontractor) purchases a bond for a project. The surety provides the bond and assures that the principal will perform. The obligee (the general contractor) is the party protected by the bond. If the subcontractor/principal defaults, the surety will generally step in and complete the work that the subcontractor failed to perform.  Unlike insurance, a bond requires a subcontractor that obtains a bond to execute an indemnity agreement with the surety guaranteeing that any losses or expenses incurred by the surety will be reimbursed by the subcontractor. 

B. Subcontractor Default Insurance

Unlike a bond, an SDI policy is an insurance policy that generally provides insurance coverage for economic loss incurred by a general contractor due to a subcontractor’s default.  In general, it is not for smaller general contractors as it usually only sold to larger general contractors with annual sales in excess of $50 million. General contractors usually purchase SDI as an alternative to surety bonds and use SDI to assist in managing its subcontractors by providing financial protection against the risk of subcontractor default.

It is used to protect general contractors from subcontractors that default on subcontracts because they cannot finish a project, they go out of business, or their work is defective and must be redone. SDI is first party insurance whereby the general contractor is the insured. And unlike bonds, SDI is a two party agreement between the general contractor and the insurer. Under an SDI policy, the insurance company pays the general contractor for the losses incurred due to the subcontractor default.

SDI does not provide “first dollar” coverage for such losses.  Instead, it is a type of self-insurance with coverage for catastrophic losses. SDI policy terms may be negotiated by larger general contractors and therefore, the coverages may vary among the different companies writing such policies. SDI policy deductibles and limits also vary based on the general contractor and what amount of risk the general contractor is willing to take. While SDI deductibles vary, it is not uncommon for SDI deductibles to range from $350,000 to $2 million. In addition, most SDI policies require co-pays where the insurer and the general contractor may share up to the first $2 million in costs before the insurer will fully cover the GC’s costs.  With these co-pays and deductibles, it is clear that SDI is not for small projects but only meant for larger projects.

Insurers that issue SDI policies also require general contractors to vet their subcontractors to ensure that they can complete their scopes of work and are financially sound. Often general contractors will be required to vet their subcontractors through a prequalification process to ensure the subcontractors’ ability to perform. But unlike bonds, the insurer does not prequalify the subcontractors. Rather, the general contractor is in control of the prequalification process. However, the SDI insurer may prequalify the general contractor’s prequalification process.  During the prequalification process, general contractors should evaluate several factors including a subcontractor’s experience/project history, financial well-being, safety record, prior working relationships, and management team. Regardless of what factors are analyzed, a general contractor will have to prequalify its subcontractors as part of the process of obtaining an SDI policy.

SDI policies may run for a term of up to two years and generally cover all un-bonded subcontractors on a project. However, depending on the terms of the SDI policy, certain subcontractors may not be covered or there may be specific aggregate limits for certain subcontractors. An SDI policy will typically cover the expenses incurred by a general contractor in completing the defaulting subcontractor’s scope of work, the costs of correcting defective work, related professional costs, some related indirect costs such as acceleration costs, delay damages, and extended overhead costs incurred by the general contractor. In general, coverage does not end at the termination of the SDI policy period as the SDI policy generally applies through the earlier of the statute of repose or ten years.

The claims process under an SDI policy is much different than traditional surety bond claims. With surety bonds, after a claim is submitted, the surety investigates the claim and determines whether there is a subcontractor default. This is often very time consuming and can be expensive for a general contractor.  However, when dealing with a claim under an SDI policy, the general contractor can remain in control of a project and does not have to wait for an investigation as a default is declared by the general contractor. An SDI policy is triggered by a subcontractor default pursuant to the terms of the subcontract.  Often, the general contractor will have to prove a default when asserting a claim under the SDI policy. And the general contractor will have to provide the subcontractor with a notice of default pursuant to the terms of the subcontract.

One potential benefit of an SDI policy is that the general contractor can generally start remedying the default pursuant to the terms of the subcontract. However, the general contractor is not required to terminate the subcontractor to trigger coverage. If there is a subcontractor default, then the SDI insurer is obligated to indemnify the general contractor for losses within a set time period from the date the general contractor submits its proof of loss.  However, if a default is later determined to be improper, the general contractor may be obligated to reimburse the insurer for costs paid.

While SDI insurance has its advantages, the high deductibles and required copayments can be substantial and expose the general contractor to financial loss. In addition, a general contractor purchasing SDI will have an increased responsibility from having to vet its subcontractor through a prequalification process and having to manage its subcontractors so that it will be able to accurately declare a subcontractor default.

SDI clearly has its benefits, but it may not be the right product for every general contractor.  Regardless of whether a general contractor chooses to use bonds, SDI, or other solutions to assist in minimizing risks associated with subcontractors, general contractors must protect themselves from the potential loss associated with subcontractor defaults.

Tuesday, March 11, 2025

THE POTENTIAL (SECOND) DEATH OF PROJECT LABOR AGREEMENTS

The back-and-forth over project labor agreements (“PLAs”) continues during the second Trump Administration. These pre-hire collective bargaining agreements generally set the terms and conditions of employment for a specific project and have been the subject of several executive orders dating back to the early 1990s. The executive orders have varied between a complete prohibition of the PLA requirement by President George H.W. Bush in 1992 to a mandate that agencies include PLAs with labor organizations in all government construction contracts exceeding $35 million by President Biden in 2022. Although President Trump has issued several executive orders since taking office in January, he has not specifically addressed the continued tug-of-war over PLAs. However, federal agencies and courts have redrawn the lines for PLAs, leaving the construction industry waiting for further guidance.

The first domino fell when the United States Court of Federal Claims issued a ruling in MVL USA, Inc. et al. v. United States, 174 Fed. Cl. 437 (U.S. Ct. Cl. 2025). Here, 12 large construction contractors filed pre-bid award protests, challenging federal agencies’ authority to mandate that prospective bidders enter PLAs to be considered eligible for award of federal construction projects exceeding $35 million, allegedly in violation of the Competition in Contracting Act (“CICA”), as based on President Biden’s Executive Order and Federal Acquisition Regulation (“FAR”) implementing the Executive Order. In its decision, the court struck down President Biden’s executive order. The Federal Claims Court held that the PLA mandate violated the CICA’s full and open competition requirement. It further held that the mandate violated the CICA because it allows agencies to reduce competition to PLA-contracts, a limitation that has no relation to the substance of the solicitation or performance at issue. The court also that that the agencies’ decisions to proceed with PLAs as a mandate based solely on a President’s policy were “arbitrary and capricious.” Since this decision was rendered in late January, some federal agencies have begun adopting policies consistent with the court’s rationale.

In response to the MVL decision, the Department of Defense (“DoD”) issued a class deviation addressing PLAs. In this February 7, 2025 ruling, the DoD stated that contracting officers shall not use PLAs for large-scale construction projects. The DoD also required contracting officers to amend solicitations to remove PLA requirements, including any solicitation provisions and contract clauses prescribed at FAR 22.505. The DoD’s new policy effectively nullified President Biden’s Executive Order for all DoD construction projects.

Unlike the DoD’s class deviation, the General Services Administration (“GSA”) revised its approach to PLAs with a class exception. Instead of nullifying the FAR, the GSA treated the FAR as operative and implemented an exception to the PLA requirement found within the FAR. The GSA’s class exception applies only to Land Port of Entry (“LPOE”) construction projects. This exception meets the requirement of FAR 22.504(d), and states that requiring a PLA on LPOE projects would not advance the Federal Government’s interests in achieving economy and efficiency in Federal procurement. The class exception is based on the need for LPOE modernizations and is of compelling urgency, making a PLA impracticable.  

Following the two separate approached by the DoD and GSA, the United States Department of Veterans Affairs (“VA”) announced the reversal of President Biden’s policy through a class deviation. The VA’s FAR Class Deviation Memorandum released on February 20, 2025, cites the change in policy addressed in the MVL decision. In its memorandum, the VA forbade contracting officers from using PLAs for large-scale construction projects as implemented in FAR 22.5 and 36.104(c). The memorandum also struck down the notice requirement for PLAs set forth within FAR 52.222-33 and PLAs as set forth in FAR 52.222-34.

Although President Trump did not modify President Obama’s executive order and maintained the policy of encouraging agencies to consider requiring PLAs during his first term, many expected President Trump to rescind President Biden’s PLA order immediately during his second term. Instead, the rescission has come from the courts and federal agencies. Thus far, three federal agencies have specifically addressed PLAs on large-scale federal construction projects. The DoD and the VA issued class deviation memorandums, whereas the GSA issued a PLA exception waiver within President Biden’s FAR rule. All other federal agencies are still subject to President Biden’s PLA order. However, if these agencies are an indication of anything, it seems apparent that PLA requirements are set to die under this administration.

Contractors on federal projects must understand the current state of PLAs before submitting bids for these projects. With the exception of the DoD, the GSA, and the VA, contractors must continue to comply with the PLA requirements for federal projects because as they remain in full force and effect. Contractors must also recognize that the bidding process, and the project itself, may be delayed as the federal agencies work to address bid specifications requiring PLAs. Furthermore, there is no indication that these policies affect ongoing federal projects. Until additional guidance is released, contractors must be familiar with PLA requirements and adhere to President Biden’s 2022 mandate.


Author and Editor W. Tyler Lloyd is an attorney in Stites and Harbison, PLLC's construction group in Louisville, Kentucky. Tyler represents owners, general contractors and subcontractors in all phases of construction projects, including contract negotiation and conflict resolution. Tyler can be contacted at tlloyd@stites.com. 

Tuesday, March 4, 2025

Neighborly Disputes: The Risk Urban Development Presents to Adjacent Properties

More and more new construction is occurring within confined, urban sites which are adjacent to neighboring buildings. These existing buildings, often of older construction, can be easily damaged by nearby construction activities. The construction activities most likely to damage an existing building can be best remembered by an acronym I just coined: DUDED, as in, “This construction project is all DUDED up in risk.”  DUDED stands for:
Support of excavation (soldier piles with timber lagging and tiebacks)
at a site in Long Beach, CA.  Photo credit: Rupert Price (SOCOTEC).    

  • Demolition
  • Underpinning
  • Dewatering
  • Excavation
  • Drilling/Driving

The damages and risks associated with these activities described below are general and not intended to be comprehensive.

  • Demolition and drilling/driving activities can cause excessive vibrations. The resulting damages, depending on the intensity of vibrations, can range from minor cracking in delicate plaster finishes to significant cracks in masonry walls. When cracks develop in the building envelope, water may infiltrate into the interior vastly increasing the extent of damage.
    • Demolition is of particular concern when the building being demolished shares a party wall with the neighboring building.  In those cases, care must be taken to ensure the stability and integrity of the remaining party wall or risk collapse. 
    • Drilling caissons is considered the more delicate operation compared to driving piles, a process in which the pile is hammered or vibrated into the ground. However, both drilling and driving send vibrations through the soil, which can cause them to shift and consolidate resulting in settlement of the adjacent building especially if prior soil loss has occurred.  Differential settlement will cause a building to crack and/or lean.
  • Excavations extending below the depth of the adjacent building’s foundations can cause that building to be undermined and at risk of collapse.
    • To prevent that, some sort of support of excavation (SOE) is required. This could be a secant pile wall, soldier piles with timber lagging, or underpinning discussed in more detail below.  SOE supports are driven or drilled along the perimeter of the excavation, which in these cases is abutting an adjacent building. They generally need to be braced laterally, either by rakers extending inward into the site or with tiebacks drilled into the soil or rock below the adjacent property. Rakers can be cumbersome to work around and require sequencing of construction activities around their eventual removal, so sites generally prefer to use tiebacks. The process of installing SOE can damage the adjacent property. Additionally, if the SOE is not designed or installed adequately, it can shift laterally causing the soils below the adjacent property to become loose.  The exterior wall of the adjacent property may settle and shift causing the building to crack and/or lean. 
    • Underpinning is considered riskier than other forms of SOE. It is the process of extending an existing building’s foundation deeper into the ground by digging small pits that temporarily expose portions of the soil supporting the building’s foundations. The advantage of underpinning is that it allows the excavation and new construction to extend to the lot line.  However, the underpinning is installed directly below the adjacent building’s exterior wall and some shifting of this wall may occur during the installation of underpinning. This could cause the building to crack and/or lean. It is also not uncommon for soil loss to occur in the process. Depending on how sensitive the structure is, soil loss during underpinning may cause settlement of slabs on grade and interior walls constructed on shallow foundations.
    • Dewatering can compound the problem. A site must be dewatered if it has a water table higher than the lowest excavation depth. When a site is dewatered, the adjacent properties are also dewatered. When the groundwater is sucked out, sometimes the soil below the building gets sucked out along with it. And that soil, as previously discussed, is important. 

Damage to adjacent properties can result in costly repair, extensive delays, and sometimes even the evacuation of the adjacent property and the permanent abandonment of the development site. 

Disputes between the development property and the adjacent property owner can commence before construction starts and continue well after construction has been completed.

1. The disputes begin with the negotiation of the access agreement.  A confined construction site will often require access to the adjacent properties.  Permission from the adjacent property owner is needed if underpinning and tiebacks are to be installed below grade within its property lines.

In some jurisdictions, such as New York City, the building department requires various protections for adjacent buildings including performing a pre-construction survey, installation of roof protection, and installation of various monitoring devices on the adjacent properties. The adjacent property owners can negotiate the terms under which access will be granted to developers to fulfill these requirements.

This is the adjacent property owner’s opportunity to insist on enhanced protective measures to prevent damage to its property and dictate how damage is addressed.  The construction site will want to use the access to document all pre-existing damage to differentiate it from any new damage occurring during construction.

If the negotiation fails, the construction site can file for an injunction, but it may not be granted access to install underpinning and tiebacks.

Unfortunately, most construction sites do not at this stage develop a full understanding of the interior structure, the implications of the pre-existing damage, and the specific risks associated with this adjacent building. Do the signs of pre-existing settlement mean that the soils below the building are more susceptible and likely to move during drilling operations? Does the building have an inadequate lateral system that would make it more likely to lean and become destabilized?  Would cracking or sloping of the slab on grade create an operational issue for a manufacturing facility that might result in shutdown and incur significant downtime costs?

2. Disputes continue through construction with complaints of damage and the enforcement of the access agreement.  The adjacent property owner may complain of excessive vibrations, crack development, and other damage occurring throughout DUDED construction activities.  If the damage is severe, the Department of Buildings (DOB) may get involved and issue a stop-work order.  The DOB, however, will generally only act if there is a code violation or safety hazard, meaning it will not stop work because of non-hazardous damage to the adjacent structure. The battle related to non-hazardous damage is best waged by attorneys who should insist on the enforcement of the terms negotiated in the access agreement, which likely included terms requiring the site to alter its means and methods if established thresholds have been exceeded. 

When resolved amicably, the contractor will immediately repair the damage it causes and take actions to reduce further damage.

The general contractor, however, will be concerned about meeting its schedule and the delay impact on all its subcontractors.  The general contractor will want to push forward with construction without considering the cost implications of continuing to damage the adjacent structure.

3. Insurance claims, mediation, and litigation will continue long after the construction has been completed if the damages are not addressed amicably during construction.  If the damage is covered by the adjacent property’s property insurance policy, the owner will submit a claim to its insurance company.  Its insurance company will file a subrogation claim against the parties involved in the new construction.

If the owner does not feel it is being adequately compensated by its insurance policy, it may also directly sue the parties involved in the adjacent construction.  Those parties usually include the developer, the general contractor, and each subcontractor involved in the DUDED activities.  Those parties will issue claims to their general liability insurance carriers, and each insurance carrier will be involved in the dispute.  The room quickly fills with lawyers and experts disputing the cause and cost of the damages incurred.

At the outset, they will compare the pre-existing conditions to the current conditions to establish what damage occurred during construction. However, the case gets more complicated when multiple parties performed potentially damaging activities within the timeframe during which the damage occurred. 

To navigate these disputes, you’ll need an engineering expert to review plans, advise on appropriate thresholds for the various monitors, interpret and assess the recorded movements and observable damage, and should litigation ensue, write a comprehensive cause and origin report and possibly testify. A good engineer can help you de-dud your DUDED project. 


Author Joelle Nelson is a forensic engineer with 20 years of structural engineering experience in SOCOTEC’s New York office. Joelle has experience in the investigation of major structural collapses, wind-related failures, and crane collapses. She can be contacted at joelle.nelson@socotec.us.

Editor-in-Chief Marissa L. Downs is a construction attorney in Chicago, Illinois where she has been practicing law since 2009. Marissa is a partner at Laurie & Brennan, LLP and represents owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. Marissa can be contacted at mdowns@lauriebrennan.com.

Tuesday, February 18, 2025

Changing Your Mind, for Whatever Reason – Terminating a Construction Contract for Convenience in Florida

Owner: “You're FIRED!  Please remove all equipment and leave the premises.”

Contractor: “You can’t do that. We signed a contract and have done everything that has been asked – we are performing ahead of schedule, under budget, and the work quality is superb.”

Owner: “Yes, but another company can do it cheaper and the contract we entered into has a termination for convenience provision.”

This scenario is a common one in private and public construction in Florida. When building in Florida, you may encounter a contractual provision that allows the owner or general contractor to terminate a contractor’s work “for convenience.”  What this means is that, depending on the language of the contract, one or both parties in a construction contract may have the right to terminate the agreement even in the absence of fault or breach by the other party, hence the name “termination for convenience,” or “T4C.”  The reason could be that the owner found someone cheaper, that the owner or general contractor is simply not satisfied with a contractor’s work, circumstances changed, such as budget constraints, changes in project or scope, or shifts in business priorities, or for various reasons other than a default or breach of the contract. Understanding termination for convenience is critical for both contractors and project owners, as its financial and legal consequences can be significant.

In Florida, termination for convenience provisions are generally enforceable as long as they are clearly outlined in the construction contract and comply with general principles of contract formation. If a contract contains a termination for convenience clause, Florida courts typically enforce the terms as written, although the party invoking the clause must comply with the contractual notice requirements by providing written notice within the timeframe specified in the contract.  In one Florida case, a contractor terminated a subcontractor simply to get a better price from another subcontractor.  The original subcontractor argued that the contractor acted in bad faith, breached the implied covenant of good faith and fair dealing, and that without the imposition of good faith limitations, the termination for convenience provision rendered the contract an illusory promise that lacked consideration. The Florida appellate court disagreed, finding the termination for convenience provision enforceable.  In fact, the court found that the contractor’s exercise of the termination of convenience provision simply to obtain a better price was not contrary to “the reasonable expectations of the contracting parties.” See Vila & Son Landscaping Corp. v. Posen Const., Inc., 99 So. 3d 564 (Fla. 2d DCA 2012).

Most commonly, the party that is receiving a service is the party that wants to be afforded the contractual right to terminate.  In the prime contract, it is the owner that often demands the right to terminate the prime contractor for convenience.  And, a general contractor will often want to include a termination for convenience provision in the subcontract with its subcontractor.  As a result, the party providing the service that may have no choice but to agree to a termination for convenience provision should be careful to negotiate a termination for convenience provision that provides some protection in the event the right is exercised by the other party.  For example, contractors will often negotiate a termination for convenience fee, which is a fee in addition to all costs incurred through the date of the termination of convenience, which may include things such as demobilization costs and other costs that may be associate with an unexpected termination.  It is critical that contractors negotiate these items up front given the fact that it is difficult and often impossible to get out of a termination for convenience provision.  As the Middle District of Florida acknowledged, such provisions are “difficult to argue around” and have limited plausible exceptions. See Oakes Farms Food and Distributions Services, LLC v. The School District of Lee County, Fla., 2021 WL 2186457, *11 (M.D. Fla. 2021). 

If an owner or contractor seeks to exercise a contractual right to termination, the proper steps will often be outlined in the contract. Typically, the owner must provide written notice to the contractor, stating their intent to terminate the contract for convenience. The contract will usually specify the amount of notice that must be given (i.e., 30 days, 60 days, etc.), and how the contractor should proceed with the termination. While the contractor is entitled to payment for work completed up to the point of termination, as well as other costs that may be allowed by the contract, contractors are generally not entitled to anticipated profits or damages beyond the scope of work completed.  The result is that contractors are likely to suffer losses for resources committed to the project, such as materials ordered, labor hired, or other investments made that cannot be re-used on future projects.  Therefore, it is imperative that a contractor use as much bargaining power as it has to negotiate and clearly specify available reimbursements in the event of a termination for convenience. 

Owners should understand the power of having a termination for convenience provision in their toolbox and should ensure that such provision is drafted in a manner that is enforceable.  Contrarily, contractors should understand the importance of negotiating the most favorable (or least unfavorable) termination for convenience provision to mitigate their potential risks and ensure fair compensation in the event they are terminated early, through no fault of their own.


Author Troy Mainzer is an attorney in Carlton Fields, P.A.’s construction group in Tampa, Florida.  Troy represents owners, developers, general contractors, and subcontractors in connection with an array of construction disputes, including but not limited to commercial projects, infrastructure, residential home construction, site development, and other areas.  Troy can be reached at tmainzer@carltonfields.com or (813) 229-4239.

Tuesday, February 11, 2025

Meet the Forum's In-House Counsel: SONYA SEEDER

Company: Guidon Design

Website: www.guidon.com

Law School: IU McKinney School of Law (JD 2010)

States Where Company Operates/Does Business: Headquartered in Indianapolis, IN with federal, state and private projects across the country and Puerto Rico

Q: Describe your background and the path you took to becoming in-house counsel.

A: I didn't come to in-house counsel through a traditional path (a law firm). After some time on both the prosecution and defense sides, I left criminal law and became a deputy corporation counsel to Code Enforcement. I realized that most legal questions were actually process questions in disguise. I ran the Bureau of Licensing and Permitting where I enjoyed molding process around municipal code. I moved on to run the city's real estate program where I acted as the Owner to multiple municipal projects. Seeing projects though planning, permitting and construction has given me a unique and practical perspective on construction projects. My ability to create process around the law (and understand permitting) was a big selling point to my current employer. 

Q: What percentage of your current legal practice is spent on construction-related work?  

A: I’m a one woman show, so it really depends on the day.  We are a Service Disabled Veteran Owned Small Business and a sizable portion of my time is spent on compliance processes around that certification.  I handle all corporate governance matters, insurance, licensing, occasionally dabble in land use matters, and take on anything else that comes across my desk.  I also have an unofficial business development role that keeps me active in the community and involved in project selection early in the process.

Q: What kind of work does your company do? Do you focus on specific sectors, states, or regions?  

A: Guidon is a full-service design firm that offers solutions for technically complex projects.  We have a focus on practical sustainability.  Our focus is on Healthcare, Science & Technology and Low-Income Housing projects nationally and civic projects on a local level.

Q: How and when do you use outside counsel?  

A: I use outside counsel in three situations; 1) I don’t know the answer, 2) I don’t have time to handle the matter, or 3) I’m making a record.  It’s important for outside counsel to understand WHY I’m coming to them in order to give the best service.  I rely on outside counsel for project contracts, claims and litigation, licensing, business transactions, immigration, IP and anything else that comes up.

Q: What are the work/business-related issues that tend to keep you up at night? 

A: Compliance, compliance, compliance!  I don’t know what I don’t know, and I rely on the updates firms issue to stay on-top of ever changing laws.  Additionally, like any other in-house counsel, I’m always worried about when a claim or lawsuit will hit and how it will disrupt business.  I work directly with our project managers on QA/QC processes on the front end to prevent claims, so thankfully, dispute resolution has not been a huge part of my job at Guidon (yet . . . knock wood).

Q: What do you or your company take into consideration when vetting and/or selecting outside counsel? 

A: Reputation is everything.  I need someone to vouch for you or to know you through the ABA or local bar association.  Firm reputation is also important, but I’ve had bad attorneys at good firms and vice versa. When it comes to construction law matters, I need you to understand the role of the design professional (and our insurance).  Your billing rate does get taken into consideration but isn’t a deal breaker, especially if I trust you will delegate matters appropriately and be measured in your billings.  I’m willing to pay for good advice.

Q: Describe a relationship with an outside attorney that was particularly successful. What made the relationship successful? 

A: I have been the first general counsel to two different A&E firms. In both of those roles, there was a well trusted outside counsel that had been supporting the company before I came along.  Neither of those attorneys viewed me as their competition.  They both went out of their way to help train me in areas I needed assistance with, even though it could mean less billings for them in the future.  They were both sounding boards for me, trusted advisors and I knew I could go to them with any question and they would get me what I needed and make sure I understood the why.  The outcome is that they have made me a better attorney, and because they have supported me and earned my trust so implicitly, I don’t hesitate to go to them with matters large and small.  They were able to build this relationship through multiple short phone calls, so not a ton of extra billing, but an impactful personal touch.  I recommend them to everyone.  


Assistant Editor-in-Chief Jessica Knox is a Partner in the Minneapolis office at Stinson LLP. She represents owners, general contractors, and subcontractors in litigation disputes. Jessica can be contacted at jessica.knox@stinson.com. 

Tuesday, February 4, 2025

Professional Liability Insurance Considerations When Design Professionals are Involved

When it comes to managing risk, design professionals must carefully consider both commercial general liability (CGL) and professional liability insurance. While these two types of coverage both protect against third-party claims, they have key differences in how they work, when they apply, and what they cover. For lawyers working with design professionals, it is crucial to grasp the nuances in professional liability insurance in order to negotiate contracts and handle disputes effectively. By understanding these nuances and guiding clients accordingly, legal counsel can help design professionals navigate the complexities of insurance coverage and reduce their exposure to costly risks.

CGL v. Professional Liability Policies

A major difference between CGL and professional liability insurance is what risks they are designed to address and the form of the policy. CGL policies and endorsements are standardized across the industry/carriers and use forms issued by the Insurance Services Office, Inc. (ISO). CGL covers liabilities related to bodily injury, property damage, and personal/advertising injuries. It is meant to handle incidents occurring on the insured’s premises or due to non-professional activities.

Professional liability policies, on the other hand, do not use standardized forms and are unique to each carrier. But while there is variation in the form of the policy, the professional liability coverage itself has very little variation. Professional liability insurance focuses on claims arising from professional services and allegations of negligence, and coverage often includes losses directly related to design errors or omissions. These policies typically limit coverage and defense to the named design professional and its related entities for their professional negligence; limit contractual liability to tort liability only; and include “pre-loss” waivers of subrogation.

Given the lack of uniformity in professional liability policies, design professionals and their attorneys should carefully review each policy to understand its terms and potential coverage gaps.

Common Coverage Limitations and Gaps

Understanding the limitations of professional liability insurance is critical when negotiating contracts and managing risk with respect to design professionals.

 - Insured’s Contractual Liability: Unlike the CGL forms, professional liability policies typically exclude coverage for liability assumed solely through a contract. This means that design professionals should avoid agreeing to broad contractual obligations that extend beyond their common law duties. Limiting liability to tort-based claims can help maximize the chances of insurance coverage.

- Indemnification Clauses: Broad indemnity clauses that require the design professional to cover all project-related claims—even those unrelated to their negligence—can create coverage gaps. Since professional liability policies only respond to claims arising from the insured’s negligence, indemnifying others for unrelated issues often falls outside of coverage.

Elevated Standards of Care: The standard of care for design professionals refers to the ordinary and reasonable care exercised by similar design professionals working on the same type of project, at the same time, in the same place, and under similar circumstances and conditions. Contracts that impose an elevated standard of care, such as requiring “perfect” or “highest quality” services, can trigger exclusions under professional liability policies, which typically cover only the standard of care expected under common law.

- Additional Insured Coverage: While it is common to add project owners and contractors as additional insureds under a CGL policy, this is not feasible with professional liability insurance. These policies are designed to cover only the design professional’s own negligent acts, not claims brought by or against other parties.

- Primary and Non-Contributory Coverage: Contracts often attempt to require the design professional’s insurance policies to be primary and non-contributory, which dictates that a certain policy takes precedence over other policies in the event of a claim where multiple policies are triggered. Professional liability policies, however, generally do not offer this option and are often written as excess coverage.

- Waivers of Subrogation: While waivers of subrogation are standard in CGL policies, they are less common in professional liability coverage. Design professionals should carefully evaluate whether to agree to such waivers, as they may impact the ability to recover losses from other responsible parties.

One way to address some of these coverage limitations is through project-specific professional liability policies such as A&E Professional Liability, Contractors Protective Professional Indemnity (CPPI), and Owners Protective Professional Indemnity (OPPI). These policies cover multiple parties involved in a specific project and can provide broader protection. But due to recent market trends, project specific policies may be difficult to obtain depending on the project size, scope, or timing.

Maximizing Coverage for Professional Liability Claims

When it comes to construction and design projects, professional liability claims often arise between project owners and design professionals. For attorneys representing both the owner and designer side of the dispute, it is important to understand how professional liability claims are defined, when the claim needs to be made, and how to report claims to ensure insurance coverage.

What is a Claim? A professional liability policy is triggered when a claim is made, but what exactly constitutes a “claim”? Typically, it involves a demand for money or services due to some alleged wrongful act by the design professional. Many policies specify that claims must be in writing; however, some may include verbal demands. Whether a claim has been made is viewed from an objective standard—whether a reasonable person would see the communication as a demand for services or damages. If a design professional suspects that a claim might be coming—for example, after receiving a critical letter about delays or design flaws—some insurance policies allow them to report it as a “circumstance.” This proactive step can lock in coverage if the issue later escalates into a formal claim.

Timing Matters. Professional liability policies are typically claims-made policies. Thus, to secure coverage under a professional liability policy, the claim must be made during the policy period or an extended reporting period. If the claim is made after the policy expires, coverage is typically lost—even if the events triggering the claim occurred during the policy period. And if a claim is made during a policy period for events predating the policy, it may be excluded from coverage. Many policies include a prior acts exclusion which excludes from coverage claims based on incidents that the design professional was already aware of before the policy began.

Reporting Requirements. Timely reporting of a claim is crucial to coverage. Once a third-party makes a claim, the design professional must promptly notify their insurance carrier because failure to report a claim within the policy period can allow the carrier to deny coverage. Providing detailed information, including parties involved and potential disputes, strengthens the case for coverage. Late reporting can lead to denied coverage, and some courts strictly enforce policy deadlines regardless of whether the carrier was prejudiced by the delay. However, a few states, like Michigan and Maryland, have laws requiring carriers to show actual harm before denying coverage for late notice.

Defense Costs. Professional liability policies usually have "burning limits" that cover both defense costs and settlements. Every dollar spent on legal defense reduces the amount available for settlements, so aggressive litigation tactics can quickly erode policy limits. Instead, a focus on efficiently and effectively preparing a case against the design professional can help maximize recovery from the carrier.

Whether through practice-based or project-specific policies, professional liability coverage is essential for managing risks in the design and construction industry. Lawyers advising owners, developers, or design professionals should be aware of the key insurance requirements and ensure timely and comprehensive claim reporting. Ensuring that clients are well-informed about claim definitions, policy timelines, and the importance of timely reporting will protect their financial interests and can make all the difference in securing coverage and achieving favorable outcomes.


Author Lara Yost and Editor Debrán O’Neil are members of Carrington, Coleman, Sloman & Blumenthal, L.L.P.’s construction practice group in Dallas, Texas. They primarily represent public and private owners and developers in connection with the construction of large commercial and infrastructure projects throughout Texas. They can be reached at lyost@ccsb.com and doneil@ccsb.com, respectively.