Friday, October 27, 2017


Enjoy the post from I'Ashea Myles-Dihigo:


Money for Women and Minority Owned Contracting Businesses… An Introduction to Winning Government Contracts - Part 1: Certifying as a Small Business

 
            I can’t help but think of the song by The O’Jays, “For the Love of Money” when writing this piece, so let that soundtrack play in your mind’s ear as you read this.
 
I get together with a group of my friends about every 6-8 weeks for “Wine and Woodworking,” the brain-child of my talented friend, Natalie.  As a construction lawyer, I felt the need to be able to at least attempt to build something with my hands.  I get to interact with a cross-section of women. We laugh, drink wine, use table saws and various other tools and build amazing furniture pieces.  At one of these events, a friend of mine approached me about starting her own construction company. I was all about helping her out.  The information I found in walking her through the process is useful for any general contractor or sub-contractor that is looking to start or grow her or his business.    
 
            The current administration spoke very boisterously on the campaign trail about its plans to “revitalize” the country’s infrastructure.  There is also a large push in many areas of the country for housing and new construction as affordable housing shrinks across the nation.  This series will be used to introduce minority and women owned contractors, and those aspiring contractors to the United States Small Business Administration (SBA).  It will provide a broad overview of the programs it offers to small businesses and specifically the certifications and set-asides for women and minority owned businesses which are in place to position those companies to win some of those government contracts.
 
            In 2016, the U.S. Bureau of Labor Statistics reported that women in construction related fields represented about 9% of the workforce.  Latinos and/or Hispanic Americans 28.9%, African Americans made up 5.8% and Asian Americans 1.9%. These statistics are shocking, especially when new construction is booming in almost every quadrant of the country.  As the statistics show, construction is an often missed and lucrative field for minority and women owned businesses.  According to the SBA, the U.S. government awards about $500 billion in contracts annually, and at least 23% of those contracts are awarded to small businesses.  There are additional federal mandates that some of those dollars and contracts must flow to businesses that are owned by women and minorities.   
 
Size Matters: Certifying as a Small Business

            The SBA has identified various programs to encourage women and minorities to enter into federal government contracting.  For the record, the business registration process for minorities, women and service-disabled and/or veterans does not differ at all from the standard process that all businesses must follow.  You will need to register your business with the state, choose a name for your business, obtain a federal tax identification number, and secure any pertinent certifications and/or permits for your business to legally operate under the rules and laws of your state.
 
            You must also ensure that your business is a small business as defined by the SBA.  For most industries, small business is defined by either the average number of employees over the past 12 months or average annual receipts over the past three years. U.S. Small Business Administration (October 2, 2017), available at http://www.sba.gov.  This is the definition used for the construction industry. This information will be used in the System for Award Management (SAM) when you register as a government contractor in addition to your self-certification as a small business. Id. Additionally, the SBA defines a small business as one that:
 
 
  • Is organized for profit;
  • Has a place of business in the U.S.;
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor;
  • Is independently owned and operated;
  • Is not dominant in its field on a national basis.  Id.
 
All federal agencies must use the SBA defined size standards for contracts identified as small businesses. Once you have gone through the process to determine if you’re in fact a small business, you may register and certify your business as such.  The small business standards are the ceiling on how large your business can be and still remain classified as a small business under the SBA guidelines.
 
NAICS for General Contractors

            Once you’ve determined your business size, you have to determine the classification under which your service would fall.  The North American Industry Classification System (NAICS) is a system used to classify businesses to collect, analyze and publish statistical data related to the U.S. economy. United States Census Bureau (October 2, 2017), available at https://www.census.gov.  The NAICS industry codes define establishments based on the activities in which they are primarily engaged in and services and/or goods a business produces. 
 
            The 2017 NAICS code for new single-family construction is 236115. Id. This code is used for general contractor establishments that are responsible for the entire construction of new single-family housing that is separated from neighboring houses by a ground-to-roof wall and has no housing units constructed above or below the unit.  This code would cover firms working in single-family design for firms handling the construction management for single family homes.
The 2017 NAICS code for commercial and industrial construction is 236220. Id. This code is for contractors focused on the construction of commercial and institutional buildings and related structures, such as parking garages, airports, office buildings and schools.  This code would also cover design firms and commercial and institutional construction management firms.  There are also specialty codes within the construction subsection for contractors that specialize in trades like flooring (238330), electrical (238210), structural and foundation (238190) and roofing (238170).  Id. The NAICS defines the size of the business by monies earned in annually in millions of dollars. Id. For instance, if you are a framing contractor (23810), your size standards are calculated in either the number of employees or average annual receipts; therefore, if your business, inclusive of subsidiaries and affiliates, makes less than $15 million in receipts annually, then you are considered a small business. Many small start-up to mid-sized construction companies would qualify under this definition of small business.  So, some of the governmental contracts for construction work on roads, infrastructure, natural disaster relief and many other areas could go to businesses of this size.
 
            Next time, I will talk about the government set-asides that are specifically designed to be awarded to businesses that self-certify to be women and minority owned and how to qualify for those contracts.
 
For more information on the SBA visit www.sba.gov.

I'Ashea Myles-Dihigo            
Leitner Williams Dolley and Napolitan

Monday, October 23, 2017

In a matter of first impression, California Court declares subcontractor's CGL coverage includes subcontractor's work & delay to general contractor

https://www.steelconstruction.info/Modular_construction
In Glob. Modular, Inc. v. Kadena Pac., Inc., 222 Cal. Rptr. 3d 819 (Cal. Ct. App. 2017) the underlying dispute concerned construction of 53 roof-less modular units for a rehabilitation center.  The Plaintiff-subcontractor constructed the units and another contractor planned to install the roofs. The subcontractor sued for non-payment and the general contractor counterclaimed that the units were defective. After a partial settlement, the remaining issue was whether the subcontractor's commercial general liability (CGL) insurer must cover the general contractor's claim for water damage to the tarp-covered, but roof-less units caused by heavy rains or if exclusions barred recovery.

The California Appeals Court concluded that the CGL insurance policy was not limited to risk of damage to third party property. The Court explained that the policy language referred to ‘property damage‘ without any reference to who owned the property.  Also there was no impediment to coverage due to the exclusion for "faulty workmanship." There was no indication that the exclusion applied broadly to any damage to the subcontractor's work before project completion.

More specifically, and as a matter of first impression, the Court held that the CGL policy's exclusion for damage to property on which the subcontractor is “performing operations” applied only to damage caused during the subcontractor's physical construction activities. Therefore, this exclusion did not bar coverage for the repair or replacement costs incurred to the units from rain and flooding damage to the units after they were delivered to the site.  Although the units were unfinished, because the subcontractor was not working on the units once delivered to the site, the subcontractor was not performing "active physical construction activities." Accordingly the exclusion did not apply.

As for the exclusion of "[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it,” the Court held that "your work" referred only to the specific part of subcontractor's work, not broadly to the general area of the construction site where the subcontractor was working. The Court explained that this exclusion "applies only to the particular component of the insured's work that was incorrectly performed and not to the [subcontractor's] entire project. Here . . .the only arguably defective components or parts of [subcontractor's] work are the plastic tarps, as they failed to keep the water out." Importantly, "there was no allegation the items for which [general contractor] sought repair and replacement costs—the drywall, insulation, framing, and ducting [inside the units]—were defective.  [Rather,] those items were acceptable until it rained and they suffered water damage."  Accordingly the exclusion did not apply.

In addition, the Court determined that delay damages for the 131 days the general contractor spent remediating the water damage did constitute “property damage” within meaning of insuring clause of CGL policy.  The Court explained that the remediation was extra time that general contractor spent. And had the units not been damaged, the general contractor would not have needed to spend that time and instead could have been working to finish the project.  The delay therefore constituted a consequential loss and was deemed part of the damages insurer must pay “because of” the property damage.

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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Friday, October 20, 2017

Federal Court Rules Presence of “Orange Saw Horses” During a Site Visit was Sufficient Notice to Contractor that Worksite was Structurally Deficient

The Naval Facilities Engineering Command (NAVFAC) issued a solicitation (Solicitation) for bids for a project at the Naval Stations in Newport, Rhode Island (Newport Naval Station) on May 18, 2009 and later conducted site visits with prospective bidders in June of 2009.  The solicitation contained bid documents for the demolition of an existing bulkhead (Bulkhead, Wharf)  between two piers, removal of underwater obstructions, and then the construction of a new bulkhead and parking area to support ship berthing.  Missing from the bid documents were two reports (Report, Reports) NAVFAC was in possession of, one from 2005, the other from 2008 which both identified the Bulkhead had deteriorated to the point that it was structurally deficient and not able to support vehicles.  The Report identified that the Bulkhead concrete deck showed signs of deterioration along with the presence of a sinkhole at the adjacent shoreline.  The Report further identified that the marine H-piles and concrete encasement has significantly deteriorated and required replacement because “catastrophic collapse was possible”.  

RDA Construction Corp (RDA) of Canton, Massachusetts attended the site visits but did not submit any RFI’s to NAVFAC on the condition of the Bulkhead and Wharf, despite its testimony that is paid special attention to the condition of the H-piles at the site visit.  RDA was ultimately awarded the project due to an extremely low price as compared to other bidders and NAVFAC’s estimate.  After asking RDA to confirm its pricing, NAVFAC executed a contract with RDA on October 13, 2009.  On November 18, 2009, NAVFAC furnished the Reports to RDA in response to RDA’s submitted demolition plan in which it planned to utilize the Wharf as platform to set excavators and cranes on and then demolish working outside in from either direction.  Eventually after much back and forth on this and other schedule issues, RDA submitted a certified claim to NAVFAC in the amount of $1.9 million to reflect the additional costs to change its demolition means and methods from its bid.

After a contentious project and other certified claims filed by RDA against NAVFAC, RDA’s contract was ultimately terminated for default on February 21, 2013 and on April 15, 2015 NAVFAC determined that RDA was responsible for $2.2 million in liquidated damages.  On May 7, 2015, RDA filed a complaint that alleged, among other counts, NAVFAC breached its duty to disclose material information regarding the extreme deterioration of the Wharf that was known by NAVFAC but not disclosed to RDA.  RDA further alleged:

1)   The Report concluded the existing Wharf could not support the weight of equipment, thus affecting work activities and added cost.

2)    NAVFAC was aware of the Wharf’s deterioration which could only be observed from an underwater inspection.

3)  The solicitation did not reference the poor condition of the Wharf, H-piles, and  Bulkhead.

4)  NAVFAC only advised RDA on the existence of the Report until the contract was executed.

RDA argued that as a result of NAVFAC’s failure to disclose the above, it violated the implied duty to disclose the existence of the Reports and was in material breach of the contract at the time of its signing in October 2009.  Accordingly RDA argues the termination for default should be converted into a termination for convenience.

NAVFAC responded that it had no duty to disclose the Reports and the Solicitation did include notice to inquire about the current condition of the wharf through the inclusion of the comment that the Wharf, “was likely not in good condition.” Furthermore, structural deficiencies were identified in the bid documents and should have been readily identifiable during the pre-bid site visits.  Finally, NAVFAC contended that RDA’s means and methods were inconsistent with the bid document’s direction that the Wharf was to be completely demolished before work could commence on the Bulkhead.

The Court began its analysis by presenting the standard for a violation of the implied duty to disclose “superior knowledge” by the government. An implied duty to disclose is violated when:

1)    A contractor undertakes to perform [the contract] without vital knowledge of a fact that affects performance costs or duration;

2)    The government was aware the contractor had no knowledge of and had no reason to obtain such information;

3)    Any contract specification supplied misled the contractor or did not put it on notice to inquire; and

4)    The government failed to provide the relevant information.

Hercules Inc. v. United States, 24 F.3d 188, 196 (Fed. Cir. 1994)

The Court then found that NAVFAC had indeed violated both the first and fourth elements of the test by not furnishing the Report to RDA until a month after the contract had been executed. The record showed and NAVFAC personnel confirmed that NAVFAC did not disclose to RDA the Wharf was subject to severe load restrictions until November 2009.  Therefore, the first element was met when the Court concluded that RDA undertook to perform the project in October 2009 without “vital knowledge” of the load restrictions which effected performance costs and duration. The Court found the fourth element was also satisfied because NAVFAC admitted it did not provide that knowledge until after the contract was executed.

The Court next examined the second element of the violation test and presented RDA’s argument that a bidder could only learn of structural deficiencies of the Wharf through the bid documents or through a site visit.  RDA contended the bid documents were silent on the extent of the Wharf’s deterioration and the only means to truly view it during the site visit would be through an underwater investigation.  The Court rejected RDA’s arguments by pointing to the fact that during the site investigation, there were “indicia of the Wharf’s limited loading capacity” through “orange saw horses and concrete barriers lining the perimeter of the wharf indicating that vehicles could not drive there.”  The Court further pointed to the presence of large sinkholes adjacent to the Bulkheads “suggesting the land around the Wharf was not stable.”  Therefore, despite the fact that NAVFAC was aware RDA had no knowledge of the Report, the physical condition of the Wharf during the inspection should have given RDA “reason to obtain [additional] information” about the structural capacity of the Wharf through an independent engineer’s report or underwater investigation.  Accordingly, the Court found that the second prong was not satisfied and RDA’s claim failed the test.

Despite the Court’s finding that the second element of the “superior knowledge test” was not met, thus rejecting the violation of the duty to disclose, the Court continued its analysis reviewing the third element. RDA argued that the bid documents affirmatively misrepresented that the Wharf could be used to support the weight of cranes and excavators required for demolition because the bidders were instructed to “locate demolition equipment” throughout the structure so as to not overload the framing.  The Court stated that even though RDA defined “demolition equipment” to mean cranes and excavators, the bid documents do not define that term.  Instead, the bid documents did contain the American Society of Safety Engineer's 2006 Safety and Health Program Requirements for Demolition Operations which stated demolition equipment that “each structure can withstand should be determined by the contractor.”  The Court stated this definition contained within the bid documents required due diligence by RDA to perform an engineering analysis before it placed equipment on the wharf and RDA was on notice to inquire about the structural integrity of the Wharf.

Accordingly,  the Court ruled that NAVFAC did not have a duty to disclose the Reports prior to entering into a contract with RDA and dismissed the count. 


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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or carter@agcmass.org.

Monday, October 9, 2017


Thanks to Benjamin J. Morris from the San Diego office of Foley & Lardner LLP for his contribution to the Dispute Resolver: 

California Court of Appeal Affirms Finding that Additional Insured Endorsements in Subcontractors’ Policies did not Clearly Exclude Completed Operations Coverage for an Additional Insured (Developer/Contractor) and the Insurer Acted in Bad Faith in Denying Coverage and Defense


Pulte Home Corp. v. American Safety Indemnity Co., No. D070478, 2017 WL 3725045 (Cal. Ct. App. Aug. 30, 2017)

The California Court of Appeal recently issued a broad coverage decision in favor of a developer/contractor and affirmed punitive damages against the insurance carrier for its bad faith denial of a defense. The case arose from Pulte’s development of two residential projects in Southern California beginning in 2003. The homes were sold in 2005-2006. Pulte was named as an additional insured on certain subcontractors polices issued by American Safety in 2003-2006.

After residents of the developments filed construction defect suits against Pulte in 2011 and 2013, Pulte tendered the claims to American Safety, which denied Pulte’s request for a defense based on a position (among others) that the AI endorsements excluded the subcontractors’ completed operations. Pulte then filed suit against American Safety. The trial court found that the language of the AI endorsements on the relevant policies was ambiguous on the potential for coverage of the alleged claims; therefore, American Safety was required to provide a defense to Pulte. Pulte was awarded $455,238.45 for defense fees, costs, and prejudgment interest for the defense of the two underlying construction defect suits. The trial court also awarded $500,000 in punitive damages against American Safety finding that its decision to deny coverage was unreasonable and in bad faith. On appeal, the Pulte court affirmed the trial court’s award of contract damages and Pulte’s entitlement to punitive damages.[1]

The relevant subcontractors’ insurance policies all identified the aggregate limit for “products-completed operations” as $1 million; however, the policies contained multiple manuscript AI endorsements—that American Safety and Pulte agreed were substantially similar. The key AI endorsement cited in Pulte granted AI coverage, “but only with respect to liability arising out of ‘your work’ which is ongoing and which is performed by the Named Insured for the Additional Insured on or after the effective date of this Endorsement.”[2]

Relying on Pardee Construction Co. v. Insurance Co. of the West, 77 Cal. App. 4th 1340 (2000), the Pulte court stated that “the initial issue for policy interpretation is whether the additional insured endorsements explicitly exclude coverage for the subcontractors’ completed operations.” After reviewing the relevant policy language and endorsements and the parties’ arguments, the Pulte court held that the AI endorsement did not clearly exclude “completed operations” coverage for the AI because liability for harm caused by the subcontractors “completed operations” could arise from the work performed after the policy was effective.  Moreover, the specific language of the AI endorsement did not clearly limit the coverage to liabilities which arose while the subcontractors were performing construction work. American Safety had “failed to expressly limit covered completed operations as to time or particular project in their policy and endorsement language.” 

Writing for the panel, Justice Huffman stated that “[b]oth sets of insureds could reasonably have expected that if the subcontractors had bought completed operations coverage for the work, it also applied to vicarious liability of the developer, if property damage problems appeared.” He further noted that“[t]hese AIEs do not clearly restrict coverage to only ongoing operations, simply by linking the ongoing operations phrase to the ‘liability arising out of the work’ clause.” Based on the facts surrounding the preparation of the manuscript AI endorsements and applicable legal precedent, doubts about whether a duty to defend existed should have been resolved in favor of Pulte.

After addressing whether American Safety had a duty to defend, the Pulte court went on to review the trial court’s finding that the insurer had acted unreasonably and in bad faith when it denied Pulte coverage for the alleged defects. The court affirmed the trial court’s decision finding there was substantial evidence that American Safety: (1) knew the policies were purchased to satisfy contractual requirements to provide completed operations coverage; (2) had a “pattern and practice of using every conceivable argument to deny coverage, whether the arguments are weak or strong, valid of invalid”; (3) routinely issued form letters denying AI coverage without reasonable case-by-case investigation; (4) denied coverage despite awareness of prior federal court decisions against its coverage interpretation; and (5) had continued these practices over a course of years. Justice Huffman concluded that “[s]uch conduct showed the company was primarily protecting its own interests in refusing to defend its additional insureds in construction defect cases.” Based on the above conduct, the Pulte court approved of Pulte’s entitlement to a punitive damages award, which would be recalculated on remand using an approximate one-to-one ratio after the trial court recalculated Pulte’s Brandt fees and costs.

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The author, Benjamin J. Morris, is a senior counsel in the San Diego office of Foley & Lardner LLP. His practice focuses on representing owners, developers, engineers, lenders, contractors, subcontractors, and consultants throughout all phases of construction projects and construction litigation.



[1] The amount of punitive damages was remanded for adjustment following the trial court’s recalculation of Brandt fees, which were remanded only as to amount, not entitlement.
[2] Two other noted versions of the AI endorsements stated that the AI was insured: (1) “but only with respect to liability arising out of ‘your work’ and only as respects ongoing operations performed by the Named Insured for the Additional Insured on or after” the endorsement’s effective date; and (2) “but only with respect to liability arising out of ‘your work’ which is performed at the project designated above. This Endorsement applies only to ongoing operations performed by the Named Insured on or after” the endorsement’s effective date.

Friday, October 6, 2017

Fall Meeting - D1 Lunch Program - Innovative Approaches to ADR

As the projects grow more complex, the stakes for project participants similarly grow complex. To solve the problems that inevitably arise, project participants have crafted various methods of resolving disputes in an effort to “right size” dispute resolution.

Loring A. Cook III of Murtha Cullina, J. Thomas Nocar of Porter Wright Morris & Arthur, and Ronald L. Williams of Fox Rothschild, with co-sponsorship by the ABA Construction Litigation Committee, offered some insight into several of these innovative approaches including med-arb, arb-med and hot-tubbing experts at the Division 1 lunch program during the ABA Forum on Construction Law's Fall Meeting in Boston, MA.  The panel then turned the conversation over to the attendees and invited their thoughts on several topics such as: how to best prepare your client's expert for hot-tubbing and when and why your clients should mediate.


We ran out of time to weigh in on "how do you prepare differently when your client's case will be heard by a non-lawyer arbitrator or mediator?"  Feel free to offer your comments below!

Tuesday, September 26, 2017

1st Circuit Pending Appeal - Construction Contract Defenses & Miller Act

https://www.va.gov/directory/facility
In Endicott Constructors Corp. v. E. Amanti & Sons, Inc., No. 1:14-CV-12807-LTS, 2017 WL 3028877 (D. Mass. July 14, 2017), the plaintiff-subcontractor Endicott Constructors Corp. (“Plaintiff”) filed a lawsuit claiming breach of contract and quantum meruit against the defendant-general contractor E. Amanti & Sons, Inc. (“Defendant Contractor”) on a construction renovation project at a Veterans Affairs building in Bedford, Massachusetts. Plaintiff also brought a claim against Safeco Insurance of America (“Defendant Surety”) pursuant to the Miller Act, 40 U.S.C. § 3133.  The two Defendants moved for summary judgment against Plaintiff's claims. The District of Massachusetts granted the motions. Plaintiff is now appealing the decision to the First Circuit.

Though factually detailed, the decision serves as a review of numerous key concepts in construction law including the requirement of strict performance to recover on a contract breach, requirement of substantial performance to recover under quantum meruit, cardinal change, necessity of expert testimony, contractual notice provisions, and tolling applicable to the Miller Act statute of limitations.

  • The Court held that Plaintiff could not, as a matter of law, show "complete and strict performance of all its terms" because Plaintiff walked off the project with 1/3 of the subcontract to complete, and therefore could not recover on the contract itself.  
  • Moreover, in addition to walking off the job, Plaintiff acknowledged, inter alia, that it performed defective work and did not pay federally-required wages.  Accordingly, the Court concluded that the Plaintiff, as a matter of law, "did not substantially perform its contract obligations" which extinguished its claim for "quantum meruit" as well.
  • To avoid this harsh result on its contract-based claims, Plaintiff argued that a "cardinal change" had occurred excusing its performance.  The Court hesitated to confirm that Massachusetts has adopted this doctrine, but in any event, held that the elements of a cardinal change were not present. The Court observed that there must be "alteration in the work [effected by the government] so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for."  Here, because Plaintiff only pointed to the government adding supervisory personnel to its payroll and a large number of change orders, the Court was not persuaded that Plaintiff's scope was "drastically altered." Indeed that court emphasized that, In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989) the court had held that even 86 change orders was not sufficient to show a cardinal change to construction contract.
  • With respect to Plaintiff's extended time claim, the Court, in dicta, questioned whether an expert is required to prove such a delay claim, but also noted that Plaintiff's failure to do so may be at its peril as it had not presented a "coherent analysis" to allow a factfinder to could find in its favor.
  • Adding to Plaintiff's challenges, it failed to present evidence that it had given notice of its claims within 7 days as required by the contract. The Court, without delving into whether the defendant was prejudiced by the delay, succinctly held that failure to comply with the contractual provision "will generally preclude all relief."
  • With respect to the Miller Act action that Plaintiff filed on the bond provided by Defendant Surety, the Court was not persuaded that presence of Plaintiff's trailers on the construction site would extend limitations period.  The Miller Act requires that any action on the bond must be brought within one year of the "last of the labor was performed or material was supplied" by the contractor or supplier bringing the action.
If the First Circuit has an opportunity to weigh in, the law in these areas, as recounted above, may be further honed by its decision. If so, we will update this blog.


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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Friday, September 22, 2017

MA Court Overturns Quantum Meruit Award Due to Contractor Not Strictly Complying with Plans and Specifications

The Plaintiff in Pinecone Construction, Inc. v. Kamala Sridhar & another was a residential builder who contracted with the husband and wife defendants to build an addition to their home.  After only a few months of construction, the defendants terminated the contract due to multiple code violations and breaches of the contract by the plaintiff.  Consequently, the plaintiff filed suit in Superior Court claiming breach of contract and quantum meruit for the work it performed and the defendant then filed a series of counter claims.  After a bench trial, the plaintiff prevailed on its quantum meruit claim, but the judge found for the defendants on the breach of contract claim.  Furthermore, the trial judge found for the defendants on their breach of contract counterclaim, breach of covenant of good faith and fair dealing claim, their request to dissolve the mechanic’s lien, and for violations of the consumer protection statute thus awarding treble damages and attorney’s fees.  Both parties appealed the judgments.

 The Court began its review of the quantum meruit award by examining the trial judge’s findings.  The trial judge identified that quantum meruit is based in quasi-contract and its underlying basis is “unjust enrichment of one party and unjust detriment of the other party.” Liss v. Studeny, 450 Mass. 473, 479-482 (2008), quoting Salamon v. [Terra], 394 Mass. 857, 859 (1985).   Additionally, the trial judge found that a quantum meruit claim requires both, “good faith and substantial performance of the contract.” J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 796 (1986).  Finally, the trial court identified that, “that an intentional departure from the precise requirements of the contract is not consistent with good faith . . . and unless such departure is so trifling as to fall within the rule de minimus, it bars all recovery." [emphasis added] Andre v. Maguire, 305 Mass. 515, 516 (1940).

Next, the Court presented the trial judge’s finding that the plaintiff failed to construct the addition to the defendant’s home in direct accordance with the plans and specifications, which were incorporated into the contract.  The trial judge found that the plaintiff "knowingly, intentionally and substantially departed from the contract's requirements, and its departure was not de minimus."  Ultimately though, the trial judge found for the plaintiff on its quantum meruit claim due to the plaintiff’s work being “structurally sound” and the installed work was ultimately used as the base for which the addition was completed by others.  Based upon that, the trial judge stated that, “equity demands that [the plaintiff] recover the value of its labor and materials.”

The Court found the trial judge’s decisions to be “circular reasoning” as any “any benefit or enrichment the defendants received from the plaintiff's work is irrelevant if the plaintiff failed to show both good faith and substantial performance of the contract, as was reasonably determined here." [emphasis added] See Andre, 305 Mass. at 516.  

Accordingly, the Court overturned the quantum meruit award and then affirmed all of the other trial judge’s decisions.

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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or carter@agcmass.org.

Wednesday, September 6, 2017

The Dispute Resolver is pleased to introduce its newest regular contributor, I’Ashea Myles-Dihigo of the Leitner, Williams, Dooley & Napolitan, PLLC firm in Nashville, Tennessee.  I'Ashea  focuses her practice on litigation and dispute resolution specifically in the areas of construction law, real estate law, commercial litigation, and employment law.  As a construction law attorney, I'Ashea regularly handles matters related to the building and development of both commercial and residential property. Her experience includes representing owners, contractors, subcontractors and suppliers in federal and state courts. She also counsels contractors and developers at the beginning of projects to avoid the need for litigation. She advises her clients with bid negotiations, contract drafting, liens, employment law matters and compliance with changing regulations. 

Thank you I’Ashea for your contributions to Division 1 and the Forum.  Enjoy her post:   

“Cost-Plus Contract and the Disorganized Contractor”






Some contractors are better at record keeping than others.  I always seem to run into this issue when I working with a client and I’ve asked them to provide me with all of their records regarding the project.  The usual answer that I get is, “I don’t keep those kinds of records,” or “All I have are text messages.”  Depending on the type of contract dispute, the lack of accurate record keeping may not be such a big deal, however, when there is a dispute regarding a cost-plus contract, recording keeping can become a central issue.  This concept is explained by the Tennessee Court of Appeals in the case of Forrest Construction Company, LLC v. Laughlin.

Generally speaking in Tennessee, when a contractor seeks to recover unpaid fees relative to a cost-plus contract, and the owner denies owing fees, the contractor must show the court an itemization of each expenditure made on the project.  In Forrest Construction Company, LLC v. Laughlin, homeowner entered into a cost plus contract with Forrest Construction Company to build a home. Forrest Construction Company, LLC v. Laughlin, 337 S.W. 3d 211 (Tenn. Ct. App. 2009).  Prior to completion, of the house, Forrest Construction and the homeowner began to have disputes about payment.  Id. at 216.  Forrest Construction stopped work on the home, filed a lien, and thereafter filed a breach of contract action against the homeowner and an action to recover damages based on the doctrine of quantum meruit. Id. at 218.  Forrest Construction claimed that homeowner breached the contract by failing to timely pay pursuant to the terms of the parties’ agreement. Id.  Defendant homeowners filed a counter-claim against Forrest Construction for negligent construction, gross negligence, negligence per se, breach of contract, and violations of the Tennessee Consumer Protection Act.  Id. at 218-219. 


The contract at issue in Forrest Construction required that the contractor retained a detailed accounting and back-up documents for all expenditures and draw requests on the project.  When the homeowner asked Forrest Construction for the accounting records on the project, the contractor could only provide a “two foot thick pile” of unorganized receipts.  Id. at 224.  The Court found this type of record keeping to be unacceptable when it said,  "In any cost-plus contract there is an implicit understanding between the parties that the cost must be reasonable and proper." Id. at 223-224; Kerner v. Gilt, 296 So. 2d 428, 431 (La. App. 4 Cir., 1974). "The contractor is under a duty of itemizing each and every expenditure made by him on the job and where the owner denies being indebted to the contractor the latter has the burden of proving each and every item of expense in connection with the job." Id. (citing Wendel v. Maybury, 75 So.2d 379 (Orl. La. App. 1954); Lee v. National Cylinder Gas Co., 58 So. 2d 568 (Orl. La. App. 1952)); see also 17A Am Jur. 2d Contracts, Sec. 495 (2008). Forrest Construction never itemized the expenditures it sought to recover from the homeowner. Id. Instead, it submitted essentially unsubstantiated requests for draws. Id. Moreover, when called upon to provide proper documentation and itemization of the costs, it provided a wholly disorganized, un-itemized box of documents, many of which were unrelated to the actual project.  Id. As a result of this finding, the Court reversed the trial court’s decision in favor of the contractor and instead held that the contractor materially breached the contract first. 


The take away from this case is when a contractor chooses to work under a cost-plus contract agreement, the contractor should be sure that they are able to maintain the heightened accounting requirement that goes along with that type of agreement. This means fully documenting each expenditure in an organized manner. If your client is like many of my clients, the fixed-fee agreement may work better because it does not require the heightened accounting in order to recover on a dispute of non-payment.

Friday, August 25, 2017

Contractor's "Speech" SLAPP-ed in Massachusetts?

Cohasset, MA

http://www.cohassetma.org
Recently, the First Circuit faced an interesting issue concerning contractor "speech."  In fact, the appellate court in Steinmetz v. Coyle & Caron, Inc., 862 F.3d 128 (1st Cir. June 29, 2017), certified the question to the Massachusetts Supreme Judicial Court to clarify the Commonwealth's law prohibiting strategic lawsuits against public participation (more commonly known as "anti-SLAPP" statutes). The result, which is pending, may cause some contractors to pause before selecting certain projects.

Underlying the case was a residential construction project in Cohasset, Massachusetts, a coastal community located near Boston.  Before construction could begin, the plaintiff owner needed permits and approvals from various local sources including the town conservation commission.  A group of neighbors opposed the planned construction and to make their point, hired the defendant design contractor to prepare renderings of the proposed structure for the commission.  According to the plaintiff owner, these renderings were "false, fraudulent, and defamatory" and "depicted a 'hideous behemoth looming over the tree line of the island.'" Also at least one of the renderings had been posted on a Facebook page created by the neighborhood group. The commission ultimately denied the construction project and the plaintiff owner sued the defendant contractor alleging negligence, gross negligence, defamation, and violation of the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A.

In turn, the defendant contractor filed a "special motion" to dismiss relying on the Massachusetts anti-SLAPP statute, Mass. Gen. Laws ch. 231, § 59H.  (Note that about 1/2 of the 50 states have adopted similar statutes as well.)  Anti-SLAPP statutes are aimed at preventing lawsuits that serve to chill the valid exercise of free speech.  In other words, prohibiting suits that try to silence or intimidate critics by making them spend time and money to defend claims brought against them. Motions to dismiss these lawsuits are granted unless the lawsuit-filing plaintiff can show the criticism "was devoid of any reasonable factual support or any arguable basis in law" and the criticism caused "actual injury." Mass. Gen. Laws ch. 231, § 59H.  Massachusetts recently adopted a gloss to this shifting standard by allowing non-moving party (lawsuit-filing plaintiff) to demonstrate that the claims were not "primarily brought to chill" the petitioning activities and that there is "'some reasonable possibility’ of a decision in the party's favor."  Blanchard v. Steward Carney Hosp., Inc., 75 N.E.3d 21 (2017).

Here, the defendant contractor claimed that the plaintiff owner's lawsuit was motivated to silence the speech of the neighborhood group -- of which the defendant contractor was hired to assist by preparing the renderings.  The First Circuit confirmed that if the anti-SLAPP regime applied here, the defendant contractor's renderings constituted a petitioning activity, the renderings were not void of factual basis, and the the plaintiff owner's claims were frivolous (it did not need to reach the question whether the claims "primarily brought to chill").  However the Court concluded that "given our uncertainty that the anti-SLAPP statute applies to third-party contractors . . . in the first place, we certify that question to the [Supreme Judicial Court]." Steinmetz, 862 F.3d at 136.  In so doing the Court commented that the Supreme Judicial Court "has warned several times, albeit in dicta, that the statute encompasses only parties who “petition their government as citizens, not as vendors of services" Id. 

Once the Supreme Judicial Court presents its answer to this question we will update this blog.  In the meantime contractors, especially in Massachusetts, are cautioned that the anti-SLAPP defense may not exist in its defense arsenal.
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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Friday, August 18, 2017

Appeals Court of Massachusetts: The Statute of Repose for a Designer Standard of Care Claim Did Not Start Running with the Issuance of a TCO


In 2002, Defendant Carter-Burgess (Carter) entered into an “Architectural/Engineering Services Agreement” with the developer of a proposed retail complex located in Reading, Massachusetts. The agreement contained typical provisions which identified the agreed upon standard of care for design services as well as providing indemnification requirements. Also in the agreement, Jordan’s Furniture (Jordan) was identified as a “potential tenant.”  The complex Carter designed consisted of two retail stores stacked vertically in a single facility with Jordan occupying three floors. Jordan utilized the second floor as its warehouse space complete with a floor to ceiling “high rack” storage system and a “stockpicker” lift machine which acted as a forklift to access the upper reaches of the “high rack” system.  Carter’s design for the second floor deck was a suspended 135,000 S.F. reinforced concrete slab supported by girders and beams.  Carter later testified that it accounted for the 9,300 lbs. “stockpicker” when it designed the warehouse slab assembly incorporating additional structural members at specific locations. 

As construction operations were winding down, Carter requested a temporary certificate of occupancy (TCO) on September 2, 2004 which allowed Jordan’s employees to begin product display installations on the second floor.  Carter further requested an additional TCO on September 14, 2004 to allow for displays to be installed on the third floor.  At that time, 54% of the facility was available for Jordan’s employees to install its merchandise displays.  The store opened to the general public on October 29, 2004. 

In April of 2005, Jordan’s employees noticed that specific portions of the second floor slab were crumbling and notified Carter of the problem.  Carter recommended that a third-party consultant be engaged to diagnose the situation which Jordan accepted. The consultant produced a report in July of 2005 stating that the problem was a result of concrete freezing shortly after placement.  A second consultant concurred with the findings.  The recommended remediation procedure from Carter was to remove and replace a large section of the slab. The original general contractor, Suffolk Construction (Suffolk), assumed responsibility for the work and completed it in March 2006. In October of the same year, Jordan once again noticed cracking at the newly repaired slab areas and informed Carter.  Carter inspected and agreed to produce a report which it did nearly six months later in April 2007.  In its report, Carter identified the cracking was due to shrinkage of the newly installed concrete (not a structural integrity issue) plus Suffolk’s failure to properly install structural steel reinforcing members.  Suffolk rejected Carter’s claims confident it had installed the structural steel per the contract drawings and it contended once again that the cause of the deficient slab was Carter’s inadequate design for the rolling “stockpicker.” No resolution could be reached with Suffolk and Carter asserting blame to the other party. In 2009 Jordan engaged a forensic engineer who determined that the damage to the slab was the result of an inadequate design by Carter.

At a bench trial, it was determined that the second floor slab was, “inadequate for [its] intended use, and negligently designed, with the concentrated demand of the stockpicker exceeding the capacity of the floor as designed” and that negligent design, “constituted a deviation from the exercise of reasonable care required of members of the engineering profession engaged in the design of commercial facilities.” The judge awarded compensatory damages based upon the cost of necessary repairs in the amount of $1,744,793.  Both sides appealed with Jordan claiming that Carter contractually agreed to a higher standard of care and promised a specific result, thus breaching its contract and express warranty.  Jordan further asserted that it is entitled to indemnification from Carter for its attorney’s fees.  Carter argues that the suit is barred by the statute of limitations and statute of repose. 

The Court first examined Jordan’s claim for breach of contract and breach of express warranty claims.  The trial court judge found that these claims were duplicative of the negligence claim and dismissed them accordingly.  Jordan argued that the owner-architect agreement established a heightened duty of care for the designer. The Court sided with the trial judge by finding the relevant portions of the contract did not in fact require any additional standards beyond what is the generally accepted standard of professional practice for a designer.  The Court also rejected Jordan’s claim that as a matter of contract, it was entitled to be indemnified by Carter for fees and costs.  The Court stated that the owner-architect provision was narrowly drawn and there was not a reasonable inference by either party that a prospective building tenant would fall under the indemnification terms of the agreement.

The Court next reviewed the statute of limitations and statute of repose for architects who provide "`individual expertise' in the business of designing, planning, constructing, and administering improvements to real estate." Dighton v. Federal Pac. Elec. Co., 399 Mass. 687, 696 (1987).  The statute of limitations for such a negligence claim is three years.  The statute of repose for damages "arising out of any deficiency or neglect in the design, planning, construction or general administration of an improvement to real property . . . shall be commenced . . . [no] more than six years after the earlier of the dates of: (1) the opening of the improvement to use; or (2) substantial completion of the improvement and the taking of possession for occupancy by the owner." M.G.L  c. 260, § 2B .  Jordan filed its claim against Carter on September 17, 2010.  

The Court began its analysis with the statute of repose and Carter’s assertion that the TCO’s issued in September of 2004 marked the opening of the improvement for use.  The Court agreed with the trial judge and rejected that argument by finding that the TCO’s issues in 2004 had the narrow and specific purpose to allow Jordan’s employees to install merchandise.  The Court also noted that Jordan’s was not allowed to utilize the main entrance, the IMAX theatre, and other retail space on the second and third floors prior to the third October TCO.  Finally, it was noted that as of September 14th, Jordan’s main entrance, exterior fa├žade, warehouse, parking lot, and site work were not complete.  The Court next analyzed the statute of limitations claim with Carter asserting that Jordan had knowledge or sufficient notice that it was harmed before its cause of action could accrue. The Court once again agreed with the trial judge when it concluded that Jordan could not have reasonably known that any time prior to September 17, 2007 the cause of the deficient concrete was the result of Carter’s faulty design.  The Court further noted that Jordan had in fact acted diligently to ascertain the cause of the cracked concrete and Carter repeatedly insisted that it was the fault of others, which contradicts its position.

The Court affirmed the trial courts judgment in full and award of $1,744,793.


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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or carter@agcmass.org.



Friday, August 4, 2017

Thanks to Mary Jay Torres-Martin from Trauner Consulting Services, Inc. for being a friend of Division 1 and providing this blog post by her colleague Mark Nagata: 

 

Requesting Time Extensions: To Wait or Not to Wait?


By Mark Nagata

Construction contractors struggle with the eternal question: “When is the right time to request a time extension from the owner?” Even when the owner is clearly responsible for critically delaying the project, they may be reluctant to submit a time extension request right away.

The window for submitting a time extension request can vary from during or directly after the owner critically delays the project to after the project is complete. Contractors often put off submitting a time extension request. The reasons may include believing they can’t develop a convincing and properly documented request or delaying the submission to “maintain a good working relationship” with the owner.

The Consequences
Not requesting a time extension in a timely manner may have unintended contractual, financial, and delay-mitigation consequences. Potentially, these are:

·        Contractual: Most contracts contain notice requirements that are imbedded within specific contract provisions, like the time extension provision, that require the contractor to submit a request for additional contract time within a specific time frame. By not submitting within the required time frame, the contractor may waive its right to recover additional compensation related to that delay. By waiting until the end of the project and choosing not to submit a time extension request in accordance with the contract, the contractor may inadvertently waive its right to recover extra contract time and delay damages.
 
·        FinancialIf the contractor can demonstrate that the owner delayed the project and caused it to incur delay damages (extended field office overhead, unabsorbed home office overhead, idle labor, idle equipment, etc.), then resolving the issue now will avoid the need for the contractor to finance the cost of these impacts.
 
By waiting until the end of the project, the contract has effectively put itself into the position of having to decide to either accelerate the project to finish on time using its own funds or finishing late and running the risk of being charged liquidated damages. Simply put, choosing to wait until the end of the project causes the contractor to take on the substantial financial risk for the delay.

·        Delay MitigationIf the contractor provides immediate notification, a reasonable owner should recognize the situation and work with the contractor to quickly identify the problem and resolve the issue. Because impacts are generally much cheaper to mitigate and resolve at the beginning of a project and tend to become more difficult and expensive to resolve over time, an owner should see the wisdom in resolving the issue as early as possible. 
 
This approach is also more consistent with the intent of most contracts, which is to work as a team to achieve mutually beneficial outcomes. By waiting until the end of the project to request a time extension, the contractor gives the owner two options: (1) pay for the impact or (2) not pay for the impact. 

When the owner has its completed project, it may opt for the latter, taking the position that the contractor did not follow the contract and, thereby, did not afford the owner with the ability to mitigate the impact. Therefore, to best protect your risk and retain the protection provided to you under the contract, don’t wait: request that time extension now.

Mark Nagata is a Director/Shareholder of Trauner Consulting Services, Inc. and is an expert in the areas of critical path method scheduling, delay and inefficiency analysis, and construction claim preparation and evaluation. He loves to get questions at mark.nagata@traunerconsulting.com.