Thursday, May 19, 2016

Dispute Avoidance for LEED Projects

In this final LEED-focused post (see post #1 and post #2), we consider dispute avoidance in the context of green-building construction contracts.  Like all projects, disputes often arise when expectations are not met. LEED projects are no different.  Parties are best served and disputes avoided when obligations and contingencies are laid out ahead of time.  For example, the AIA has adopted a guide and contract language to address and avoid disputes in this specialized context.  See AIA D503 (collecting the various Sustainable Project (SP) agreements including owner-architect, architect-consultant, owner-contractor, contractor-subcontractor).  Note that the AIA does not endorse any particular certification and its documents can be tailored regardless of the certification system selected. Below are some key contractual considerations related to disputes on green projects through the lens of owners, contractors, and architects:


(1) Define Consequences. A mutual waiver of consequential damages provision is common in construction contracts. But for green projects, it is important to define what those consequential (and non-recoverable items) are. For example, not achieving a certain threshold of energy savings, spending more on operational costs than anticipated, missed financial or tax incentives, or disappointing improvements to employee production might fit the definition.  In the event these items are intended to avoid the waiver and are recoverable, deciding ahead of time how to measure them (which could be difficult to prove) may be a prudent course as well.


(2) Limit Liability. Generally a green-building project can only be designed or built or operated with the intention of meeting sustainable goals. Other parties must perform their expected obligations and other events must fall in place as well (e.g. contractors must have access to certain materials, efficient operation & maintenance must be executed as planned, and the authorities must interpret standards and approve the design). Likewise, as noted above the costs or damages of not meeting the expected green goal can be difficult to quantify. In light of of these types of risks, contracting parties may consider include a limitation of liability with a defined maximum.


(3) Avoid Guarantees. Similarly to #2 because project participants cannot guarantee the performance of others, contractors and designers on green-building contract should make it clear that achieving the project objective depends on events outside of any one contracting party's control.


(4) Attend to Confidentiality. Confidentiality provisions must be tailored to ensure the authority-review process does not run afoul of the terms. Authorities approving sustainable projects need to have access to and the right to reproduce and display project filings. Such reproduction and disclosure may be disallowed under typical design contracts.


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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.

Thursday, May 12, 2016

Connecticut Court Upholds Arbitrators Decision that AIA A201 General Conditions Incorporated by Reference Satisfies the Connecticut Home Improvement Act Requirements

Image result for aia contractsThe plaintiffs in Paul Ippolito et al. v. Olympic Construction, LLC (AC 37437) are homeowners whose house suffered water damage resulting from a storm.  Consequently, the plaintiffs entered into a contract with the defendant to repair the damage to their home.  The contract entered into was AIA Document A133 - Standard Form of Agreement between Owner and Construction Manager as Constructor Where the Basis of Payment is the Cost of the Work plus a Fee with a Guaranteed Maximum Price.  AIA A201 – General Conditions of the Contract for Construction was also incorporated into the executed contract through reference.  Contained within the contract was the provision that all disputes arising out of the agreement would be subject to arbitration in accordance with AAA’s Construction Industry Arbitration Rules. At some point during construction operations, another storm further damaged the plaintiff’s home and plaintiffs terminated the contract with the defendant.  The defendant filed a claim for contractually mandated arbitration in order to recover its lost profits for work it had not been allowed to complete under the contract.  

The plaintiff’s defense at arbitration was that the contract was unenforceable against them because it did not comply with certain statutory requirements of Connecticut’s Home Improvement Act (HIA).  The HIA (through the Home Solicitation Sales Act) requires clear notice of the owner’s cancellation rights in the contract as well as a defined start date and completion date.  The plaintiffs claimed that the contract contained neither of these provisions.  The arbitrator found for the defendant and awarded it lost profits based upon the plaintiff’s breach of duty. The plaintiffs moved to vacate the arbitration award in Superior Court claiming the award violated public policy of the state because it ran counter to the HIA and in turn, the arbitrator had manifestly disregarded the law.  The Superior Court found for the defendant and granted the defendant’s motion to confirm the arbitrator’s award. The plaintiffs appealed.

The Appellate Court of Connecticut began its review of the arbitrator’s award by examining the plaintiff’s claim that even though the contract did contain the required notice of cancellation, its location in the contract made it deficient. The statute requires that the cancellation notice be in proximity to the signature of the owner and that there be a captioned notice of cancellation attached to the contact. The plaintiff claimed that the provision was “buried” on page thirty-eight of the thirty-nine page 201 General Conditions attachment. The Appellate Court agreed with the arbitrator’s finding that the contract’s notice of cancellation complied in substance with the requirements of the HIA because A201 had been incorporated by reference in a contract line item directly above  the plaintiff’s signature.  

The Appellate Court next reviewed the plaintiff’s claim that there was no statutorily required start and completion date. The arbitrator found that, “[t]he General Conditions state in section 8.1.2: ` [t]he date of commencement of the Work is the date established in the agreement.' Section 2.3.1.1 of the agreement states: `For purposes of Section 8.1.2 of A201-2007, the date of commencement of the Work shall mean the date of commencement of the Construction Phase.' In the following section 2.3.1.2, it states, `The Construction Phase shall commence upon the Owner's acceptance of the Construction Manager's Guaranteed Maximum Price proposal or the Owner's issuance of a Notice to Proceed, whichever occurs earlier.' The completion date for the contract is defined in Section 9.8 of the General Conditions.[8] In this matter, the start dates and the completion date can be readily adduced by looking at the entire contract. . . ."  The Appellate Court stated that even if there were some “explicit, well defined, and dominant public policy” of enforcing the start and completion date requirement of the HIA, in this instance, it would fail because the current contract does not violate the requirement. 

Finally, the Appellate Court agreed with both the arbitrator and Superior Court’s findings that the contract deviated from the strict requirements of the HIA’s notice of cancellation only in a minor and technical manner and that the contract did in fact contain a starting and completion date. Accordingly, the court found that the plaintiffs failed to prove that arbitrator “ignored the requirements of a well-defined, explicit, and clearly applicable law” and affirmed the Superior Court’s decision. 

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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 an attorney and a Senior Consultant with Navigant’s Global Construction Practice based out of Boston, MA.  He may be contacted at 617.748.8311 or brendan.carter@navigant.com.