Dispute Avoidance for Green Projects (Redux)

Taiwan's World Games Stadium,
http://inhabitat.com/taiwans-solar-stadium-100-powered-by-the-sun/

By now you likely have heard that the American Institute of Architects (AIA) released its revised construction contract documents. See Press Release dated Apr. 27, 2017 ("2017 AIA Contract Documents Now Available").  In this update, the AIA considered and analyzed industry  developments and then incorporated edits throughout its key contract documents used by owners, contractors, architects, and subcontractors.  Pertinent to sustainable or "green" building, the AIA released the brand new E-204™-2017 called the "Sustainable Projects Exhibit." 

Recall that back in May 2016 this blog touched upon this intersection of green building and dispute avoidance.  In that post, we noted that for this specialized context, the AIA offered D503™-2013 as a guidance document, which collected the various Sustainable Project (SP) agreements (variations of the A101, A201, etc.), illustrated how the contract language is modified from the base agreement.  The provisions in these SP versions were intended to avoid the unique issues that can arise on these green projects. 

Now in 2017, the AIA, owning to the fact that green building has become significantly more prevalent in the construction industry over the last decade, the AIA has simplified its approach. Rather than requiring parties to use separate SP versions of each  contract document, the AIA now offers a one-stop exhibit that parties can simply attach to any AIA contract document if the project includes a green objective, rating, or certification (e.g.  LEED® -- Leadership in Energy and Environmental Design).  Below is a look at the new and improved ways that E-204™-2017 anticipates and avoids disputes on green projects.

(1) Defines Responsibilities.

Likely the most important pre-project-commencement step is that the parties are on the same page with what the project is seeking to achieve in terms of sustainability, how to measure that achievement, and who is responsible for each step. Accordingly, first and foremost, Article 1 of E-204™-2017 requires the parties have a meeting of the minds to outline each element of their sustainability objectives include substance and deadlines.  In the follow-on sections, Articles 2, 3, and 4, the responsibilities of each project member are defined -- architect, contractor, and owner.  For example, at section 2.3, it is the architect's responsibility to convene a Sustainability Workshop and prepare the Sustainability Plan before the conclusion of the design phase in order to establish the green certifications, schedule, and budget. Other examples include that the contractor is unambiguously required to arrange for proper waste disposal (including a establishing a process for salvage and recycling) whereas the owner is unambiguously required to arrange for the final commissioning of the project. See section 4.5.  Communications about criteria and responsibilities in the first instance is a clear way to avoid ambiguities and therefore avoid disputes in the future.

(2) Defines Consequences.

The AIA E-204™-2017 forestalls various disputes by limiting the consequences.  For example, the contract document addresses use of copyright materials, the architect's plans, and clearly states how exactly the owner may use them for reaching the sustainability objectives, see section 2.8.  Another example, is green materials.  Green building criteria frequently includes selecting certain sustainable materials for construction, which materials may not perform as intended (or be available) given they may not have been tested or verified previously.  The AIA E-204™-2017 anticipates this potential dispute and at sections 2.5.2 and 3.5  requires the owner to sign off on the use of the green materials after the architect and contractor advise about the same.  The architect and contractor are thereby insulated from liability in the event the materials do not perform as intended.  Similarly, although the architect is responsible for marshaling the green certification process and the contractor is to build the green project as defined, neither the architect nor contractor is offering any warranty or guarantee to the Owner that the sustainable objective will, in fact, be achieved. See section 2.7 and 3.9.2.  This is a reasonable disclaimer given that "achieving the Sustainable Objective is dependent on many factors beyond the Contractor's and Architect's control."  See section 6.1.  Likewise, consequential damages are waived. See Article 5.

(3) Substantial and Final Completion.

Along the lines of not requiring the architect and contractor to guarantee the achievement of the green objective, substantial completion is not tied to the green achievement either.  Which the architect and contractor must fulfill their responsibilities toward achieving the green objective, actually achieving the green objective "shall not be a condition precedent to issuance of the final certificate of payment." 3.9.2.

In sum, the AIA E-204™-2017 provides a concise (6 page) way to incorporate a green objective into a project without wholly reinventing the wheel of the familiar construction contract.  It flags the issues that can crop up in a green project and addresses them in the first instance a manner that seeks to avoid ambiguity.  At the same time, the AIA still provides flexibility for the parties to divine their own particular terms and conditions. See Article 7.

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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.

Supreme Court of Wisconsin Holds That Private Subcontractor Is Immune to Property Damage Claims by Adjoining Landowners Because it Followed Specifications Provided by the Wisconsin Department of Transportation

    

Melchert v. Pro Elec. Contrs., 2017 Wis. Lexis 169 (April 7, 2017)

The Wisconsin Department of Transportation (“DOT”) contracted with Payne & Dolan (“P&D”) as General Contractor on a road improvement project. P&D in turn contracted with Pro Electric Contractors (“Pro Electric”) to install concrete bases for new traffic signal poles. DOT provided Pro Electric with detailed plans and specifications for the project (“Project Plan”) that specified the location of the concrete bases and the excavation equipment to be used. Pro Electric was required to comply with the Project Plan and could only make deviations if approved by DOT’s engineer.

While excavating one of the specified locations, Pro Electric unknowingly severed a sewer line, causing sewage backup and flooding on adjoining private property. Pro Electric then backfilled the excavation site without inspecting the sewer line for damage. The private property owners (“Owners”) brought a negligence action against Pro Electric. The trial court granted summary judgment in favor of Pro Electric, ruling that it was immune from liability because it was merely implementing DOT’s design decisions. The court of appeals affirmed, and Owners appealed to the Supreme Court of Wisconsin.

The Supreme Court held that Pro Electric was entitled to immunity for severing the sewer line. The court explained that in adopting the Project Plan, DOT had exercised its legislative or quasi-legislative function as a state agency to “direct, undertake and expend state and federal aid for planning, promotion and protection activities” of highways. As such, DOT’s adoption of the Project Plan was entitled to governmental immunity. This immunity was then conferred upon Pro Electric because the Project Plan included reasonably precise specifications for the location, dimensions, and method of excavation for the concrete bases; Pro Electric had no discretion to vary from these specifications; and Pro Electric complied with them exactly.

The Supreme Court held that Pro Electric was not entitled to immunity for backfilling the excavation site. The Project Plan, which only required Pro Electric to “coordinate construction activities with a call to Digger’s Hotline… as required per statutes” and “use caution to ensure the integrity of underground facilities,” did not provide reasonably precise specifications for how Pro Electric should perform this responsibility. Because Pro Electric had ample discretion in performing the backfilling, it was not entitled to immunity.

Nevertheless, the Supreme Court upheld the trial court’s grant of summary judgment in favor of Pro Electric, finding that it had not been negligent in performing the backfilling. The Wisconsin statute governing excavation called for Pro Electric to call the Digger’s Hotline at least 3 days prior to excavation, which Pro Electric had done. The statute also mandated that Pro Electric “inspect all transmission facilities exposed during excavation” and make any necessary repairs to damaged facilities. The facts did not show that the sewer line was a “transmission facility exposed during excavation” because there were no sewer line markings, and the excavation did not reveal the presence of the sewer line. Thus, the facts did not support the inference that Pro Electric breached a duty in performing the backfilling.

The author, Robert Gallagher, is an associate in the Pittsburgh office of the Pepper Hamilton Construction Practice Group.

Owners Beware: Washington Appellate Court Holds Playing ‘Gotcha’ With Project Submittal Review Could Breach the Duty of Good Faith and Fair Dealing

Nova Contr., Inc. v. City of Olympia, No. 48644-0-II, 2017 Wash. App. LEXIS 913 (Ct. App. Apr. 18, 2017)

This case arose out of a public project in which the City of Olympia (“City”) hired Nova Contracting, Inc. (“Nova”) to replace a culvert. A prior City project on which Nova completed work ended with Nova receiving extra compensation due to the City’s design errors and, as a result, a grudge held by some City staff against Nova. The present contract required Nova to send submittals describing its plans for bypass pumping and excavation to the City’s engineer for approval before it could begin work. The City’s decision regarding submittals was final and Nova bore the risk and cost of delay due to any non-approval.

The City issued its Notice to Proceed on August 11, 2014, but Nova could not begin construction due to the City’s rejection of its submittals. Nearly one month later, the City declared Nova to be in default because it failed to provide satisfactory submittals and failed to mobilize to the site. Coincidentally, that same day, Nova had mobilized to the site; the City, however, later ordered Nova to cease work because it had commenced operations before obtaining the requisite approval. Nova protested the City’s declaration of default, but the City terminated the contract on September 24.

Nova filed suit against the City for breach of contract, claiming that its handling of the submittals imposed requirements that were not part of the project’s specifications, thereby delaying Nova’s performance to a point where the project could not be timely completed. In support thereof, Nova’s witnesses declared that the City had appeared to be reviewing the submittals with the goal of rejecting them as a sort of “gotcha” review employed to prevent Nova’s performance. The City moved for summary judgment, and the trial court granted its motion. Nova appealed, arguing that there existed genuine issues of fact as to why the project was not completed and that the City had breached its duty of good faith by preventing Nova from attaining its justified contractual expectations. The City argued that the duty of good faith did not apply because it had unconditional authority to accept or reject Nova’s submittals.

The appellate court reversed the grant of summary judgment, holding (1) that the duty of good faith applied to the City’s review of Nova’s submittals and (2) that Nova presented sufficient evidence to create a genuine issue of fact as to whether the City breached this duty. The court began by recognizing that the duty of good faith and fair dealing applies when a party has discretionary authority to determine a contract term and found that the City had such authority in its review of Nova’s submittals. As a result, the City was required to exercise its discretion in a manner consistent with the contract so that Nova could obtain its benefits.

The court then concluded that Nova had presented sufficient evidence to create a genuine issue of fact as to whether the City had breached its duty. Highlighted by testimony regarding the City’s alleged grudge against Nova, this evidence demonstrated that (1) the submittal approval process was contrary to industry standards; (2) the City’s requirements were unreasonable, improper, and nonsensical; (3) the City’s repeated rejection of submittals—which complied with contract requirements—required Nova to work in a more cumbersome and expensive manner than contemplated by the contract; (4) the City sent mixed messages regarding project commencement and submittal approval; and (5) the City acted in a manner calculated to prevent project performance.

Accordingly, the appellate court reversed the trial court’s entry of summary judgment and remanded the case for further proceedings.


The author, John Gazzola, is an associate in the Philadelphia office of the Pepper Hamilton Construction Practice Group.