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).

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.

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.

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. 

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.