How U.S. Design and Architecture Firms Can Profit from the Chinese Market and Avoid Pitfalls

Despite recent challenges, including obvious political tensions, economic cooling in the PRC, and increased local competition, the Chinese market remains an attractive destination for U.S. design and architecture firms. For instance, PEI Architects has maintained its success in China through long-standing relationships with key clients and is currently involved in two major projects for the Bank of China: a 1.9 million-square-foot complex in Shanghai and a financial center in Haikou.[i] Similarly, NBBJ is playing a critical role in the development of Tencent’s Net City in Shenzhen, a 2-million-square-meter smart city project that aligns with China's goals of sustainable and tech-driven urbanization.[ii] These examples show that while the Chinese market presents challenges, it continues to offer significant opportunities, particularly in sectors where innovative and cutting-edge architectural solutions are in high demand. At the same time, U.S. firms should exercise care: proper advance planning and strategic alliances are crucial for profitable forays into the Chinese market.

JR Design Project: A Cautionary Tale

When operating in China, U.S. design firms often encounter regulatory challenges, particularly with respect to China’s strict qualification requirements for architectural design services. Failure to meet these requirements can result in serious legal issues, including the potential invalidation of design contracts, as demonstrated in a leading case decided by the Supreme People’s Court of PRC (the nation’s highest court).

In the case JR Design Project Consultant (HK) Co., Ltd. v. Hechang (Shiyan) Real Estate Development Co., Ltd. (2017) 最高法民申1610号, a Hong Kong-based design firm entered into a contract with an owner in mainland China to provide design services for a hotel project. (For the purposes of architectural design qualifications, Hong Kong is considered “foreign” in the PRC.) The contract covered various phases of the works, including conceptual design, rendering services, the production of construction drawings, and construction consultancy. When a dispute arose over payment, the validity of the contract itself became a central issue in the case.

The court ruled that under China's Construction Law[iii] and the Provisional Regulations on the Administration of Foreign-Invested Firms Engaging in Construction Engineering Design Activities (Decree 78),[iv] foreign firms that do not hold the necessary Chinese qualifications are prohibited from providing detailed design services, such as the production of construction drawings. In this instance, the court found that the firm had gone beyond conceptual design and engaged in more detailed work, which required qualifications that the firm did not hold. As a result, the court declared the contract invalid.

A key takeaway from this case is that foreign firms that lack the required qualifications are generally limited to offering conceptual design (alternatively referred to as "schematic design"), and, for any work beyond that point (such as “basic design”, “detailed design” and/or “construction drawings”), foreign firms must collaborate with a qualified Local Design Institute (LDI) to provide the full range of design services.

Paths to Success

To ensure compliance with the PRC’s qualification regime, U.S. design firms typically follow one of three pathways when operating in China:

1. Establish a local entity in China and obtain the necessary design qualifications.
2. Establish a local entity to provide design consultancy without obtaining qualifications and collaborate with an LDI to complete the design services.
3. Operate from offshore and partner with an LDI to provide full design services.

The following sections outline these three routes in greater detail.

Pathway I: Establishing Local Entities to Obtain Qualifications in China

In China, architectural design services are regulated by a strict qualification system, meaning firms must obtain specific qualification grades to provide design services for different types and scales of projects. Without a local entity that can apply for and obtain these qualifications, a U.S. firm’s ability to operate in China will be significantly restricted (as further explained below).

a. Regulatory Changes Post-2018

Historically, foreign-invested design firms had to comply with the Regulation on the Administration of Foreign-Invested Construction Engineering Design Firms (Decree 114) and its implementation rules, issued in 2002. However, these regulations were repealed in October 2018, and no replacements were introduced. Therefore, foreign-invested design firms now follow the same application process for obtaining design qualifications as domestic firms under the Regulations on the Management of Construction Engineering Survey and Design Qualifications. This positive shift in the regulatory landscape remains in effect notwithstanding the current challenges in the U.S.-China relationship.

• Removal of Credentials Requirements (for First-Time Applicants): Previously, foreign-invested firms had to submit credentials for projects they designed outside of China when applying for design qualifications for the first time. With the repeal of the Decree and its implementation rules, both foreign-invested and domestic applicants now apply for their first qualification at the lowest level (Grade B) without the need to submit project credentials from other jurisdictions.
• Changes in Personnel Requirements: Previously, foreign-invested firms had to meet strict requirements for employing certified professionals. Wholly foreign-owned firms needed 25% of their practitioners to hold Chinese qualifications, while joint ventures required 12.5%. These requirements, including residency stipulations, were abolished with the repeal of the 2018 regulation.
• Investment Restrictions: Foreign-invested firms in the form of joint ventures were once required to have a Chinese partner holding at least 25% of the entity’s registered capital. This requirement was officially removed after the 2018 regulatory repeal, allowing more flexibility in investment structures.

b. Acquiring Local Design Firms

A shortcut for U.S. firms entering the Chinese market is to acquire a local design firm that already holds high-grade qualifications and employs certified professionals. This strategy helps U.S. design and architecture firms to bypass the restriction of starting with only Grade B qualification and the lengthy process of upgrading their qualification grade, enabling them to quickly begin operations and provide design services for projects of any scale in China.[v]  

Pathway II: Establishing a Consulting Wholly Foreign-Owned Enterprise (Consulting WFOE)

Some foreign design and architecture firms establish Consulting WFOEs in China to provide consulting services for design-related activities. The design consultancy services do not require design qualifications, and this approach allows Consulting WFOEs to contribute value without navigating the complexities of obtaining design qualifications.

For this approach to work, however, U.S. firms must ensure that their contracts clearly define their roles and the roles played by their LDI partners to avoid regulatory compliance issues. As mentioned earlier, only entities with the proper qualifications (the LDIs) are allowed to enter into direct construction design with the client and execute direct design work in China. Practically, while a Consulting WFOE can contribute during the initial stages of a project—by providing conceptual drawings, design management, and advisory services—it cannot independently perform detailed design work. To offer a complete range of design and architectural services, Consulting WFOEs must collaborate with an LDI that holds the required qualifications.  And, as part of their initial diligence in determining which LDI to partner with, Consulting WFOEs should carefully review the LDI’s qualification status.

Another advantage of establishing a Consulting WFOE is the flexibility to hire both local and foreign staff directly, which offers more freedom in resource allocation for design projects.

Pathway III: Providing Design Services Without Establishing a Local Entity 

U.S. design and architecture firms that wish to provide services in China without establishing a local entity face distinct regulatory challenges. Nevertheless, it is possible for U.S. firms to participate in China’s design projects through offshore services and strategic partnerships. 

The primary distinction between Pathway II and Pathway III lies in whether the U.S. firm establishes a local entity in China. Pathway II, establishing a Consulting WFOE, allows for greater flexibility in resource management, including the ability to directly hire both local and foreign staff. The tax and payment processes are more straightforward if a U.S. firm has a local presence. Additionally, a Consulting WFOE can serve as a stepping stone toward obtaining design qualifications in the future if the firm decides to expand its service offerings. In contrast, Pathway III—operating without a local entity—minimizes upfront investment and the risks associated with establishing a local presence. However, without a local entity, U.S. firms face more challenges in managing cross-border contracts, payments, and regulatory compliance. Moreover, certain tenders may require a local entity to participate, and offshore firms may not be eligible to bid. Ultimately, the decision primarily depends on whether the work involves detailed design stages that necessitate LDI involvement pursuant to Chinese laws, and, potentially, the specific requirements of the tender that may mandate the establishment of a local entity and/or the involvement of an LDI.

a. Limitations on Direct Participation Without a Local Entity

U.S. firms that choose not to establish a Chinese entity are subject to significant limitations under Chinese regulations. As discussed above, only qualified entities are permitted to engage in design work beyond the conceptual stage (including "basic design" and "detailed design"). U.S. firms operating solely from abroad do not have access to the necessary qualifications, which restricts the scope of services they can provide.

b. Collaborating with LDIs

For U.S. firms to participate in the full scope of a design project, from concept through detailed design and construction drawings, a key, and often necessary, strategy for U.S. firms operating in China without establishing a local entity is to collaborate with a qualified LDI.

Such collaborations can take different forms based on the project's requirements, including without limitation:

• Subcontracting Model: In this setup, the LDI serves as the primary contractor to undertake the design project from the client, while subcontracting early design work—like conceptual or schematic design—to the foreign firm. This allows the foreign firm to provide input in the early stages while the LDI takes charge of detailed design and prepares final construction drawings to ensure regulatory compliance.
• Consortium Model: In this model, the foreign firm and the LDI form a consortium to submit a joint bid. This shared responsibility allows the LDI to manage local compliance and execution while the foreign firm contributes its architectural vision and creativity.

In practice, early involvement of the LDI is crucial to avoid delays and expensive design revisions. The sooner the LDI is involved, the smoother the transition from conceptual to detailed design. Delayed LDI involvement can result in significant revisions to meet local standards, causing project delays and increased costs.

c. Managing Cross-Border Contracts and Compliance

There are specialized foreign direct investment complications that U.S. firms may need to carefully manage, including payments, tax obligations, and service import procedures to comply with both U.S. and Chinese regulations. We have observed that some foreign design firms operating in China use “third-party payment agents” to streamline the payment process. These intermediaries simplify the administrative burden and help ensure that all regulatory requirements are met.

Conclusion

While China remains a complex market for U.S. design and architecture firms, strategic planning, regulatory compliance, and collaboration with local partners can safeguard their interests while unlocking significant opportunities. By understanding the qualification requirements and choosing the right pathway, firms can effectively navigate challenges and leverage China's emerging architectural landscape.

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Author Chengdong ("C.D.") Xing is an international construction lawyer at Rajah & Tann Singapore LLP, based in Shanghai and Shenzhen, China. Qualified in New York, C.D. specializes in advising and representing multinational corporations and state-owned enterprises in complex cross-border construction disputes, with a particular focus on international arbitration and China-related matters.

Editor Marcus Quintanilla is an experienced arbitrator and mediator with over 20 years of experience in international arbitration and cross-border litigation. Marcus maintains arbitration chambers in San Francisco, Houston, and Miami.

Disclaimer: This article is for reference purposes only and does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.

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[i] See https://pei-architects.com/projects/bank-of-china-financial-center.

[ii] See https://www.nbbj.com/news/cnn-tencent-is-building-a-monaco-sized-city-of-the-future-in-shenzhen.

[iii] Article 13 requires architectural design firms to obtain specific qualifications in order to legally carry out design work, with their scope of activities limited to the extent permitted by their qualification grade.  See https://www.lawinfochina.com/display.aspx?id=30311&lib=law.

[iv] Article 4: Foreign-invested design firms that undertake construction design activities within the territory of the People's Republic of China shall select at least one Chinese design firm with construction design qualification issued by construction to carry out Sino-foreign cooperative design activities, and undertake their design activities within the scope of the qualification of the aforesaid Chinese design firm(s). Article 5: Construction design contracts of cooperative design projects shall be concluded by Chinese design firms for cooperative design or jointly concluded by both Chinese and foreign design firms and construction entities. The contracts shall specify the rights and obligations of each party. Construction design contracts shall be in Chinese version. See http://www1.shanghaiinvest.com/cn/viewfile.php?id=2336.  

[v] See, e.g., a news article mentioning this practice at https://www.dacare-group.com/a/china-foreign-architecture-firms-doing-design-activities-in-china.

Meet the Forum's In-House Counsel: ROBERT PRESTON BROWN

Company: McKenney's, Inc.

Email: robert.p.brown@mckenneys.com

Website: www.mckenneys.com

College: Georgia State University (B.A. Political Science)

Law School: Emory University School of Law (JD 1989)

States Where Company Operates/Does Business: Headquartered in Atlanta, GA along with an office in Charlotte, NC, and does business in VA, NC, SC, TN, GA, AL, and FL

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

A: I dreamed of being a lawyer in high school, but that was not a realistic option for me at that time. So, after working my way through college, I took a job as a service technician and soon was promoted to a salesperson. My sales job worked out very well, and four years into it, my wife gave me an ultimatum -- seek your dream job now or forever hold your peace on the matter. Thereafter, married with two children, I quit my job, my wife returned to teaching, and I went to law school.

My legal career began at a large firm in Atlanta, and a few years into it I had the good fortune to work on a construction case. As the firm got more construction cases, we created a Construction Law Section. That section boomed with business, which afforded me the opportunity to handle my own cases as First Chair and serve as “Managing Partner” in large multi-million-dollar international construction arbitrations.

Based on that experience, gained over 14 years at the firm, The Shaw Group recruited me to serve as its Vice President of Litigation. In that role, I was responsible for Shaw’s legal disputes and my “portfolio” of claims often exceeded a billion dollars. My 8½ year tenure at Shaw ended when Shaw was acquired by Chicago Bridge & Iron.

After leaving Shaw, I was presented with an opportunity to join McKenney’s, Inc. as its first General Counsel and as a business partner in the company. I have been at McKenney’s for over 10 years, which will soon end as I plan to retire from the company next year. 

Q: How does working in-house compare or differ from firm life?  

A: On the road to becoming an equity partner at my firm, one of my most critical keys to success began to shift from producing an excellent legal product to selling an excellent legal product. I found that ironic since I left my first career as a salesperson to practice law, and it seemed like continued success in my legal career would require, in no small part, transitioning back into a salesperson as Rainmakers rule at law firms. As in-house counsel, I do not have these same demands. 

Being in-house also intensified my need to be an efficient, effective problem-solver, which I very much enjoy. One of my most challenging, yet rewarding, legal career experiences occurred soon after my promotion to Deputy General Counsel. Shaw’s senior management gave me the special assignment of serving as Legal Counsel for Shaw’s Vogtle Units 3 & 4 multi-billion-dollar nuclear power project. Decisions and solutions had to be made and carried out in real time, often with no margin for error. An in-house counsel position allows you to be “in the trenches” with the business leaders and meaningfully contribute to the company’s success.

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

A: The Shaw Group was a global Fortune 500 company providing engineering, construction, fabrication, environmental, and industrial services in industries ranging from Power, Energy, Oil & Gas, Chemical, Environmental, Infrastructure, and Government.

McKenney’s, Inc., one of the largest mechanical contractors in the United States, provides construction, engineering, design, HVAC, plumbing, controls, commissioning, and maintenance services in the commercial, healthcare, government, and higher education markets working on projects such as office towers, stadiums, hospitals, and data centers. 

Q: What advice would you give to outside counsel about how to meet or even exceed their client's expectations?  

A: The single most important piece of advice I would give outside counsel about how to meet or exceed their client’s expectations is: you must obtain and maintain a crystal-clear understanding of what the client’s expectations are. Seems simple, but that often is more elusive than you think. Sometimes, the client and/or the in-house representative of the client have not fully formed their expectations, or the expectations have changed over the course of the matter. So, outside counsel must build a reliable communication channel into the business, and ensure your on-going interactions have the proper objectives and are with the right people. Do not just provide updates on the status of the matter. Engage in an ongoing dialogue to keep track of the goals and expectations of the client and, critically, continually confirm what the client defines as success. It is not always winning the case. If you truly understand, and in many instances help define, what qualifies as success at any given point in the matter, you give yourself the best chance of meeting or exceeding the client’s expectations.

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

A: AI offers great promise that comes with real peril, which can fall upon the in-house counsel to protect against. Senior management recognizes the need to have stringent safeguards in place to guard against employees loading the company’s confidential or proprietary information into any AI systems. That, however, can fall short of adequately protecting the company when you fully comprehend how insidiously AI systems, which thrive on data, super-efficiently gather, analyze, and synthesize mega amounts of data. So, companies can successfully prevent their confidential/proprietary data from entering through the front door of AI systems. However, the proliferation of embedded AI, its ease of use, and its prompt delivery of tangible benefits, has me questioning whether market leading companies seeking to take advantage of AI can implement AI use policies and procedures that successfully prevent AI from siphoning off the market leaders’ data and making it available to their competitors to educate themselves on how they can overtake the market leaders.  

Q: What do you plan on doing after retiring? 

A: Having reached 45 years of blissful marriage, my wife and I both agree retirement for me will not involve sleeping late and lounging around the/her house. Instead, like most retiring construction attorneys, I hope to spend time doing arbitrations and mediations. I prefer serving as a mediator, which I have been doing on a part-time basis for the past 10½ years while serving as McKenney’s General Counsel. I somehow found the time to do that because of the fulfilment I derive from helping people reach amicable resolutions, particularly when that appears impossible. Interestingly, rather than my 14 years as an outside counsel litigator, I find my in-house experience – eight plus years working to resolve billions in claims for a General Contractor and ten plus years resolving all claims for a subcontractor – most beneficial to me as a mediator.

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

Understanding Entitlement to Delays and Proper Support

In a previous post, we discussed delays on construction projects including (1) critical versus non-critical delays, (2) excusable versus non-excusable delays, and (3) compensable versus non-compensable delays. We also reviewed the common methods of delay analysis include (1) the Total Cost Method, (2) the Modified Total Cost Approach, and (3) the Measured Mile Method.

Once you have determined the type of delay and the method to be used to analyze and quantify the delay, it is important to understand the type of documents/evidence needed to support your claim for delay.

If a party determines that they are entitled to some type of recovery for the delay, the party making a claim for delay, such as a contractor, must have the proper documentation/evidence to assist in proving entitlement for damages from the delay. Without the proper back-up, contractors are generally unable to recover all of the additional costs and expenses associated with the delays or, at best, recover only an “equitable” amount. Generally, damages must be proved with reasonable certainty and may not be based on speculation or conjecture. Thus, it is crucial for a party asserting a delay to have the proper documentation to support a delay claim, if the goal is to recover the damages associated with the delay. 

Courts routinely uphold an owner’s decision to demand sufficient backup documentation and other evidence to support a claim for payment, prior to submitting the claim to an owner. See generally In re Central States Mechanical, Inc., Case No. 09-12542, 2011 WL 1637991 (Bankr. D. Kan. Apr. 29, 2011) (collecting cases); Systemaire, Inc. v. St. Charles County, 432 S.W.3d 783 (Mo. App. 2014) (finding a genuine issue of material fact as to what documents were required under the construction documents prior to payment).

In general, the best backup documentation is that which is contemporaneous and continuous. If able to do so, parties should use the actual project records illustrating all modifications, delays, and related costs from the course of the project. 

The best documentation will include items that are contemporaneous with the delay event(s). Not every project will have the same documentation, as every project is different. To assist in proving a delay claim and related damages, some key documents may include:

• delay logs;
• delay notices;
• payroll records;
• time and material reports;
• diaries and witness statements;
• quality control and inspection reports;
• payment requisitions;
• dated progress photos and drone videos;
• daily, weekly, and monthly progress reports created at the time of the delay rather than those that may have been created after the fact; 
• project meeting minutes that were distributed to various parties as opposed to draft meeting minutes in a word processing software; subcontractor records of the delay;
• project schedules and any schedule updates;
• requests for information (RFIs);
• change orders and change order requests;
• construction change directives (CCDs);
• correspondence, such as letters, emails, and texts, between the project team;
• invoices and receipts for costs incurred due to delays; and
• any other documentation helping to establish the delay.

Any of these documents can assist in establishing and supporting a delay claim. While not every type of document is required, it is important to keep good project records contemporaneously with the Project so that you will have sufficient backup to support any delays.

Project records should also contain an adequate level of detail and be presented in a consistent format. These records should also be as specific as possible when a delay is encountered. For example, a contractor should clearly identify what is delaying the project, who is responsible for the delay, and which activities the delay is affecting.

Further, project documents should not contradict each other. For example, the project schedule should show the same actual start and finish date for an activity as reflected in the daily reports. It is imperative that the project team works together when documenting a delay so that all team members are on the same page to reduce the possibility of conflicting records/documents.

Maintaining documentation, including schedules, RFIs, notices, change orders, meeting minutes, progress reports, photos, emails, text messages, and other correspondence as well as all responses made or received is important to show the continuous communication between parties, despite the fact that this task can seem unmanageable. It is also a good idea to save these documents/records upon receipt in a manageable system so that you can focus on the Project while preserving your rights to any delay claims at a later date.

If you are experiencing a delay, it is good practice to place those responsible, such as an owner, on notice of delays. Be clear and direct in your documentation and communicate with the other parties immediately if you believe there is evidence of delays. It is also a good idea to submit all change orders for review and approval before proceeding with any changes or additional work that might cause delays.

Alternatively, a contractor can continue with the contract work in the face of delays caused by third parties, regardless of whether the contract requires written notice of delays or a delay claim. However, doing so may be at the contractor’s risk, as courts will not interfere with the terms of contracts made by competent parties, and generally hold parties to contract terms which require written notice and specific documentation of delay claims and claims for extras. See Razorback Contractors of Kansas, Inc. v. Board of County Com’rs of Johnson County, 43 Kan.App.2d 527, 227 P.3d 29 (2010) (rejecting contractor’s claim that substantial performance sufficed to preserve its claims, when the contract required written notice of claims for extra to be given to specific entities and within a specified time-period); see also T L James & Co. v. Traylor Bros., 294 F.3d 743 (5th Cir. 2002) (applying Louisiana law and denying a contractor’s claims for extra work due to contractor’s failure to follow terms of the contract and provide notice). Therefore, it is important to understand all relevant contract clauses concerning delays, such as notice requirements and certain methods for establishing delays.

The lack of documentation may not necessarily bar a delay claim.  However, depending on the jurisdiction, written modification provisions may be waived orally or by course of dealing. For example, some courts have held that, even if a subcontract requires that all change orders be authorized in writing, the requirement can be waived: “Habitual acceptance of work done on oral change orders in connection with a contract, and payment therefore, results in waiver of a contract clause providing that all orders must be signed.” Brockman v. Soltysiak, 49 S.W.3d 740, 745 (Mo. App. 2001); see also Missouri Dept. of Transp v. SAFECO Ins. Co., 97 S.W.3d 21, 36-37 (Mo. App. 2002) (subcontractor presented sufficient evidence that the general contractor had requested and agreed to extra work and that the subcontractor had performed it, thereby waiving the requirement in the subcontract that all change orders be approved by the contractor in writing).

Because construction project delays are common, project participants such as owners, sureties, and contractors will eventually be faced with some type of delay on a construction project. Thus, it is important to understand the different types of delay, whether it is compensable, and what information and project documentation is required to assist in proving entitlement to recovery for damages due to delays. It is very important to document the file and keep contemporaneous records of any potential delays so that when/if the time comes, you will have the required documentation to establish entitlement to damages.     

Top 10 Take-Aways from the 2024 Fall Forum Meeting in Pittsburgh

A view of Point State Park Fountain

Over 500 construction law attorneys and consultants convened last week at the confluence of three rivers in what became the first-ever meeting in Pittsburgh, Pennsylvania of the ABA Forum on Construction Law. The Steel City was a fitting backdrop for a meeting focused on issues of design in construction. Thanks to the hard work of many, most notably the newly minted Forum Chair Keith Bergeron and Meeting Coordinators Kendall Woods and Michael Clark, the meeting's attendees brought home new connections and a host of new lessons learned. Read on for my top 10 take-aways from the 2024 Fall Meeting in Pittsburgh and feel free to share yours in the comments below.

10. An architect's standard of care does not require perfection. A common refrain across many of the meeting's plenary sessions was that any design that is produced by human hands will never be perfect. In recognition of our own fallibility, the legal standard to which design professionals will be held to account does not require that their designs be error-free. A design professional must generally exercise the degree of care and skill ordinarily exercised by professionals performing similar services under similar circumstances. Establishing what that means in each locality will vary and will most likely need to be supported by the expert opinion of another practicing design professional.

9. Attempting to contractually alter an architect's standards of care is fraught with peril. Zealous contract attorneys who attempt to modify the form contract documents to alter the architect's standard of care may end up doing their clients more harm than good, per panelists Andy Manuel, David Zion, and Luke LaRocca. On one hand, an owner's attorney who attempts to raise the architect's standard of care by drafting in a requirement that the architect perform "best possible" or "five-star" services will have difficulty administering the contract and waste time in any dispute attempting to prove what these terms mean. They may also unwittingly draft the architect out of its professional liability coverage. On the flip side, any attempts by an architect's attorney to lower the customary standard of care may ultimately be found to be contrary to law and/or public policy and be unenforceable.

"Together" by KAWS

8. Collaboration and communication are key. While the architect and contractor are not always aligned and can be quick to point the finger at each other when things go wrong, conflict can be avoided if they approach the project in a collaborative way. This was one of the chief take-aways form the panel comprised of Maija Kreishman, Paul Clayton, and Wendy Dunnam Tita (and moderated by Matt Ryan). The radical thought that the design professionals and the contractor on a project should "be interested in each other's success" was radical in its simplicity. It's not hard to imagine the benefits that might be afforded to the project if the architect and contractor followed this advice and assumed a less adversarial posture to project execution.

7. When it comes to document discovery, linear reviews are a thing of the past. Kicking off a three-installment series on discovery in construction litigation, the Practicum in Pittsburgh focused on document management. Lisa Colon, Anthony Gambino, Carolyn Southerland, Frank Wisehart, and Kat Meyer led an informative discussion on best practices controlling discovery costs in construction disputes, which are notoriously document-intensive. Chief among the wisdom offered was the admission that performing a linear review of every discoverable document prior to production is no longer the way. Advocates and their attorneys need to get comfortable with the idea of: (i) leveraging technology to bring the most salient documents to the fore and (ii) producing sight unseen those documents which are responsive but unlikely to be critical (or privileged).

6. Generative AI carries with it a myriad of ethical considerations. So-called "generative AI"—the autonomous creation of new content, data or outputs that mimics or resembles human-created content—continues to influence the practice of law. Attorneys cannot ignore the potential benefit that generative AI might bring to their clients; nor can they rely on it wholesale without careful consideration.  Niloy Ray and Pasha Ameli cautioned meeting goers about the delicate tightrope that must be walked when generative AI is concerned. Per ABA Model Rule 1.1, a lawyer has a duty to keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology. Attorneys should consider whether generative AI can benefit their cases and their clients. But, any attorney choosing to use generative AI in their practice must take special precautions to  communicate this fact to their clients, supervise the AI as it would any "non-lawyer" member of its team, and protect the client's confidential information.

5. BIM is the wave of the future. Building Information Modeling (or BIM) has come a long way since it was first developed. Design professionals were historically reticent to even show their BIM models to owners and contractors (let alone certify the models as a tool for construction. That attitude is changing according to panelists Connor Christian, Rachel Riopel, and Kristine Kubes. In some jurisdictions, BIM is not only being used to supplement the drawings but actually replace them. Referred to in practice as Model as Legal Document (MALD), several states have already endorsed using a BIM model to replace 2D plans on construction projects. More states are in pilot projects involving MALD and are soon to follow suit. 

4. Construction administration services should not be seen as optional. Owners are often motivated to keep project costs down may perceive construction administration (CA) services by their design professional as a luxury they simply cannot afford. According to James Germano, Misty Gutierrez, and Matthew Ninneman, owners do themselves (and their projects) a disservice if they elect to forego CA services.  Without the architect's involvement in the construction process, there is no natural answer for who will have the responsibility to authorize product substitutions/alternates, review pay apps, certify the progress of the work, and prepare the punchlist (among other tasks). Without someone qualified to fill this role, mistakes may be made, disputes may arise, and the project may suffer.

3. If a picture is worth a thousand words, a visualization may be worth a million. At a lunchtime presentation to Divisions 1 and 4, Thanh Do and Jade Davis demonstrated how video data visualizations can be used to better explain complex concepts and failure mechanisms to a lay person fact finder. Taking a case study involving a crane collapse, Thanh (from Thornton Tomasetti) showed how creating a visualization of how a pin mechanism fit together was much easier to grasp compared to the line drawing. While visualizations can be incredibly powerful tools to, in order to ensure you will be permitted to present such illustrations to the fact-finder, it is important to ensure that they are accurate and not unduly prejudicial or confusing.

Side-by-side comparison of a line drawing (left) and visualization (right) of crane pin assembly 

2. Good design is about more than code compliance. Construction litigators focus their time on projects in peril and rarely think about the creative inspiration from which they germinate. But so many of the design professionals who spoke in Pittsburgh underscored the idea that the design professional's goal is to push the boundaries of what is possible and imagine the future. Good design is about more than complying with codes but understanding and capturing how a place will be experienced and live in the minds of people.

1. Design can help heal communities torn apart by tragedy. Carla Swickerath, an architect with Studio Libeskind, spoke at the meeting on behalf of the design firm that served as Master Planner for the World Trade Center site following 9/11. Carla spoke passionately of the symbolism that imbued the design process, including the desire to ensure that the sun would shine on the site without shadow during the morning of every September 11 and the decision to make the surviving "slurry wall" a prominent feature of the new museum as a way of underscoring that our nation's foundation remained strong. Studio Libeskind is making similar design choices to re-imagine and expand the Tree of Life Synagogue in Pittsburgh following the tragic events of October 27, 2018 when 11 people were killed in the deadliest antisemitic attack ever witnessed on U.S. soil. Central to Liebskind's design concept is creating a "Path of Light" skylight that will effectively "bring light to the darkness" of that tragic event. 

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Author 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.

Toolbox Talk Series Recap - BIM Lessons Learned

In the October 17, 2024 edition of Division 1's Toolbox Talk Series, Sam Gregory and Dr. Will Ikerd discussed the benefits and limitations of using Building Information Modeling (“BIM”) on construction projects.  As a threshold matter, Dr. Ikerd discussed what BIM is and, vitally, what BIM is not.  BIM is a process to generate and manage digital representations of the physical and functional characteristics of buildings (and other physical assets).  Put simply, if done properly, BIM can provide a digital representation of a property that can be used for planning, design, construction, and operations.  Dr. Ikerd focused mostly on the use of BIM in context of designing and constructing buildings, summarizing that BIM lets us complete projects twice: first virtually and then in reality.      

Dr. Ikerd expressed his view of BIM as tool to aid in a design team’s overall goal to deliver a coordinated design intent that is constructible.  In this sense, BIM can provide coordination for trades and include more information in a single model than what is found in two-dimensional drawings or in traditional Construction Documents (“CDs”). Unlike traditional CDs, BIM can easily model the relationships between different construction components or trades, such as between HVAC and plumbing to assure they do not conflict.  BIM can also have embedded metadata and relationships between the model’s elements, which can be useful for many things, including for facilities operations or for owners to consider completion dates for specific elements in relation to warranties.

Despite the promise of BIM, builders and construction lawyers should be aware of its limitations.  First, BIM can give the illusion of accuracy based on its precise modeling.  Dr. Ikerd cautioned that the challenge of modeling is tension between precision and accuracy.  Components can look precise but still be inaccurate. For example, a model of an MEP system can show pipes, ducts, and conduits running through each other.  Even if the modeling looks precise, it may not line up with the reality of constructing the MEP system and coordinating its elements, particularly if it does not account for tolerances from each of the elements.

Second, BIM deliverables rarely replace traditional CDs.  In fact, many municipalities require two-dimensional drawings for permits.  In the infrequent situation when BIM deliverables can replace CDs, it is typically for an Integrated Project Delivery (IPD) or Design-Build construction project delivery method.  Where BIM deliverables replace traditional CDs, parties need to be extra vigilant about documenting scope, schedule, fees, and quantity.

Third, contractors should not rely on BIM models blindly.  They should consider the time and costs associated with developing the model and with the coordination meetings (particularly where schedule is tight or the design fee is light).  If BIM is not done thoroughly, the CDs may be incomplete and put pressure on a contractor to complete construction based on incomplete drawings.  Trades also need to be aware of the Levels of Development (LOD) of the model, which range from LOD 100 (conceptual design) to LOD 500 (as-built).  Trades should take note of the LOD and clarify their bids accordingly.

Thank you to Sam Gregory and Dr. Will Ikerd for the useful overview of BIM and some lessons to keep in mind.

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Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Doug counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation, and arbitration. Doug can be contacted at dmackin@cozen.com.

Changes to Judicial Selection in Mexico Create a New Case for Contractual ADR Provisions

The Mexican Congress recently discussed and approved a Constitutional Amendment called the “Judiciary Amendment” which was ironically published in the Official Gazette on September 15, 2024, the day before Mexican Independence Day.

With this Judiciary Amendment, the Mexican Congress determined that Federal Judges, Federal Magisters and the Ministers of the Supreme Court will now be elected through direct and popular election. Before the Judiciary Amendment, Federal Judges and Magisters used to have a judicial career; many of them started as law clerks and were promoted step by step until becoming Judge or Magister.

Ministers of the Supreme Court were appointed by the Senate through an election of three candidates designated by the President.

How is this going to work?

The Senate will publish the guidelines for the elections with the numbers of charges to be fulfilled according to the Congress.

Each power will form an Evaluation Committee that will create a list of the 10 best evaluated candidates of each charge. (Remember there will be elections for Ministers of the Supreme Court, Magisters of Constitutional Tribunals and Federal Judges. So, there will be 10 candidates for each of them.)

The list of the 10 best evaluated candidates will be further reduced through random drawing. (Yes, a drawing). The reduced list will be sent to the Senate which will send it to the Election National Institute to proceed with the election process.

Campaigns will last 60 days. Candidates are not permitted to finance such campaigns, either with private resources, or with public funds.

Who can be Judge, Magister or Minister?

To be Judge or Magister, candidates must: (i) have been born in Mexico; (ii) have an Attorney License by the date of the publication of the election; (iii) have earned 8 points as a general average in law school and 9 in the topics related to the subject applied;[i] (iv) have practiced professionally  for at least 3 years; (v) have a good reputation ( i.e., never served jail time); (vi) have lived in Mexico the last year of the call; (vii) not have been a public officer during the previous year to the election.

Candidates must submit a 3-page essay justifying why they should be elected, as well as 5 reference letters from their neighbors, educational institutions or any other people supporting their suitability.

Who will oversee the conduct of the Judges, Magisters and Ministers?

The conduct of the people serving on the judiciary will be overseen by a Tribunal consisting of 5 people elected directly by the population for a 6year period.

This Tribunal will have the responsibility of resolving complaints against the judicial officers submitted by third parties, and also to initiate complaints by themselves. The decisions of the Tribunal will be definitive and binding.

While the Judiciary Amendment does not seem to be the solution (but, rather, a step backward) when it comes to a well-functioning judicial system, Mexican companies (and foreign companies working in Mexico) may, as an alternative, include mediation or arbitration clauses in their contracts.

Mexico has seen a slow improvement in the use of institutional mediation which can preserve commercial relationships and avoid? further litigation.

At the beginning of this year the Alternative Dispute Resolution General Act was published to promote ADR (mainly mediation) in several areas of law (such as commercial and administrative law).

This law did not expressly adopt the UNCITRAL Mediation Rules which means there may be lack of clarity in how mediations in Mexico can be conducted. On the other hand, the Mexican Commercial Code had already adopted the UNCITRAL Arbitration Rules.

Given the uncertain effects of the Judiciary Amendment, it is critical to embrace alternative dispute resolution tools in construction contracts and start implementing Dispute Boards (and other ADR models that have been internationally proven) in the Construction Industry in Mexico.

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[i] In Mexico, the highest grade possible is a 10, making a score of 8 roughly equivalent to an 80% in the U.S. grading system, or a 3.0 GPA.

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Author Juan Pablo Sandoval is a Junior Partner at COMAD, S.C. in Mexico City, Mexico where he focuses his practice on construction law. Juan Pablo has experience across various sectors, including airport, railway, highway, tourism, hospital, oil, and energy projects. Juan Pablo can be contacted by email at jpsandoval@comad.com.mx.

Courthouse Reporter Series: Nebraska Court of Appeals Vacates Arbitration Award for Misconduct

Vacating an arbitration award is often seen as an uphill battle. Indeed, the U.S. Supreme Court has stated that “courts may only vacate an arbitrator’s decision ‘only in very unusual circumstances.’” Oxford Health Plans, LLC v. Sutter, 569 U.S. 564, 568 (2013). The Federal Arbitration Act provides limited grounds to seek the vacatur of an arbitration award. In Lund-Ross Constructors v. Duke of Omaga, LLC, ___ N.W.3d ___, 33 Neb.App.73, the Nebraska Court of Appeals found that an arbitrator’s conduct warranted the partial vacatur of the award, which granted relief to a subcontractor who filed a counterclaim after the arbitration hearing had closed.

Lund-Ross contracted with Duke of Omaha to build an apartment complex in Omaha. Lund-Ross, in turn, sub-contracted with A Raymond Plumbing. Following completion of the building, Owner withheld payment from Lund-Ross, who in turn, withheld payment from Raymond. Both Lund-Ross and Raymond filed mechanics liens and initiated suits; Raymond’s suit ultimately was dismissed for want of prosecution. Lund-Ross proceeded to arbitration with Owner, naming Raymond as a respondent. Raymond did not participate in the arbitration as a claimant at the time of the hearing.

During the arbitration, Raymond’s principal testified and sought to assert its claims against Lund-Ross. As Lund-Ross sought to cross-examine Raymond, the arbitrator terminated the examination and determined that it did not have jurisdiction to hear Raymond’s claims. After the hearing closed, but before the arbitrator issued an award, Raymond sought to enter the arbitration with a counter-claim against Lund-Ross. The arbitrator permitted the counterclaim. Lund-Ross objected that Raymond’s counterclaim was untimely. Without ruling on Lund-Ross’ objection, the arbitrator entered an award granting relief to Lund-Ross, but also awarding over $215,000 to Raymond and against Lund-Ross. The arbitrator denied Lund-Ross’ motion to correct the award.

Lund-Ross filed a motion in court to confirm the award in part (to its award) and to vacate the portion of the award granting relief to Raymond. With respect to the motion to vacate, the trial court found that none of the four grounds in Section 10 of the Federal Arbitration Act were present and thus the award had to be confirmed. Section 10 permits vacatur of an arbitration award where:

1. The award was procured by corruption, fraud, or undue means;

2. There was evident partiality or corruption in the arbitrations or either of them;

3. The arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any misbehavior by which the rights of any party have been prejudiced; or

4. The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

On appeal, Lund-Ross argued that the third and fourth grounds warranted vacating the arbitration award. The court noted that a party seeking relief from an arbitration award “bears a heavy burden.” With respect to Lund-Ross’ argument the arbitrator exceeded his powers or executed them imperfectly, the Court noted that the only question to review was if the arbitrator interpreted the contract. Because the record showed the arbitrator did interpret the contract, relief under that theory was unavailable.

However, with respect to the argument that the arbitrator conducted misconduct by terminating Lund-Ross’ cross-examination of Raymond’s principal, the Court found that argument had merit. The Court held that the FAA does not require the arbitrator to hear every piece of evidence; parties must be accorded with a fair hearing and an adequate opportunity to present their case. If the arbitrator refuses to hear “pertinent and material” evidence and that refusal prejudiced the party’s rights, a court properly may vacate an award. Turning to the facts, the Court held that in terminating the Lund-Ross’ cross-examination of Raymond’s principal, and then considering the post-hearing counterclaim, the arbitrator was "guilty of misconduct and misbehavior that prejudiced Lund-Ross’ rights."

The Court finally turned to whether the Nebraska law or the FAA allows the simultaneous partial confirmation and partial vacatur of an arbitration award. Finding no applicable precedent in Nebraska or the Eighth Circuit, the Court noted that courts in Connecticut and the Second Circuit have frequently permitted the partial confirmation and partial vacatur of an arbitration award. Relying on those cases, the Court affirmed the part of the award in Lund-Ross’ favor but vacated part of the award in Raymond’s favor.

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Editor Brendan J. Witry is an Associate at Laurie & Brennan LLP. His practice focuses exclusively on representing and advising owners, contractors, and trade contractors in construction disputes at all stages.