What's Up With Division 1 (No. 18) -- Happy Holidays and Happy New Year!

Quite a bit has occurred since my last message from the Division 1 Chair, which was just before the Fall 2022 Meeting in Memphis, TN.  I will do my best to summarize the highlights but I wanted to start by saying HAPPY HOLIDAYS to all of Division 1's leaders and members.  I hope you are able to take some time off and enjoy the holidays with your family and friends.  I am very proud of what we have accomplished in 2022 and look forward to further collaboration with you all about construction litigation and dispute resolution into 2023 and beyond! 

Fall Meeting -- Memphis, TN (Sept. 28-30)

The Peabody Hotel was awesome!  The lobby was huge and very comfortable.  Full of southern charm.  The Forum Chair, Cary Wright, served as honorary duck warden (forget the real name).  A video of that is below:

We had a great dinner at Itta Benna, a hidden away restaurant located at the top floor of BB Kings.  Thanks to Mike Lane for scheduling this fabulous dinner and Breakwater Forensics LLC for sponsoring it.  Here are some photos:

We held the first of the 3-part trial advocacy practicums in Memphis.  They focused on jury selection.  Jason Rodgers-da Cruz led the planning effort for this program.  He was joined by Stu Sobel (last minute substitute due to Lu Prats having to deal with the Hurricane), Galina Davidoff, and Terry Brookie. 

Our lunch program, planned by Brett Henson and Jade Davis, on early dispute resolution was postponed because they are both based out of Florida and were dealing with Hurricane Ian.  We split up into different division lunches.  

We held Division 1’s annual planning retreat in Memphis.  We came up with a ton of excellent ideas for the concepts book and discussed some new ventures to try out.  Thanks to everyone who attended!  

Here are some other photos from the meeting.

Division 1 — Extreme Winds Program

Speaking of natural disasters involving wind, shortly after my last message, we held a fantastic virtual program on wind events.  This was a technical program.  It was very interesting and is full of videos.  I recommend you watch it if you have not already done so.  Thanks to Mike Lane for coordinating this program!

Division 1’s Toolbox Talk Series Programs - Sept, Oct, Dec

Just before the Fall Meeting, on September 22, 2022, we held a Toolbox Talk Series program on Ethical Conduct for Advocates and Neutrals (Rules and Remedies for Mediation Misconduct).  Thanks to Patricia Thompson and Deborah Ballati for leading this discussion.  Check out the video here:

We held Toolbox Talks in October and December as well.  October’s was on the Design-Build Standard of Care and led by Thanh Do and Joel Heard (partnership with Division 4).  I tagged along with Catherine Delorey and Mark Johnson for the December TTS on Strategies to Defeat or Mitigate Attorney’s Fee Prevailing Party Provisions.  

Both were great programs.  Kanita Williams, our most recent steering committee member, is going to lead the 2023 Toolbox Talk Series of programs.  Thanks to all the volunteers who made these programs a success.  

Division 1’s Arbitration Program with Division 8 - Nov. 10th

Division 1 and Division 8 agreed to collaborate on some programs.  The first of the programs was a virtual program on arbitration comparing domestic vs. international practices.  Pasha Ameli has been the D8 leader/liaison working hard to make these programs a success.  He moderated the panel of speakers (R. Zachary Torres-Fowler, Marcus Salvatore Quintanilla, Merra Kurubalan, and Patricia H. Thompson).  Thanks to Pasha, the speakers, and Division 8 for this program! 

The Dispute Resolver Posts

I am assuming you know about the TDR posts if you are reading this message, but I would be remiss if I didn’t mention that the following has been posted on TDR since the Fall Meeting:

• D1 Neutral Feature - Robbie MacPherson
• View from the Field Part 5 - Field Labor Disruption
• Jurisdiction - Employee Training, Alone, May Subject You to a Foreign State’s Jurisdiction 
• Pennsylvania Superior Court Places Time Limit on Good Faith Withholding Under Prompt Pay Act
• Contractual Claims Protection: A Checklist for Owners
• D1 Neutral Feature - John Bulman
• Twists and Turbines - A New York Case Highlights an Owner’s Risk When Not Using Full-Wrap EPC Delivery

I want to thank all of the authors, editors and contributors of TDR.  After serving as the editor in chief of TDR for the past years, Catherine Delorey is going to hand-off the lead editor role to Marissa Downs.  Thanks very much Catherine for your work for TDR.  We launched some fun and different series since you have served as editor.  Congrats Marissa and I look forward to working with you on TDR as well as the new editors we are bringing on board.  

If anyone has an interest in being published in The Dispute Resolver, please reach out to Marissa Downs (mdowns@lauriebrennan.com) or Tom Dunn (rtdunn@pierceatwood.com).  

Forum’s Midwinter Meeting — Feb 1-3, 2023 (Caribe Hilton Puerto Rico)

Join us at the midwinter meeting (just about 1 month away!).  REGISTER HERE.

Joe Imperiale is leading the second practicum in the trial advocacy series on openings and direct examination.  Arrive early so you can attend the practicum on Wednesday.  

Marissa Downs is planning our social event which will be at the Casa Bacardi on Wednesday afternoon.  Be on the lookout for the registration info for that program, but it will include a mixology class, a tour, and reception sponsored by our friends at Construction Discovery Experts.  

Have a great end of 2022!   

Tom Dunn, Division 1 Chair

rtdunn@pierceatwood.com

401-490-3418

 

COURTHOUSE REPORTER SERIES: Twists And Turbines: A New York Case Highlights an Owner's Risk When Not Using Full-Wrap EPC Delivery

 New York State Thruway Auth. v. CHA Consulting, Inc., 165 N.Y.S.3d 832 (Albany Co., Sup. Ct. 2022).

This case involved a dispute over a wind turbine project. The root cause of the dispute was a bust between the “wind turbulence” at the site, and the wind turbulence that the turbines installed could withstand. Once the project was completed and commissioned, the overworked turbines prematurely failed.

The New York State Thruway Authority (the owner) sued CHA Consulting, Inc. (the designer), the Kadney Company (the general contractor), Vergnet (the turbine supplier), and two different site engineers: Prudent Engineering, and Ravi Engineering and Land Surveying (the engineers). The New York Supreme Court (New York’s trial court) dispatched all of the owner’s claims on summary judgment.

The designer, which had specified the wrong type of turbine, invoked New York’s three-year statute of limitations to defeat the owner’s professional negligence claim. The owner argued that the statute should run from the date of its acceptance of the work and issuance of a final certificate. But the statute makes clear that it runs from the professional’s “completion of performance under the contract.” With the designer out of the picture based on the timing of its work, the owner’s creative attempts to hold others responsible fell flat.

The general contractor defeated the owner’s claims because the designer specified the exact make and model of turbine, and the general contractor procured and installed those exact turbines. It was not the general contractor’s responsibility to verify that the turbines were suitable for the site, therefore the general contractor could not be held responsible. Even if the general contractor was somehow responsible for the verification, the owner accepted the general contractor’s work during inspection, and found it in general conformance with the contract plans and specifications.

The turbine supplier defeated the owner’s warranty claim because its warranty contained an exclusion when the site conditions were the cause of the issue. The owner argued that the turbine supplier should be estopped from taking advantage of the exclusion because it did not verify that the turbines were suitable for the site conditions. The Court disagreed, finding that the warranty did not create any duty for the turbine supplier to independently verify suitability. The various disclaimers in its contract were a further backstop against this argument.

The engineers defeated the owner’s claims because the Court found that their obligations were limited to confirming that the turbines supplied were the same as the turbines specified. The Court made this ruling primarily because the specification at issue was a “closed proprietary specification, with no substitutions allowed.” Had a less-detailed and more traditional performance specification been used, the engineers would have had greater responsibility to verify conformance.

In conclusion — it is not uncommon for an owner to separately contract with the major players on a construction project, as opposed to entering a full-wrap EPC agreement, but such an arrangement presents certain risks. Two of the most notable risks are scope gaps, and as demonstrated in this case, liability gaps. The designer in this dispute was able to avoid liability because its work was complete long enough before the problem was discovered that the statute of limitations had run, which left the owner without a party to pursue. A full-wrap EPC agreement would likely have allowed the owner to avoid this situation.

*This blog article was previously posted on the Troutman Pepper website.

Author Todd Heffner is an Associate with Troutman Pepper in its Atlanta office.  His practice covers construction matters, including in federal court and arbitration.

Meet D1’s Neutrals Series: JOHN E. BULMAN

Company: Pierce Atwood LLP
Location: Providence, Rhodes Island
Email: jbulman@pierceatwood.com
Webpage:  https://www.pierceatwood.com

Law School: Georgetown University Law Center, J.D., cum laude;Editor, Law and Policy in International Business (1984)
Types of ADR services offered: Mediation, Arbitration, Dispute Review Boards, Online Dispute Resolution (ODR)
Areas served: Nationwide

Affiliated ADR Organizations:

        American Arbitration Association (AAA)

International Institute for Conflict Prevention & Resolution (CPR)

International Centre for Dispute Resolution (ICDR)

College of Commercial Arbitrators (CCA)

Chartered Institute of Arbitrators (CiArb)

Rhode Island Superior Court

Rhode Island Federal District Court

International Chamber of Commerce (ICC)

---

Q: Describe the path you took to becoming an ADR neutral.

A: Early in my career, I was an advocate in several AAA construction-related arbitrations.  The AAA saw fit to add me to its Panel of arbitrators around 1990.  Since then, I have served as an arbitrator or mediator in approximately twenty states.

Q: What percentage of your current legal practice is spent on ADR work?

A: 90% or more of my time is spent as a neutral.

Q: Describe your background and experience mediating and arbitrating construction cases.

A: I have served as a mediator in over 100 construction cases since 1990. I have served as an arbitrator and rendered awards in at least fifty arbitrations, ranging from $500,000 to $220,000,000 in controversy.   Most of the larger cases have been three-arbitrator panels; I have served as chair in the majority of those cases.

Q: Mediators are oftentimes described as “facilitative,” “evaluative,” or “transformative.” Do you have a style?

A: Each case calls for a specific emphasis and/or technique but I certainly lean toward facilitative negotiation.

Q: Do you have any practices that you find make you particularly effective as a mediator?

A: Asking open-ended questions to prompt each party to fully articulate not only the merits of the case but also how counsel expects to meet the other side’s defenses or counterclaim.

Q: Do you recommend individual preparatory meetings with the parties and counsel prior to the joint session?

A: Yes. Gaining a better understanding of the dispute background and prior settlement discussions saves time and energy at the mediation session itself.  It also preempts “going down the wrong road” at the mediation.

Q: What should attorneys and their clients take into consideration when vetting and/or selecting an arbitrator?

A: The arbitrator’s subject matter expertise and ability to manage the process efficiently.

Q: What advice do you have for parties when considering whether to choose a single arbitrator or a panel?

A: Cases with a large amount in controversy or where the technical expertise of a particular arbitrator is important are cases where a three-member panel is effective and appropriate.  Cases with several parties are also situations where a three-member panel is appropriate.

Q: Do you think limits should be placed on discovery in the arbitration context?

A: There should be limits since arbitration is not supposed to be a mirror image of litigation.

Q: What role should traditional rules of evidence play in the arbitration hearing?

A: By the time hearings take place, there should be a limited number of exhibits that are in controversy.  This is the only time when the “rules of evidence” have a bearing, and they have a limited bearing.

Q: What are some of your interests or hobbies outside of your ADR Neutral practice?

A: Furniture making and fly-fishing.

Contractual Claims Protection: A Checklist for Owners

More and more public owners have come to the realization that their general conditions and “front-end” documents are inadequately protecting them. Here is a checklist of clauses for owners to consider including in contracts for protection against potential construction issues. The following, in no particular order of importance, are brief summaries of some of the key clauses that owners should consider including in their contracts.

Notice Provisions – These provisions require the contractor to provide the owner with prompt notice of an alleged change, delay, claim for additional compensation, or differing site condition. A well-drafted clause will strive to bar claims that did not comply with the notice provisions because the owner can argue that there was a lack of notice to be able to respond. The purpose of such provisions is to give the owner an opportunity to adequately investigate the situation in order to verify (or rebut) the contractor’s contention and to actively participate in the resolution and monitoring of the work. In the case of an alleged differing site condition, the notice requirement should be one of immediate notice, since an owner investigation is likely essential to protect evidence of the condition and to determine how the affected work will proceed.

Differing Site Conditions – It is important to define what a differing site condition is and how it will be treated should one be encountered during construction.  This clause is particularly important in projects involving significant earthwork, tunneling, work in highly developed areas or renovation projects due to the increased likelihood of encountering susceptible conditions unknown to the designer and bidders.

Scheduling Requirements – Owners must take a more active role in monitoring the contractor’s schedule submittals in order to protect against potential improper schedule manipulation which could lead to inflated delay claims.  In order to achieve this, owners must first have a solid specification with a mandate that requires the contractor to submit regular and meaningful schedule data.  The areas which the specification should cover include, at a minimum:

·       Technical requirements for the initial baseline submittal and updates

·       Review/acceptance procedures and timeframes

·       Updating and revisions requirements

·       Treatment of “early completion” schedules

·       Inclusion of submittals and procurement activities in the overall schedule

·       Means of submitting requests for time extensions, i.e., fragnets

Audit Provisions – An owner can obtain extremely valuable information for evaluating or rebutting a contractor’s change orders and claims by gaining access to the full volume of the contractor’s records, including all cost records and correspondence with subcontractors.  General contractors almost always have access to the public owner’s records by virtue of public records statutes, but often an owner can only get access to a contractor’s records after a formal litigation process has been initiated.  A well-drafted audit or access to records clause can provide the owner with the contractual right to have access to all the contractor’s and subcontractors’ records at all stages of construction, thereby giving the owner much more information to utilize when assessing a request for change order or a claim demand.

Defined Mark-ups – Many disputes arise because contract provisions are not clear as to what is or what is not included within a contractor’s and subcontractor’s mark-ups and what is allowable under the contract.  Better defined provisions will take away the guesswork and arguments associated with this common problem and will decrease the chances that an owner pays for “double-dipped” overhead on extra or changed work.

Escrow of Bid Documents – This is a procedure used on large projects whereby the contractor is required to place all of its bid preparation materials into an escrow.  Then, if a change order or claim arises that brings the contractor’s bid or original plan of performance into question, the owner and contractor can jointly review the bid documents to determine whether they support the contractor’s performance.

Claim Submittal Requirements – Often, owners are frustrated at the end of a project when the contractor submits a disjointed omnibus claim or a claim with too sparse details that it is virtually “non-analyzable”. The addition of a claim submittal clause can formally specify the format, content and level of back-up documentation that is required within the contractor’s claim to be valid; otherwise, it will be rejected until it meets the contract requirements.  

Liquidated vs. Actual Delay Damages – When drafting contracts, owners are faced with a choice in deciding how they are going to address the possibility of contractor-caused delays that extend a project completion date. The Owner can elect to include a liquidated damages provision which is a pre-determined amount included in the bid documents that “fixes” the contractor’s daily exposure or liability for contractor-cause delays. The other option is for the owner’s contract to be silent regarding the amount of damages that the contractor would be liable for in the event of a delay.  In that case, the owner could claim all reasonable, foreseeable damages caused by the contractor’s delay.

Limitations on “Early Completion” Damages – Another damages-related area where an owner can protect itself is in limiting the types of damages a contractor can claim in the event of owner-caused delays or disruptions.  One type of claim that is quite prevalent is “early completion” whereby the contractor alleges that it would have finished the project earlier than the required contract completion, but the owner caused the delay, so the contractor is thereby entitled to the extended overhead costs. Owners can include clauses in their contracts that prohibit the recovery of damages based on missed early completion dates, forcing bidders to accept language that specifically acknowledges this premise.  A contractor may argue that in the public sector such a clause is rendered unenforceable under certain state-enacted statutes, which essentially makes wholesale no-damages-for-delay clauses difficult to sustain. However, the distinction that the clause only limits a contractor’s right to claim for early completion delays is not a wholesale denial of liability for all owner-caused delay similar to most typical no-delay-for-damages clauses.  Like any contract provision that restricts a contractor’s ability to recover, the mere potential for disagreement should not hinder an owner from including such a clause in its contracts.   

Defining Submittal Review Times – An area of frequent dispute and delay allegations involves the time taken by owner’s representatives to review required contractor submittals.  When a contract is silent about how long an owner’s representative has to review submittals, there is often a difference of opinion as to what a reasonable review period is. This can result in protracted arguments and even claims.  An easy way to address this from the outset is to simply specify in the bid documents the timeframe, (e.g., 20 calendar days) that the owner has to review submittals.  This forces the contractor to schedule its work accordingly based on the assumption that the owner contractually has “X” number of days for review.  Consideration should also be given in the specifications as to whether the review “clock” fully or partially starts over when a submittal is properly rejected and has to be resubmitted/re-reviewed.  In addition, owners should consider prohibiting the transmission of a large number of submittals simultaneously which could effectively overwhelm the owner’s project staff.  

Estimating Requests for Information (RFI) Times and Volume – Often, claims by contractors include allegations devoted to “untimely responses” or “excessive volume” of RFIs. Both of these subjects can be addressed by the owner in the contract.  The first, dealing with turnaround time, can be resolved by simply specifying a contractual turnaround time.  Many owners accuse contractors of failing to plan their work ahead and then demand instantaneous responses to RFIs.  To fairly set the turnaround time, the owner must take into consideration the complexity and duration of the project.  With regard to the volume of RFIs, a clause can be put into the contract stating that the contractor should expect “X” number of RFIs. This way, the owner can establish a reasonable baseline for denying “excessive” RFI-related claims and establish a baseline for contractor expectation.  The owner must also be on the lookout for contractors that may submit unnecessary RFIs to circumvent the baseline. 

The contract provisions discussed in this article are only a handful of the key clauses that an owner should consider to help protect against untimely or inflated claims. Because each project brings a different set of circumstances and complexities, it is always advised that owners engage a construction claims expert as early as possible to resolve potential issues arising on a project.

Mark Guevara, Esq., CFCC, PSP, PMP is a Principal Claims Analyst with ARCADIS and has over 35 years of experience in the areas of construction dispute and claims analysis and resolution.  He has appeared before dispute review boards, panels, mediations, trial and appellate courts, and has testified as an expert witness. He served as Chairman of the Certified Forensic Claims Consultant (CFCC) Certification Board, AACE International (AACEi) and currently serves as Chairman (Elect) of the Construction Law Section, Orange County Bar Association.

Pennsylvania Superior Court Places Time Limit on Good Faith Withholding Under Prompt Payment Act

Constructural Dynamics, Inc. v. Thomas P. Carney, Inc., No. 1104 EDA 2021, 2022 Pa. Super. Unpub. LEXIS 1500, 2022 WL 2390125 (Pa. Super. July 1, 2022), reargument denied (Sept. 8, 2022).

Like many prompt payment acts, Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) permits owners and contractors to withhold payment for good faith claims — but not forever. Owners and contractors who wait too long could find themselves litigating prompt payment claims and paying the penalties those acts impose on procrastinating payors. A recent decision by the Pennsylvania Superior Court provides some guidance on how long is “too long” to withhold.

The decision arose from a breach of contract action by concrete supplier Silvi Concrete Products, Inc. (Silvi) against contractor Thomas P. Carney, Inc. (Carney). Silvi supplied concrete to Carney for the construction of a Philadelphia luxury hotel. Initial tests of Silvi’s concrete indicated that it broke at lower-than-expected compression strengths. Carney immediately terminated Silvi and hired a replacement supplier. Supplemental testing was conducted, during which Carney withheld payments to Silvi. The project engineer ultimately accepted Silvi’s concrete. Even after acceptance, Carney continued to withhold payment.

Silvi filed a complaint against Carney, alleging breach of contract, violation of CASPA, and unjust enrichment. Carney counterclaimed for breach of contract. A jury found in favor of Silvi on its breach of contract claim and awarded its unpaid $160,000 contract balance and $1 million in lost profits. In a subsequent bench trial, the court denied Silvi’s CASPA claim, finding that Carney had withheld payment in good faith. Carney appealed, and Silvi cross-appealed.

Silvi asserted that the trial court abused its discretion in denying its CASPA claim. It argued that in finding that Carney breached the parties’ contract, the jury implied that Silvi’s CASPA claim was valid. Silvi also argued that Carney did not prove that the amount it withheld was reasonably related to the value of its claim.

The appeals court concluded that the jury’s finding that Carney breached the contract was irrelevant to the validity of Silvi’s CASPA claim. Despite the breach, Carney had good faith basis for withholding payment — at least initially. And the amount withheld ($160,000) was reasonable since it was significantly outweighed by the potential cost to remove and replace the concrete ($13 million to $19 million). The court remanded for the trial court to reexamine whether Carney’s withholding after the project engineer accepted the concrete was in good faith, and whether Silvi could receive CASPA penalties as a result.

In its cross-appeal, Carney argued that the trial court erred by allowing Silvi to present evidence of its lost profits because its claim for lost profits was in essence a “lost volume seller” claim. Pennsylvania disallows “lost volume seller” claims because “[a]pplication of the doctrine would encourage the non-breaching party to do nothing to minimize its damages.”

The appeals court rejected Carney’s argument. Despite disallowing “lost volume seller” claims, “Pennsylvania permits a non-breaching party that has reasonably attempted to mitigate its damages to recover damages for lost profits.” The trial court specifically found that Silvi “made every reasonable effort to mitigate the lost sales and damages it suffered at the hands of Carney by reselling the material, thereby fulfilling the non-breaching party's duty to mitigate losses.” The trial court thus properly allowed the lost profits evidence.

Author Rachael Cain is an associate in the Litigation practice of Troutman Pepper Hamilton Sanders LLP, and a member of the Construction practice group. Prior to joining Troutman Pepper, Rachel served as Land Use and Real Estate General Counsel for Building & Land Technology. Her experience includes negotiating and drafting construction, design, architectural, and service contracts, as well as presenting zoning applications. Rachael has experience in both litigation and transactional matters and has appeared in state and administrative courts. 

 Author Jane Fox Lehman is an associate at Troutman Pepper Hamilton Sanders LLP, and a member of the Construction practice group. Jane has substantial experience representing a variety of construction project participants in disputes arising from industrial, commercial, and multifamily residential construction projects. In addition to representing clients in state and federal courts and alternative dispute resolution proceedings, Jane assists clients with bid protests, contract review and negotiation, project management issues, and risk assessments. She is the co-editor of the firm’s construction law blog, Constructlaw.com.

Jurisdiction – Employee Training, Alone, May Subject You to a Foreign State’s Jurisdiction

Turner Specialty Servs., LLC v. Horn, 2022 Tex. App. LEXIS 8139 (Tex. App.—Houston Nov. 3, 2022). 

Counsel have to analyze jurisdictional possibilities and understand that clients may be subject to jurisdiction in states not initially contemplated. Likewise, contractors need to understand that the location of certain activities, such as employee training, can lead to claims in the locale of those activities. Under certain circumstances, such training may subject contractors to foreign state jurisdiction that the contractor did not initially anticipate.

On November 3, 2022, the Court of Appeals for the First District of Texas ruled that the 55th District Court for Harris County, Texas has jurisdiction over a Louisiana-based limited liability company where the company’s employee, a Texas resident, passed away while working in Alabama. Turner Specialty Servs., LLC v. Horn, 2022 Tex. App. LEXIS 8139 (Tex. App.—Houston Nov. 3, 2022).

Turner Specialty Services, LLC (“Turner Specialty”) is a Louisiana limited liability company headquartered in Baton Rouge, Louisiana. The company provides turnaround maintenance services at refineries and petrochemical facilities, including catalyst work. Catalyst work is highly specialized and “involves working in enclosed spaces, such as large tanks and reactors, in an inert atmosphere lacking oxygen.” Id. at 3.

In March of 2019, one of Turner Specialty’s employees reached out to Justin Horn, a Texas resident, seeking his catalyst services for one of their refineries in Alabama. After accepting the job offer, Turner Specialty directed Justin to a Beaumont personnel office; wherein, Justin filled out pre-employment paperwork, underwent drug testing, conducted a physical examination, and received basic online safety training with an accompanying eight-module safety test. Id. at 4. Importantly, nine other catalyst crew members also received training at the Beaumont personnel facility. Thereafter, Justin was transported to Alabama and received additional, more specific catalyst training covering confined spaces, air supply equipment, and emergency rescue procedures.

On March 26, 2019, Justin died while performing catalyst work at the Alabama facility. As a result, Justin’s wife and mother filed a wrongful death suit, asserting, among other things, gross negligence. Specifically, the Plaintiffs asserted that the Defendants “negligently trained, hired, and/or retained Texas residents. . .” and the “negligent training, hiring, and/or retention of Texas resident workers contributed to Justin Horn’s death.” Id. at 7. In response, Turner Specialty argued that the Texas district court lacked general and specific personal jurisdiction because Turner Specialty was not “doing business” or “essentially at home” in Texas. Particularly, Turner Specialty argued, among other things, that (1) the Texas safety training was fortuitous because all Turner Specialty employees received the generalized safety training at a location most convenient for the employee, (2) the Texas safety training does not have a “substantial connection” to the events that transpired in Alabama, and (3) the actionable conduct that is substantially related to the operative facts of the litigation concerns the training and supervision provided in Alabama, not Texas.

Addressing the fortuitous argument, the Court held that the training was not fortuitous. Turner Specialty representatives reached out to Justin and directed him to the Beaumont office for onboarding procedures, including safety training. There was no evidence to suggest that Justin decided where to receive the initial safety training.  Additionally, “sending Justin to the Beaumont office was not an anomaly” as two-thirds of the catalyst crewmates working in Alabama received safety training at the Beaumont facility. Finally, the court recognized that Turner Specialty benefited from training employees in Beaumont, as it “incentivized Texas residents to work for Turner Specialty. And, by doing so, Turner Specialty acquired workers, like Justin, who had skills that were in limited supply.” Id. at 19.

Next, the Court looked at whether alleged negligent training in Texas was substantially connected to Justin’s death, that is, whether the “relationship among the defendant, the forum, and the litigation – are sufficiently close to support specific jurisdiction.” Id. at 22. The Court, noting that the “relatedness inquiry does not require a strict causal relationship between the defendant’s in-state activity and the litigation” relying on the Plaintiff’s Complaint, stated that “the [Plaintiffs] allege that the improper training, at least in part, caused or contributed to Justin’s death. Thus, Turner Specialty’s liability, if any, arises directly from and relates to the Texas safety training.” Id. at 23.  

Finally, the Court disagreed with Turner Specialty that the more specific training in Alabama was the “actionable conduct.” The court, relying on Texas Supreme Court jurisprudence, stated that “just because Turner Specialty could be subject to personal jurisdiction in Alabama does not mean that it cannot be subject to jurisdiction in Texas.” Id. at 26.  Whether the training that occurred in Texas contributed to Justin’s death presented merit-based questions for the trial court to determine.

As a result, the Texas Court of Appeal concluded that “Turner Specialty purposely availed itself of conducting activities in Texas and that the [Plaintiff’s] gross negligence claim arises from or relates to those activities. . . . the allegations and the evidence establish that Turner Specialty had sufficient minimum contracts with Texas to be subject to specific personal jurisdiction.” Id. at 27.

The Texas Court of Appeals demonstrates why contractors need to be vigilant in where they conduct basic employee training. Under certain circumstances, a foreign state court may have jurisdiction over a corporation, even when the accident in question occurs outside that foreign state’s jurisdiction.

Author, Peter-Raymond Graffeo, is an attorney with D'Arcy Vicknair, LLC in New Orleans, Louisiana. As a former civil engineer, Peter-Raymond focuses his practice in construction and surety law, commercial litigation and business law. 

View from the Field Part 5 – Field Labor Disruption - Effective Project Management & Strategies

The Series – View from the Field

View from the Field is a series of blog posts providing a practitioner’s view of the management processes and challenges associated with construction megaprojects as well as large and complex projects. Addressed by both Edward W. Merrow of Independent Project Analysis, Inc. (IPA) and construction lawyer Andy Ness at a recent ABA Forum on Construction Law conference, their high-level perspectives are elaborated herein. This multi-part series has and will expand upon some practical aspects of the many challenges facing managers as well as highlight suggestions for implementation by inside or outside counsel.

Summary – Forensic Labor Productivity Management and Disruption

Purpose – The importance / value of this post:

• Protect Clients / Direct Hire Contractors from compensable losses due to overruns in Field Labor Direct Labor Hours.

• Protect Clients / Owners (reimbursable cost contracts) from improper charges for unproductive Field Labor Direct Labor Hours by the direct hire party.

• Enhance probability of success and amount of damage recovery in dispute resolution processes.

Disruption

By the terminology Forensic Labor Productivity Management, I refer to productivity issues / losses or disruption that occur during changed work or that has occurred in a completed project.

Field Labor Disruption – the other “D” (Delay)

It is crucial to differentiate between delay and disruption.  While the two may exist concurrently or on the same project, either (delay or disruption) can occur or be present without the presence of the other.  Further, either (delay or disruption) can be recovered (through dispute resolution process) without reliance on the other being recovered or recoverable.

This has several important implications.  In dispute resolution process, a two (or more) paths forward to recovery of damages enhance the probability of recovery.  Potentially, Disruption and Delay are two separate paths.  Recovery of damages from one (delay or disruption) does not necessarily rely on entitlement or recovery of damages from the other.  Further, since the two derive damages from different cost pools or cost accounts, the potential recovery is increased.

The following table differentiates between the Disruption and Delay at a relatively high level:

Parameter	Disruption	Delay
Stakeholders	Owners, Construction Managers, General Contractors, Non-Direct Hire Contracors, Direct Hire Contractors	Owners, Construction Managers, General Contractors, Subcontractors, Vendors
Contract Provisions*	Assumptions about construction contracts – contractor entitled to economical operations, Implied Duty to Cooperate, contractor acts reasonably in planning**	Time, Schedule Specifications, Changes, others
Fact Set	Factors that impact the field labor productivity baseline (planned or experienced during project execution)	Facts that impact variances from the As-Planned schedule
Cause	Derived from Fact Set	Derived from Fact Set
Effect	Variances resulting from the “Causes”	Variances resulting from the “Causes”
Entitlement	Derived from Contract provisions and Fact Set / Cause	Derived from Contract provisions and Fact Set / Cause
Analytical Methodologies	Lost Labor Productivity – measured mile, for example	Forensic Schedule Analysis – typically Critical Path Analysis
Impacts	Labor Direct Work Hours exceed baseline without increased productivity / production / output	Project Completion later than originally planned date
Damages / Cost Pool	Direct Costs – labor and equipment	Indirect Costs – site and home office
Many Others	See References	See References

*M&M is a consulting firm.  We are not attorneys.  These are practitioner views.

**See Construction Scheduling: Preparation, Liability, and Claims, Wickwire et. al.

Changes and Variances – this is basic project “blocking and tackling.”

The presence and need for changed work provisions within larger projects is a necessary managerial and contract administration tool.  Scope of Work, external conditions, other factors depart from the contract baseline.  Equitably adjusting the contract for variances makes the stakeholders whole.  Regarding disruption, the party(ies) taking the risk of labor Direct Work Hour quantities must be compensated for change-related variances.  This includes one-off impacts such as cumulative impact.

Pricing changed work will use contemporaneous project productivity from the Field Labor Productivity curve (see below).  This ensures full compensation for changed work.

Change Order releases must be skillfully implemented.  Specificity and completeness are key.  For example, if productivity impacts and costs are to be resolved by the change, it is essential that the intent is clear and that the releases are consistent with the intent.  If cumulative impacts are not resolved (generally, cumulative impact cannot be resolved until project completion), make sure that the release is clear in this regard.

Process

Productivity Key Performance Indicators (KPI)

During the execution of the work, contemporaneous Productivity Ratio (PR) should be calculated, graphed and reported (in Monthly Progress Report – MPR).  This Field Labor Productivity graph serves to detect variances over time, compile the data, report results (Cumulative and Incremental – 3-week moving average).

Time Periods 1, 2 and 3 indicate (possibly) differing cause(s) of reduced Field Labor Productivity.  Hence, the fact set / evidence for each Time Period must be established / compiled.  An effective compilation tool is shown below:

Contract Types and Stakeholder Considerations

In his ABA Forum on Construction Law presentation, Mr. Merrow, IPA presented the following regarding Contract Types and Outcomes:

Focusing on disruption, in any of the Contracting Approaches:

• Fixed Price – generally the direct hire contractor is at risk for labor overruns due to disruption.

• Reimbursable Cost – generally the owner is at risk for labor overruns due to disruption.

The at-risk / aggrieved party must have a mechanism for recovering damages that are caused by others.  This is particularly true in the Reimbursable Cost Contracting Approach.  Hence, contract provisions must be fashioned such that the risk profile has processes for recovering damages.  This is particularly tricky when the risk is Field Labor Disruption.

Single Source of Truth (SSOT) 

The data management associated with field labor productivity is a key consideration.  A major limitation on both the recognition and recovery potential of disruption damages is the lack of data.  More specifically, the data needs to establish output or progress per Direct Work Hour.

Define the productivity-related data in the Project Execution Plan. Gather the data on a contemporaneous basis (needed regardless), and control access to the editing or changing of this data. This ensures availability if claims for additional compensation for productivity-related losses become desirable.

Analytical Methodology
Analytical methodologies, along with order of preference, are thoroughly discussed in AACE International Recommended Practice No. 25R-03, ESTIMATING LOST LABOR PRODUCTIVITY IN CONSTRUCTION CLAIMS.

Damage Calculation Options and Methods

Guidance regarding damages in general may be found in ABA Forum on the Construction Industry CONSTRUCTION DAMAGES AND REMEDIES, 2^nd edition.  Another useful reference is ASCE Identifying, Quantifying, and Proving Loss of Productivity; ANSI/ASCE/Cl 71-21.

Reconciliation to Actual As-Built Conditions

Delay – When performing schedule analyses, the analyst typically reconciles from the schedule baseline (As-Planned) to As-Built schedule.

Disruption – When performing disruption analyses, the analyst should reconcile to Actual Direct Work Hours.  Payroll data is a typical source.  The reconciliation can be displayed graphically using a pie chart where the entire pie represents Actual Direct Work Hours.  Slices of the pie are groupings of key allocations such as: As-Planned, Issue #1 DWH’s, Issue #2 DWH’s, Contractor Responsible or Unallocated.

References

Useful references are available through: CII, AACE, ASCE, MCAA, NECA, USACE, SCL, BRT, Ibbs, Bramble & Callahan, Wickwire, Dale & D’Onofrio, ABA, Schwartzkopf and others.

Conclusions (Part 5)

Forensic Direct Labor Productivity management focused on field labor productivity can have many business and dispute resolution considerations: 

• Using proper Key Performance Indicators (KPI’s) during project execution can achieve timely recognition of field labor productivity issues as well as facilitate contemporaneous gathering of data and documentation to support a potential change order request or claim (see prior post – Part 4 for suggestions).

• Incorporating a disruption claim into a dispute resolution package can enhance probability of a successful outcome.

• Costs of dispute resolution process can be mitigated by spreading the elements over the elements of the claim / complaint.

• For the direct hire contractor, disruption recovery becomes a potential Competitive Edge.

• For the owner (cost reimbursable type contracts), disruption recovery becomes a potential leverage or claim relative to the managing entity.

View from the Field – Scope of Work Management (Part 6)

Having discussed Retrospective Labor Productivity Management, Part 6 of this series will address managing the scope basis / baseline including changes thereto.

Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “View from the Field.” Mr. McLaughlin is a testifying expert, speaker and author.  Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas.