Students for Fair Admissions: Shaking the Foundations of EEOC Programs and M/WBE Requirements

On June 29, 2023, the Supreme Court issued a landmark decision, Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, holding that race-based affirmative action programs in college admissions violate the Equal Protection Clause of the Fourteenth Amendment. 143 S. Ct. 2141, 216 L. Ed. 2d 857 (2023).  On July 13, 2023, thirteen state Attorney Generals, relying on Students for Fair Admissions, issued a joint letter to the CEOs of the Fortune 100 companies, urging the elimination of all race-based programs in EEOC and government and private contracting. On July 19, 2023, a Tennessee district court judge issued an injunctive order against the Small Business Administration’s 8(a) application program on the basis of the program’s race-based presumption of disadvantage. Ultima Servs. Corp. v. U.S. Dep't of Agric., No. 220CV00041DCLCCRW, 2023 WL 4633481 (E.D. Tenn. July 19, 2023). 

The message to be taken from these developments: all race-based programs and, by extension, potentially all gender-based programs—including ones that require or reward participation of Minority Business Enterprises (“MBE”) or Women Business Enterprise (“WBE”) in construction programs—currently stand on shaky ground.

This post will explain the constitutional foundations at play, the decisions shaking things up, and why well-rounded dialogue is urgently needed to address the status of these programs before they’re dead in the water.

An MBE/WBE Constitutional Law Primer in Construction

Before examining the recent court cases in more detail, it may be helpful to understand how MBE and WBE programs developed from a constitutional law basis. Following passage of the Civil Rights Act of 1964, cities and municipalities began implementing strong race and gender specific remedial programs. The programs operated for years with aggressive minority and women contracting goals. Designed to bring disenfranchised players to the table, the ever-increasing goals, while genuinely motivated, slowly began losing relevance when measured against local statistics. In 1989, a key Supreme Court decision rocked the commercial construction industry by reviewing and declaring unconstitutional Richmond, Virginia's race-based program. See City of Richmond v. J.A. Croson Co. (“Croson”), 488 U.S. 469 (1989). By extension, this decision invalidated the majority of most state and local race-based programs then in existence.    

The goal program challenged in Croson included 30% goals for its defined minority and women groups. It was not flexible, thereby converting stated goals into quotas. It identified goals for certain groups, like Alaskan Inuit, who were not statistically present in Richmond. The 30% goal also lacked statistical support based on current local availability and capability analysis.    

The Croson decision was famously authored by Justice Sandra Day O'Connor, herself the victim of discrimination. Graduating at the top of her legal class, she nonetheless was unable to obtain employment as a lawyer and initially was limited to working as a legal secretary. Noting discrimination continues to be a real and present problem, Justice O'Connor nonetheless outlined the standards for justifying race-based programs. The Croson factors, as they became known, stated:

1. Any program based on race is inherently suspect and thus sustainable only under a "strict scrutiny" standard of review.
2. "Strict scrutiny" requires the government to prove:
1. A  "compelling interest" in creating the program (i.e. whether the goal is sufficiently important enough to justify a particular use of suspect classification) AND
2. The program is "narrowly tailored" to address that interest.

Croson identified the data necessary to prove the "compelling interest."  Later known as Croson or Disparity Studies, these data-intensive reviews analyzed: (1) specific identification of the MBE/WBE firms located in that region; (2) the scopes and magnitude of work they were capable of performing; and (3) the forms and types of discrimination barring them from access, including lack of educational opportunities, business education and formation, credit and financing, bonding, and job procurement. Without a current Croson study, a program could not meet the "compelling interest" element of strict scrutiny.

Croson also required remedial programs to be "narrowly tailored." A "narrowly tailored" program required proof that it:

1. Was more than racial balancing;
2. Was based on the number of local, qualified MBE and WBE firms in the region who were capable of performing the work required in each contract;
3. Was not over-inclusive by presuming discrimination against certain minorities;
4. Was not under-inclusive by omitting race neutral measures designed to assist small businesses in general, and
5. Did not implement either expressly or by practice mandatory quotas.

These factors, which would govern for over 34 years, still left some gaping holes.

First, Croson addressed race-based local and state programs. This left gender-based programs impliedly covered but not constitutionally analyzed at that time. This remains at issue even today.  Gender-based classifications are reviewed under a different—and more lax—"intermediate scrutiny" standard but are nonetheless typically lumped in with race-based programs under strict scrutiny.

Croson was also limited to local and state programs; it did not apply to federal programs which, at that time, were reviewed under the same, softer "intermediate scrutiny" review. "Intermediate scrutiny" required the program to:  (1) serve an important governmental interest; and (2) be "substantially related" to achieving the objective. Craig v. Boren, 429 U.S. 190 (1976). This softer review made both gender-based, and federal MBE programs tougher to legally challenge, permitting a presumption federal agencies could rely on broader, more generalized national data to support findings of past discrimination. 

This different treatment ended in 1995 through three cases known collectively as the Adarand cases, which were decided between1992 and 2001.[i] Adarand held Croson’s "strict scrutiny" standards for race-based programs were as equally applicable to federal programs as to state and local programs. This approach remained the law of the land through today.

MBE/WBE Programs Under the Croson and Adarand Regimes

While Croson and Adarand operated to bring statistical foundations to local, state and federal programs, and where the disparity studies identified and revealed important data on race and gender availability and participation, the history of these studies also revealed a not-so-surprising trend. When there were goals and strong enforcement incentives to meeting those goals, utilization was high.  This created a legal conundrum in that proof of success by its very nature disproved ongoing evidence of discrimination. In other words, if the goal was identified to remedy past discrimination, and a governmental entity hit or exceeded that goal, it statistically had "remedied" the past discrimination. For this reason, the programs were deemed to be short term in nature and to imply an end date. 

But the statistics also revealed another problem.  The utilization figures waxed and waned in accordance with the goals. Federal programs implementing annual adjustment, i.e. the increase or decrease of goals based on prior year's performance, reflected a corresponding bell curve of utilization. When goals were high, utilization was high. When goals were low, utilization was low. This reflected issues with the program's long-term performance and full realization of the remedial intent.[ii]  The programs also ignored legal precedent warning that an expiration of the programs was always anticipated and constitutionally required.

Students for Fair Admission's Roll-Back of Affirmative Action   

From 2018 to 2020, the Trump Administration's appointment of two Supreme Court justices formed one of the most conservative Supreme Courts since 1931.[iii] This ideological shift set the stage for the Students for Fair Admissions decision.

After providing a detailed analysis of legal precedent defining the parameters of race-based remedial programs over the years, the majority in Students for Fair Admissions concluded the remedial programs had outlived their time. While nominally limited to race-based university admissions programs under Title VI of the Civil Rights Act of 1964 (the "Act"), the decision contains language which seems aimed at future analysis of all race-based programs. Specifically, the Court states:

"[e]liminating racial discrimination means eliminating all of it. Accordingly, the Court has held that the Equal Protection Clause applies “without regard to any differences of race, of color, or of nationality”— it is “universal in [its] application” . . . . “[t]he guarantee of equal protection cannot mean one thing when applied to one individual and something else when applied to a person of another color.” (citations omitted, emphasis added). 

Justice Gorsuch's concurring opinion impliedly expands application of the holding from Title VI cases (prohibiting discrimination in federally funded programs) to Title VII of the Act, which prohibits race-based discrimination in employment and government and private contracting.  This directly impacts EEOC compliance programs, MBE goal programs, and race-based, Diversity Inclusion programs.      

The Eastern District of Tennessee's Decision in Ultima

On July 19, 2023, a Tennessee federal district court in Ultima Services Corp. v. U.S. Department of Agriculture became the first to accept Justice Gorsuch's invitation to expand the holding of Students for Fair Admission to other contexts.

Following the guidelines enunciated in Students for Fair Admissions, the judge in Ultima issued an injunction against the Small Business Administration's ("SBA") 8(a) program because it incorporated a race-based presumption of social and economic disadvantage in its application process. Instead of appealing the district court's decision, the SBA posted a terse notice on its website stating:

"On July 19, 2023, the United States District Court for the Eastern District of Tennessee enjoined the SBA from applying a rebuttable presumption of social disadvantage to individuals of certain racial groups applying to the 8(a) Business Development Program. SBA has temporarily suspended new 8(a) application submissions to comply with the Court's decision. Thank you for your patience and interest in the                               8(a) Business Development program." (Emphasis in original).[iv]

It is anticipated that the SBA’s compliance efforts will result in a new application process removing presumptions of disadvantage and instead require all applicants to submit a narrative outlining their particular evidence of same. 

Following the decisions in Students for Fair Admission and Ultima, the status of existing 8(a) certifications which were made on racial presumptions is uncertain. Equally uncertain is the impact these cases will have on numerous race-based programs currently in existence.        

The Cons of Overnight Elimination

Given the potentially far-reaching implications of the recent constitutional policy reversals, there is an amazing lack of discussion concerning proactive steps to address current M/WBE goals in contracts and EEOC Diversity Inclusion programs.  This silence is not only unwise but potentially devastating, as was evidenced in a 2005 Missouri case: Behavioral Interventions, Inc. v. Missouri Office of Administration.

In Behavioral Interventions, the plaintiff alleged the State's mandatory M/WBE requirement that 30% of the dollar value of contracts go to firms certified as M/WBE was unconstitutional where the goals were based on outdated statistics and had become inflexible quotas under Croson. The court agreed and granted a preliminary injunction holding the M/WBE program unconstitutional. Behavioral Interventions, Inc. v. Missouri Office of Administration, No. 04-0872-CV-W-GAF (W.D. Mo. Jan. 24, 2005) (order granting preliminary injunction). While the issuance of any future M/WBE goal projects was barred, the decision also suspended contracts for work-in-process that had been issued under unconstitutional M/WBE goals. As Missouri at that time lacked a corresponding "small business" program, the voided contracts could not be saved by conversion into a race and gender-neutral small business award. The court’s decision left all impacted participants reeling.

Contractors and owners scrambled to rebid significant amounts of MBE contract work already partially completed, but realized problems with: (a) how to classify court-voided contracts and what contract termination procedures applied; (b) whether the contract terms and procedures applied if a contract was deemed legally void; (c) how final payment and retainage issues were to be handled; (d) how to treat materials ordered and delivered but not yet incorporated or paid under the voided contracts; and, perhaps most importantly, (e) how warranties were to be honored where follow on contractors were understandably twitchy about warranting the work of another terminated contractor. It was, in two words: a mess.  

A negotiated settlement quickly brought Missouri's program into constitutional conformity while also creating a small business contracting program operating next to the M/W/DBE programs. But for a period of time, Behavioral Interventions’ overnight injunction left the parties in a world of hurt.  All government entities and their related construction partners face similar messes if the parties do not act proactively.

The Potential Impact of Students for Fair Admissions on Private Contracting

The impact of Students for Fair Admission is also filtering into private and EEOC corporate programs.  Referencing Students for Fair Admission, on July 13, 2023, Attorney Generals from thirteen states—Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Missouri, Mississippi, Montana, Nebraska, South Carolina, Tennessee and West Virginia—wrote the CEOs of the Fortune 100 companies urging them to:

"refrain from discriminating on the basis of race, whether under the label of "diversity,      equity and inclusion" or otherwise.  This includes preferences in hiring, recruiting,      retention, promotion, and advancement on race but also pressuring contractors to adopt racially discriminatory "quotas and preferences."[v] 

In response, on July 19, 2023, twenty state Attorney Generals—from Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington—argued Students for Fair Admission was limited to college admissions and not currently relevant to other programs. Although responding Attorney Generals advocated the importance of recognizing historic and ongoing inequities, the value of workplace diversity, and the socio-political-economic reasons justifying diversity as a primary objective, it is unclear what the companies are to do.

Concluding Remarks

It is clear the ripples created by Students for Fair Admission will be far-reaching. While, the constitutional validity of race and gender considerations in employment, government, and private contracting is unsettled for the time-being, the writing is on the wall. Just as Croson changed the nature of contracting goal programs overnight, Students for Fair Admission, as applied in the Ultima case, likely spells the end of race-specific remedial programs as we know them. While gender-based programs continue to float somewhere in legal limbo, it is likely ANY program currently based on race and gender is legally vulnerable. If parties continue to avoid confronting the issue, there is a significant chance they will be caught unprepared and subject to consequences similar to Missouri's Behavioral Interventions case.

Anyone who finds themselves disheartened by recent court developments and curious about what steps can be taken, here are some ideas: 

1. IMPLEMENT SMALL BUSINESS CONTRACTNG PROGRAMS. Immediately see if your local government or state has a small business contracting goal program.  If so, do an immediate outreach ensuring all current certified MBE and WBE companies are also registered under the small business program.   If no such program exists, take the steps needed to authorize, enact, and implement one. 
2. ORGANIZE BRAINSTORMING ROUNDTABLES WITH STAKEHOLDERS. Meet with interested players in your community to discuss the impact of these responses to Students for Fair Admission and how it impacts diversity and inclusion programs in your area.  Brainstorm and be proactive in suggested approaches.
3. CHANGE THE FOCUS. Continue the discussion on the proven benefits of diversity in the workplace, but change the focus to culture, geography, and the benefits of differing perspectives versus a specific race or gender focus.
4. CREATE LOCAL HUB-ZONE TYPE AWARD PROGRAMS. Consider incorporating HUB-Zone like programs at the local and state levels.  Currently a federal program, HUB-Zone channels 3% of all federal contracts to Hub-Zone qualified companies.  Certification requirements include: (1) the company's primary business office is located within a designated economically disadvantaged area and (2) the company employs 35% of its workforce from that area.[vi]  These types of programs meet many of the goals of the M/W/DBE program but in a race and gender-neutral manner. The program also generates economic viability to economically distressed areas.
5. CHANGE THE MESSAGE.  For minority and female employees and business owners, the sales pitch can no longer be "hire me because of past discrimination."  The new dialogue needs to be "hire me because:  (1) I'm good; (2) I provide great goods and services in a timely, workmanlike and cost efficient manner; (3) I'm important economically, socially and politically to the community and to the nation; (4) I'm creating tax revenues for the community; and (5) I'm creating an example for the next generation of politically, socially and economically important target groups who have earned their place at the table.

There are as many creative approaches available as there are intelligent people facing the issue.  The key is to start the discussions that lead to the solutions.  Don't simply ignore the problem in the hope it will go away.  It won't.  

© Denise Farris Scrivener, Farris Legal Services LLC.  (August 28, 2023).  All rights reserved.  This article may not be copied or reproduced without the author's permission. 

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Author Denise Farris Scrivener practices commercial construction, equine and veterinary law. She has authored numerous articles and treatises on affirmative action in government contracting, including the American Bar Association's Forum on the Construction Industry "Government Contracting Desk Book". Her articles can be found at: www.farrislegal.net/blog. She may be contacted at denise@farrislegal.net. For further ideas on new ways to approach diversity, see her blog on: "A New - And Possibly Improved - Affirmative Action Approach".  https://farrislegal.net/a-new-and-possibly-improved-affirmative-action-approach/.

Editor 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.

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[i] The Adarand cases include: ADARAND I:  Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240, 241 (D. Colo. 1992), aff’d sub nom. Adarand Constructors, Inc. v. Pena, 16 F.3d 1537 (10th Cir. 1994), vacated, 115 S. Ct. 297 (1995); Adarand Constructors, Inc. v. Pena 16 F.3d 1537, 1539 (10th Cir. 1994), vacated, 115 S. Ct. 2097 (1995); Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097 (1995).  ADARAND II:  Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556(D. Colo. 1997); and   ADARAND III:  Adarand Constructors, Inc. v. Mineta, 122 S.Ct. 511 (2001). See also:  "Diversity in Government Contracting", Denise E. Farris, Patricia A. Meagher, Larry D. Harris, ABA Forum on the Construction Industry 2012 Annual Meeting "Advanced Project Delivery: Improving the Odds of Success" (Las Vegas Apr 26-28, 2012).

[ii] See "Affirmative Action and the Utilization of Minority- and Women-Owned Businesses in Highway Procurement", Justin Marion,  University of California (February 2009), available at: https://people.ucsc.edu/~marion/Papers/revised%20manuscript.pdf, last visited on September 5, 2023.

[iii] See https://www.npr.org/2022/07/05/1109444617/the-supreme-court-conservative.

[iv] See https://certify.sba.gov/

[v] See "Shaking the Foundations of DEI? The Impact of the Students for Fair Admissions Decision on Corporate Diversity Initiatives", Dawn Siler-Nixon, Nancy Van Der Veer Holt, and Danielle E. Pierre, Ford Harrison July 24, 2023.

[vi] https://www.sba.gov/federal-contracting/contracting-assistance-programs/hubzone-program. 

BOOK CLUB SERIES: LASERS, AND ROBOTS, AND DRONES, OH MY…

For The Dispute Resolver’s first installment of its brand new “Book Club Series,” we sat down with Leslie King O’Neal to discuss the recent release of the Forum’s new book—Technology in Construction Law: A Legal Guide. Leslie needs no introduction to the construction law community. In fact, just this year, the ABA Forum presented Leslie with the Cornerstone Award in recognition of her exceptional service to the construction industry, the public and the legal profession. Leslie now serves as an arbitrator, mediator, and neutral evaluator at JAMS, using her over 40 years’ experience handling construction and complex commercial litigation matters in private practice and as in-house counsel for Brasfield & Gorrie, L.L.C., an ENR top 25 commercial general contractor. Leslie is not afraid to tackle any topic including one that many attorneys do their best to avoid—technology.

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Q: What is your book about and who should read it?

The book is geared  to construction attorneys. It is a resource that provides practical advice for lawyers on issues related to the new technology being used to design and construction projects:  ethics, contracts, intellectual property issues, government regulations, insurance, cybersecurity, e-discovery issues, using the data to support expert opinions, developing presentations for mediation, arbitration, or court with the data, and how litigators can use technology as a tool.

Q:  What was your inspiration for writing a book about construction technology?

A couple of years ago, I learned about the numerous new technologies, such as robot dogs, drones, and virtual reality glasses, that my then-employer, Brasfield & Gorrie, L.L.C., was using or testing on its projects. I wondered how the data generated by these technologies could be accessed and organized and how it could be used as evidence in a dispute or an investigation. Then I was asked to introduce a speaker and edit a paper written by Rebecca Sherman and Megan George on new technology for the Forum’s 2021 Annual Meeting. This book developed from that paper. The idea was to create a resource for lawyers to help them understand these technologies and the voluminous amounts of data they create.

Q:  What are some of the technologies discussed in the book?

It addresses the most cutting-edge technologies being used by designers and constructors on projects today, including:

(1) BIM:  While Building Information Modeling (“BIM”) technology has been used for many years, it has evolved into a 3D model providing a virtual representation of all aspects of a structure. It allows various entities involved in design and construction of a project (designers, general contractors, subcontractors) to change and update the model in real time.  When a project is completed, the contractor can provide a “digital twin” BIM model to the owner for maintenance, operations, and future remodeling. The digital twin may include the owner’s “smart” technology such as control systems for security and climate control. This is the convergence of information technology (IT) and operational technology (OT). The digital twin replaces the “as-builts” that construction lawyers are familiar with.

(2) Drones:   Initially, drone photographs were used for inspecting sites or difficult to reach areas on projects. Now, drones use 3D photography which can be overlaid on the BIM model to verify that the design matches existing site conditions. Drone data can be integrated into other project management data through use of platforms such as Drone Deploy and Procore, making the data available to project teams in real time.

(3) Robotics: Use of robotics in construction is growing but has been challenging because construction sites are varied, complex and constantly changing and many construction activities are not repetitive. Currently, robots are used for site deliveries, autonomously operated equipment, project layout, hanging drywall, bricklaying, welding, tying rebar, cutting materials, packing, and cleaning. Robotics can also assist human laborers through “robotic arms” or exoskeletons.

(4) Laser Scanning: Laser scanning is a highly accurate method to capture the details of an existing building or construction site. Advanced scanners create 3D representations known as point clouds which contain data used to create a map of the precise shape and size of physical objects. This can be used for mapping existing site conditions and validating design execution.

(5) 3D Printing: Also known as additive manufacturing, 3D printing is the construction of physical elements, in 3D, by extruding materials such as plastics, concretes, powders, and resins from a machine guided by a CAD based model. These 3D printed objects have the strength of steel and can be operational when removed from the printer. 3D printing can create project models, project components such as formwork, and even entire structures.

(6) Wearable Technology: Technology included in watches, hard hats, safety vests, and work boots allows tracking and monitoring on-site personnel in an automated, streamlined process. It provides for greater worker safety, site security, and monitoring productivity.

(7) Virtual Reality (VR): VR goggles immerse the wearer in the modeled environment, allowing owners and other stakeholders to experience their project before work begins in the field. They can also be used in safety training and for collaboration between the design team and constructors.

(8) Project Information Management: Project information management platforms such as ProCore and Autodesk allow data from different types of technology to be integrated and organized so that project teams can use this information in real time. ProCore can integrate 300 different applications, including schedule, accounting, safety, daily reports, drone photographs, deliveries, RFIs, change orders, punch lists, and more. These are displayed on project dashboards, which are available to project team members with permission.

Q:  What challenges do these technologies create for construction lawyers?

Lawyers have an ethical duty of technological competence, which means they need to understand the technology their clients use and how to access, use and safeguard clients’ data. The volume of data created on projects through these technologies is exponentially greater than before. Data from many different sources may be housed in a data lake and may be organized and analyzed by project information management platforms such as ProCore or AutoDesk. These platforms are being used not only by large commercial general contractors, but also by residential contractors and subcontractors. Artificial intelligence and machine learning tools are necessary to review, organize, and analyze the terabytes of data  a project may create. Contract terms must be modified to deal with issues relating to these new technologies. Government contractors and private entities are subject to government regulations and cybersecurity requirements. Expert assistance may be needed to use data effectively in mediation, arbitration, or court proceedings. This book can assist lawyers in meeting these challenges.

Q:  Do you have any thoughts on what the future has in store for the construction industry?

I think the construction industry will continue to find more uses for different types of technology. Although the design and construction industries were relatively slow in adopting technology, this has changed. The challenge is for project teams to understand the best ways to utilize the technology tools available. Also, construction lawyers need to understand the technologies their clients are using and how to gather, organize, and utilize the data effectively.

CLICK HERE TO ORDER A COPY OF TECHNOLOGY IN CONSTRUCTION LAW: A LEGAL GUIDE 

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Editor 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.

CGL Coverage for Liquidated Damages and the Contractual Liability Exclusion

Liquidated delay damages are common in construction contracts and are generally imposed when a contractor fails to achieve substantial completion within the time required by the contract. While contracts like the AIA A201-2017 have provisions for extending the time to achieve substantial completion when delays are caused by circumstances beyond the contractor’s control, delays can result from factors other than improper management or planning and the like, for which the owner is not required to give the contractor additional time. Courts are split on whether there is ever coverage under a CGL policy for contractually agreed upon liquidated delay damages.  

Liquidated delay damages are often excluded under the contractual liability exclusion of most CGL policies. The contractual liability exclusion excludes coverage for “liability for which the Insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Courts often find the contractual liability exclusion in a CGL policy precludes coverage for liquidated delay damages, because such damages are contractual in nature and are triggered by the failure to bring the contract to substantial completion by a fixed deadline, regardless of the cause of the delay. However, some courts will look to the cause of the delay and find that there is coverage under a CGL policy for liquidated delay damages that are the result of property damage caused by an accident or occurrence.
 
In Clark Const. Grp., Inc. v. Eagle Amalgamated Serv., Inc., 01-2478-DV, 2005 WL 2092998, at *1 (W.D. Tenn. Aug. 24, 2005) a general contractor entered a contract for the renovation of the convention center in Memphis. Part of the project included the demolition of a structure attached to the convention center. The demolition work was improperly performed by a subcontractor and resulted in damage to the convention center.
 
The city sought to recover the costs of repairing the damage and liquidated delay damages under the contract. The contractor sought defense and indemnity from the subcontractor and its CGL insurers. The insurers contended that they had no duty to indemnify and defend the liquidated damages claim because that claim arose from a breach of the contract, which was specifically excluded by the policy. The court held that the delay damages were covered under the policy, and the exclusion did not apply, because the liquidated damages resulted from property damage that was covered under the policy.
 
In Mattiola Const. Corp. v. Commercial Union Ins. Co., 60 Pa. D. & C.4th 412 (Com. Pl. 2002) the court found coverage for liquidated damages under a CGL policy. In that case, a subcontractor was performing saw cutting on a bridge project when the subcontractor accidently cut a structural member of the bridge. The “accident” caused the stoppage of all work on the project and resulted in the assessment of liquidated damages against the general contractor. The general contractor withheld the liquidated damages from the subcontractor. The subcontractor sought to recover the liquidated damages from its CGL carrier. The CGL carrier refused to pay the subcontractor’s claim, citing, among other provisions, the contractual liability exclusion in the policy.
 
In determining whether the contractual liability exclusion precluded coverage for the liquidated damages, the court applied Pennsylvania’s “gist of the action” test, which looks to whether a tort wrong is the gist of the action, and the contract claims are merely collateral. The court rejected the CGL carrier’s arguments, finding that the gist of the action against the subcontractor was based on the accident and was in tort. The court went on to hold that simply because the amount of the damage owed as a result of that accident was defined by the contract, that fact did not make the damages contractual in nature and, as a result, coverage for the liquidated damages was not precluded by the contractual liability exclusion in the CGL policy.
 
However, other courts have explicitly rejected this approach for determining if there is coverage for liquidated damages resulting from property damage. In O & G Indus., Inc. v. Litchfield Ins. Grp., Inc., No. CV126006448S, 2015 WL 3651786 (Conn. Super. May 15, 2015), the court refused to apply the “gist of the action” test to determine whether liquidated damages were covered under a CGL policy. The court held that the “gist of the action” test would prevent an insurer from having any certainty as to whether a specific contract provision between the insured and third parties would be covered under the policy, because the insurer would have to wait for the event that triggered the delays to know if the delay damages were covered. The court found that the liquidated damages provision in the contract at issue was triggered by the failure to bring the project to substantial completion by a fixed deadline, regardless of the delay, and, as a result, the contractual liability exclusion precluded coverage for liquidated damages.
 
Similarly, in Kvaerner N. Am. Constr. Inc. v. Certain Underwriters at Lloyd's London Subscribing to Policy No. 509/DL486507, 1:15CV210, 2017 WL 2821691, at *1 (N.D.W. Va. June 28, 2017) (applying New York law), the court held that liquidated delay damages were not covered under the CGL policy, even if it was an occurrence of property damage that caused the delay.
 
While the cases are inconsistent, when the delays at issue are the result of property damage that is otherwise covered under the policy, some courts are willing to find coverage under a CGL policy for liquidated delay damages, despite a contractual liability exclusion. However, other courts take the position that a contractual liability exclusion in a CGL policy will preclude coverage for liquidated delay damages, regardless of the cause of those delays.  

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Author and Editor Stu Richeson is an attorney in the litigation section of Phelps' New Orleans office, primarily focusing on commercial litigation with an emphasis on construction matters, intellectual property issues and insurance.

Keep It Simple: Summarize (Voluminous Evidence, That Is...)

"The most complex analyses grow beautifully simple as they become public objects.” Philip Rieff, Fellow Teachers (1973), quoted in JOHN BARTLETT, BARTLETT’S FAMILIAR QUOTATIONS 800 (Geoffrey O’Brien gen. ed., 18th ed. 2012) 

In a recent ABA Forum on Construction Law Webinar, a panelist with substantial experience as an arbitrator explained that documents are the most important evidence in a construction dispute. Fact-finders, she said, focus on contemporaneous project records more than witness testimony to vet what happened.  

But, even a small to mid-sized construction project can generate millions of pages of documents. That is particularly true when disputes involve loss of productivity, delay, acceleration, and disruption. The volume of records related to entitlement and damages (e.g., timesheets, accounting, equipment logs, schedule files, meeting minutes, etc.) can overwhelm and confuse — not to mention bore — the fact finder. 

So, what is a construction lawyer to do? 

The Federal Rules of Evidence (and state analogs) provide a helpful way to make your point through summary analyses in Rule 1006, Summaries to Prove Content. 

Rule 1006 —  The Basics 

To handle a mass of records and present it as condensed whole, a party can use a summary, chart, or calculation if it meets the requirements of Federal Rule of Evidence 1006. Rule 1006 allows a party to use “a summary, chart, or calculation to prove the content of voluminous writings, recordings, or photographs that cannot be conveniently examined in court.” Fed. R. Evid. 1006. 

Applying Rule 1006 depends on both volume and convenience: again, it applies to voluminous writings, recordings, or photographs that cannot be conveniently examined in court. As one treatise explains, this Rule provides a flexible standard to address the practical reality that time is precious, and attention is limited: 

[T]he convenience standard does not require a showing that the source material is so voluminous that the material is impossible for the jury to examine and understand. Given enough time and resources, a jury can comprehend virtually any collection of evidence, no matter how large. But the practical reality addressed by Rule 1006 is that court time and resources are always limited. Instead, the convenience standard is satisfied where, even though it is possible for the jury to digest the source material, appreciable time and effort can be saved by admitting summary evidence. 

Victor J. Gold, Contents of Writings, Recordings, and Photographs, in 31 CHARLES A. WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE § 8044 (2d ed. Apr. 2023 update) (emphasis added). 

The Safeguards 

As with any good evidentiary Rule, there are also certain safeguards — including allowing the other party (and the court) to inspect the underlying records or data, and other requirements to keep out inaccurate, incomplete, or biased presentations. Rule 1006 expressly provides that: 

(1) The party to make the originals or duplicates available for other parties to copy or review, and 

(2) The court may require the party to produce the originals in court. 

Fed. R. Evid. 1006. 

Courts have implemented various safeguards to make sure that Rule 1006 summaries are not misleading. For instance, the underlying evidence be admissible, the party must lay the proper foundation for the underlying records, and the summary/chart-preparer must be available for cross-examination. BP Exploration & Prod. Inc. v. Cashman Equip. Corp., 2016 WL 1387907, at *5–6 (S.D. Tex. Apr. 8, 2016). Courts have excluded summaries because they are misleading or incomplete, United States v. Oloyede, 933 F.3d 302, 310 (4th Cir. 2019); fail to disclose the basis for (or lacks appropriate) underlying assumptions, United States v. Hart, 295 F.3d 451, 458–59 (5th Cir. 2002); or contain inappropriate argument or inadmissible evidence, Peat, Inc. v. Vanguard Research, Inc., 378 F.3d 1154, 1160 (11th Cir. 2004). 

When You Might Use the Rule

Rule 1006 Summaries can be extremely helpful in complex construction disputes. For example, you might use it to help demonstrate/prove claims involving: 

• Loss of Productivity and labor records. See Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598, 699–701 (2010) (admitting PowerPoint presentation of expert summarizing loss of productivity damages); Nippo Corp. v. AMEC Earth & Envt’l, Inc., 2013 WL 1311094, at *5 (E.D. Pa. Apr. 1, 2013)
• Large amounts of invoices and/or evidence of payment and complex financial data. See BP Exploration & Prod., Inc., 2016 WL 1387907, at *15–16; United States v. Thompson, 518 F.3d 832, 858–59 (10th Cir. 2008); and 
• Schedule delay analyses/work progress. Twin K Constr., Inc. v. UMA, Geotechnical Constr., Inc., 597 F. Supp. 3d 1204, 1213–14 (E.D. Tenn. 2022). 

Conclusion 

Construction cases often involve many documents, the importance of which should not be overlooked. Just because it is possible to use a summary does not mean it is prudent or effective. For example, if there are some great documents in the project file, you will want to highlight, not bury, them. But, when the mass of data and analysis threatens to overwhelm, remember that the Rules of Evidence provide a remedy — one of which is Rule 1006. Just remember, KISS: Keep It Simple: Summarize.

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Author Steve Swart is a construction attorney with Williams Mullen in Tysons, Virginia. Steve counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Steve can be contacted at sswart@williamsmullen.com.

Meet the Forum's In-House Counsel: MATT MEAKER

Company: Sundt Construction, Inc.

Email: mbmeaker@sundt.com 

Website: www.sundt.com

Under Grad: The University of Arizona (Bachelor of Arts in Communication & Psychology, graduate of Honors College, 2000)

Law School: James E. Rogers College of Law, The University of Arizona (JD 2003)

States Where Company Operates/Does Business: Throughout most of the United States

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

A: In high school I was a Speech and Debate geek and found that not only did I enjoy competing with my team, but also that I had some skill at it. I went to the University of Arizona intending to be an Aerospace Engineering major. One day into orientation, it was clear that was not the path for me and I pivoted.  I focused my undergraduate studies with an eye to going to law school and with the desire to better “understand people.” To this day, the things I learned in college about non-verbal communication and motivation serve me well. I graduated law school in 2003 and purely by luck landed at a residential construction defect law firm. My early experience was defending home builders in class actions. After this, I worked for several firms solely focused on construction litigation, which was my primary experience for the first part of my outside counsel career. During the Great Recession (2007 – 2009), it became clear that a broader role as an “Outside General Counsel” who got involved in advising and avoiding litigation as well as litigating when disputes were inevitable was well suited to my skillset. At this time, I began to build a client base of both transactional and litigation clients.  This was how I approached the remainder of my outside counsel career.  After 14 years of law firm practice, I moved in-house 6 years ago.  The construction law generalist role, combined with the opportunity to be a part of the business in non “legal” ways, fits me very well.

Q: Describe your experience in the construction industry. 

A: I was fortunate enough to join the construction industry right from the beginning of my career. I have defended residential construction defect claims and learned the size and scale of class action lawsuits. I have been involved in multi-party mechanic's lien foreclosures where there was a genuine issue around the priority and/or validity of liens. I have been involved in licensure disputes and with the formation of joint ventures. And since coming in-house, I have negotiated project contracts of all shapes and sizes and resolved the largest claim I ever had in my career before a three-member Dispute Resolution Board. At present, I serve as group counsel for two of Sundt’s operating groups – Industrial and Transportation. In this role, I provide legal support for the negotiation of prime contracts and revisions to “downstream” agreements, in addition to any other questions that might arise. In addition, I am also our company’s primary internal employment law resource and manage some of Sundt’s litigation, including payment disputes, insured claims and car accident cases. I truly get to act as a construction law generalist. 

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

A: Sundt is a 133 year old, one hundred percent employee-owned general contractor. We currently are licensed in over 35 states and have offices throughout the country.  Our operating groups are broken down into building (dormitories, hospitals, K-12 schools, and similar projects), transportation (runways, light rail, bridges, freeways, etc.), industrial (water/wastewater, semiconductors, mining, etc.) and renewables (utility grade solar).  One of our current national focuses is in the water and wastewater space.

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

A: The first piece of advice for outside counsel is straightforward and may seem basic, but it is very important: the client is hiring YOU, not your law firm. The in-house lawyer is not wowed by firm letterhead or by the accomplishments of high profile partners. Rather, we sought you out and hired you because we believed you would be a good fit for our team. Sundt’s legal team is relatively small, and we seek straightforward advice for our company. I am looking for authenticity and candid assessments, and I expect outside counsel to set attainable expectations for both of us and then actually meet them. This includes when it's best to settle and what range should the matter settle for. We also expect counsel to listen and understand what our company needs to accomplish and understand that we also have an internal client in the business. I want to know, if it was your company on the line, what would you be willing to do and not do? Good outside counsel will be a strong advocate when appropriate, while at the same time helping us to not become blinded by it. For example, an advocacy piece can easily persuade a member of our internal business team that the case is stronger than it realistically is. Finally, one of the most important communications you can provide a client is the monthly bill. I should be able to look at it and see the value of the time and not be surprised by either the amount billed or the efforts undertaken. 

Q: What is your experience litigating or arbitrating construction disputes? Was your experience generally positive or negative and why? 

A: I litigated and arbitrated cases for 14 years as outside counsel, and I currently manage a wide variety of cases in litigation and in arbitration in-house, with the support of outside counsel. It has been generally a positive experience, in spite of occasional frustrations. I have learned to accept what those of us who are engaged in litigation know – that the adversarial system is one of the worst ways to solve disputes. Disputes at my company are in litigation typically because we could not solve the matter at the project level, which I believe is the ideal place to do so, because the parties at that level have relationships. One of the best things about being in-house counsel and providing advice before a dispute escalates to litigation or arbitration is getting to help resolve disputes before they escalate.

Q: What are some of your interests or hobbies?

A: My wife and I just celebrated our 15^th wedding anniversary.  We have two daughters (14 and 11). When not at work, my primary focus is the three of them. This includes attending volleyball and softball games, as well as being a top flight Girl Scout Cookie salesperson (around the office I am know as the “Cookie Dad”). My wife and I also share a passion for public policy and community service. I served on the Arizona Board of Regents (the governing body for Arizona’s university system) in law school, and my wife worked at the White House for a couple of years right out of college.  This mutual passion was a driving force around my efforts to develop a Government Relations program at Sundt. We are in our second year of a five year plan I spearheaded and at present it is focused in Arizona. I am happy to be a part of a company that supports its employee-owners and which is committed to making a difference in the community.

 

My family.

 Me and Arizona Governor Hobbs at an event. 

 My family at this year's White House Easter Egg Roll. 

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Assistant Editor-in-Chief Jessica Knox is an Associate 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. 

Courthouse Reporter Series - How to Avoid Having Your COVID-19 Expert Stricken

Expert witnesses play a key role in litigation, especially when dealing with construction issues. The testimony of an expert at trial can be a deciding factor in helping persuade a jury or judge in your client’s favor. Thus, it is imperative that your expert’s opinion meet the proper legal standard.

In Polaris Engineering, Inc. v. Texas International Terminals, LTD, the United States District Court for the Southern District of Texas reiterated the importance of an expert’s opinion complying with the applicable legal standards governing expert testimony. 2023 U.S. Dist. LEXIS 109413 (S.D. Tex. June 26, 2023).

The legal standard at issue in Polaris was Rule 702 of the Federal Rules of Evidence. Polaris involved a suit arising from a contract related to the design, engineering, and construction of a terminal and crude-oil processing facility for Texas International Terminals in Galveston, Texas. There were four separate contracts that governed the Project. One of the contracts governed the creation of the 50,000 barrel per day crude processing unit. Because the parties wanted to move quickly, they agreed to certain assumptions about the Project and specifically designed a change order process whereby the price and schedule could be adjusted if the agreed upon assumptions were incorrect. 

Polaris submitted a multitude of change orders, which it alleged Texas International never accepted or rejected. Polaris also insisted that Texas International failed to adequately engage in the change-order dispute resolution process as detailed in one of the contracts. Texas International attempted to bring the Project online and introduce crude oil. However, the Project failed to achieve stable operations and the parties’ relationship fell apart. Polaris alleges that this was because TXIT used nonconforming crude oil and refused to engage qualified operators.  Polaris alleged that Texas International failed to pay what it owed under the four contracts and filed suit seeking various forms of relief. The matter was removed to federal court.

One of the claims asserted by Polaris involved a claim for over $18 million in COVID-19 related change order requests that it submitted to Texas International after filing suit. In an effort to support its claims, Polaris utilized two experts to specifically testify about the various impacts that COVID-19 had on Polaris’s schedule and the various damages that Polaris incurred from the COVID-19 delays.

Texas International moved to strike the testimony from both experts claiming that the expert testimony was based on unreliable data and did not include any methodology. In ruling on the motions, the Court made it clear that they are “gate-keepers” and have to ensure that expert testimony is both relevant and reliable. The Court stated that the proponent of the expert testimony (in this case, Polaris) bears the burden of proving the:
(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact trier of fact understand the evidence or a fact in question,
(b) the testimony is based on sufficient facts or data,
(c) the testimony is the product of reliable principles and methods, and
(d) the expert has reliably applied the principles and methods to the facts of the case.

The Court struck Polaris's first COVID-19 expert because the expert did not model the alleged COVID-19 schedule impacts in its delay analysis but simply stated that construction was disrupted by labor absenteeism and other COVID-related restrictions and procedures. The Court further pointed out the expert’s failure to use any specific method to explain how or to what extent Polaris’s safety protocols caused delay. The Court ultimately found that the expert's opinion was not the product of a reliable method. The Court noted what the expert had done in analyzing other delays on the Project, such as the Critical Path Method and noted that no such analysis had been done with respect to the COVID-19 delays. This lack of analysis was noted by the Court as warranting exclusion of the opinion.

The Court noted that Polaris’s second COVID-19 expert did use a method and appropriate facts to conclude that Polaris’s damage calculation was reasonable and, if COVID-19 caused the delays, then this portion of the expert's testimony would be admissible. However, the Court noted that the expert failed to use a methodology or provide facts to support that COVID-19 actually caused the alleged delay. The expert admitted that he had not identified documentation to support the delay was caused by COVID-19 and referred to the first expert's report for the delay assessment rather than performing his own analysis. Ultimately, the Court ruled that the second expert's conclusions were inadmissible because they were not supported with facts and a methodology. 

Expert opinions are important and often needed. However, as illustrated in Polaris, courts will strike opinions that do not comply with applicable standards such as here: supporting facts and reliable methods.

Be proactive by discussing the admissibility standards with your expert and evaluating their opinions to avoid any potential for having the opinions stricken. Do not be afraid to communicate the importance of the standards to your expert. After all, it may prevent you from having your expert opinion thrown out.

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Author Andrew G. Vicknair is an attorney with D'Arcy Vicknair, LLC in New Orleans, Louisiana. Andrew focuses his practice on intellectual property, commercial, and construction disputes and regularly handles claims related to construction defects, payment disputes, design issues, and general disputes among subcontractors, owners, and general contractors.

OPINION: Stop Requiring Exhibit Lists!

You are conducting the final hearing of a high-dollar construction arbitration. Opposing counsel hands you the next document that counsel plans to use in questioning the witness on the stand. You notice that the document is bates stamped but has no exhibit number. So, you quickly consult opposing counsel’s exhibit list and – gasp – you find that the document is not on the list. What do you do? Do you object?

Assuming this is not your first construction arbitration hearing, you do not object. Why? Because your objection would be futile. Construction arbitrators simply do not exclude evidence on the basis that it does not appear on an exhibit list. (Evidence not produced in discovery or otherwise previously provided might be a different case.) In an informal poll of a dozen construction lawyers conducted by this author, not one reported evidence being excluded solely because it did not appear on an exhibit list. This remained true even when the applicable case management order purported to prohibit the introduction of evidence not on an exhibit list. Thus, to be used in an arbitration hearing, documents must appear on an exhibit list, unless they don’t, in which case you can use them anyway. So far, so pointless.

The scope of the average exhibit list only compounds this inanity. Exhibit lists are typically due several weeks in advance of the hearing. In an ideal world, both parties would have complete witness outlines, including exhibits, ready by this deadline. In this fantasy, both parties would then provide each other reasonably short exhibit lists that would allow for review of each exhibit on the list prior to the hearing. Both parties would then proceed to the hearing secure in the knowledge that they will not be subject to attack by the use of any document excluded from these tidy lists. This, to put it mildly, is not how things play out.

Perhaps the most organized and diligent among us know the exhibits they will use by the time the lists are due and can populate them with just those two- to three-hundred exhibits. Everyone else simply plays it safe and includes every document that could conceivably be relevant. The shortest list this author has received included at least 600 exhibits; the longest approached five figures. Of what conceivable use is an exhibit list that includes essentially every relevant document, and isn’t even binding in the unlikely event one has been omitted?

We have now established that arbitration exhibit lists are typically pointless, excessively voluminous, and largely unenforceable. They are also expensive. An enormous amount of time and money is spent creating exhibit lists. Based on the largely unfounded fear that a document left off will not be allowed into evidence, lawyers pore over the production database, adding and re-adding countless documents.

And yet, even given that (1) there is practically no consequence for failure to include a document on an exhibit list; (2) exhibit lists are almost always too lengthy to serve their intended purpose of previewing a party’s evidentiary showing; and (3) exhibit lists require a tremendous expenditure of time, effort, and money, almost everyone still insists on exhibit lists as a pre-hearing requirement, and almost no one insists that the lists be limited in any way. (There’s no real incentive to push for a strictly limited exhibit list that could come back to bite you in the event you forget to include a crucial document.) Thinking too much on this foolishness compels me to propose this obvious and remarkably simple solution: stop requiring exhibit lists!

I recognize this is a break from tradition. Arbitration, however, is remarkably easy without exhibit lists. I hope you’re sitting down for this: you can just handle the exhibits at the final hearing like you would handle the exhibits at a deposition. Let that sink in. You already know how to proceed without an exhibit list, you just didn’t know it. When an exhibit is introduced, it is assigned the next available number. It is as simple as that.

The logistics largely resolve themselves. Regardless of whether you are using hard copy or electronic documents, there are ways to make their introduction seamless. When using hard copies, you can employ the classic exhibit stickers. When using electronic documents, you can employ one of the multiple tools that exist for on-the-fly branding and sharing of exhibits. Even if your arbitrators request exhibit books, there are any number of practical options. (Consider giving them binders with tabs that are added to as you go, for example.)

Exhibit lists do nothing but incentivize waste. Wasted time, wasted effort, wasted money, and wasted paper—banker’s boxes full of wasted paper. So break the cycle, and embrace this most obvious reform: don’t include a requirement for an exhibit list in your next case management order.

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Author Todd Heffner is an associate in Troutman Pepper's construction practice group. Todd has devoted his career to serving clients in the construction industry, particularly high-stakes federal court litigation and arbitration.

Editor Jane Fox Lehman is a Senior Attorney at The Babcock & Wilcox Company.

Stock photo ccourtesy of Vecteezy

How Will Artificial Intelligence Impact Construction Litigation?

In the first half of 2023, artificial intelligence (“AI”) caught the public’s imagination. Attorneys have not been immune from the fever-pitch of commentary regarding the possible applications. While early adopters have had varying degrees of success, commentators have proposed various potential impacts on construction projects and disputes. This article discusses potential areas where AI can assist in preventing and resolving disputes from the pre-bid stage through project completion and close-out.

What is AI?

Artificial intelligence entered the popular zeitgeist accompanied by both optimistic and pessimistic predictions about the future. Internet searches on AI exploded in December 2022, reflecting a rapid and widespread public interest in the topic. The term “AI” itself is often loosely used to refer to a machine or computer software with the ability to conduct machine learning.[1] Whereas “automation” is the simple process of computing inputs, artificial intelligence refers to the ability to learn without additional programming from a human being. Now, increased computing power is finally helping some of the potential applications of this technology come into focus. Nonetheless, artificial intelligence is still maturing and is subject to “hallucinations” where the technology essentially generates erroneous nonsense.

In the Contract:

Changes in the scope of work are one of the most common sources of construction disputes. AI has the potential to impact construction contracts by mining details such as the proper scope of work. A construction contract can be a lengthy, complicated document with cross-references to bid documents, other agreements and specifications. For example, parties could use AI in the future to flag when a revised drawing requires a formal change order. These details are often central to subsequent disputes. Of course, in any scenario all contractual language should always be reviewed by an experienced construction attorney.

In the Field:

AI has multiple use cases on the ground. For example, AI with “computer vision” may be used to predict the best locations to drill into concrete while avoiding expensive mistakes and obstacles.

AI may have use cases in scheduling and management. Delays are a common source of frustration on construction projects. It now seems plausible AI could be used in the future to analyze available data to, (i) predict the probability of a delay, and (ii) after a delay occurs, to identify the cause.

AI may also have certain use cases in preventing or limiting workplace injuries. For example, AI could conceivably be used to scan a construction site for individuals without certain personal protective equipment. Machine learning will also be involved in any autonomous machinery or equipment used on job sites of the future.[2]

In the Office:

Construction disputes typically involve a multitude of documents, including contracts, specifications, drawings, change orders and correspondence. Analysis of a well-documented construction project can quickly become one of the most time-consuming aspects of a dispute. To the extent AI may gain the ability to apply machine learning to increase the efficiency of large document reviews, this could represent a significant change in the landscape of construction litigation.

In Court:

Some intrepid lawyers have begun using artificial intelligence as part of their practice. These early adopters have been met with mixed results, and sometimes worse. Some courts are responding by requiring that any attorney using artificial intelligence disclose when AI is used in the preparation of filings. They also must certify that each and every citation to the law of the record has been verified as accurate.[3]

Of course, the use of artificial intelligence may trigger several important professional and ethical duties for attorneys. The ABA recently addressed some of these concerns when the House of Delegates adopted a resolution regarding the use of artificial intelligence at the 2023 Midyear Meeting.

Conclusion:

It can be difficult to separate the wheat from the chaff when it comes to the true potential of AI and machine learning. In terms of the technology adoption lifecycle, AI has likely turned an important corner as it transitions from “innovators” to “early adopters.” For some of us, the hype and prognostications can be an obstacle to performing an objective assessment of likely benefits and risks. Construction law remains in the very early stages of the so-called “AI Revolution” and the final destination remains unclear.

Construction, like the law itself, is an old profession not known for embracing disruption. But while the promise of artificial intelligence can be alluring, construction attorneys should be careful not to allow these new tools to replace their own research and judgment. Nonetheless, the potential of machine learning to impact all phases of construction from planning and drafting through project completion and dispute resolution warrants close attention and thoughtful analysis. The power of the underlying technology will continue to grow.

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Patrick McKnight is a member of Fox Rothschild’s national Construction Practice Group. For more information, please contact Patrick at pmcknight@foxrothschild.com. 

[1] To be clear, machine learning is more accurately described as a subset of artificial intelligence.

[2] The flip side of the coin is how liability will be apportioned when AI is accused of causing an injury. This is a developing area of tort law beyond the scope of this article. 

[3] See e.g., Judge Michael Baylson’s June 6, 2023 Standing Order Re: Artificial Intelligence (“AI”) in the Eastern District of Pennsylvania.

Meet D1's Neutrals Series: BILL FRANCZEK

Company: Woods Rogers Vandeventer Black PLC

Office Location: Norfolk, VA

Email: Bill.Franczek@wrvblaw.com

Website: https://wrvblaw.com/attorney_/william-e-franczek/

Law School: Syracuse University Law – JD, 1982, Magna Cum Laude, Order of the Coif

Types of ADR services offered: Arbitration, Dispute Resolution Boards and Panels, Mediation and Neutral Evaluations

Affiliated ADR organizations: American Arbitration Association  (AAA); International Institute for Conflict Prevention and Resolution (CPR);  London Court of International Arbitration (LCIA);  International Court of Arbitration (ICC)

Geographic area served: Nationwide

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

A: I have an undergraduate degree in Civil Engineering and a Professional Engineering License in NY and VA.  So, when I became a lawyer, I applied for membership in the AAA, and was accepted as a construction neutral in 1987.  I now practice construction law and serve as an ADR Neutral in matters across the country and internationally.

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

A: I have been a construction mediator for about 20 years, mostly in matters on the east coast.  My background in construction engineering helps with facilitating resolutions, as I believe construction professionals can identify with me and my experiences. As far as arbitrating construction cases, I have handled 250-300 cases in my career.  I’ve been fortunate to be involved in some very large matters ($100M+), which are generally handled with 3 arbitrator panels, and before some very good construction lawyers.  I currently have 9-10 such matters pending at any given time.  More recently, I’ve been involved in several large wind and solar panel energy cases.

Q: What percentage of your current legal practice is spent on ADR work? What do you do when not serving as an ADR neutral?

A: I’d estimate about 95% of my work is now ADR related.  I also serve some clients with day-to-day questions, contract reviews and dispute resolution matters.

Q: Do you do neutral work beyond “garden-variety” mediation or arbitration? If so, what additional ADR services do you offer?

A: I do a considerable about of Dispute Resolution Board work, including infrastructure work in Texas, California, Virginia, Maryland and Colorado.

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

A: I try to start cases as a facilitative mediator, but invariably end up providing an evaluation of each party’s cases, to the extent enough information is provided to me to do so.

Q: Are virtual mediations as effective as in-person mediations? What are their advantages/limitations?

A: I think in-person mediation is much better than virtual.  Getting face-to-face contact helps develop trust and credibility.

Q: What techniques and strategies do you use to help parties overcome impasse?

A: At the end of the process, I will often offer to provide each party with a separate “mediator’s recommendation” that has sometimes proven to enable resolution of difficult cases.

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

A: His/her experience in construction, their temperament, and most importantly, recommendations from other lawyers on their experiences with potential candidates.

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

A: I believe a single arbitrator for cases < $2M is probably wise, just for the cost element.  It has been my experience that using the AAA Streamlined Three Arbitrator Option where one of the three handles all pre-hearing matters can be cost-effective. I think you are likely to get a more “negotiated” resolution with 3 arbitrators than just one.

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

A: Yes, definitely.  I give the parties a draft Scheduling Order that I have to try to convince them to limit discovery, while at the same time giving them the latitude to provide for the amount of discovery necessary for the particular case.

Q: What are some of your interests or hobbies?

A: Reading, international travel, wildlife and bird watching.

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Assistant Editor-in-Chief Jessica Knox is an Associate 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.