Toolbox Talk Series Recap – Expert Conferencing ("Hot Tubbing") in Construction Disputes

In the May 25, 2023 edition of Division 1’s Toolbox Talk Series, Marcus Quintanilla, Dr. Joe Rakow, and Michael Martin had a lively discussion about strategy for expert conferencing. Expert conferencing (often referred to as “hot tubbing”) is a format for experts to present evidence simultaneously and in each other’s presence to the arbitrators or judges, who often question the experts and facilitate discussion between them.

Quintanilla emphasized that the first consideration upon learning that a trial or arbitration will utilize expert conferencing is selecting the right expert. Flexible experts able to take a more holistic view of the case and embrace advocacy tend to perform best. On the other end of the spectrum, experts with an overly combative demeanor tend to be less effective.

Another key piece of advice was to provide the expert witness the necessary background to offer compelling evidence and be flexible. Martin and Rakow both stressed that the expert needs to understand not only the expert reports, but also how they fit into the entire strategy of the litigation team. Without an attorney directing traffic via questioning, experts need to have their own roadmap. Quintanilla suggested involving the experts in the preparation of the opening statement/presentation to assure there is collaboration in crafting the narrative and detailing what evidence will be put forward. This involvement also provides experts with an opportunity to highlight issues of concern and correct any technical misstatements. A united plan on how to address areas where the expert opinion has less support or is prone to counterarguments is vital. Martin prefers to “play defense by playing offense first” and address those sticking points preemptively.

Once the hot tubbing begins, Martin and Rakow both called attention to the importance of experts establishing rapport with each other. Whether the presentation of evidence begins with a presentation from the expert (which was the strong preference of all three panelists), questioning from attorneys, or questions from arbitrators/judges, building rapport is crucial. Despite expert conferencing having the potential to be more adversarial than offering opinions through a direct examination, experts should focus on disagreeing respectfully and remembering that any dispute is a professional issue about facts and truth rather than a personal attack. Even if minor, experts should try to find some area of agreement to use as a building block. The most effective hot tubbing of experts eventually evolves into a conversation between experts.

Finally, Quintanilla advised that all parties involved, and attorneys in particular, need to relax and allow the process to play out, embracing that it is inherently a flexible method of presenting expert opinions that will vary from proceeding to proceeding. Generally, he finds that the process makes experts more credible to judges/arbitrators and their opinions more impactful.

Thank you to Marcus, Joe, and Michael for the insightful commentary on hot tubbing experts. 

Click here to view the discussion in its entirety.  

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

Meet the Forum's In-House Counsel: ERIN CANNON-WELLS

Company: Keller North America, Inc.

Email: ecannon@keller-na.com 

Website: https://www.keller-na.com/

Under Grad: University of Delaware (Bachelor of Civil Engineering 2000)

Grad School: The University of Texas (Master of Civil Engineering 2002)

Law School: Howard University (JD 2008)

States Where Company Operates/Does Business: Throughout the US and Canada

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

A: I studied civil engineering in undergrad and finally found my "calling" when I took a construction course, prompting me to pursue a master's in construction engineering. I started my career at Turner, holding various engineering positions, the last of which introduced me to the "contracting" side of construction. I was inspired to go to law school (in hopes of becoming an in-house lawyer there). After law school, I joined BigLaw, but maintained my desire to practice construction law. I then jumped to a small construction practice group at a mid-size firm, and the mentoring and experience there was everything I could hope for (but for the looming business development and billable hour requirements). From there, I became the sole in-house counsel for a large cement manufacturer and was a true construction generalist. Now I am part of a great legal team for a leading geotechnical specialty contractor. My moves were strategic, and I'm pleased to say that this is the very career I went to law school to have. 

Q: Describe your experience in the construction industry. 

A: I've been a construction lawyer for 11 of the 15 years that I've been practicing. Within the first few months of officially becoming a construction lawyer, I was taking depositions, dealing directly with clients, performing witness interviews, documenting faulty construction work, interacting with clients and drafting discovery. (NOTE: This was a welcome challenge after spending so much time reviewing documents, drafting memos, etc. in general litigation in hopes of getting assigned to a construction matter at my prior firm). After a year or so in, I was an integral part of the trial team on a complex construction dispute. During the six-week trial, I had the opportunity to argue pre-trial motions and present and cross-examine a few expert witnesses. Unfortunately, and fortunately, that was the one and only trial that I litigated. As is typical in the industry, most matters I've been involved in since then (both as outside and in-house counsel) have settled prior to litigation. 

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

A: As in-house counsel I like to believe that I have more control over my practice and my workday. Of course, there are always fires to put out and matters that pop up unexpectedly that shift my priorities, but the pressures of meeting billable hour requirements, building a book of business, creating flawless work product by someone else's deadline, and tracking my time are off the table. I've found that, as in-house counsel without the requirement of tracking how much time I spend on each client/matter, I'm able to be more productive and efficient with my time.  Also, as in-house counsel, I am dealing with a different type of client but also a client that I know extremely well. There is a distinct difference from having a client who is also an attorney (who knows what you know or what you should know and has a clear understanding of what you do or should be doing) versus having a client who may be skeptical or suspicious of attorneys, doesn't speak the same "language," is wired not to want to take your advice, or worse, thinks lawyers are accurately depicted on TV. 

Q: How and when do you use outside counsel? In what kinds of matters? 

A: My company does not have a hard and fast rule about when to engage outside counsel, but my use of outside counsel is a function of what's currently on my plate, what is at stake, the project's geographic location, and the dispute resolution procedure. I typically look to outside counsel when: (i) I'm not as familiar with the local rules or it's not feasible to travel to that particular jurisdiction, (ii) a collection can't be resolved by my initial demand letter, and I need to pursue lien/bond rights, (iii) the task is discreet but potentially time consuming (i.e., reply to third party subpoena, prep a witness, research state law, review documents, defend or take a deposition, etc.), (iv) the dispute could not be settled via position letters, direct negotiations, or mediation and will require reinforcements, (v) we are playing offense and defense on a dispute that is complex or substantial in value, or (vi) the other side(s) already engaged outside counsel. 

Q: What do you or your company take into consideration when vetting and/or selecting outside counsel?

A: When someone in the legal department needs outside counsel, it is likely that they are under a time crunch and don't have the time to vet someone with who the department doesn't have prior experience. That typically makes me the go-to person for recommending new outside counsel to engage--meaning I pull out my handy-dandy ABA Construction Forum Membership List, find the geographic area, and start scanning for familiar names. Surprisingly (or not), my reference to that outside counsel as being a Forum member is usually enough for them to be short-listed or cold-called for the matter. Of course, when the storm is brewing, and not already at our front door, we have time to dig a little deeper and take into consideration experience with the matters in dispute, understanding of Keller's specialties, commitment to diversity, references, billing rates, and whether a retainer is required. 

Q: What is your biggest pet peeve about working with outside counsel?

A: When I started my career in BigLaw, mistakes in any written document, no matter how minor, were inexcusable.  So, I was really surprised by some of the work product I received from outside counsel after going in-house. Of course, as the client, my standard is definitely not perfection, but one of my biggest pet peeves is having to substantially edit outside counsel’s drafts.  Whether it’s a complaint, answer, motion, or discovery, my review should be to confirm that what I know to be true is accurately captured.  There’s nothing worse (though I’m sure there is) than having to correct my company’s legal name, state of incorporation, or other facts that outside counsel should know about their client.  Also, catching errors in spelling, grammar, cites or incomplete thoughts is a red flag that then raises the question of how much oversight they will need as the matter proceeds and what their in-court presence is like.

Q: What are some of the big challenges you are tackling right now?

A: As my company continues to grow, there is an increased need to enter into downstream agreements with material suppliers, certain service professionals, and other vendors to do some of the more specialized aspects of our work.  The teams I support have been vocal about wanting standardized agreements that they can issue in those situations.  Creating those agreements, however, has been challenging.  Standardizing downstream contracts with our suppliers/vendors requires that I draft language that adequately passes down the risk from our upstream contracts, takes into consideration state-specific requirements, include required flowdown language, yet word these terms and conditions in a way that is not so onerous that it damages the relationships that the project teams have cultivated over the years.  Otherwise, we end up with an agreement that our team isn’t willing to send over, and the vendor isn’t willing to sign.

Q: What are some of your interests or hobbies?

A: Ever since my (now) two-year old entered the picture, my spare time is spent refereeing matches between him and his "fur-brother," reading children's books, playing with trucks, and managing "big emotions," but, my interests and hobbies include travelling, watching movies, and attending sporting events. Travelling may be my first love, especially to a warm climate with a beach. My destination of choice these days is our vacation home in Puerto Rico during the winter months. Pre-COVID (and pre-toddler), my husband and I had the unlimited movie pass at a local theater that we'd use weekly. More recently, it's mostly Netflix, Hallmark and Disney+ movies for me. I don't much have any favorite teams anymore, but I typically root for the underdog and/or the home team. Go Ravens! Go Orioles! Go Terps!

 My legal team at the jobsite.

 My son and dog. 

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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. 

Construction-Industry Clients Need Well-Reasoned and Clear Policies on Recording Zoom and Teams Meetings

The use of Zoom, Microsoft Teams, and similar communication platforms has become increasingly common in the construction industry. While these platforms can greatly facilitate communication between project participants, they potentially create a source of ESI – electronically stored information – that must be understood and considered by the businesses using those systems.

Businesses using Zoom, Microsoft Teams, and similar platforms should have policies in place to address whether and why to record video conferences, how long to preserve any recorded meetings, and retention policies for instant messaging systems. The failure to adopt appropriate policies could prove quite costly in any future litigation or criminal investigation. 

Federal Rule of Civil Procedure 37(e) sets out the duty to preserve ESI and provides significant penalties for failing to do so once litigation is anticipated. It is important to note: there is generally no obligation to create ESI, such as recording Zoom or Teams meetings. At the same time, if the ESI is created but litigation is not anticipated, businesses are generally free to establish their own retention policy for that ESI. However, once litigation is anticipated, potential litigants have the obligation to preserve the ESI and, in connection therewith, to conduct a reasonable search for relevant information (to ensure its proper preservation).

Google was recently sanctioned by a federal court in In re Google Play Store Antitrust Litig., 21-MD-02981-JD, 2023 WL 2673109 (N.D. Cal. Mar. 28, 2023) for inadequately preserving communications that were exchanged internally on its Google Chat instant message system. The court in its analysis noted:

There is no doubt that Google was perfectly free to set up an internal IM service with any retention period of its choosing. . . . What matters is how Google responded after the lawsuits were filed, and whether it honored the evidence preservation duties . . . .

The court held that Google violated its obligations under Rule 37(e) because Google had a policy that Chats were automatically deleted after 24 hours. However, Google did not suspend the auto-delete feature after the litigation started, but, rather, Google – impermissibly – left it up to employees to decide what Chats to preserve.

In addition to the obligation to preserve ESI, parties in litigation have the obligation to timely review and produce that information to respond to discovery. A special master in a patent infringement case in the Northern District of Illinois recently stated in a report to the district court that he was “unsettled” by a party’s eighteen-month delay in producing responsive Teams messages. The special master went on to express concern that the delay suggested the responding party may have “overlooked, ignored or withheld responsive Teams messages in discovery” and recommended further inquiry into the responding party’s conduct. Deal Genius, LLC v. O2COOL, LLC, 21 C 2046, 2023 WL 2299977, at *1 (N.D. Ill. Feb. 17, 2023), report and recommendation adopted, 1:21-CV-02046, 2023 WL 2299976 (N.D. Ill. Feb. 23, 2023).

The problems with identifying and preserving, and potentially producing, relevant ESI are significant with recorded Zoom and Teams Meetings. Those recordings present unique hurdles of how to review potentially countless hours of recorded video and audio to determine what must be preserved and ultimately produced in litigation. While AI tools can be used to produce transcripts of those video conferences, those transcripts can be imperfect. The process of reviewing those meetings could turn out to be quite expensive and time consuming, including the need for attorneys or IT consultants to conduct the reviews.

According to a recent article in US Law Week, “Pandemic Zoom, Teams Surge Offers Evidence Trove to Prosecutors,” May 2, 2023, the Department of Justice is targeting video communications – often from unsuspecting employees – in criminal investigations, and antitrust enforcers are pursuing copies of recorded meetings. By recording and saving Zoom and Teams meetings, businesses may be unwittingly preserving mountains of evidence for those types of investigations. This is potential food for thought when developing policies on recording and retaining video conferences.

Businesses in the construction industry should have a well-reasoned policy on which Zoom or Teams meetings to record and how long to save those recorded meetings. While there is generally no obligation to record Zoom or Teams meetings, and businesses are generally free to establish their own policies on recording and the retention of any recordings, once litigation is anticipated or started, litigants have the obligation to preserve the recordings of those meetings and to conduct a reasonable search to ensure their proper preservation. And, if those recordings are requested in discovery, a party has the obligation to timely review and produce the relevant recordings.

There is no doubt that recording project meetings can sometimes provide support or defenses in any disputes that arise on a project. However, recording and saving every Zoom or Teams Meeting – without any thought-out protocol – could prove costly and overwhelming in terms of volume of information to review, preserve and produce in any subsequent litigation.

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

Meet D1's Neutrals Series: KENNETH FLOREY

Company: Robbins Schwartz

Office Location: Chicago, IL

Email: kflorey@robbins-schwartz.com

Website: https://www.rsnlt.com/attorneys/kenneth-m-florey/

Law School: DePaul University (JD 1992)

Types of ADR services offered: Mediation, Arbitration, Project Neutral

Affiliated ADR organizations: AAA Panel of Arbitrators and Mediators

Geographic area served: Nationwide

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

A: I’ve been involved in construction litigation my entire career as an attorney, going on 30 years.  After being an advocate for all sides to these disputes (owners, contractors, and design professionals), I recognize the immense value of ADR to clients and decided to start shifting my litigation experience and skills to the neutral realm as an arbitrator and mediator.

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

A: My mediation style is a blend of facilitative and evaluative depending on the parties’ preferences and the flow of the mediation.  I usually start in the facilitative mode and, if the parties are unable to reach a settlement, shift to an evaluative mode until we reach a settlement during or, if needed, after the mediation session is over.

Q: What should attorneys and their clients take into consideration when selecting a mediator?

A: It is critical to select a mediator based on: (1) their experience in the specific litigation subject matter, particularly with construction litigation and (2) the parties’ preferred mediator’s style.

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

A: My most effective practice as a mediator is communicating with the parties both before the mediation and after,  if a settlement is not reached during the mediation session.  If the parties agree, after an unsuccessful mediation session, I will continue working towards a resolution, with calls, emails and texts, until the parties reach a settlement.

Q: When do you recommend parties in a dispute attempt mediation?

A: This is the most common question I receive and is routinely included in my presentations.  The answer is that it depends upon the unique circumstances of each dispute.  In my experience, the most effective mediation occurs when the parties are at the summary judgment phase.  However, depending on the complexity of the case, the contract requirements and the clients’ resources and goals, mediating earlier can also often lead to a successful resolution.

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

A: Prior to COVID, I would have said, no, you need to be in person, but many mediations are still remote with many times parties, their attorneys and the mediator participating from the comfort of their respective offices, often across the country.

Q: What are some of your interests or hobbies?

A: Outside of my legal career and family life with our four children, I enjoy reading, community involvement, and doing in triathlons.

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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.

Toolbox Talk Series Recap – Considerations for Optimizing Dispute Resolution Clauses

In the April 27, 2023 edition of Division 1's Toolbox Talk Series moderated by Manuel del Valle, Sergio Andre Laclau (Partner at Mello Torres) and Liza Akins (Senior Assistant GC and Division Counsel at ARCO Design/Build) offered the following strategies for drafting effective ADR clauses in construction contracts:

1.     Define the ADR process for various types of disputes.

Not all disputes on a construction project are the same, and the parties can tailor the ADR process to different situations. For example, the parties could choose to arbitrate complex disputes and resolve minor claims through mediation. Differentiating the ADR process between complex and minor disputes can save parties time and money.

While Liza  prefers arbitration for complex claims because you can get a quick and final decision from an arbitrator experienced with construction disputes, she noted that arbitration costs can add up quickly. Therefore, if the dollar amount in dispute is relatively small, arbitration may not make sense financially. Mediation tends to be a comparatively cheaper and faster option.

For more minor disputes, Liza prefers a mediation-arbitration route. First, mediation is attempted and if the dispute does not resolve at mediation, the mediator later becomes the arbitrator, and the mediation essentially turns into a “baseball arbitration.” Liza said that sometimes they get a decision in their favor, and other times they do not, but at the end of the day, they are satisfied with receiving a quick resolution without having to spend significant legal fees. Manuel described this as the “pride versus financial reality” dilemma on construction projects.

2.     Consider the number of arbitrators.

Another critical aspect of defining the ADR process in a construction contract is specifying the number of arbitrators involved. This decision, again, should be based on the complexity of the dispute.

Although a single arbitrator costs less than a panel of three; however, they control the sole fate of the outcome. A panel of three arbitrators conversely provides security against a single rogue arbitrator rendering an unfavorable decision. Liza favors choosing the number of arbitrators on a case-by-case basis to find the line between not paying multiple arbitrators versus getting stuck with one arbitrator that may not agree with you.

3.     Carefully choose the right ADR Venue.

Sergio emphasizes that selecting the venue for resolving the dispute is crucial and advised that this decision should be based on the venue's laws and whether the parties have proper counsel in the venue. Sergio cautions not to pick a venue based solely on travel convenience, because the difficulties associated with navigating a jurisdiction that is not arbitration friendly often vastly outweigh savings on airline fees.

4.     Keep ADR provisions consistent when there are multiple related contracts.

Sergio recommends keeping ADR provisions consistent throughout multiple contracts to a related transaction to ensure that the process is fair and effective in resolving disputes. This can also help prevent confusion and miscommunication between parties involved in multiple contracts. From a practical point, Sergio prefers spelling out the entire ADR provision in each contract, using the same provisions and the exact language rather than incorporating an ADR provision by reference into multiple contracts.

Thank you to Manuel, Sergio, and Liza for providing this insight to ensure that the ADR process is effective and efficient.

Click here to view the discussion in its entirety.  

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Author Michael Filbin is an associate attorney with Cozen O’Connor in Boston, Massachusetts. Michael is a part of Cozen O’Connor’s Construction group and represents owners, developers, contractors, and subcontractors in construction-related disputes. Michael can be contacted at mfilbin@cozen.com.

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

Recent Opinions Clarify Enforceability of Pay-if-Paid Provisions in Construction Contracts

Several recent opinions and legislative actions have brought the controversial nature of pay-if-paid provisions into focus in early 2023. Pay-if-paid provisions are contractual mechanisms designed to shift the risk of non-payment from General Contractors to lower-tier subcontractors. In other words, pay-if-paid provisions generally do not require payment to downstream subs until after the GC or Prime are themselves paid in-full by the owner. Recent developments reflect the differing approaches taken by courts when addressing pay-if-paid provisions, ranging broadly from prohibition to full enforceability. Other jurisdictions fall somewhere in the middle, viewing such provisions with varying amounts of skepticism on the grounds heir impact on smaller downstream subs is disproportionate and unfair.

Pay-if-paid provisions are often contrasted against “pay-when-paid” provisions. Pay-when-paid provisions may require payment within a specified duration but remove the upstream contractor’s payment in-full as a condition precedent. The brief discussion below will not explore pay-when-paid, no damage for delay provisions, or statutory prompt payment acts. Instead, this article serves as a primer on recent legal developments related to pay-if-paid provisions exclusively.

New York Appellate Court Enforces Pay-if-Paid Provision

In Entech Engineering, P.C. v. Dewberry Engineers, Inc., 204 A.D.3d 467, 167 N.Y.S.3d 55 (1st Dep’t 2022), the New York Supreme Appellate Court recently upheld enforcement of a pay-if-paid provision. In Entech, a subcontract contained a pay-if-paid clause requiring New York City’s payment to the engineer as a condition precedent for the engineer’s payment to the lower-tier sub. After the sub was terminated it brought a suit seeking to recover unpaid invoices and arguing the pay-if-paid provision violated public policy.

The lower court dismissed the action and the sub appealed. The appellate court stated the general rule in New York that if a sub has a right to file a lien, then the pay-if-paid clause is void and unenforceable. The court rejected the sub’s argument that it nevertheless had mechanics’ lien rights related after it performed home inspections. The Appellate Division affirmed the lower court’s decision to enforce the pay-if-paid provision.

New Virginia Law Bans Pay-if-Paid Provisions

Less than two weeks after the New York appellate court’s opinion in Entech, the Virginia General Assembly passed legislation aimed at prohibiting pay-if-paid clauses in public and private construction contracts. The new law generally requires any construction contract between a GC and a sub to include a statutory payment provision. The substance of the provision is to require payment by higher-tier contractors to lower-tier contractors within the earlier of (i) 45 days after the subcontract work is satisfactorily completed, or (ii) seven days after the higher tier contractor’s receipt of payment for the subcontract work from the owner.

The new law amends the Virginia Prompt Payment Act and elements of the Virginia wage theft statute. The Virginia Senate enacted the bill on April 27, 2022 and the new law went into effect on January 1, 2023. Notably, the new law does not seem to impact a higher-tier contractor or owner’s ability to withhold payment due to nonconforming work or a failure to adhere to other contractual terms.

There are some initial questions regarding the specific notice of withholding requirements under the new law. The law also contains penalties of 1% per month on unpaid amounts but includes a limited safe harbor for contractors who specify a lower interest rate in their subcontracts.

New Jersey Appellate Court Recognizes Pay-if-Paid Provisions

New Jersey’s Appellate court recently recognized the enforceability of pay-if-paid provisions in JPC Merger Sub LLC v. Tricon Enter., Inc., 474 N.J. Super. 145 (App. Div. 2022) (better known as Jersey Precast). Jersey Precast appears to be the first written opinion formally recognizing the enforceability of pay-if-paid provisions in New Jersey.

The following language appeared in the GC’s standard terms and conditions.

Vendor understands and agrees that [GC’s] obligation to make any payment to Vendor is subject to, and shall not exist unless and until, [GC’s] receipt of payment on account of Vendor’s [w]ork from the Owner . . . , the occurrence and satisfaction of which shall be a condition precedent to [GC’s] duty to remit payment (emphasis added).

The GC refused to accept shipment of steel beams from the plaintiff-vendor after it became impossible for the sub to fulfill of its contractual obligations. The GC invoiced the owner (here, Union County, New Jersey) for the unused beams. The owner refused to pay or accept delivery.

The court’s analysis turned on whether the provision was clear and unambiguous. The court reasoned that in the absence of fraud or duress, sophisticated parties are free to bargain for the terms of their contracts.

After Jersey Precast, pay-if-paid clauses appear valid and enforceable in New Jersey provided they contain “clear and unequivocal language that unambiguously sets forth the parties’ intention and agreement that owner payment is a condition precedent to the general contractor’s obligation to pay the subcontractor . . . .” (Jersey Precast, 474 N.J. Super at 163.)

Florida Allows Clear Pay-if-Paid Provisions

Florida takes an approach generally similar as New Jersey in Jersey Precast: a pay-if-paid provision is enforceable if it is clear and unambiguous. In 1978 the Supreme Court of Florida further held in Aetna Casualty & Surety Co. v. Warren Bros. Co., 355 So.2d 785 (Fla. 1978) that if any pay-if paid provision is unclear, the payor must make payment in a reasonable time. Adding express “condition precedent” language may be a logical starting point when drafting to ensure enforceability in these jurisdictions.

California and Other Jurisdictions Frown upon Pay-if-Paid Provisions

On the other end of the country and the spectrum, pay-if-paid clauses have been unenforceable in California for several years. In its benchmark Wm. R. Clarke Corporation V. Safeco Insurance Company of America decision, the California Supreme Court ruled that pay-if-paid provisions violate public policy and are void and unenforceable.

Other states prohibiting pay-if-paid provisions in whole or in part include; Delaware, Massachusetts (prohibited on large private projects), Montana, Nevada, North Carolina, and South Carolina.

A number of other jurisdictions have yet to rule directly on the question, including; Hawaii, Maine, North Dakota, Rhode Island, and South Dakota.[1]

Conclusion

The enforceability of pay-if-paid provisions varies significantly by jurisdiction. Moreover, recent developments and new case law have led to important changes and clarifications. Many of these changes occurred over the last few months alone. Clients may be encouraged to remain cognizant of these and other developments when drafting and signing future construction contracts. 

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Author Patrick McKnight is an attorney in the Litigation Department of Fox Rothschild LLP. He can be reached at pmcknight@foxrothschild.com. He is a member of Fox Rothschild’s Construction Law Group.

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[1] This list is the product of the author’s research. Other commentators have compiled slightly different lists. A full 50-state breakdown is fairly debatable and subject to various limitations. 

TOP TAKE-AWAY SERIES: The 2023 Annual Meeting in Vancouver

"Slow," the stainless steel pandas
in front the JW Marriott

Program coordinators Katie Kohm and Peter Marino put together an amazing annual meeting last week in Vancouver. While its impossible to retread all of the ground we covered in discussing the "future of construction law," here are my top 10 take-aways:

10. Public-private partnerships may finally be taking off in the United States. P3s were slow to be pursued within the United States. According to panelists Peter Hahn, John Heuer, Sean Morley, and Lee Weintraub, this was chiefly because of the reticence of public bodies to deviate from the standard vendor model. Looking at the recent trends, it seems as though the United States--the "sleeping giant of public-private partnerships"--may finally be waking up. In 2022, a total of 29 public-private partnership projects were signed or reached financial close within the United States, representing an increase of 16% from the prior year. Thirty-eight states also now have some form of P3 enabling legislation. While we still lag behind our Canadian cousins, the future of P3s in this country is looking a little brighter.

9. The value proposition for the architecture profession is broken. Architects Lakisha Ann Woods (the CEO of AIA) and Phillip Bernstein (Associate Dean & Professor Adjunct Yale University) shared their thoughts with moderator Kelly Bundy on the challenges facing the architecture profession. The biggest issue they noted was the need to recruit qualified (and diverse) candidates into the profession. Unfortunately, this is difficult to do given the long career track (on average, it becomes 13.1 years to become a licensed architect) and the low salaries paid compared to other professions. Phillip shared that the high average starting salary for architecture grads from Yale (one of the leading programs in the country) is just $76,000. If we want to recruit the best and most innovative candidates into the field, the value proposition needs to change.

8. By striving to be "super advocates" lawyers may be doing their clients a disservice. In trying to push all of the costs and risk on other parties during contract negotiations, attorneys are often succeeding only in setting their clients' projects for failure. According to Lakisha Ann Woods and Phillip Bernstein, more emphasis needs to be placed on encouraging attorneys to work collaboratively with each other in the drafting process to optimize project outcomes. Dealing reasonably with the other side during the drafting phase may be the best way to get the best project for the client.

Deborah Ballati, Ty Laurie, and Steve Nelson

7. How to make the most of the joint session at your next mediation session. When asked to address emerging trends for ADR, Ty Laurie, Deborah Ballati, and Steve Nelson seemed to lament the fact that attorneys don't seem to prepare as well for mediations like they did 20 years ago. Too many attorney expect the mediators to do all of the work. But if they want to improve the chances of getting a deal done, attorneys need to arm the mediator with proper ammunition in the form of their best arguments. While joint sessions have become less common, that is oftentimes an attorney's only opportunity to make sure their arguments are being conveyed correctly to the principal on the other side. Good advocates will use the joint session, not as a dry-run of their closing argument, but to frankly address the hurdles to settlement and why their version of the facts on those issues are likely to carry the day.

6. More forethought is needed in drafting termination provisions. In a joint lunch presentation, several luminaries of Divisions 1 and 8 discussed "termination for default" provisions as being chief among those contract provisions likely to lead to dispute. Difficult to prove and fraught with fact questions, termination disputes are rarely in anyone's best interest. That said, the big take-away from this lunch program was that attorneys could avoid a lot of the doubt and uncertainty inherent with invoking this right if they more clearly outlined in the contract what specific events or missed milestones will be considered substantial enough defaults so as to warranty termination. On a related note, it was also observed that attorneys should take care in how they draft termination for convenience clauses to ensure they are balanced. If the cost of invoking a termination for convenience is too steep, it may have the undesired effect of precipitating more terminations for default.

5. Attorneys need not be at the mercy of their client's unethical conduct. Although it's not every day that we find our client representatives implicated in unethical--or even criminal--activity, if and when attorneys do find themselves in this situation, it is critical to understand the rules that govern an attorney's duties to both maintain client confidences and not perpetuate third-party unethical or criminal conduct. Liz Kraengel and Kate Hamann delivered an engaging program on how to navigate these difficult waters and get out with your dignity (and bar license) intact.

Sharon Prince at the Diversity Breakfast

4. The construction industry's drive to lower costs perpetuates modern slavery. Much of the materials used on construction projects are procured from developing countries with the use of modern day slavery and child labor to keep costs low. Few companies engage in the work of trying to trace their building materials to ensure they were ethically sourced. The building materials most at risk of embedded slavery include brick, copper, glass, timber, and steel. The production of bricks, for example, is highly fragmented and notorious for employing some of the worst forms of child labor. In Nepal alone, between 30,000 and 60,000 children--some as young as five--work in the country's brick kilns. Sharon Prince, CEO and Founder of the Grace Farms Foundation and the meeting's keynote speaker, asks that participants in the construction sector commit to ethical sourcing policies for their projects. Enacting change is a moral imperative but must start with an appreciation that the lowest price for a commodity is not always synonymous with the fair market price. Anyone looking to be a part of positive change can download Grace Farm's Design for Freedom Toolkit here.

3. Building construction contributes more to carbon emission than any other industry. Building construction and operation presently constitutes nearly half of the CO² emissions worldwide. A major focus on the future of construction will be exploring ways we can bring that percentage down. After attending the workshop led by Theodore Senet and Jason Santeford, change seems not only possible but remarkably within reach. Some of the easier ways to reduce the carbon embodied in construction materials include sourcing commodities locally, manufacturing steel by electric arc furnaces (in lieu of coal-fired furnaces) and replacing a fraction of the cement content used to mix concrete with fly ash. Jason and Theodore also extolled the virtues of mass timber, which (despite being a renewable resource) can be pre-fabricated offsite, reducing construction times by 30% in some cases. Because of the aesthetic appeal of mass timber projects, the use of other materials (such as ceiling tiles and drywall) is unnecessary, further reducing the carbon footprint. While height restrictions for mass timber are greater than for concrete/steel construction, the code restrictions are liberalizing as the technology improves. California now enables mass timber structures of up to 18 stories. And, in 2022, a 25-story mass-timber/concrete-hybrid building was completed in Milwaukee, officially becoming the world's tallest timber structure.

2. Making meaningful strides in sustainable design will necessitate a big commitment from developers and builders. Jason Santeford spoke of how his company--Gensler, the largest design firm in the world--is doing what it can to accelerate sustainable building. Gensler has pledged that, in 2030, its entire portfolio will be carbon neutral. It was motivating to hear how at least one company is striving to not only be the best design firm in the world but the best design firm for the world. This type of commitment towards progress at the potential sake of profit is commendable and worthy of imitation.

The D1/D8 Dinner at the Blue Water Café

1. Vancouver is one of the most progressive cities in the world. Vancouver is a stunning, multi-cultural icon that has dedicated itself to becoming one of the greenest cities in the world. There could not have been a more apt location for a meeting focused on the future of our built environment. The best part of exploring this beautiful city was sampling the diverse restaurant scene with construction lawyers and consultants from around the country. The 6-course kaiseki dinner at Miku on the Vancouver waterfront was a highlight. Another stand-out was the D1/D8 dinner at the Blue Water Café... Many thanks to Janie Winning and Amy Phillips for planning and to our generous sponsors at ESi (Bill Broz); HKA (Tracy Doyle); Peritia Partners (Tamara Savinas); and Socotec (Sylvia Zurita). If you were not lucky enough to be amongst the 80 people to score a seat, don't worry, as there is always DC... see you in the fall!

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Author Marissa L. Downs is a construction attorney in Chicago, Illinois where she has been practicing law since 2009. Marissa is a partner at Laurie & Brennan, LLP and represents owners, general contractors, and subcontractors in all phases of project procurement, claim administration, litigation, and arbitration/trial. Marissa can be contacted at mdowns@lauriebrennan.com.

Consultant Corner: A Practical Approach to Claim Avoidance

The 2022 Global Construction Disputes Report published by Arcadis shows that construction claim disputes are increasing in length, with the global average dispute duration increasing from 13.4 to 15.4 months between 2020 and 2021. Prolonging disputes can negatively impact project timelines, budgets, and stakeholder relationships. According to the report, poorly drafted, incomplete, and unsubstantiated claims were the leading causes of disputes, highlighting the need for practical strategies to mitigate such risks. This post will discuss the various stages of the change order process and the best practices to implement during each stage.

Step 1: Change Identification – Identify potential changes to the contract. Types of changes may include:

1. Design Changes: Modifications or revisions to the original design.
2. Changes to the Contractors' Means and Methods/ Work Sequencing: Unforeseen circumstances or issues resulting in changes to construction techniques, materials, equipment, or sequence of work.
3. Delays to Owner's Scope of Work: Delays to the owner's work, resulting in delays to the completion of the contractor's work.
4. Differing Site Conditions: Unforeseen conditions may necessitate changes to the original scope of work.
5. Scope Change: Any modifications made to the original project scope.
6. Delayed, Denied, or Restricted Jobsite Access: Limited or difficult unanticipated access to the job site.
7. Owner-requested Acceleration or Deceleration: Owner's direction for the contractor to either accelerate or decelerate the work.
8. Force Majeure: Unforeseeable and uncontrollable events, such as natural disasters or labor strikes.

Best Practice: Identify the change events as soon as they occur, or the contractor becomes aware of them.

Step 2: Submission of Change Order Request – The next step involves providing timely written notice of the proposed change. The contractor must provide a detailed explanation of the requested change, including the reasons for the change, the impact on the project schedule and budget, and any other relevant information.

The contractor must establish their entitlement to the change based on the contract terms. To prevent owner confusion and ensure timely approval of the change order, demonstrating clear entitlement and support for the causal event is crucial during this step.

It is important to document the impacts of the changes as they occur, which may include taking photos with a date and time stamp. Any photos should be well-organized, along with any other impact documents, to ensure that they are easily accessible and can be used as necessary. In addition, the purpose of each photo should be clearly documented. The following examples show clear change documentation using drawings, photos, and explanations:

Figure 1: Photo showing drawing, job site picture, and a narrative

Figure 2: Documentation showing drawings and photos from two different dates to identify a flooding event

Figure 3: Documentation showing drawings, actual pictures, and a narrative

Best Practices:

a. Provide timely notification of the proposed change per the contract.

b. Demonstrate clear entitlement and the occurrence of the causal event.

c. Maintain regular communication with the owner to address concerns.

d. Provide effective documentation that includes drawings, photos, and explanations.

Step 3: Owner Evaluates Entitlement – The next step involves the owner’s evaluation of the contractor’s entitlement to the change. The owner will identify the type of change order request (e.g., Added work, weather delays, differing site conditions, etc.) and review the request to ensure the contractor has provided sufficient evidence of entitlement, as per the contract. The owner’s decision to approve or reject the change order request may significantly impact the project and may require further negotiations or revisions to the project scope or budget.

Best Practice: Once the owner has been notified of a change order, they should promptly explore ways to minimize or eliminate any schedule or cost modifications.

Step 4: Contractor Prepares Proposed Change Order (PCO) – The next step involves the contractor’s preparation of a PCO. The PCO is a formal document that outlines the scope of work, costs associated with the change, and any other relevant information. In addition, the PCO should include a detailed description of the change, including references to the relevant drawings and specifications, and a delay analysis and/or a time-impact analysis, which provide an assessment of the change’s impact on the project schedule.

The PCO should include a price estimate for the change, including field overhead costs, additional material and labor costs, home office overhead costs, and profits, along with appropriate backup documentation. The contractor should refer to drawings, pictures, and any analyses performed to ensure the PCO is accurate and complete. In addition, the contractor should meet with the owner to provide any necessary clarifications.

Accurate schedule analysis is crucial during the change order process to ensure that all impacts of the change are accounted for and properly compensated. The analysis should identify the primary delay and its impact on the longest path of the schedule. The contractor should also take responsibility for any delays caused by the contractor or its subcontractors. Concurrent delays, where multiple delays occur at the same time, should also be considered and accounted for. Additionally, weather events that may be non-compensable should be taken into account. It is important to ensure that all delays and impacts are properly documented and analyzed to avoid disputes in the future. By taking the time to do a thorough analysis and accurately identify all impacts of the change, contractors can increase the chances of getting the change order approved and avoid potential disputes with the owner.

Best Practice: Provide a clear, detailed, and supported change order that the owner can easily understand.

Step 5: Owner Reviews PCO – The next step involves the owner’s review of the contractor’s PCO. The owner must evaluate the PCO to ensure that it meets the necessary requirements and that the costs and time impacts are reasonable and justified. Based on this review, the owner may approve the proposed change order if it meets the project objectives and contractual requirements. However, if there are any concerns or questions regarding the proposed change, the owner may request further discussion or negotiation with the contractor to resolve any outstanding issues.

Best Practice: – Try to resolve change orders promptly and avoid leaving them until the end of the project with a “wait and see” approach.

Step 6: Finalization and Execution of Change Order – The final step involves the finalization and execution of the change order. If the owner and contractor agree on the proposed change order, both parties sign and execute it. If the parties cannot agree on the proposed change, the owner may choose to cancel the changed work. This step of the change order process ensures that necessary adjustments to the project schedule, scope, and budget are properly documented and executed.

Best Practice: If all the parties agree with the change order, execute the change order before more changes occur. 

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Author Avi Sharma (Associate Director, Delta Consulting Group) is an award-winning construction claims professional with over a decade of global construction experience in commercial construction, high-rise buildings, heavy civil, power, and water & wastewater infrastructure projects. Avi advises and helps top general contractors, attorneys, owners and subcontractors worldwide on construction operations, claims, scheduling best practices, risk avoidance, and mitigation.

Author John Cleary (Associate Director, Delta Consulting Group), with over 10 years of experience, is an accomplished construction claims and project controls professional with a focus on the execution of large and mega capital projects. John specializes in critical path scheduling analysis and construction claims analysis, and his experience includes analysis of impacts and entitlement of contractor and subcontractor claims in the United States and abroad.

Editor Thanh Do is an Associate in Thornton Tomasetti, Inc.'s Forensics practice group. As a structural engineer, structural failure analyst and investigator, Dr. Thanh Do examines infrastructure inadequacies and determines the root cause of the alleged failures. He specializes in Design-Build project delivery, quantity growth investigation, building collapse investigation, standard of care assessment, construction defects and design errors/omissions evaluation.