No Equitable Adjustment for Contractor with Penny Bid

Believing actual quantities of rock removal would be far less than the engineer’s estimate, the contractor bid a penny per cubic yard of rock removal on a water main extension project. Of course, other bid items could then be inflated and yet the contractor would – and did – remain the low overall bidder. But the estimated 1,000 cy of rock turned out to be an actual amount of 2,524 cy. The contractor sought an “equitable adjustment” in the unit price, from $.01/cy to $220/cy. (Expressed in percentages, that’s a 2,199,900% increase!) The contractor later reduced the request to a mere $190/cy, but the town denied any adjustment. The lower court agreed.

The Massachusetts Appeals Court was polite, taking eight pages to reach what most would consider a foregone conclusion. It held that the statutory differing site condition clause “is designed to protect contractors from unknown and unforeseen subsurface conditions, not from the consequences of their decisions to bid a unit price for the performance of the work that is wholly unrelated to their anticipated cost to perform the work. In such circumstances it defies logic to invoke ‘equity’ as a basis for adjustment to the contract price.” So the contractor would receive $25.24 for the rock removal, as it had bid. A just and equitable outcome. The case is Celco Construction Corp. v. Town of Avon, Mass. App. Ct. No. 13-P-1880 (Mar. 2, 2015).

Contract Disputes Act Deadline for Contracting Officer Decision – Can’t Keep Extending

The government when faced with a complex contractor claim may extend the deadline for the Contracting Officer’s response to a date beyond the original CDA 60-day period. What happens when the CO seeks to extend the deadline a second time? The Court of Federal Claims confirmed that the CO does not get a second bite at the time extension apple.

Under the CDA, if no response is provided within 60 days the claim is deemed denied.  But the CO may within the original 60-day period designate a later date by which the response will be provided, and there is no “deemed denial” after the original date in that situation. On a La Jolla lab project, the contractor’s $26.8 million claim was received by the CO on August 23, 2013. On October 21, 2013, the CO notified the contractor that the response would be issued “9 months from the date of this letter.” When the contractor objected to  the length of the delay, the CO provided a timeline to justify issuing a decision by July 15, 2014. But then, on July 8, 2014, the CO issued another letter stating that the final decision would be issued by March 15, 2015 – another eight months! The contractor filed suit, and the government moved to dismiss on the grounds that there had been neither a final or deemed decision by the CO, and thus a predicate for the CDA lawsuit had not been met.

Continue reading Contract Disputes Act Deadline for Contracting Officer Decision – Can’t Keep Extending

Attacks on Prevailing Wage Laws – Where’s the Tipping Point?

News reports this week cover legislative action in four different states to reduce the scope of prevailing wage laws on public projects. Whatever your opinion on prevailing wage laws – love them, hate them, or somewhere in the middle – the effort to reduce the reach of those laws appears to be gaining momentum.

The Las Vegas Review-Journal reported on Nevada Senate passage of a bill to exempt school and university construction projects from prevailing wage laws. In Kentucky, the River City News ran an article on a Senate bill to exempt public schools from the prevailing wage law. The Charleston Daily Mail (West Virginia) ran an opinion piece, citing pending legislation in WV and supporting a modification of that state’s prevailing wage law. And in Indiana, as reported by ENR, the House Labor Committee has voted to repeal the state prevailing wage law and eliminate the boards that establish prevailing wage amounts.

Legislation in four states is not a tidal wave. But laws passed in a few states to reduce the breadth or impact of prevailing wage laws will likely result in more efforts to do the same in a greater number of states. Gradual reduction in the scope of prevailing wage laws is much more likely than outright repeal.

Statute of Repose Not Tolled by Builder’s Occupancy of House

Is the New Hampshire eight-year statute of repose tolled (extended) when the original builder occupies a house for four years? The NH Supreme Court has said no. Drouin Builders built the house in 2001 and conveyed it to sole shareholder Michael Drouin. He lived there and later sold the house in 2005. The new homeowners noticed problems in 2008 but did not file suit until 2011. The homeowner’s lawsuit claimed defective work in the original construction. Faced with a motion for summary judgment, they argued that the statute of repose was tolled during the period of time Drouin occupied the house.

The NH law provides that an action to recover damages arising from the original construction must be brought within eight years after substantial completion. There is other language in the statute which provides that claims arising from negligence in the “repair, maintenance or upkeep” are not subject to the statute of repose. But the successor homeowners claimed that the problems arose from the original construction and not from any repair, maintenance or upkeep. The NH high noted: “We agree with the majority of courts addressing the issue that, when a builder-owner is sued for his construction-related activities, the statute of repose applies. To interpret the statute of repose otherwise would be contrary to the legislature’s intent in enacting it – which was to protect the building industry. “ Thus, there was no tolling in this situation, and the homeowners were simply too late to file suit. The case is Ingram v. Drouin, 2015 N.H. LEXIS 11 (Feb. 15, 2015).

Mechanic’s Lien Amount Shall Not Include Attorneys’ Fees

The Utah Supreme Court has held that a mechanic’s lien does not include attorneys’ fees incurred by a contractor even when the lien statute allows recovery of reasonable legal fees. The court distinguished between the right to recover attorneys’ fees, and the amounts that could be considered in asserting the lien claim. The lien would be limited to the “value of service rendered, labor performed, or materials or equipment furnished”  – the language in the Utah statute.

The subcontractor, 2 Ton Plumbing, filed its initial lien claim for $7,470. Based on the right to recover attorneys’ fees, 2 Ton amended its lien claim twice, with the second amended notice for $38,714. Along the way the defendant successor owners stipulated to the original unpaid amount of $7,470 (owed by the original contractor), but argued that the lien was not supposed to cover legal fees. They also argued that attorneys’ fees of $44,857 awarded by the trial court were excessive in relation to the original amount sought. Amen to that.

Continue reading Mechanic’s Lien Amount Shall Not Include Attorneys’ Fees

President Orders Federally Funded Construction Projects To Plan For Flood Risks From Climate Change

On January 30, 2015, President Barack Obama signed an executive order requiring all federally funded construction projects to take into account flood risks linked to climate change.  Federal agencies will now be required to account for the impact of possible flooding from rising sea levels resulting from global warming by meeting one of following three requirements:

  • Use the best-available climate science.
  • Build two feet above the 100-year (1 percent annual chance) flood elevation for standard projects and three feet above for critical buildings like hospitals and evacuation centers.
  • Build to the 500-year (0.2 percent annual chance) flood elevation.

The objective of the new policy is to build federal buildings and highways at safe distances away from flood areas that are expected to deteriorate as a result of climate change. “By requiring that Federally funded buildings, roads and other infrastructure are constructed to better withstand the impacts of flooding, the President’s action will support the thousands of communities that have strengthened their local floodplain management codes and standards, and will help ensure Federal projects last as long as intended,” the White House Council on Environmental Quality said in a fact sheet.

Rachel Cleetus, the lead economist and climate policy manager with the Climate and Energy Program at the Union of Concerned Scientists, called the President’s action common sense. Below is Ms. Cleetus’ statement.

“This should be one of the least controversial executive orders the president has ever released. Why would the federal government build or repair buildings in ways that continue to put communities at risk? And why would we waste taxpayer dollars rebuilding in ways that are likely to result in repeated future flooding damages? This executive order is simply common sense. In fact, many communities across the country already recognize this and have issued building design guidelines that call for two feet of freeboard above the 100-year base flood elevation.

“This standard hasn’t been substantially changed in 37 years. Meanwhile, flood losses have increased and will continue to get worse with climate change, which is increasing flooding risks by contributing to higher seas and more severe storm surge along our coasts, and also heavier rains in some parts of the country. At the same time, more development in coastal areas is putting more people and property at risk.

“We’re also now seeing flooding on sunny days. Flooding during high tides—something that rarely occurred in the past—is now common in some places on the East and Gulf coasts of the U.S. Tidal flooding is expected grow to the point that sections of coastal cities will flood so often they’ll become unusable in the near future, according to a study the Union of Concerned Scientists released in October. Most of the 52 coastal towns we looked at could see a tripling in annual tidal floods in 15 years and a tenfold increase in 30 years.

“It’s bad policy to rebuild in ways that perpetuate our risk of flooding and to sink taxpayer dollars into risky rebuilding efforts. Federal funds should instead be spent on making coastal communities more resilient to sea level rise and coastal flooding.”

To read the Executive Order, click here.

To read the Federal Flood Risk Management Standard, click here.

To read the White House Council on Environmental Quality fact sheet, click here.

 

Defense to Government Position is Not a Claim Subject to Contract Disputes Act

The government claims a contractor’s work is defective. The contractor says in defense that problems are due to design deficiencies and not construction errors. Is the contractor’s position a “claim” subject to the Contract Disputes Act (CDA)? The U.S. Federal Court of Claims says no.

The work included installation of a new steam line. During testing, there was movement of the line and cracking of associated concrete piers. The government claimed the contractor’s (Total Engineering) work was faulty, and the Contracting Officer after investigation eventually issued a final decision that Total owed about $2.3 million to the government. Total filed a complaint to challenge the CO’s final decision and to seek payment of its contract balance of $737,838, claiming the problems arose from design and not from construction. The government moved to dismiss the complaint, arguing that the court had no jurisdiction as Total had failed to submit its “claim” to the CO and thus had failed to comply with the CDA.

Continue reading Defense to Government Position is Not a Claim Subject to Contract Disputes Act

Insurance Coverage for Damaged NYC Tower Crane

Readers will recall photos of a tower crane damaged by Hurricane Sandy. Construction of the NYC high-rise building known as One57 was underway when the crane was lashed by hurricane-force winds. The crane jib was apparently blown backwards, and ended up dangling over the counterweight almost 1,000 feet in the air. Surrounding areas were temporarily evacuated, the jib had to be secured, and the crane was later replaced.

Insurance claims were submitted under a builder’s risk policy for the costs involved. The carriers denied the claims on the grounds that the “Contractor’s tools, machinery and equipment” are excluded from coverage. The owner and contractor noted in response that portions of the tower crane structure are part of the permanent building structure, and argued that the remaining elements of the tower crane are “temporary works” covered by the policy. Both sides filed motions for summary judgment early on in the case.

Round one has come to a draw. The trial court judge denied all pending motions for summary judgment, and directed discovery to move forward to address some of the fact issues that have been raised by the countering arguments. The case is Lend Lease Constr. LMB Inc. v. Zurich Amer. Ins. Co., 2015 N.Y. Misc. LEXIS 102, 2015 NY Slip Op 30039 (Jan. 15, 2015). Stay tuned.

Lessons On an Offer of Judgment

Court rules in most states allow one party to make an “offer of judgment” any time prior to trial, allowing judgment to enter against it for a specified sum. The case ends if the offer is accepted. If not accepted, and the other party fails to do better in the end, the party making the offer may be entitled to recover its subsequent costs and – in some states, at least – its attorneys’ fees incurred post-offer. A recent Alabama decision emphasizes how seriously the impact of this rule can be, with one nuance.

The surety made an offer of judgment of $150,000, which was rejected. The other party eventually obtained a judgment for $145,000 against the surety. Thus, the surety sought to recover its attorneys’ fees incurred post-offer, which were in excess of $400,000. A significant swing! (Particularly when you consider that both parties probably incurred similar costs.) But under Alabama law, the “final judgment” includes interest. So the judgment of $145,000 was increased by interest to an amount greater than $150,000 (the decision does not say by how much), and the surety’s motion for attorneys’ fees post-offer was denied. The case is Stewart v. Continental Cas. Co., 2015 U.S. Dist. LEXIS 6010 (S.D. Ala., Jan. 20, 2015).

Parsing the GL Exclusion of Coverage for “Your Work”

Another state has joined the group of states that parse a common GL exclusion to allow coverage to remedy non-defective work damaged by defective work. The Supreme Court of New Hampshire just issued its decision, in the case of Cogswell Farm Condominium Association v. Tower Group, Inc., 2015 N.H. LEXIS 3 (Jan. 13, 2015). The exclusion at issue bars coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The argument was whether “your work” applied to all work of the general contractor (whose insurance coverage was in contention), or only the defective work. The NH court came out on the side of applying the exclusion only to the defective portion of the work, thus allowing coverage for the non-defective work damaged by the defective work.

Cases cited by the carrier – at least, those noted in the decision – to apply “your work” to all aspects of construction were from Colorado, Mississippi and South Carolina. Cases cited by the condo association arguing a more narrow interpretation of “your work” were from Montana, Massachusetts and Ohio.