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.

Updates to OSHA’s Recordkeeping Rule

Under the Occupational Safety and Health Administration’s (OSHA) Recordkeeping regulation (29 CFR 1904) covered employers are required to prepare and maintain records of serious occupational injuries and illnesses.  Revisions to the OSHA reporting requirements went into effect on January 1, 2015.  The revised rule expands the list of severe work-related injuries that all covered employers must report to OSHA.

Employers are now required to contact OSHA within 24 hours following any in-patient hospitalizations, amputations, or loss of an eye.  Additionally, employers are now required to notify OSHA of work related fatalities within eight hours following a fatality.  Previously, an employer was not required to report a single hospitalization, amputation or loss of an eye, as only work-related fatalities and in-patient hospitalizations of three or more employees were required to be reported.

Employers can provide notice to OSHA of an occurrence by either: 1) calling the nearest local OSHA office during normal business hours; 2) calling OSHA’s free and confidential number at 1-800-321-OSHA (6742); or 3) reporting the occurrence electronically using the new online reporting form that is expected to available in mid-January.

In addition to the new reporting requirements, OSHA updated the list of industries that are exempt from the requirement to routinely keep OSHA injury and illness records. The new list of exempt industries is based on the North American Industry Classification System and injury and illness data from the Bureau of Labor Statistics. Note that the new rule maintains the exemption for any employer with ten or fewer employees, regardless of their industry classification, from the requirement to routinely keep records.

The reporting requirement rule was revised to allow OSHA to focus its efforts more effectively to prevent fatalities and serious work-related injuries and illnesses. Assistant Secretary of Labor for Occupational Safety and Health, Dr. David Michaels, summed up the purpose of the new rule: “OSHA will now receive crucial reports of fatalities and severe work-related injuries and illnesses that will significantly enhance the agency’s ability to target our resources to save lives and prevent further injury and illness. This new data will enable the agency to identify the workplaces where workers are at the greatest risk and target our compliance assistance and enforcement resources accordingly.”

For more information about the new rule, visit OSHA’s website.

P3 – Not Just for Roads, Tunnels and Bridges

Much of the ink on P3 projects concerns horizontal construction. Meanwhile, vertical P3 projects move ahead. Last month’s announcement by the City of Indianapolis provides an example. The mayor (city council approval is still required; a related proposal is on the agenda for the January 12, 2015 council meeting) intends to award a contract for construction of a new complex to include a courthouse, correctional facilities, and law enforcement offices. The completed complex will be leased to the city for 35 years at an annual fee of slightly less than $47 million. Estimated construction cost exceeds $400 million.

Indianapolis has been in the forefront of public infrastructure privatization, and this project is one more example.

Baseball Spectator Strikes Out Against Architect

A spectator hit by a foul ball during a Mets game decided to sue for damages, and his suit included the architects of Citi Field as defendants. He was sitting inside a luxury box, with the window open, when hit by the errant ball. (Unfortunately for baseball fans, none of the critical information – batter, opposing team, or score – is identified.)  The case is Tarantino v. Queens Ballpark Company, LLC, et al., 2014 N.Y. App. Div. LEXIS 9035 (App. Div., 2d Dept., Dec. 31, 2014).

Per the NY Appellate Division, the spectator/plaintiff has struck out. The duty of care imposed on ballparks requires protection for spectators behind home plate “where the danger of being struck by a ball is the greatest”, and the plaintiff’s position in a luxury box did not place him in such an area. The defendants had met their duty of care by designing and installing screens to protect those who are behind home plate at the field level. Thus, motions by the architects (as well as other defendants) to dismiss the lawsuit against them were all allowed. Further, the spectator/plaintiff’s proposed amended complaint, to try to get around the infirmities of his original complaint, “was palpably insufficient and patently devoid of merit,” per the court. Turns out he wasn’t even behind home plate.

New York Public Authorities Law Amended To Establish That The Time To File A Notice Of Claim Against The NYC School Construction Authority Is To Commence At “Denial” Of Claim, As Opposed To “Accrual” Of Claim

On December 17, 2014, New York Governor Cuomo signed into law a bill to amend the New York Public Authorities Law, in relation to contractual claims and actions against the New York City School Construction Authority (“SCA”). The amendment adds an additional sentence to §1744(2) of the Public Authorities Law to provide that in the case of an action or special proceeding for monies due arising out of contract, accrual of such claim shall be deemed to have occurred as of the date payment for the amount claimed was denied.

Public Authorities Law §1744(2) is problematical to contractors engaged on SCA projects due to the three-month filing period from the “accrual of claims.” Courts have interpreted the three-month period to commence when the contractor’s damages are “ascertainable,” and “ascertainable” has been interpreted to mean “once the work is substantially completed or a detailed invoice of the work performed is submitted.” See C.S.A. Constr. Corp. v. NYC School Constr. Auth., 5 N.Y.3d 189, 800 N.Y.S.2d 123 (2005).

The failure to have a clear and precise point that determines when a claim accrues has led many contractors to lose a claim before it was denied by the SCA, or even before a contractor knew that the SCA disputed its claim. The purpose of the amendment is to establish an unambiguous point in time for the filing of a notice of claim against the SCA. Accordingly, the amendment establishes the accrual of a claim for notice of claim purposes as the point at which the claim is denied. The amendment will prevent the unintentional and unfair waiver of claims, and will reduce paperwork for both the SCA and its contractors.

The statute as amended brings §1744 of the NY Public Authorities Law into conformity with the similar notice of claim provisions of §3813 of the NY Education Law. Under §3813 of the Education law, the accrual date on any action or proceeding against a school district arising out of a contract shall be the date when payment was denied.

The amendment is effective only for SCA contracts signed on or after Dec 17, 2014. The text of NY Public Authorities Law § 1744(2) as amended can be seen here.

Waiving Arbitration by Pursuing Litigation

Cases concerning waiver of arbitration rights typically get into the nitty-gritty of what the parties did prior to one of them seeking to change course. The First Circuit Court of Appeal recently decided one such case, concluding that engaging in discovery for some nine months – including participation in sixteen depositions amid other discovery – constituted waiver of the right to arbitrate. Per the federal court, it was “nose-on-the-face plain” that the opposing party would be prejudiced by allowing the late-game change to arbitration.  Perhaps most critically, there was no real explanation for the change of heart, e.g., a new pleading or cause of action, which probably doomed the request.

The plaintiff failed to mention arbitration in its complaint, and the defendant included only one oblique reference to arbitration via an affirmative defense. Discovery proceeded for more than nine months, and the magistrate judge was called upon to referee discovery disputes no less than four times. Just before the close of discovery, and less than two months away from the trial date, the plaintiff decided it was time to seek to stay the case pending arbitration. Not surprisingly, the defendant opposed the request.

Continue reading Waiving Arbitration by Pursuing Litigation

AIA Contract Dispute Resolution Choices – What Does “Other” Mean?

The AIA contract forms include three options for dispute resolution: arbitration, litigation, and “other.” A Connecticut Superior Court judge has concluded that parties who chose “other” by specifying “Architect” were in fact choosing arbitration by the project architect. Thus, when the contractor didn’t file a motion to vacate the architect’s decision in favor of the homeowners, the contractor failed to take a necessary step to challenge the architect’s decision and that decision was confirmed.  The case is Digiorgio v. Guedes, 2014 Conn. Super. LEXIS 2611 (Oct. 23, 2014).

Continue reading AIA Contract Dispute Resolution Choices – What Does “Other” Mean?