Construction Contract Forms – A New Battleground?

The American Institute of Architects issued a press release this week touting a custom set of contract documents it has worked out with the Kentucky Department of Education.  Ten AIA contract forms have been customized for the state department.  This could become a new battleground in the document wars between the AIA and ConsensusDocs, another major construction industry document group representing a coalition of more than 40 industry associations.

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Reminder: False Claims Act Lessons Are Expensive

A contractor filing false prevailing wage certifications was reminded just how costly it can be to run afoul of a False Claims Act charge.  After a trial on damages, the federal court judge found that the contractor was paid $254,298.18 for the electrical portion of the project (the part involving the false wage certifications).  The government’s damages under the False Claims Act (FCA) are treble that amount, or $762,894.54.  There is no credit for value of work put in place, and no consideration of value to the government.  The damages are three times the amount paid by the government for the pertinent portion of the work, regardless of whether that amount was purely cost to the contractor, or included any profit.

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Massachusetts Passes Law Governing Retainage On Private Contracts

Massachusetts has just passed a law that governs the retainage process on private construction contracts.  It applies to projects of $3 million or more, entered into after November 8, 2014.  This law will fundamentally alter – and accelerate – project closeout on Massachusetts commercial projects. [Read More]

Three Strikes on Defective Work Insurance Claim

A federal appeals court recently retired, in short order, a contractor’s insurance claim arising from defective work.  The claim arose when scratches were noted on a glass storefront, shortly after installation by one sub but also after preliminary cleaning by another sub, and two days before the store was open to the public.  No cause for the scratches was identified, at least in the decision. 

Strike One.  The damage arose from work performed by one of the subs, thus coming within an exclusion on the contractor’s GL policy.  There was no evidence of any accident.

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Pennsylvania Mechanics' Lien Law Amended, Clarifying Open-End Construction Loan Mortgage Priority

On July 9, 2014, Pennsylvania Governor Tom Corbett signed into law Act 117 of 2014, which amends the Pennsylvania Mechanics' Lien Law (MLL), 49 P.S. 1101, et seq., to provide that a construction loan secured by an open-end mortgage where at least 60 percent of the proceeds are "intended to pay or used to pay" all or part of the "costs of construction" will have lien priority ahead of any filed mechanics' lien claims, even when the visible commencement of work was prior to the recordation of the open-end mortgage.

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Q: When Is a Monthly Release Not a Release?

A: When the issue is decided in arbitration.  An arbitrator’s decision that a periodic subcontractor release had not waived claims made in arbitration was upheld by the Rhode Island Supreme Court, although one could read between the lines to conclude that the court would have ruled otherwise on the merits.  This case highlights – with an issue that is controversial of its own accord – the distinction between arbitration and litigation.

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High-Stakes Nuke Case Remains Where the Contract Says

Duke Energy and Westinghouse Electric are battling over money due, or not due, for the cancelled Levy County nuclear power plant in Florida.  After Duke terminated the contract earlier this year, the two parties engaged in negotiation per their contract.  When those efforts failed, both sides filed suit, one day apart, in two different states.  Duke filed in North Carolina, per the contract, and Westinghouse filed the next day in Pennsylvania, where it had performed most of its work.  The NC federal court judge has just refused to transfer that case to PA, and has directed Westinghouse to file an answer in the NC case. 

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"Everything But the Kitchen Sink" Theory of Litigation: Usually a Sign of Weakness

Lawsuits that proceed under, say, eight or more causes of action typically either (a) recite egregious acts by a group of defendants, or (b) mask a lack of substance in the plaintiff’s case.  A recent federal Court of Appeals decision describes the latter, in what might otherwise be a mundane case of terminated contractor battling public authority.

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Expanded Definition of "Occurrence" Did Not Convert Construction Defect Into Insured Claim

The terms of an owner-controlled insurance policy defined “occurrence” as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”  A New York appellate court has held that this arguably expanded definition was still not sufficiently broad to encompass curtain wall deficiencies and improper workmanship.  So there was no insurance coverage for the damages and remedial work.

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Prime Contractor Instituting CCIP Has Worker’s Comp Immunity from Subcontractor Employee Claims

A prime contractor establishes a CCIP for a project.  The employees of first- and second-tier subcontractors are injured, receive worker’s compensation benefits, and then sue the prime contractor, alleging the contractor’s negligence caused the injury.  The prime contractor argues that, by virtue of establishing the CCIP, paying the worker’s compensation insurance premium, and paying the policy deductible, it is immune from suit due to the worker’s compensation bar.  A Connecticut Superior Court decision[1] has confirmed that the prime contractor is immune from the workers' claims due to payment of the worker’s comp benefits via the CCIP.

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The Natural Effect of Recording a Lien Bond

Common sense suggests that when a lien has been bonded off, the owner of the real estate need no longer be a party to the lien claim lawsuit.  The Rhode Island Supreme Court has followed the common sense route, dismissing the property owner from a subcontractor’s lawsuit – over the sub’s objection – after a lien bond was recorded.[Read More]

Property Owner Is Strictly Liable for Building Code Violation

The owner of a building open to public use will be strictly liable for damage or injury resulting from a code violation, under a decision issued by Massachusetts’ highest court.  Overruling a 15-year precedent, the court held that strict liability is not limited to code violations affecting fire safety (the essence of a 1999 decision), but applies to any code violation of a building open to public use.[Read More]

Duane Morris Partner Albert Bates, Jr. to Present at the Deloitte Energy Conference

Duane Morris partner Albert Bates, Jr., will be presenting at the 2014 Deloitte Energy Conference: A Global Industry . . . Competing Locally, which will be held on Tuesday, May 13, and Wednesday, May 14, 2014, at the Gaylord National Resort and Convention Center in National Harbor, Maryland. Mr. Bates will serve as a panelist during the Elective Session – Sector Breakouts on Power on May 14, 2014, where he will discuss strategic considerations of major capital projects, including evolving project delivery systems and inherent risks, as well as proactive project risk management and controls[Read More]

Property Owner’s Liability under CERCLA for Unpaid Remediation Subcontractor

A federal appeals court ruled that a landowner is not liable under CERCLA[1] for amounts due to a subcontractor, when the owner had already paid the prime contractor for cleanup work.  The prime contractor, fully paid, failed to make payment to subs and then went out of business.  Although the sub argued that CERCLA required the property owner to pay for cleanup, the court held (decision available here) that the property owner had discharged its obligations under CERCLA when it fully paid the prime contractor for the cleanup work.  The sub still retained lien rights against the property (which allowed partial recovery), but could not rely on the federal cleanup statute as a mechanism to ensure payment from the property owner in these circumstances.

[1]  Comprehensive Environmental Response, Compensation and Liability Act.  The federal law imposes liability on a property owner for the cost of cleaning up contamination on the property. 


Construction Workforce Trends Point to Increased Risk on Construction Projects

Tony Dungy once stated, "It’s not necessarily who has the most talent but what team sticks together and executes their fundamentals the best." This success principle – executing on the fundamentals – applies unforgivingly in construction, an industry where every mistake must be corrected, every cost accounted for and every delay in work comes at significant costs.  Numerous construction professionals have pointed out that executing fundamentals has become more difficult in the construction industry for a number of reasons, including contractor and subcontractor defaults, international procurement, transitions in how risks are contractually apportioned, and increasingly specialized construction materials and methods of construction, among others.  And by numerous accounts, keeping a "team [that] sticks together" will become increasingly difficult too, as workforce availability problems look to be both abrupt and sustained. 

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Duane Morris Construction Law

Duane Morris’ acclaimed Construction Group shares insights on legal developments impacting the business of construction.

« September 2014
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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.