You Can't Make This Stuff Up: The Human Condition Meets Construction Law
In my recent article “You Can’t Make This Stuff Up: The Human Condition Meets Construction Law,” published in the Daily Journal of Commerce, I outline the bizarre, seemingly impossible litigation matters of the Construction and Design business. The article touches on a variety of past cases, including an employee stabbing himself in the eye during a safety meeting, an architect arrested for manslaughter of a fireman in connection with a faulty fireplace design, and sexual harassment charges against a foreman for buying a subordinate “romantic” gifts such as a bug zapper, an extension cord and a wheelbarrow.
To read the complete article, click here.
Local Contracting Agencies Now Prohibited from Using Price As Basis for Awarding Certain Consultant Contracts
Oregon’s legislature recently changed ORS 279C.110 to require all public agencies, both state and local, to use qualifications as the basis for awarding contracts for architectural, engineering, photogrammetric mapping, transportation planning and land surveying services. Before the change, local contracting agencies could use price as a basis for award but state agencies could not. Once a candidate has been selected based on qualifications, an agency must negotiate the consultant’s compensation at a level that is reasonable and fair to the contracting agency. If the parties do not reach agreement on compensation, the contracting agency may terminate negotiations and begin again with the next most qualified candidate, and so on, until an agreement is reached or the contracting agency terminates the consultant contracting process.
Another Interesting Project in Seattle
I previously told you about some upcoming Seattle tunneling projects. Here now is a link to artist renderings of the new SR 520 floating bridge project, which will raise the existing bridge up above the pontoons, making space for maintenance works and storm water treatment and fire suppression utilities underneath: www.flickr.com/photos/wsdot/6871707294/in/set-72157629307832804/
The photo site has links to more descriptive material about the project. The East approach to the SR 520 bridge, including a new overpass/lid, is under way. The cost of this work will be partly paid through tolls on the bridge.
Used with permission from WSDOT.
General contractors: how's your subcontract?
In an article recently published in the Daily Journal of Commerce entitled “General Contractors: How’s Your Subcontract?,” I address five questions that general contractors should ask about their subcontracts. By definition, general contractors are caught in the middle between their owner-clients and their subcontractors—owners hold them responsible for their subcontractors’ work, so they must ensure that their subcontractors stand behind the work. A well-drafted subcontract helps a general contractor navigate these often tricky relationships.
For the rest of this article, please click here.
Multi-Party Construction Defect Litigation CLE
In a recent national webinar by the Strafford Publication Group, I spoke about the key challenges facing plaintiffs in construction defect cases, including initial case evaluation, discovery issues, expert issues and allocating damages among multiple defendants. My co-presenters from two firms in Dallas, Texas followed my presentation with the key challenges facing defendants. The slides from my presentation can be viewed at the following link.
Oregon's Prompt Pay Acts Strengthened and Clarified in 2012
Parties to construction contracts take notice: the legislature enacted new consequences and contract restrictions to Oregon’s Prompt Pay Acts starting in 2012. .jpg)
On public improvement contracts first advertised or solicited on or after May 28, 2012, the newly revised Act (a) changes the interest penalty rate for a prime contractor’s failure to make timely payment to subcontractors to 9 percent per annum from the current amorphous federally based rate; (b) requires prime contractors to provide first-tier subcontractors with a standard payment application form intended to clarify payment processing procedures throughout the life of the subcontract; and (c) mandates a 45-day notification period to subcontractors before changes are made to payment processing procedures. [HB 4034; ORS 279C.515; ORS 279C.580.]
On private construction contracts entered into after January 1, 2012, the newly revised Act (a) rejects attempts by any party to contractually force waiver or alteration of a subcontractor’s or material supplier’s rights to receive prompt progress payments within the time required by ORS 701.630; (b) requires private contracts expected to take 60 or more days to complete to conspicuously and expressly identify alternative billing cycles (other than monthly cycles); and (c) limits recovery of attorneys’ fees to the prevailing party in actions “to collect interest” under the Act (rather than the previous broader right to fees in actions “to collect payments or interest”). [SB 384; ORS 701.620 – 701.645.]
If you have not read through your contract payment terms recently, now is a good time to review and revise contract provisions to ensure receipt of prompt payment.
Developer Licensing
As any Oregon real estate developer likely knows, the Construction Contractor’s Board will require you to be registered as a contractor if you are developing land owned by another for a fee or developing land you own with the intent to sell. But many developers have followed what might be an overly conservative path: the registration of development entities – special purpose LLCs for example – when that entity is neither a fee developer or building with the intent to sell. Such entities are typically formed to hold the land during construction and after construction, leasing the premises or perhaps operating manufacturing or other business operations on site. Under these circumstances, the CCB and the courts are much more likely (there are no guarantees!) to consider you as “building for your own account”, which is generally exempt from the registration requirements. While registering with the CCB may be considered a minor inconvenience for a year or two, keeping entities licensed for 10 years or more can add up, both in terms of dollars and administrative hassle. Before making the kneejerk decision to register every special purposes LLC or other entity, consider carefully whether registration is required. If in doubt, call the CCB for guidance.
Corps of Engineers reissues nationwide permit program
Developers, contractors and designers, take note: the Corps of Engineers has reissued its Section 404 nationwide permit program. Our colleagues in the Environmental Law Group summarize the notable changes in this Legal News Alert.
Lots of Tunnels in Progress
Drivers from Ballard to West Seattle are familiar with the Alaskan Way Viaduct replacement tunnel project. As they drive to and from downtown, they notice that the southern end of the Viaduct has been removed to make way for work on the south portal. But the Viaduct replacement project is not the only big tunnel project in town. Sound Transit is hard at work on various extensions to the Seattle light rail system.
Tunnel boring machines are well along on “U Link,” which will connect downtown Seattle to Husky Stadium via Capitol Hill. For the latest news and access to webcams mounted behind the construction fences, click here.
Design continues on “North Link,” which will run from Husky Stadium up to Northgate. Three tunnel stations (U District, Roosevelt, and Northgate) should reach 60% design during the first half of 2012. For current information and renderings of the planned stations, click here.
Several other projects are still in their infancy, including the North Corridor Transit Project, which will connect Northgate with Lynnwood, and the ambitious “East Link,” which will take light rail across the I-90 bridge to Bellevue and beyond. For the latest information on these and other projects, go to the Sound Transit homepage.
A Recovery in the Construction Industry?
The Department of Labor’s latest jobs report includes some encouraging news for the construction industry. In January, construction jobs increased by 21,000 and jobs in architectural and engineering services increased by 7,000. Over the past two months, “nonresidential specialty trade contractors” added 30,000 jobs. We’ll keep a close eye on next month’s jobs report to see if these numbers continue to trend upward.
Live Blog From ABA Forum Meeting - Part 1
2/1/2012; 4:37 p.m.
I'm heading down to Houston for a meeting of the ABA Forum on the Construction Industry. You can learn about the Forum on the ABA website. It has subdivisions that focus on various interests such as insurance, owners and lenders, etc. I'll try to "live blog" from the meeting, describing papers of interest that are presented.
2/2/2012; 7:19 p.m.
I'm in Houston at the ABA forum Midwinter Meeting. The theme is strategies for complex projects. The first presentation today is called "Design Control and Delegation." It contrasts traditional design/construction relationships with the allocation of design responsibilities under building information modeling, or “BIM”. This paper and other papers being given today will be available from the ABA Forum website.
A program was announced today for young construction lawyers seeking trial experience. The program will accept 36 students for a week in Washington DC in June 2012, using experienced trial instructors in a realistic courtroom setting. The trial issues will be based on a construction project. Actual construction experts will serve as witnesses. There is now, or will shortly be, information about this on the Forum website.
2/2/2012; 10:11 a.m.
The third session is about open book accounting as it can contribute to the success of a collaborative project delivery method.
2/2/2012; 11:56 a.m.
Now listening to an interesting comparison between different methods of schedule delay analysis. The presenters note that different methods can yield significantly different results in particular cases and then make recommendations about how a reliable analysis should be done.
2/2/2012; 1:34 p.m.
Now we are hearing about how QA and QC procedures can differ for various project delivery systems (design-bid-build vs design-build). And how performance guarantees fit into the picture (we are in Houston so much of the attention is on energy projects).
2/2/2012; 2:14 p.m.
We are concluding with a series of scenarios about potential ethical issues arising from lawyers representing joint ventures and JV partners. It has been an informative day.
Adopting Strategies to Minimize Liability Exposure
On Wednesday, February 29, 2012, Sean Gay will speak at a seminar sponsored by HalfMoon LLC entitled “Minimizing Engineering Liability Exposure.” Mr. Gay will speak about adopting strategies to minimize liability exposure. The seminar will be held at the Doubletree Hotel, 1000 NE Multnomah Street, Portland, Oregon from 8:30 a.m. to 4:15 p.m.
Click here to learn more and to register online.
Starting a New Project? Don't Forget to Send a Notice of Right to a Lien to Trust Deed Holders and Mortgagees
Under Oregon law, a construction lien generally has priority over a trust deed or mortgage on an improvement. ORS 87.025(1). If a construction lien claimant has priority over a trust deed or mortgage, the construction lien claimant will get paid from the proceeds of a foreclosure sale before the trust deed holder or mortgagee. Having priority is important because it often determines whether a construction lien claimant gets paid. Priority clearly is a legal right that a lien claimant will want if it becomes necessary to record and foreclose a construction lien.
Nevertheless, it is possible for a lien claimant to lose priority by mistakenly falling into one or both of two exceptions. The first exception involves notice to the trust deed holder, and the second exception involves the segregation of charges on the claim of lien. Under the first exception, if a lien claimant fails to send a trust deed holder a notice of right to a lien, or similar notice, then, in accordance with ORS 87.023, the trust deed has priority over the materials portion of a construction lien. ORS 87.025(3). The general rule regarding construction lien priority is subject to a second exception that involves the segregation of charges on the construction lien claim. Under that exception, if a lien claimant fails to provide the notice discussed above and fails to segregate materials charges from the other charges in its claim of lien, the entire construction lien loses priority to previously recorded mortgages and trust deeds on the improvement. Benj. Franklin Fed. Sav. & L. Ass’n v. Hallmark, Inc., 257 Or 436, 479 P2d 740 (1971); see also Cal-Roof Wholesale, Inc. v. Contractors West, Inc., 262 Or 343, 497 P2d 1181 (1972) (applying Benj. Franklin priority rule to a trust deed).
Contractors can maintain priority of their construction liens by taking three important steps:
(1) Perform a title search before materials are delivered to the property. A simple title search—often provided free of charge by title companies—should reveal the identity of any mortgagees or trust deed holders.
(2) Send any trust deed holders and mortgagees a notice of right to a lien. The notice of right to a lien should be sent eight days, not including Saturdays, Sundays and other legal holidays, after the date of delivery of materials or supplies for the project.
(3) Carefully segregate materials charges from other charges (labor, equipment, etc.) in the claim of construction lien. (This step is absolutely critical if you have failed to perform the first two steps.)
Utah Reverses Course on Apportioning Costs of Defense to Policyholders
A recent Utah Supreme Court decision could result in significant benefits to some policyholders in Utah’s construction industry. The case, Ohio Casualty Insurance Co. v. Unigard Insurance Co., 2012 UT 1, concerned a fight between two insurers about how to split the costs of defending a lawsuit brought against their policyholder, Cloud Nine. For policyholders, the most notable aspect of the decision centers on the fact that Cloud Nine was uninsured for about six months between the end of Ohio Casualty’s policy and the beginning of Unigard’s policy.
Ohio Casualty argued that Cloud Nine should have paid a portion of its defense costs based on the length of time it was uninsured. The court disagreed, noting that because both insurers reserved the right to control all aspects of the defense, “it would be inequitable to apportion any defense costs to an insured who has no power to select counsel or negotiate rates and no voice in deciding whether to settle the suit,” and therefore “it would be inequitable to hold the insured responsible for the share of defense costs attributable to the time period during which it was uninsured.”
The Ohio Casualty decision is significant because it effectively overrules part of the influential case of Sharon Steel Corp. v. Aetna Casualty & Surety Co., 931 P.2d 127 (Utah 1997), in which the court held that defense costs should be apportioned to an insured for those periods when it was without coverage.
For policyholders who have had a gap in liability coverage, the Ohio Casualty decision could provide a lifeline. Virtually all liability policies that obligate an insurer to defend its insured—including CGL, professional liability, employers’ liability, and pollution coverage policies—contain language that gives the insurer the right to control significant aspects of the defense. Thus, Ohio Casualty could apply in many coverage gap situations. Moreover, the complexity of many construction disputes makes an insurer’s duty to defend an extremely valuable aspect of coverage. Insurance industry statistics show that the cost of defending a complex commercial case can range as high as 77 cents for every 23 cents paid out to claimants. Scott C. Turner, Insurance Coverage of Construction Disputes § 7:1 (Nov. 2009). Depending on the complexity of the dispute and the length of the coverage gap at issue, the Ohio Casualty decision could spare construction industry policyholders from paying defense costs that could easily tally hundreds of thousands of dollars.
Washington Supreme Court Reverses Williams
In Williams v. Athletic Field, Inc., 155 Wn. App. 434 (2010), the Washington Court of Appeals ruled that a lien filing was invalid because it was not properly acknowledged. This decision created a stir among Washington construction lawyers, because the lien claimant had used a lien filing service which in turn had used a form patterned after the one provided in the lien statute, RCW 60.04.091(2).
On September 15, 2011, the Washington Supreme Court unanimously reversed the Court of Appeals, holding that a lien filing that follows the statutory form is valid even if not properly acknowledged. The court relied heavily on the statutory language to the effect that the form provided “shall be sufficient.”
The court also clarified the apparently competing principles that, on the one hand, lien law is to be “liberally construed” in favor of claimants and, on the other hand, that lien are in derogation of common law and are to be “strictly construed.” The answer is that strict construction applies to the determination whether the claimant’s services are of the type that creates a lien. If they are, then liberal construction is applied to extend the protections of the lien statute.
This decision should bring comfort to persons performing lienable work who depend on lien filing services from time to time. Such services would be well advised to adhere closely to the form of lien given in the statute.
