Guidance for Owners and Contractors with Construction Projects in Oregon in Light of the Statewide “Stay Home” Order

On March 23, 2020, Oregon Governor Kate Brown issued Executive Order No. 20-12 directing Oregonians to “Stay Home, Save Lives.”

Unlike “stay home” orders in some other states—which prohibit the operation of all business unless specifically exempted—the Oregon Order prohibits the operation of specific categories of businesses identified in the Order (e.g., amusement parks, aquariums, etc.).  Presumably, this means that if a category of business is not identified, then it is not subject to the prohibition.

Because “construction” is not specifically identified as a prohibited business, it is reasonable for owners and contractors to presume that their projects in Oregon may continue for the time being.  While not explicitly part of the Oregon Order, some are characterizing it as  “permission by omission,” meaning that the omission of a business on the prohibited business list means you have permission to operate that business.  But proceeding under that assumption is not entirely without risk, and there are other important considerations for both owners and contractors to bear in mind, including: Continue Reading

Tips for Owners and Contractors with Projects in the “Grey Area” of California’s COVID-19 Orders

In response to COVID-19, construction projects in California are currently subject to a statewide Executive Order and potentially other similar (or dissimilar) “stay home” or “shelter in place” orders or directives issued by counties and cities. Under the California statewide order, only businesses needed to maintain continuity of operations of identified federal critical infrastructure sectors (click here for the list) may continue to operate. Construction is not identified as a separate “critical infrastructure sector,” but many construction projects fall under the umbrellas of other sectors, such as “critical manufacturing,” “energy,” “healthcare,” and “commercial facilities.” The California State Public Health Officer also designated the following “essential workforce” members of relevance to the construction industry (this is not an exhaustive list):

  • “Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction)”
  • “Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, construction material sources, and essential operation of construction sites and construction projects (including those that support such projects to ensure the availability of needed facilities, transportation, energy and communications; and support to ensure the effective removal, storage, and disposal of solid waste and hazardous waste)”

One challenge somewhat unique to owners and contractors is that the applicable orders are generally directed at identifying “essential businesses” or “critical businesses,” while owners and contractors may have a mix of projects—with some likely essential (such as construction of a hospital), others likely not (such as construction of a nightclub), and many falling in a grey area in between. When analyzing “grey area” projects it is recommended to focus on the traits of the particular project rather than attempt to understand whether your business—which may include a range of projects—can generally continue to operate. Continue Reading

COVID-19 Update: Washington Governor Issues Construction Guidance Memorandum

On March 25, 2020, Washington Governor Jay Inslee issued a memorandum that provided members of the construction industry with additional guidance regarding the Stay Home, Stay Healthy Proclamation (20-25) issued on March 23, 2020 in response to the COVID-19 pandemic. The Proclamation raised a number of questions in the industry, including whether all residential construction was deemed an essential service. The Proclamation seemed to indicate in a parenthetical that “housing construction” was permitted but then went on to limit “residential construction” to “emergency repairs and projects that ensure structural integrity.” Because of the resulting confusion, some residential projects began shutting down, while many did not, with the trades on those projects expecting to continue with work.

Yesterday’s memorandum confirms that there is no blanket treatment of residential construction under the Proclamation, and not all residential construction is an essential service. Just as with commercial construction, for a residential construction project to proceed, it must fit into one or more of the following:

  1. Construction related to essential activities as described in the order;
  2. To further a public purpose related to a public entity or governmental function or facility, including but not limited to publicly financed low-income housing; or
  3. To prevent spoliation and avoid damage or unsafe conditions, and address emergency repairs at both non-essential businesses and residential structures.

Continue Reading

Warning Signs that a Contractor May Be Overextended

If you are involved in the construction industry, like it or not risk management is part of your job. From home office executives to workers in the field, each person is expected to manage schedule, cost, and safety risks. While these risks are common, the recent prolonged period of economic growth has created new challenges, one of which is managing the risk of taking on larger or more projects than you can handle. In my latest article for the Daily Journal of Commerce, I look at several warning signs that point to a firm being overextended. Read the full article here.

Originally published as “OP-ED: Warning signs that a contractor may be overextended” on February 20, 2020, by the Daily Journal of Commerce.

An Owner’s Guide to Accessibility Claims in Washington

When owners engage architects and accessibility consultants to design their projects, they naturally expect good design, but they must also be sure the design provides all users with the practical ability to use and enjoy the end result. Civil rights acts such as the ADA and Fair Housing Act were enacted to provide certain protected classes equal protection with regard to housing and places of public accommodation. Neglecting to correctly identify the applicability of such accessibility codes to a project can result in claims being brought against an owner that can result in substantial penalties. In an article for the Journal of Commerce of Canada, we look at several steps project owners can take to avoid such claims.  Read the full article here.

Originally published as “Industry Perspectives Op-Ed: An owner’s guide to accessibility claims in Washington” by Journal of Commerce (of Canada), Feb. 11, 2020.

Design-Build Lite – Construction Contracts with D-B Components

For most in the industry, when we think about a standard construction contract, we envision the construction documents being drafted by the architect and other design consultants.  We tend to view the project as design-price-build, unless an alternative procurement mechanism has been selected such as design-build.  Consistent with this design-price-build model, the contractor’s review of the design is ordinarily not to identify errors and omissions or violations of law in the design, but purely to review the design from a contractor’s constructability standpoint.  Many contractors doing this work don’t carry professional liability insurance, because they don’t view themselves as designers.

But the market has changed a lot over the last ten years.  Nowadays, when owners and contractors drill down with their lawyers to discuss risk, they often realize that, in fact, the contractor is performing  a lot of design work.  For instance, it is not uncommon for the contractor, through its subtrades, to design the mechanical, electrical, and plumbing systems to performance standards created by the owner and/or provided by code.  In fact, fire sprinkler systems have been designed by the trades for a long time.

In addition, there is a certain amount of design work involved in the construction process itself.  For instance, designs of shoring and forming systems may involve a professional design component.  Taken together, for larger projects, a significant amount of design risk may actually be assumed by the prime contractor.  In light of this, the parties should consider a number of factors when negotiating a standard construction contract.  Some questions to consider are as follows:

  • If the contractor is performing design work, should the contractor’s review of the Architect’s design be held to a higher professional standard, at least with respect to those systems being designed by the contractor?
  • What type of insurance is in place to cover the risk associated with defects in the designs provided by the contractor, potentially including errors and omissions (E&O) and owner’s protective professional indemnity (OPPI) coverages.
  • Who owns the drawings and/or who has a license to use them, and when?
  • Is the project owner entitled to bring design claims directly against the subcontractor and, if so, what is the effect, if any, of the liability limitation/consequential damages waiver in the subcontract?

Asking these questions before the contract is negotiated will often help the parties understand their risk and shift as much of that risk as possible onto the appropriate party (usually the party that controls the risk) and their insurance company.

Stoel Rives Helps WSDOT Defeat a $640 Million Claim

The biggest construction project in Seattle in recent years has been the replacement of a seismically compromised waterfront viaduct with a tunnel carrying State Route 99 under downtown. The project was delayed for about two years while the contractor repaired damage to its tunnel boring machine. The contractor claimed that the damage was caused by a steel well casing that the project owner, the Washington State Department of Transportation (“WSDOT”) had failed to disclose. The machine was found to be damaged in early 2014 and WSDOT retained Stoel Rives shortly thereafter.

 

Working with WSDOT staff and experts, Stoel Rives developed the defenses that WSDOT had disclosed the well casing, that the contractor did know about it (it used the well twice), and that in any case the small casing did not damage the giant tunnel boring machine. Litigation began in 2015. The contractor initially estimated its claim at $125 million, but the number grew to over $640 million. Stoel Rives succeeded in limiting the contractor’s claim through motions for partial summary judgment. Trial began in Thurston County in October 2019. The contractor asked the jury to award $330 million. WSDOT asserted a counterclaim of $57.2 million in liquidated damages for the contractor’s late completion of the project. After a nine week trial, the jury found in WSDOT’s favor, awarding $57.2 million to WSDOT and nothing to the contractor. The matter is on appeal. Meanwhile the tunnel is in service and the old viaduct has been removed.

Plan Ahead for Project Challenges in 2020

Worker hammering a nail on construction site.

Construction worker.

In the event of a near-term slowdown in the U.S. economy, analysts forecast that any resulting decline in construction starts will nevertheless leave the level of activity in that industry sector “close to recent highs.” As a result, project owners and general contractors already facing a strong demand for workers will continue to do so, further exacerbating difficulties they are having in hiring sufficient and/or properly trained personnel. A significant number of respondents to an Associated General Contractors of America survey said that those staffing challenges are causing them higher-than-expected costs and longer-than-anticipated completion times for projects. In my latest article for the Daily Journal of Commerce, I look at several steps owners and general contractors should consider to manage those risks. Read the full article here.

Originally published as “OP-ED: Plan ahead to handle project challenges that arise in 2020” on January 16, 2020, by the Daily Journal of Commerce.

Are You Willing to Wait a Year? Popularity of CLT Leads to Growing Pains for Suppliers

The Daily Journal of Commerce recently reported that increased demand for mass-timber material, such as cross-laminated timber (“CLT”), has caused a shortage as suppliers struggle to expand production.  Iain Macdonald, an industry executive interviewed for the article, stated that “lead times of a year have not been uncommon.”  Increased demand has been fueled in part by several new (and in some cases, high profile) CLT projects across the United States and in Canada.  One such project is a Toronto, Canada mass-timber housing project with more than 34,000 units in buildings as tall as 30 stories.   As west coast CLT suppliers’ lead times increase, some purchasers have looked to the European market to fill their orders.  Sourcing CLT from Europe could be seen as compromising CLT’s image as a locally sourced, smaller-carbon footprint building material.  Indeed, Portland-based architect Stefee Knudsen of Hacker Architects lamented the possibility that her projects may need to use European CLT.  As she told the DJC, “It is hard to be an Oregonian and to think our project could be supplied by a European (manufacturer).”  At first glance, one would expect CLT prices to increase sharply in response to demand.  However, because CLT must compete with other structural materials, like steel and concrete, significant price fluctuations are unlikely.  Until CLT production catches up with demand, project owners and contractors may need to consider placing their CLT orders well in advance to ensure timely delivery and (hopefully) avoid costly delays.

Design-Build and EPC Contracting Approaches Under Fire by Contractors

In a recent article in the ABA’s “Under Construction” publication (link here) the author describes a trend among some major contractors, including SNC-Lavalin, Fluor Corporation and Granite Construction, to leave the DB and EPC space.  Other large contractors have announced similar intentions.  The problem appears to be that the DB and EPC delivery methods are returning losses – or at least not the anticipated profits – on recent projects.  Whatever the actual cause of these losses may be, the recent trend is at odds with decades of prior trends in the opposite direction.  Numerous articles and surveys revealed the desire of large owners and contractors alike to grow DB and EPC as the favored delivery method.  While contractor appetite may be currently waning during a sellers’ market, most owners still desire these delivery methods because they create a single point of responsibility and lend themselves to better schedule and performance guarantees from the combined construction and design team.  When the field of DB and EPC contractors shrinks, it will open up competitive opportunities from other contractors willing to take the risk with the possibility of greater reward.

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