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A reminder from the Idaho Supreme Court for parties to a construction contract:  the plain language of the parties’ contract governs the obligations between them in the absence of ambiguity.  In City of Meridian v. Petra, Inc., No. 39006, 2013 WL 1286014 (Idaho Apr. 1, 2013), the Idaho Supreme Court reviewed a construction dispute between the City of Meridian and its construction manager, Petra.  Not atypically, unfortunately, a project ballooned from $12.2 million in 2006 to over $21 million by October 2008 for a variety of reasons.  As the project progressed, Petra, pursuant to its contract with the City, notified the City of the proposed increased costs of construction and the City approved them, or often the City directed the changes itself.  During this same time, Petra notified the City of Petra’s right to an equitable adjustment to Petra’s fee based on the changing nature of the project. At that time, Petra agreed to wait until the final project value was determined before submitting the fee request. Thereafter, Petra managed the project for the City through occupancy.  Approximately six months prior to occupancy, Petra issued a change order requesting an equitable adjustment in the amount of 4.7% of the excess of the original base contract, which was the same percentage used for the original fee and a significant change order previously. The City denied the request.

 

  When mediation didn’t resolve the dispute, the City filed suit against Petra for declaratory relief and alleged breach of contract, among other claims.  Although the case itself addresses a number of related and interesting topics regarding evidence at trial, evidentiary issues relating to the claimed breach by Petra, and attorney fees, the foundational issue addressed by the court is the clarity of the contract and the allowance of the equitable adjustment.  On that score, the trial court found against the City on all but the lesser claims, and awarded Petra $595,896.17 in costs and $1,275,416.50 in attorney fees, in addition to its requested (as adjusted) fee of almost $325,000.  

The Nevada Supreme Court has answered a question that developers and contractors have been asking for years:  can the statutory limitation period for a construction defect action be shortened?  The court answered in the affirmative but held that there must be no statute to the contrary and that the reduced limitation period must be reasonable …

A California appellate court recently held that the value of an original construction contract is admissible as evidence to limit a contractor’s right to recovery under Civil Code section 3123(a), even by a property buyer that was not a party to the construction contract. Appel v. Los Angeles Superior Court (CA No. B244590, Mar. 11, 2013). The net effect in this instance could be a reduction of the value of the contractor’s lien claim by at least $13.5 million. 

The underlying facts reflect an all-too-common scenario of a failed project. Here, a single-purpose entity developed a large condominium project, originally inked with a GMP of $65 million. Increases through construction by approved change orders moved the GMP to $81 million. Disputes arose, and the contractor thereafter claimed an additional $13.5 million above the $81 million GMP. Unfortunately here, several units of the project had been purchased by this point, and the buyers were then subject with the developer to the mechanic’s lien of the contractor. Prior to trial, the developer entity and its alter ego affiliates negotiated a pre-trial settlement with the contractor that included in part a restatement of the final contract GMP to $95.5 million, purportedly settling the issue of the “value” of the construction contract for the contractor to continue pursuing its lien claim against the unit buyers. During pre-trial motions, the trial court commented on the impact of the negotiated settlement and “expressed doubt as to whether the unit owners should be precluded from challenging the value of the GMP contract set forth in the settlement agreement:

 

COURT: Are you saying [the unit owners] don’t have a right to attack the . . . value of the contract which was agreed after the fact as part of the settlement?

[CONTRACTOR]: We don’t believe they have a right to attack that.

COURT: Well, that is just boggling to my mind. [¶] . . . [¶] [I]t totally boggles my mind, because you could agree to anything, anything [in the settlement].”

 

The trial court also stated that it saw “‘no purpose’ for the settling parties’ decision to raise the value of the GMP other than to hinder the unit owners’ lien foreclosure defense.” Although the trial court took the matter under submission, it later felt constrained to rely on an existing decision cited by neither party and ruled against the unit buyers, precluding them from challenging the post-lien GMP value set during the settlement between the developer and contractor.

Following the market crash in 2008-09, the $2.8 billion Fontainebleau development in Las Vegas was halted with 70 percent of the construction completed. Naturally, numerous mechanic’s liens were filed by contractors, subcontractors, professionals and suppliers ("claimants"). In the bankruptcy proceeding, the lenders asserted novel and potentially legally destabilizing theories against the claimants’ rights: a.) the…

Litigation can be one of the most time-consuming and expensive ways to resolve disputes in the construction industry. Often, parties to construction-related disputes prefer to resolve them through alternate dispute resolution procedures, such as mediation or arbitration. However, sometimes litigation cannot be avoided. In his latest article in the Daily Journal of Commerce, Guy Randles…

Construction projects can impact neighboring landowners in ways that range from minor annoyances to dangerous structural issues. Well-drafted temporary and permanent site agreements with neighboring landowners can help project owners maintain good relationships with their neighbors. In my latest article in the Daily Journal of Commerce, I describe some of the types of legal agreements…

On September 20 & 21, 2012, The Seminar Group will present its 17th Annual Oregon Construction Law seminar in Portland, Oregon. I will be speaking at the seminar about frequently negotiated provisions in owner-contractor and owner-architect agreements, including waivers of consequential damages, indemnification, insurance, warranties and claims. Two additional Stoel Rives’ partners will be speaking…

In my recent article “Evolving Concepts of ‘Fairness’ in Construction Contracts,” published in the Daily Journal of Commerce, I outline the key battlegrounds in redefining a ‘fair’ construction contract. From limited liability to contractors signing waivers and claim releases, this article provides the foundation for understanding the evolving complexities in construction contracts. 

To read more, …

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…