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
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
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
The Increasing Importance of Performance Bonds
There are now 25 states in the U.S. that hold that construction defects are not an “occurrence” and are therefore not covered under commercial general liability policies insuring contractors. Couple this troubling statistic with the ever increasing number of policy exclusions and limitations, and we begin to realize that in many situations the contractor’s insurance policy is inadequate (or non-existent) protection against defects.
The importance of performance bonds as security to pay for construction defects is therefore growing. While some sureties who sell the bonds will tell you that bonds merely guarantee completion, and do not insure against latent defects, the language of the typical bond defies this position.
Bonds plainly state that they guarantee each and every obligation of the contractor under the contract. Those obligations usually include the duty to perform work according to the plans and specifications, the standard of care, and without defect or nonconformity. This author has not seen a bond that attempts to carve out construction defects from its coverage. And bonds do not have the host of exclusions or limited coverage grants that plague the value of insurance policies. By the same token, bonds are not perfect and owners should consider the following to get the most protection from a bond:
First, the bond duration should extend at least as long as the warranty period (typically one year from completion but sometimes longer) and for as many years thereafter as possible, up to the statute of repose period in the state in which the project is located. Because construction defects often appear years after completion, the bond duration is critical. You may pay more for a bond with a longer duration, but if the bond is needed, you should be paying less for the unreliable insurance carried by the contractor.
Dispute resolution clauses: getting the prenup right before you say “I do.”
Before using AIA forms or any other agreement to begin a project, owners should review and revise those forms to ensure that they contain appropriate provisions governing dispute resolution. Otherwise, you may be stuck suing different parties in different forums for the same set of construction and design defects, you may be unable to recover
OSHA Creep
OSHA compliance recently became harder and costlier, and may continue to do so, thanks to several developments at the federal and state level. (Click here for a prior post on OSHA reform.)
You may go to prison if you discipline or terminate an employee who might be worried about an unsafe working condition—even though your employee had not bothered to tell you about his concern. That is what the current version of the Robert C. Byrd Miner Safety and Health Act of 2010 (H.R. 5663) provides.
The Byrd Act, not yet law, would prohibit firing or discriminating against an employee who refuses to perform the his duties if he “has a reasonable apprehension that performing such duties would result in serious injury to, or serious impairment of the health of, the employee or other employees.” Employers should wonder how they will know whether their employees have “reasonable apprehensions”—the Act does not require the employee to voice his apprehension for this provision to protect him from discrimination for failing to do his work. If the Act becomes law, an employer who fires an employee because that employee is not performing may find itself faced with a complaint.
The Byrd Act has not moved since July 29, 2010, when it was placed on the Union Calendar. Depending on the results of the recent elections, it may not move at all.
If your business has an effective noise protection program in place, that may not protect you from OSHA penalties.
The U.S. Occupational Safety and Health Administration recently proposed adopting a new interpretation of the word “feasible” as it is used in certain sections of the General Industry and Construction Occupational Noise Exposure standards (sections 1910.95(b)(1) and 1926.52(b)).
Feasible, which currently means that a measure is both capable of being done and that the costs of implementing the measure are less than the cost of an effective hearing conservation program, would only mean capable of being done. If you have avoided certain measures because they were not economically feasible, and if OSHA determines that they were capable of being done, your program will not be in compliance.
For example, if your employees are exposed to a loud workplace but you require them to wear effective ear protection—and they do—this will not be good enough. If OSHA decides that redesigning your workplace with expensive sound-absorbing baffles is capable of being done, you have to do it. Even if it would be no more effective than your current program.
Instead of allowing a cost-benefit analysis, the Administration would consider administrative or engineering controls economically feasible when the cost of implementing those controls will “not threaten the employer’s ability to remain in business.” So, if OSHA decides those sound-absorbing baffles won’t threaten your ability to remain in business, they are economically feasible. Oddly, though the Administration argues that its proposal restores the “plain meaning” of feasible to its enforcement policies by eliminating cost-benefit analyses, it did not state how it derived its proposed economic viability standard from that plain meaning.
Bond. Performance Bond.
Performance bonds—insurance-like arrangements in which a surety (the bonding company) contractually agrees to pay for the performance of a principal (the contractor) to an obligee (the owner) in case the principal fails to perform the obligations of its contract—should be used more often in construction agreements to provide owners with a source of funds to cover defective work in a project.
Currently, owners typically require contractors to obtain insurance policies with the hope that such policies cover defects in the work they perform for the owner. Though owners are willing to spend a lot of money, time, and effort in obtaining these policies, insurers continue to make revisions to their policies to limit, and sometimes prevent, coverage for these defects.
Performance bonds may provide better protection to an owner. Typically, the bond provides funds to pay for repair of defective work that may not be covered by insurance as part of the bond’s guarantee of the faithful performance of the contract by the contractor.
Unlike insurance policies, performance bonds provide coverage only for the owner’s project—if an owner discovers a defect in the contractor’s work, the owner will not have to worry whether another owner’s claim against the contractor for another defective project will reduce the coverage available under the contractor’s bond. The performance bond’s recovery pool belongs to the owner for the specific project it is drafted to cover.
Not so Ahead of Schedule: OSHA Reform
Contributor: Louis A. Ferreira
Congress has proposed legislation that would amend the 
Occupational Safety and Health Act of 1970 to increase both civil and criminal penalties, expand coverage, and create new obligations for employers. Congress has not acted recently on the bill, named the “Protecting America’s Workers Act," but employers should expect action sometime in the new year.
Willful violations of OSHA that result in the death of a worker would be a felony punishable by up to 10 years in prison, while willful violations resulting in serious bodily injury would be a felony punishable by up to five years in prison. Currently, the criminal penalty for a willful violations resulting in death is imprisonment for 1 year. There is no criminal penalty under the existing act for a serious bodily injury resulting from a willful violation. In addition, the maximum civil penalties in all OSHA violation categories would increase, and would be adjusted periodically according to the Consumer Price Index.
Oregon-OSHA administers its own regulations for most employers in the state but adopts standards and penalties at least as stringent as federal OSHA. In other words, if federal OSHA standards are changed, these impacts will be enforced in Oregon in short order. Employers should be concerned about the scope of these changes because like most legislation, the devil is in the details of how the law is changed. For instance, a willful violation of an OSHA standard does not necessarily require an intentional decision to violate the regulation. A willful violation is defined to exist where an employer or supervisor “recklessly” disregards the requirements of a regulation. Knowledge of the regulation is usually not required it the employer or supervisor should have known of the regulation or standard.
Additionally, employers would be prohibited from
- adopting or implementing policies or practices that discourage reporting work-related injuries or illnesses, or that discriminate or provide adverse action against any employee reporting such injury or illness; and
- reducing wages or employee benefits while employees participate in or aid workplace inspections
You Are a Project Owner or Developer Who Wants to Build a Green Project? So, What Do You Actually Put in Your Contracts?
Despite the explosion of articles, seminars and webinars on green building and development during the last year or so, there is a dearth of information in the development world regarding what project owners and developers who do want to build a green project should actually put in their design and construction contracts.
Here is what I think is important regarding this subject:
General Green Building Certification Goal. The project owner first must decide in general what green building goal it wants to achieve. LEED certification (from the US Green Building Council), at a particular certification level (general, silver, gold, platinum), is an obvious option. But there are other general green building certifications, too, such as Green Globes (Green Building Initiative) and SBTool07 (International Initiative For a Sustainable Built Environment), as examples. The owner should make this basic decision early on, based on good information and analysis and the advice and recommendations of design and green building consultants, as applicable.
Industry-Specific Green Building Certification Goal. Deciding on an overall green building goal such as a LEED certification is not the only certification goal a project owner should consider, however. There also is a growing number of industry-specific certifications that the owner should evaluate, depending on the nature of the project and the owner’s business. For example, there are certifications available for health facilities (Practice Greenhealth), restaurants (Green Restaurant Association) and hotels (Hotel Pure Green). How important an industry-specific certification of this type is to an owner is a question to be addressed at the start of the design process.
Tax and Other Governmental Incentives Goal. Another element of green building goals to be considered is tax and other governmental incentives relating to green building. Particularly in Oregon and under new federal stimulus legislation, there may be tax credits, grants and other public sector incentives for green, sustainable and energy efficient construction that can be of substantial benefit to a project. However, these incentives must be identified as project goals early in a project’s design in order to ensure that the owner is able to take advantage of them.
Making Green Building Goals Explicit. Once an owner has sorted through its optional goals for LEED or other general certification, for industry-specific certification and for tax and other governmental incentives, these goals should be expressly set out in the owner’s design and construction contracts. Otherwise, the owner’s architect and contractor will not have any contractual obligations to achieve the owner’s green building goals. Typical form contracts, including 2007 American Institute of Architects (“AIA”) forms of contract, include minimal references to these kinds of obligations and do not include language in which to make the goals explicit.
Negligence Claims Take Another Twist in Oregon
Just when you thought it was safe to go back into the water, the Oregon Court of Appeals strikes again with another iteration of the “economic loss doctrine” which defines when parties can sue each other in negligence for construction defects. In Abraham v. Henry (September 2, 2009) the Court held that parties to a