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.

Jane (or John) Hancock 2.0: Utilizing E-Signatures in the Construction Industry

In our increasingly electronic age, parties signing a construction contract, invoice, change order or other documents are as likely to do so by clicking on an “I agree” checkbox or inserting a digital signature, or e-signature, as they are to put pen to paper. In my first article for the Daily Journal of Commerce, I look at some of the laws behind e-signatures and outline several common pitfalls that come with using them. Read the article here.

Originally published as “OP-ED: Jane (or John) Hancock 2.0: e-signatures in the building industry” by the Daily Journal of Commerce, Dec. 19, 2019.

Be Aware (or Beware!) of Extended Mechanic’s Lien Rights

Mechanic's Lien RightsOregon law requires a lien claimant to perfect its lien by recording it within 75 days of ceasing to “provide labor, rent equipment, or furnish materials or 75 days after completion of construction, whichever is earlier.” An unpaid contractor must record its lien 75 days after completion of its major contract work and removal of its equipment, and a project owner should be able to have confidence there will be no subcontractor liens 75 days after each subcontractor completes its work and no further liens 75 days after the project is completed. In my latest article for the Daily Journal of Commerce, I look at a case in which the law of unintended consequences worked against the Oregon legislature’s intention that the mechanic’s lien laws be relatively straightforward. Read the article here.

Originally published as “OP-ED: Be aware (or beware!) of extended mechanic’s lien rights” by the Daily Journal of Commerce, Nov. 14, 2019.

Cyber Risk Update for Construction Companies

Scammers are always seeking new ways to target victims for Business Email Compromise (BEC) scams, where they leverage email to try to convince you to give them credentials, send them confidential information like W2s, send them money by changing things like direct deposit instructions, or give any other data that can help them profit from committing fraud.  They are getting more and more sophisticated in their deceptions, and targeting those areas they see as ‘weak links.’

Construction companies however face a particular threat, as there are a number of services and private and government web sites to which companies can subscribe to learn about construction projects that are open to bid. Often, the winning bidder ends up becoming public knowledge – either because that information is posted publicly, or because the contract company advertises they were awarded the project. And of course, these contracts always carry a price tag that is attractive to scammers.

Fraudsters can use information from these same web sites along with other research to learn which construction companies have applied for and ultimately won bids. The higher the price tag, the bigger the target. Once the scammers get their fake web site set up (they can use tools to copy the real contractor’s web site almost exactly), they’ll then send an email to the victim posing as the contractor, including a direct deposit form (likely doctored with the contractor’s logo) and instructions to change payment information to a new account controlled by the scammers.  They might even try to play this trick on the construction company and pose as a vendor the construction company regularly pays. Once the money is transferred, it can be difficult – and often impossible – to recover.  Even if the victim has cyber insurance, whether or not any losses are covered depends on the policy.  Any access and information they obtain can also compromise the construction company’s information security, potentially increasing the likelihood of privacy breaches, ransomware attacks, or other serious security risks.

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Your Contract Might Not Be Ironclad: A Primer on Waiver-by-Conduct

Parties involved in a construction project can expect to spend much energy and effort to finalize the terms and conditions of a contract. Although those terms usually carry great weight in any contract dispute, of equal or greater importance can be the parties’ actions and course of dealing during construction. A lack of strict adherence to the terms of the contract or the adoption of behaviors during construction not consistent with, or that in some way deviate from, the contract processes or procedures can cause a party to lose a right or duty afforded it in the contract through “waiver-by-conduct.” In my latest article for the Daily Journal of Commerce, I look at this concept in greater depth and provide a hypothetical situation that illustrates it with respect to a failure to properly execute written change orders. Read the full article here.

Originally published as “OP-ED: That contract might not be ironclad: a primer on waiver by conduct” by the Daily Journal of Commerce, Oct. 17, 2019.

Recession Warnings Pile Up: Harbinger of Liens?

Some economic indicators point to a recession in the not-too-distant future, and parties involved in construction projects should take steps to avoid (or perfect) liens and protect their rights if there is a downturn. The complexities of Oregon’s lien laws are best negotiated with the assistance of experienced counsel. In my inaugural article for the Daily Journal of Commerce, I provide five tips that will be helpful for project owners, developers or contractors to keep in mind as work continues in uncertain times. Read the full article here.

Originally published as “OP-ED: Recession warnings piling up: a harbinger of liens?” by the Daily Journal of Commerce, Sept. 19, 2019.

Commercial Lease Improvements

On December 13, 2019, I will be giving a presentation on construction-related topics arising from commercial lease improvements.  The presentation is part of a two-day seminar on Advanced Commercial Real Estate Leases, co-chaired by my colleague, John A. Fandel, and hosted by Law Seminars International.  Topic will include insurance coverage, mechanic’s liens, scheduling, indemnity, safety, warranty, and contractor termination.  Complete seminar information can be found here.