Blog
July 24, 2017
The Back and Forth of the Submittal Process
Construction submittals provide the owner, architect, contractor, and subcontractors with critical and detailed information on the products and materials to be incorporated into a construction project. Thus, it is of crucial importance that they are timely submitted, conform to the project documents, and receive requisite approval from the design team and/or owner. This importance commonly causes headaches for the associated parties, which can lead to disputes, and potentially, lawsuits. Two recent court cases illustrate the problematic scenarios which can arise from the submittal process along with the possible differing judicial outcomes.
In United States of America ex rel. Modern Mosaic, Ltd. v. Turner Construction Co.,1 each of a subcontractor’s shop drawing submittals followed the common construction industry standard of requiring formal certification and approval prior to fabrication of the construction materials.2 According to the subcontract, the submittal designation “Revise and Resubmit” meant that a portion of the submittal did not comply with the design intent of the contract documents and that fabrication, manufacture, or construction was not to proceed. The subcontractor had submitted four shop drawings for architectural precast concrete wall panels for a parking garage. Although, the first two sets were returned, stamped “Revise & Resubmit,” the subcontractor began fabricating the panels. The subcontractor’s third set of shop drawings were also returned, stamped “Revise & Resubmit.” Later, the subcontractor’s fourth set of shop drawings were returned and stamped “Approved as Noted,” with notations from the architect stating the location of the embeds needed to be field verified. The subcontractor then continued to fabricate panels without field verifying dimensions. As a result of the premature fabrication, the subcontractor had to redesign and re-fabricate a number of panels because of the dimensional discrepancies. Although the subcontractor filed suit against the prime contractor to recoup its costs from re-fabrication and storage resulting from the discrepancies and delays, the court ultimately found the subcontractor breached the subcontract when it fabricated materials prior to receiving fully approved submittals, thereby nullifying the subcontractor’s right to compensation.
In contrast, the court in C. Norris Manufacturing, LLC v. BRT Heavy Equipment, LLC 3 held that a subcontractor’s failure to submit timely design drawings that delayed contract completion was not a material breach, or even a breach, of the parties’ contract. The contract to construct barges required the design drawings to be completed and submitted to within two weeks of execution of the contract and first payment. The parties had prepared a schedule showing design, fabrication, and assembly activities for the barges. The contractor ultimately terminated the subcontractor, claiming its failure to timely submit compliant drawings delayed the project. The contractor alleged that it was impossible for the subcontractor to have completed the project by the deadline and therefore it had breached the agreement. The subcontractor countered the only delay was for six days, which was not a material breach under the contract. Upon inspection by the court, the contract did not specifically make the failure to submit the drawings within the two weeks a material breach and the contract was not a “time is of the essence” contract. According to the court, the deadlines in the contract and the surrounding circumstances did not warrant an interpretation that the agreement was one where time was of the essence and the late design submittal was not a breach even though the project was delayed.
Shop drawing submittal and approval frequently foster disputes and often cause project delays. One of the difficulties of measuring the effect of shop drawing delays on project completion is determining what the original duration for the approval should be. How long should a schedule provide for the approval of shop drawings? The current norm in construction scheduling is to provide only one, twenty-day duration for review and approval of any shop drawing. But these two cases confirm the reality that shop drawings are not always approved in one submittal cycle. Multiple cycles may be required, but an allowance for additional cycles is traditionally not included in a construction schedule. And multiple submittal cycles before approval are regularly necessary.
Is it reasonable to presume only one cycle? On one recent nuclear plant construction project only one submittal approval cycle was included in the original construction schedule. Approval actually required a multiple shop drawing approval cycles in excess of a year, with some resubmittals taking six or more months to prepare. Without shop drawing approval fabrication, delivery and of course construction, was stopped. In another project that involving locks to raise and lower river heights it took a year for the design of innovative hydraulic gate jacks to be approved, delaying their fabrication and installation. Approval was delayed when the parties disputed whether the original design was beyond the capability of the construction industry to produce. Surely when innovative design is part of the construction project more than one cycle should be anticipated and the appropriate duration included in the schedule? But few schedules anticipate multiple cycles for review and resubmittal of design drawings for key parts of an innovative design. But even more common, design drawings may require multiple submissions if the designer or owner reviewer is not satisfied with color, texture, size, quality, or any other number of ordinary preferences or concerns.
Most always it is the resubmittal requirement that parties dispute. What is the cause of the resubmittal? Was the reviewing entity, whether owner or designer, demanding reasonable revisions? The contractor or whoever makes the submittal will usually challenge whether resubmittal is necessary. But it is difficult to refuse to implement the demanded revisions without jeopardizing completing both the project and that part of the project subject to the design rejections. Not only is there the risk of delay associated with a resubmittal, but also there is always an additional cost associated with the resubmittal. On larger construction projects a resubmittal may involve twenty designers or more, considering that in-house approvals may be necessary, before a resubmittal can be made.
Shop drawings are part of most all construction projects. But a one-cycle submittal approval should not be presumed.
Michael T. Callahan
President of CCL Construction Consultants, Inc.
1 2017 U.S. Dist. LEXIS 35489 (N.D. W. Va. Mar. 13, 2017).
2 It should be pointed out the subcontract requirement in this case that the subcontractor was to obtain approval of its shop drawing submittals before fabrication is almost universal and certainly included in all standard form construction contracts, but notwithstanding the common nature of such contractual provisions, there are relatively few court cases adjudicating them.
3 2017 U.S. Dist. LEXIS 38850 (N.D. Ohio Mar. 17, 2017)
June 30, 2017
Another Victory for "Actual"
Any noun used in the construction and design industry that is modified by “actual” is revered by those that resolve disputes: actual costs, actual date, actual duration, actual schedule update, and so forth. In a delay dispute, the closer a delay evaluation method gets to “actual,” the more persuasive the delay evaluation will be. An as-built schedule evaluation and all its permutations based on actual dates (no matter how wrong) usually carries the day.
The reverse is true for “planned.” Anything “planned” invites questions about the quality of the plan, the reasonability of the plan, mistakes in the plan; and the experience and prestige of author of the plan. Anything modified by “planned” is as far from “actual” and persuasion as one can get. As a result, an “impacted as-planned” schedule evaluation starts out on the low-end persuasion.
Accordingly, one should not be surprised that in a recent ruling the U.S. Court of Federal Claims rejected a contractor’s impacted as-planned schedule evaluation. In the case of K-Con Building Systems, Inc. v. The United States,1 K-Con Building Systems, Inc. had contracted with the United States Coast Guard to design and construct a prefabricated metal building. K-Con sent its first set of design documents to the government for review and comment. There were issues with the design, and several emails were exchanged between the K-Con and the government. Meanwhile, K-Con requested extensions on the completion date due to delays it was encountering. The delays were attributed to an increased amount of site investigations, inoperable equipment, and additional equipment not known at the time of the bid. The contract was later modified and K-Con provided with a complete set of marked-up drawings by the government. K-Con ultimately failed to complete construction by the contract completion date and the government assessed liquidated damages, eventually terminating K-Con for default. A lawsuit between the two parties ensued.
So what did the U.S. Court of Federal Claims say about the impacted as-planned method? In summary, according to the court, the parties presented diametrically opposed descriptions—K-Con submitted a delay evaluation based on an as-planned, forward-looking schedule. The government contended that the critical path of performance should be based on an as-built, backward-looking schedule. The court agreed with the government that the proper way to determine what activities were on the critical path of performance was to examine what actually occurred during contract performance. There were two reasons for the court’s conclusion. First, a critical path schedule that relied solely on the schedule set forth in the contract specifications did not account for any subsequent changes to the schedule authorized by the contracting agency. Second, the use of a contractually based critical path schedule did not reflect that K-Con did not actually perform in accordance with the contract schedule. As pointed out by the court, the approach advanced by K-Con and its expert, “does not fully reflect the reality of what occurred on the project.”2 The court continued to explain that the government's approach fully reflected that reality. By rejecting the impacted as-planned method, this U.S. Claims Court is in the mainstream.
But sometimes the impacted as-planned is the only reasonable method. For example, if the delay starts before construction actually starts there are not “actual” dates. Such were the circumstances in Gilchrist Construction Company, LLC v. State of Louisiana Department of Transportation and Development,3 where the Louisiana court used an impacted as-planned because the owner refused to permit the contractor’s schedule to be modified to reflect changed circumstances disputed by the owner. Any as-planned method is cheaper than any as-built method. Limited information may also make an as-planned method attractive. The impacted as-planned was not a reasonable choice in K-Con and is most likely not a reasonable choice in most situations. But impacted as-planned schedule analysis will continue to be used. The trick is determining when to use that “planned” method.
Michael T. Callahan
President of CCL Construction Consultants, Inc.
1 131 Fed. Cl. 275 (Fed. Cl. Apr. 18, 2017).
2 Id. at 330.
3 166 So. 3d 1045 (La. App. 1st Cir. Mar. 9, 2015).
April 26, 2017
A Contractor Will Not be Indemnified by its Insurer for Knowingly Installing Flooring on a Concrete Slab with a Moisture Content Exceeding Specifications
Managing a construction project from the beginning to end is a bit like orchestrating a symphony. The numerous parties involved in a construction project all play different and specific roles, all working under the project manager’s lead. Accordingly, construction project managers act as conductors, issuing directions to the “musicians,”—the parties involved—such as instructions to the construction superintendent and crew, requests for information to the engineer, turning in submittals to the architect, and letting a subcontractor know when and where they can start their work, all to make sure each party is playing their part correctly and at the appropriate times. The faced paced role of construction management, especially project managers managing multiple construction projects at a time, means that construction project managers face numerous decisions on a daily basis, all of which can have monetary benefits or consequences, or injurious results. Thus, the decision making of the project manager is of critical importance to the smooth execution of a construction project. A successful project manager knows the job up and down: the construction plans, the job and material specifications, the schedule, where the bid allocates time and money for manpower and materials for each stage of the construction process, the different subcontractors and suppliers involved, the planned logistics for completing the job, and the potential spots where problems are likely to arise, just to name a few things. There will likely be times when the project manager is confronted with a question of which there is no clear-cut answer, but the project manager must provide an answer, and must do so relying on their knowledge and experience.
However, there are also times when a project manager make decisions fully knowing the consequences, or potential consequences, of his or her actions. The rationale for making the decision could be a myriad of reasons, such as to mitigate a loss on the job, or conversely to enlarge profit, or to keep the construction schedule on track. Whatever the basis, the repercussions for making a decision while fully understanding the consequences or potential consequences can be worse than making a decision fully unaware of any consequences or potential consequences.
Making decisions, of which the consequences can range from insignificant to very costly, is part of the risk-analysis responsibility of project managers. However, a project manager’s role in risk-management is only one line of defense to liability on construction projects. Another common line of defense to protect against exposure to loss, employed in almost every construction project, is the protection of insurance. Without delving into the complexities of insurance coverage or the myriad of options against liability and loss insurance can provide, there is generally one common topic of insurance that is commonly disputed: the event or circumstances that may or may not trigger insurance coverage.
Generally, insurance policies require an “occurrence” for coverage under the policy to be triggered. Commonly, insurance policies, as well as the law, define an “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Additionally, courts ordinarily define the term “accident” as unintended and unexpected happenings that occur without intention or design on the part of the insured. While these definitions offer guidance as to when insurance policies are provide coverage to their insureds, the issue of what constitutes an “occurrence” is very commonly litigated (or at least a declaratory judgment is sought) due to the many specific and unique circumstances that often arise in construction projects.
The case of Navigators Specialty Insurance Company v. Moorfield Construction, Inc.1 interlaces the two themes discussed above: the day-to-day decision making of construction project managers and the role of risk-management, particularly insurance. In Moorefield, a general contractor was sued by an owner several years after the completed construction of a shopping center based on claims the flooring had failed. The general contractor was covered under a commercial general liability (CGL) insurance policy throughout and after construction of the shopping center. After the insurer was notified of the lawsuit against the general contractor, the insurer filed suit seeking a declaration it had no duty under the CGL policy to defend or indemnify the general contractor in the lawsuit. The trial court found the vinyl composition tile (VCT) and carpet tiles at issue failed due to excessive concrete slab moisture from the original construction and concluded there was no covered “occurrence” under the CGL policy. Thus, the trial court ruled the insurer had no duty to defend or indemnify the general contractor because the general contractor’s liability arose from a non-covered claim.
On appeal, the general contractor argued its act of directing the flooring subcontract to install VCT and carpet tile was an “occurrence” under the CGL policy because the flooring damage was caused by vapor emission from the concrete slab over a period of years. In this case, coverage under the CGL policy would be triggered by an “occurrence” as defined above. Neither the general contractor nor the insurer disputed the general contractor acted deliberately in directing the flooring subcontractor to install the VCT and carpet tiles on the concrete slab. Accordingly, because the general contractor, as the insured, performed a deliberate act, there was no “accident” under California law unless some additional, unexpected, independent, and unforeseen happening occurred that produced the damage.
That was not the case here, as nothing else happened that might have caused the flooring to fail. The VCT and carpet failed due to excessive moisture from the original construction. In the words of the appellate court:
“Excess moisture in the concrete slab, creating high levels of moisture vapor emission, was not an additional, unexpected, independent, or unforeseen event. [The general contractor] knew of the moisture emission test results and knew those results exceeded specifications. The excess moisture was not independent of [the general contractor’s] intentional act but was the topic of discussion before the decision was made to install the flooring. [The flooring subcontractor] anticipated problems due to high moisture and would not install the flooring unless [the general contractor] released it from warranty claims.”2
The trial court had found the general contractor elected to proceed with installation knowing the moisture content exceeded design specifications and knowing the installer required a waiver to perform the installation. The general contractor’s project manager took a risk when he decided to have the flooring installed immediately so the shopping center could open in October, rather than wait for the concrete slab to evaporate more of its moisture content. The appellate court ruled the deliberate decision by the general contractor’s project manager made with knowledge that the moisture vapor emission rate from the concrete slab exceeded specifications was not accident because the damage was not produced by an additional, unexpected, independent, and unforeseen happening. Because the appellate court ruled the flooring failure was not a covered occurrence, the insurer had not duty indemnify the general contractor, leaving the general contractor to bear the full costs of its mishap, less defense costs.3
I chose to write about this case for several important reasons. First, because this case exemplifies superbly the gravity of the consequences that can result from the types of decisions project managers face on a daily basis. Second, this case exhibits some of the different types of risk management found in construction projects, such as decision making of the project manager, the role of insurance, and product warranties. My third reason for writing about this case is because I have personally experienced the exact dilemma this project manager faced. The following details my experience.
The project consisted of a new elevated corridor that would attach to the side of an existing manufacturing plant in order to connect to another, existing elevated corridor. My company was involved as a prime contractor on the project, working for a construction manager. Our scope of work consisted of the interior buildout (flooring, walls, and ceilings) of the elevated corridor, while a different contractor was responsible for the base build (foundation work, structural steel frame, elevated concrete slab, and shell). As with most construction projects, time was of the essence and thus the project was fast-track construction. As the project manager, my team and I immediately began our scopes of work as soon as we were able to begin. When it came time to lay the specified electrostatic dissipative (ESD) flooring tile, our subcontractor performed a standard calcium chloride test to measure the amount of moisture in the concrete slab. Approximately three days later the results came back revealing the moisture content of the concrete slab exceeded the ESD flooring manufacturer’s maximum moisture vapor emission rate (MVER) threshold. This came as no surprise once it was realized the concrete slab was poured only about two weeks prior, a fact that prior to the MVER results went unnoticed by the parties involved. Since it was a Friday, it was agreed to bring in some heaters and fans to try and draw out some of the moisture over the weekend (because there was some float in the schedule to try this out, although we all had our doubts it would work). The following Monday another calcium chloride test was performed. The results came back the same. Because the elevated corridor was enclosed and the only access to the construction work space led directly to the outdoors and it was summer, it was decided to test the concrete slab using a relative humidity test just in case the ambient temperature and humidity were affecting the results. Again, however, the relative humidity test results came back exceeding the ESD flooring manufacturer’s maximum MVER threshold. At this point the float in the schedule was exhausted, and as the project manager I was faced with the decision on how to procced. The flooring subcontractor refused to install the ESD tile unless the owner signed a release and waiver, and the superintendent for the construction manager was on my case to complete construction on schedule. It was discussed among the parties involved, based upon everyone’s experience, that the chances of the flooring failing (i.e. peeling up) due to excessive moisture was a very slim chance.
However, because the concrete slab was only poured a few weeks before my company began our scopes of work on the project and because the concrete slab was not part of our contractual obligations, I held my ground and refused to proceed with the installation of the flooring unless the owner signed a release and waiver (while I also agreed to apply a moisture barrier coating at no cost as a preventative measure to prevent the floor from failing). It must be pointed out that owners are never happy to be asked to sign a release and waiver for brand new construction they are purchasing which they have yet to use. After several meetings with the owner and all associated parties, the owner signed the release and waiver, and construction proceeded accordingly.
Similarly, in the case of Moorfield when confronted with the decision on whether to proceed or not, testimony revealed the project manager had also contemplated, based on his 40 years of experience, the margin of the flooring failing was unlikely. The general contractor’s project manager was not surprised by the results because moisture vapor emission rates exceeding specifications “happens all the time.”4 The project manager had been involved in other projects in which the MVER exceeded specifications. In each of those projects, the flooring was laid anyway and no problems ensued. The project manager believed there was “[l]ow risk to no risk” that flooring would fail if laid on a concrete slab with a MVER of seven to nine pounds, when the specification was five pounds.5 In such a situation the decision was “not difficult” for the project manager—“[i]t’s always lay the floor.”6 Testimony established the project manager had been involved in about 50 construction projects in which concrete slabs were tested for moisture vapor emission. Of those 50 projects, 49 had moisture vapor emission rates exceeding the required specifications. In each of those projects, the general contractor’s project manager laid the flooring and failure never occurred.
While my experience was very similar to that of the project manager’s in the case of Moorfield, I would be ignorant to not recognize and point out some key differences between the situations. First and foremost, my company was engaged as a prime contractor by a construction manager, and thus were responsible only for our scopes of work and not responsible for the entire project as was our construction manager, and the general contractor in the case of Moorefield. Second, if my memory serves correct, the MVER of the concrete slab on our project was testing between 10 to 12 pounds, approximately more than twice the maximum allowed per the manufacturer’s specifications. Thus, my experience when compared with the situation in Moorfield is not an “apples to apples” comparison.
The following are some takeaways from the circumstances described above:
For Attorneys:
- Observe the court’s differentiation between determining the insurer’s obligation to both defend and indemnify the general contractor in this instance, and why the court found the insurer had a duty to defend but not indemnify. Also consider the factual scenario and decision making process played out under the circumstances of this case, as it provides insight on where to navigate the deposition and/or examination of witnesses in cases of similar nature.
For Construction Managers:
- Note the common language of what constitutes an “occurrence” in the insurance policy in the case above, and know the language of what constitutes an “occurrence” in the insurance policies covering your projects, as well has how the jurisdictions where your projects are located define an “occurrence.” Also keep in mind the curing time for concrete and the proposed schedule for construction.
For Designers and Schedulers:
- Give forethought to the specified concrete mixture and the timeline of the construction schedule.
1 212 Cal. Rptr. 3d 231 (Dec. 27, 2016).
2 Id. at 247.
3 On a more technical note, the appellate court ruled the insurer did have a duty to defend the general contractor. The crux of the reason the insurer’s duty to defend was upheld on appeal was because the insurer had accepted the general contractor’s tender of defense with a reservation of rights. California case law specified that a duty to defend could only be extinguished prospectively and not retrospectively. However, an insurer, having reserved its right to do so, could obtain reimbursement of defense costs, which in hindsight, it never owed. That is, when the third-party lawsuit never presented any potential for policy coverage. That type of situation arises when subsequent case law establishes, in hindsight, that no duty to defend ever existed. Here, no case law arose subsequent to the insurer’s acceptance of the general contractor’s tender of defense which, if applied in hindsight, would have established that no duty to defend ever existed. Accordingly, reversing the trial court’s ruling and following the rule that the duty to defend is broader than a duty to indemnify, the appellate court ruled the insurer was required to defend the general contractor.
4 Moorfield Construction at 240.
5 Id. The moisture vapor emission rate is designated in a unit of lbs., but refers to the equivalent weight of water that has escaped from 1,000 square feet of concrete area in a 24 hour period.
6 Id.
January 23, 2017
When is a Design Professional Liable for a Contractor’s Execution of Construction?
Parties involved in a construction project may choose to allocate some or all responsibility of the construction means, methods, and procedures to a design professional by assigning such duties through the terms of the construction contract. But the more common procedure in construction contracting is to require a design professional to render construction administration services. These administration services may include reviewing shop drawings, making site visits to check the progress or quality of work, rejecting nonconforming work, issuing certificates of payment, issuing change orders, or other types of supervisory and verification services. While administrative services allocate control over certain aspects of construction to the design professional, a design professional’s execution its construction administration services does not supersede a contractor’s exclusive control over the means, methods, and procedures of the construction process. This reasoning is because a design professional’s construction administration services are focused with how the construction product compares with the design intent, not how the construction process is being managed. Because design professionals are only responsible for the final construction product, design professionals are not liable for damages resulting from faulty or defective construction means, methods, or procedures—outside contractual language stating otherwise.
Additionally, a design professional can be held liable for the means, methods, and procedures of the construction where the design professional voluntarily exercises and assumes control over the means, methods, and procedures of construction. Whether a design professional has assumed a duty regarding the construction means, methods, and procedures is a factual question that requires a detailed examination of the circumstances.
The difficulty in discerning the division of responsibilities between design professionals and contractors regarding the construction means, methods, and procedures is exemplified in the case of McKean v. Yates Engineering Corporation.1 In McKean v. Yates, the Mississippi Appellate Court was posed with determining whether and when the architect’s supervisory actions went beyond the specific provisions of a construction contract, and consequently, the architect’s liability.
In the case, an engineer provided the general contractor with design drawings for temporary scaffolding to support the pouring of a second-story concrete slab. The general contractor built the temporary scaffolding before receiving the engineer’s final version of scaffolding design drawings and ignored essential features of the engineer’s scaffolding design. The architect, in accordance with its administrative duties, visited the construction site on a weekly basis. During the visits, the architect would walk around the construction site to observe how much work was completed in order to certify payments to the general contractor. Because the second-story finished concrete slab was part of the final product, the architect was responsible for ensuring the concrete slab adhered to the design intent. In accordance with its duty to ensure the construction was complying with the design intent, the architect inspected the rebar and the formwork before the second-story concrete slab was poured, but did not review the engineer’s scaffolding design drawings or inspect the scaffolding the general contractor constructed. The scaffolding later collapsed as the concrete was poured, injuring several construction workers. The construction workers alleged the architect negligently failed to inspect the scaffolding and failed to correct known deficiencies in the scaffolding.
The court examined the signed AIA-B141 standard form agreement between the architect and the owner, which specified the architect was not responsible for construction methods or safety precautions in connection with the construction work. While the construction contract stipulated architect was not responsible for the construction means, methods and procedures, the architect could still be liable if, through its actions, the architect assumed these duties. Thus, the answer to the allegations turned on whether the architect’s actions went beyond the provisions of the construction contract. Although the architect had the general authority to reject work that did not conform to the construction contract documents, the architect had no authority to stop the work. The architect’s conduct did not establish it undertook to supervise any aspect of the scaffolding and therefore had no duty to warn the construction workers the scaffolding—the general contractor’s means and methods of construction—was inadequate. In sum, the architect was not liable for the scaffolding—a means and method of the construction—by the terms of the construction contract and because the architect did not, through its conduct, exhibit, or assume the responsibilities of the construction means, methods, and procedures.
However, a lone dissenting judge struggled with the ruling by the majority. The dissenting judge highlighted testimony the scaffolding was inadequate to the most casual observer, commenting that it only seemed natural the design and inspection of the formwork extended to the scaffolding that supported the formwork. While this reasoning seems completely logical to individuals not familiar with the nuances of the construction industry, the fact the scaffolding was a temporary structure and means of the construction process meant the scaffolding was not a part of the final design product for which the architect was responsible.
The case later proceeded to the Mississippi Supreme Court,2 which affirmed the seven factors used by the appellate court to determine whether the architect’s supervisory powers went beyond the provisions of the construction contract. The factors applied were: (i) actual supervision and control of the work; (ii) retention of the right to supervise and control, (iii) constant participation in ongoing activities at the construction site, (iv) supervision and coordination of subcontractors, (v) assumption of responsibilities for safety practices; (vi) authority to issue change orders, and (vii) the right to stop the work. The Mississippi Supreme Court concluded the appellate court’s seven-factor test applied in determining whether the architect’s supervisory duty went beyond the specific provisions of the contract, but noted the factors were not exhaustive.
As illustrated above, determining where a design professional’s exact threshold of responsibility for control of construction means, methods, and procedures lies is both a determination of contract language and a finding of fact on whether a design professional has encroached on those responsibilities through conduct. From a risk-management point of view, one way to limit a design professional’s liability is by ensuring the design professional employees themselves understand the extent and limits of their responsibilities on each particular project. Such action can take the form of both a check and review on employees’ understanding of the exact scope of their contractual obligations and consultation regarding the applicable jurisdiction’s laws and legal frameworks.
1 No. 2013-CA-01807-COA, 2015 Miss. App. LEXIS 446 (App. Sep. 1, 2015), reh’g en banc denied, No. 2013-CA-01807-COA, 2016 Miss. App. LEXIS 116 (App. Mar. 1, 2016).
2 McKean v. Yates Eng'g Corp., No. 2013-CT-01807-SCT, 2016 Miss. LEXIS 385 (Sep. 15, 2016).
February 2, 2017
When Safety Violations Amounting to a Material Breach Permit Termination of a Construction Contract for Cause
Termination of a construction contract for convenience is generally only permitted when allowed by the terms of the contract itself. On the other hand, termination of a contract for cause, sometimes known as termination for default, may arise out of the terms of the contract or may originate from the principles of contract law. One of the more common reasons for terminating a construction contract for cause under the principles of contract law is due to one party’s material breach of the contract. A material breach occurs when one party fails to perform a substantial part of the contract or the contract’s essential terms and conditions, which prevents the contract from being completed or defeats the purpose of the contract. Whether a breach is material can a difficult question to answer that requires knowing the terms, conditions, and substance of the contract at issue.
For example, in M & M Electrical Contractor, Inc. v. Cumberland Electric Membership Corporation1 the owner terminated its construction with a contractor based on the contractor’s documented safety violations. The contractor argued its instances of performing work on live electrical lines without properly grounding its equipment was not material enough to justify termination. The terms of the construction contract required the contractor to adhere to all applicable safety laws, rules, and regulations, as well as the owner’s safety rules and procedures. However, the evidence established the contractor was aware of the owner’s grounding policy from the very beginning and was aware of a subsequent directive from the owner demanding the use of electrical grounds for all energized electrical work. Although the owner terminated the construction contract on only the second documented incident of a breach of safety protocols which came only three days after the first incident, the court concluded the contractor’s failure to comply with the owner’s safety policy and directive was of sufficient magnitude to constitute a material breach of the construction contract.
The case of M & M Electrical Contractor, Inc. v. Cumberland Electric Membership Corporation illustrates a material breach of construction contract due to safety violations. Other common areas of conflict in the construction industry which may justify a material breach include the failure to complete the work in a workmanlike manner, the failure to make payment without a good faith basis, the failure to follow the construction documents, and the failure to perform in a timely manner. Again, it’s not always easy to ascertain whether or not a breach is material to permit the non-breaching party to terminate a contract. Because there is no bright-line rule in determining whether a breach is material or not, a party seeking to terminate a construction contract due to a potential material breach should seek appropriate legal consultation.
1 2016 Tenn. App. LEXIS 842 (Tenn. Ct. App. Nov. 4, 2016).
November 18, 2016
Construction Scheduling, the “Measured Mile” Analysis, and Expert Witnesses
Time is money. This saying holds especially true when it comes to construction projects. Accordingly, construction projects are always “under the gun” to get finished as quick as possible—usually at the behest of the owner in order to keep the cost of the project as cheap as possible. However, all parties involved in the construction process—owners, contractors, subcontractors, suppliers—have a vested interest in on-time performance. Nevertheless, delays in construction performance are among the most commonly litigated issues arising from construction projects.
Due to their complexity and the large number of involved parties, construction projects generally adhere to detailed schedules. Commonly used scheduling software in the construction industry includes Microsoft Project, SureTrak, Primavera P3, and Oracle P6, just to name a few. But construction schedules are only good when timely and accurately updated. If a construction project utilizes a schedule, the schedule will likely play a front and center role should a delay dispute arise.
When a construction delay results in productivity losses, measuring the cost of the delay can prove difficult. One way in which productivity losses can be demonstrated and proven is by using job-specific data by way of the “measured mile” analysis. The measured mile, or measured productivity method, compares the cost of the work accomplished during a disruption period to the cost of the work without a disruption. (See graphics below). However, difficulties arise as not all construction projects have either a period of uninterrupted performance by which to measure against or maintain sufficient records by which to measure productivity.
Image courtesy of Robson Forensic Image courtesy of Knowles Ltd
The measured mile approach to demonstrating productivity losses has generally been accepted by courts. However, utilizing the measured mile approach to measure productivity losses generally requires expert testimony. For example, in United States ex rel. Salinas Construction, Inc. v. Western Surety Co.1 a subcontractor utilized its primary owner as its sole witness on inefficiency damages for its claim for interference against the general contractor. The subcontractor’s lay witness had never performed a measured mile analysis, nor did the witness consult with any experts, attend any seminars, or read any books, pamphlets or other literature about the lost productivity method. The court permitted the subcontractor’s lay witness to testify from personal knowledge and provide lay opinion testimony based on basic measurements and simple math. The subcontractor’s lay witness subjectively decided which costs to consider, impacted versus unimpacted, and constructed a hypothetical world in which the subcontractor’s work on every day of the construction project went unimpacted by the general contractor’s interference. The “measured mile” was calculated by the subcontractor’s lay witness by choosing comparator days to determine a baseline cost-per-square foot, unimpacted the general contractor’s interference, based on how the witness believed the project should have gone and failed to control for variables not related to the general contractor’s interference. The court found the subcontractor’s lay witness had no experience employing the measured mile analysis and concluded the subcontractor required an expert to reliably select comparator days to thereby perform the measured mile analysis. Because the subcontractor did not utilize an expert to properly perform its measured mile analysis, the subcontractor failed to prove the interference approximated its inefficiency damages and ultimately lost the case.
As demonstrated in the case above, application of the measured mile analysis generally requires an expert witness, and the failure to utilize an expert witness in proving productivity losses can have costly consequences. Due to the highly sophisticated and technical nature of building and the number of parties involved in the construction process, construction delay and productivity claims will likely not disappear anytime soon. Here at CCL Construction Consultants, Inc., we have extensive experience with delay and productivity evaluations on projects throughout the U.S. and across the globe.
1 No. C14-1963JLR, 2016 U.S. Dist. LEXIS 88267 (W.D. Wash. July 7, 2016).
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