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Tuesday
Dec182012

Owner Waives Claim For Liquidated Damages By Failing To Follow Claim Procedure In AIA A201

A recent case issued by the Court of Appeals of Tennessee should give comfort to general contractors and pause to owners.  In RCR Building Corp. v. Pinnacle Hospitality Partners, 2012 WL 5830587 (Tenn. Ct. App. November 15, 2012), the Court held that the owner waived its claim against the general contractor for liquidated damages because it did not submit the claim in accordance with the procedures set forth in the contract.  The parties executed the AIA A111 Contract Agreement, which incorporated the AIA A201 General Conditions.  The owner asserted liquidated damages against the general contractor for delays.  The general contractor argued in a Motion for Partial Summary Judgment that the owner had failed to submit its claim for liquidated damages in accordance with the procedures set forth in the contract and, therefore, waived the claim.  The trial court rejected the general contractor’s argument.

On appeal, the Court of Appeals held that:  (1) pursuant to paragraph 4.3 of the A201, the owner’s claim for liquidated damages was, in fact, a claim as defined therein; and (2) the trial court should have allowed the general contractor’s motion because the owner failed to submit the claim in accordance with the contract.  The Court of Appeals rejected several arguments of the owner, including that a claim for liquidated damages is not a claim as defined by the A201 and that an owner’s claim for liquidated damages was self-executing.  In essence, the Court of Appeals held that the dispute resolution procedures in the contract were applicable to both contracting parties.

This can be a particularly useful case for general contractors in two distinct scenarios.  First, the obvious use is to defeat, potentially, an owner’s claim for liquidated damages for failure to comply with the contract’s notice provisions.  This case can also be used to defend an owner’s assertion of virtually any backcharge if the owner failed to comply with the notice provision.  Second, and less obvious, this case can help the contractor in negotiating the terms of its contracts with owners.  Often, owners will try to modify the A201 notice provisions and other provisions addressing claims by expressly limiting the applicability of those provisions to the general contractor’s claims only.  With this case, general contractors can now point to an appellate court decision that supports the clear and unambiguous language of the A201 in negotiating the terms of the claims provisions of the contract.

Please contact Jack DiNicola for additional information.

Thursday
Apr192012

Massachusetts Mechanic's Lien Law "Cram Down" Provision Enforced - With A Twist

The Massachusetts Mechanic's Lien Law ("Lien Law") contains a mechanism intended to limit owners' and general contractors' exposure to liens.  See M.G.L. c. 254, sec. 4.  In essence, the amount of a subcontractor's or sub-subcontractor's lien is limited to the amount due or to become due the contractor or subcontractor that is in contractual privity with the lien claimant at the time the lien claimant's notice of contract is recorded.  Therefore, if a general contractor owes a subcontractor $100,000 (i.e., the amount due or to become due), and a sub-subcontractor of that subcontractor records a notice of contract asserting that it is owed $150,000, the amount of that lien is capped at $100,000 -- the amount due or to become due.  There are exceptions, however, if a lower tier subcontractor serves a notice of identification.

This provision has been enforced by Massachusetts courts for years.  The cram down provision is most often used in termination cases, where a subcontractor records a notice of contract after the general contractor is terminated.  In fact, the seminal case on this issue involved a terminated general contractor.  Usually, the analysis focuses on when the actual termination occurred versus when the notice of contract was recorded.  In a case issued by the Massachusetts Appeals Court on April 12, 2012, however, the notice of contract was recorded before the termination of the contractor.  See Superior Mech. Plmg. & Heating, Inc. v. Insurance Co. of the West, 2012 WL 1193887.  The Superior Mechanical Court did not focus on the date of the formal termination notice, but rather focused on the terms of the contract for default and payment, and the dates upon which those provisions controlled the relationship between the owner and the general contractor.  The Court determined that, despite the date of the formal notice of termination, at the time the subcontractor's notice of contract was recorded, pursuant to the terms of the general contract, there was no money due or to become due the general contractor.  The Appeal Court reversed a summary judgment decision in favor of the subcontractor and actually instructed the Superior Court, upon remand, to dismiss the subcontractor's mechanic's lien claim under the cram down provision.

The importance of this decision is that now courts must focus on the language of the governing contracts and the facts associated with default and payment, instead of simply focusing on the date of a termination notice.

Please contact Jack DiNicola for additional information

Monday
Jan232012

Construction Schedules & Delay Claims - General Contractor Claims

This is the second in a series of articles on Construction Schedules & Delay Claims.  In this article, we will address delay claims against owners.

As we mentioned in the first installment of this series, delay claims are difficult (and expensive) to prosecute.  Despite the difficulty and expense, the general contractor (and, of course, subcontractors) should follow basic procedures and practices during the project in order to protect and preserve these claims.

The first step at the outset of any construction project is to read the contract.  The Contract will address (1) how the general contractor is to submit the delay claim; (2) what information needs to be provided; (3) when it needs to be submitted; and (4) what the general contractor’s remedies are.  Although provisions impacting delay claims can be found in almost any section of the general contract, liquidated damages and delay claims can generally be found in (1) the Agreement (AIA A101, A133, etc.); and (2) the General Conditions (AIA A201), particularly Articles 4 (Architect), 7 (Changes in the Work), 8 (Time), and 15 (Claims and Disputes).

The general contractor should follow the notice provisions, both in terms of when the notice must be submitted and what information is required to be submitted.  The general contractor should also make sure that the subcontractors are aware of the notice requirements (both the timing and substance of the notice).

Some notice provisions are extremely detailed.  If there is ever a doubt about the impact of an event or an owner change, the general contractor should simply reserve the right to request additional time once the effect upon the schedule is fully understood.  At the time of a delay event, it is impossible to know the exact amount of delay that the general contractor will suffer simply because it is impossible to see into the future.  As long as it complies with the contract, the general contractor should reserve rights to assert delays and, when the general contractor does know the impact, notify the owner.  If the general contractor is required by contract to state the number of days at the time of the initial notice, it is important to make sure that you have requested enough time and reserve rights to more accurately address that particular claim.

General contractors should be careful when executing change orders.  If the general contractor signs a change order that does not provide time or does not reserve time, then the general contractor may be bound to that document and may not get additional time as a result of that change.  When in doubt, the general contractor should write in a reservation of rights to submit for a schedule extension.

While each individual change order may not, by itself, warrant an extension of time, the cumulative effect of multiple change orders may provide a basis for a time extension.  While these type of claims are difficult to prove, if the general contractor encounters a project where there are an inordinate amount of change orders, it is the proper course to reserve the right to request a time extension with each change order.

Aside from contact compliance, there are a few practical issues that assist the fair and reasonable discussion and processing of delay claims:

 

  • It can be uncomfortable to submit and discuss delay claims because, if valid, these issues will cost the owner a lot of time and money.  However, it is important to realize that delays cost the contractor too.  Every day that the contractor is working on that project costs thousands of dollars.  As difficult as it may be to discuss delays during the project with the owner, it is far more difficult to address them at the end of the project, when it comes as a surprise.  The better practice is to address these issues early.                    
  • Provide Information.  Tell the owner and architect what information you need, when you need it, and the consequences of not receiving that information when you need it.                    
  • Give Forewarning.  Before sending official notice, it is best to be courteous and tell the owner/architect what you need and when you need it.  Pick up the phone and tell the owner/architect that you need response to RFI No. __ or direction to proceed with Change Order Proposal No. __ within the next two weeks.  Give the owner/architect sufficient verbal notice to get you the information.                    
  • Give written notice, but call again.  If you don’t get a response from the first call, then call again and inform the owner/architect that you will be sending a notice letter within the next day or so, that you are just following the terms of the contract, and that you hope that the information/direction will be provided.
  • Provide solutions.  Be proactive in providing “pre-notice,” written notice, and solutions.  You will gain respect and credibility if you are seen as being part of the solution, rather than part of the problem.

For additional information, please contact Jack DiNicola at DSU.

Friday
Dec162011

Construction Schedules & Delay Claims -- Schedule Uses, Schedule Importance & Schedule Updates

This is the first in a series of articles on Construction Schedules and Delay Claims.  This article addresses (1) schedule uses; (2) schedule importance; and (3) schedule updates.

I.  Schedule Uses.

The Schedule has several uses.  The Baseline Schedule explains how the contractor is going to build the project.  The Schedule also aids in subcontractor management.  It is an important tool for both general contractors and subcontractors for coordination of activities.  Schedule Updates allows the parties to graphically determine progress when compared to the Baseline Schedule.  A proper Schedule also depicts changes in scope and the effect on the Schedule.  Schedules are obviously used for claim prosecution and claim defense.

II.  Why is the Schedule Important.

All construction contracts should have two basic elements in the scope of work.  The first element of the scope of work is the labor and materials to construct the building.  The second element of the scope of work is to construct the building within a stated amount of time.  A delay in the schedule is a breach of the contract -- for the Owner, for the contractor, for the subcontractors.

Delay claims are difficult to prove because there are so many variables, so many different entities involved, a lot of educated guesses, and great expense (lawyers and experts).  However, these claims serve practical purposes, aside from litigation and arbitration of these claims:         

  • Negotiation at project close-out with owner.  Often, the final payment is the most difficult payment to receive.  At that time, general contractors may receive numerous backcharges from the owner against the final contract balance.  Even if some of those claims are legitimate, a well documented and noticed delay claim can be used to negotiate a final close-out that is acceptable, even if the general contractor does not receive delay damages.
  • Negotiation at project close-out with subcontractors.  Some subcontractors routinely submit delay or inefficiency claims, using so-called industry data to support the claim.  Using the subcontract and the schedule during the project to notice the subcontractor of its schedule delays will assist in a timely project close-out.  Additionally, when faced with a troubled project from a schedule standpoint, the contractor must, during the project, be able to document specific delaying events and impacts for each subcontractor.

III.  Schedule Updates.

Periodic Schedule Updates serve several uses:

  • They keep all parties (owner, contractor, subcontractor) up to date on the progress and what needs to occur to remain on schedule (or to catch up on the schedule)
  • They serve as a control for the contractor.  The Schedule Update shows the contractor where it is on the schedule, where it can pick up time, where and who is falling behind schedule. 
  • Schedule Updates can also serve as a cost control mechanism.  If the project is falling behind schedule and that is depicted on the schedule updates, the contractor knows that it will incur additional expense either (1) through extended general conditions; or (2) acceleration payments to subcontractors.  Often, without proper updating, the contractor will fall behind schedule, start paying subcontractors for overtime to accelerate, but not know (1) who is responsible; or (2) how much it will cost.  More often than not, it is too late when the costs are realized.                    

Schedule Updates generally show one of three things:  (1) on schedule; (2) behind schedule; or (3) ahead of schedule.  As a result, distribution of schedule updates can be a sensitive issue.  As an initial matter, the general contractor must review the contract requirements.  Many contracts require that periodic schedule updates be published to the owner.  In these instances, the schedule updates must be drafted with care.  It is never wise to ignore bad facts or bad news regarding the schedule until the end of the project.  However, it is also not good practice to overload the owner with information that consists mostly of projections.  A reasonable way to approach schedule updates that are distributed to the owner is to provide summary schedule updates (if allowed by the contract).  If the summary shows a delay, then the general contractor should be prepared to discuss (1) the reasons for the delay; and (2) possible solutions to mitigate the delay.

For additional information, please contact Jack DiNicola at DSU.

 

Wednesday
Nov162011

DiNicola Addresses BC Law Students on Construction Law Careers

On November 14, 2011, Jack DiNicola, partner at DSU, and Jim Tierney of the Boston Redevelopment Authority presented a lunch discussion concerning legal careers in construction law and development law to students at Boston College Law School. 

Mr. Tierney discussed his career path and a typical day working for the BRA in evaluating construction and development projects.  Mr. DiNicola discussed his career path and a typical day working on behalf of general contractors and other participants in the construction industry.