Lamson, Dugan and Murray, LLP, Attorneys at Law

Can General Contractors Make Subcontractors Pay for OSHA Violations?

Posted in OSHA

OSHA has long held the opinion that general contractors may be held liable for subcontractor’s OSHA violations and the Eighth Circuit Court of Appeals, overseeing the Midwest, has agreed since 2009. To combat this risk, general contractors would be well served to incorporate targeted indemnity provisions into their subcontracts that require subcontractors to pay for all claims and costs associated with subcontractor caused OSHA violations.

Craig Martin, Construction Attorney Lamson Dugan & Murray, LLP

OSHA’s Multi-Employer Policy

OSHA’s Multi-Employer Policy, a/k/a OSHA Instruction CPL 02-00-124, allows OSHA to cite multiple employers at a single worksite for creating a hazard, or for failing to prevent or correct a hazard, even if their own workers are not exposed to the hazard. A ‘‘controlling’’ or ‘‘correcting’’ employer is liable for hazards that it did not take ‘‘reasonable care’’ to detect and prevent.

The case that brought this issue to a head in the Midwest is Solis v. Summit Contractors, Inc. which involved Summit Contractors oversight of a college dormitory construction project in Arkansas. Summit had only four employees on the job and utilized subcontractors for the vast majority of the work on the project. OSHA stopped by for an inspection and noticed a subcontractor’s workers on defective scaffolding who were not wearing fall protection. OSHA issued Summit a citation for this safety violation as the “controlling employer.” The case wound its way through the court system, with the Eighth Circuit Court of Appeals holding that OSHA was permitted to rely on the multi-employer worksite doctrine to cite general contractors for the safety violations of its subcontractors.

The Takeaway for General Contractors

General contractors facing increased risk of being cited for their subcontractor’s misconduct can take a few steps to minimize their liability. General contractors may incorporate indemnity clauses specifically tailored to address situations in which a general contractor is cited for a subcontractor’s OSHA non-compliance. Here is a sample clause:

Subcontractor shall defend, indemnify and hold harmless General Contractor from and against all claims, penalties, fines, losses, judgments, liabilities, settlements, costs and expenses, including but not limited to attorney’s fees, arising out of, relating to, or incurred in connection with the breach or violation of any occupational safety and health administration (“OSHA”) laws, rules, or regulations by Subcontractor, any of Subcontractor’s subcontractors, anyone directly or indirectly employed by them or anyone for whose acts any of them may be liable.

Incorporating an indemnity provision that targets OSHA violations should assist general contractors in recovering any penalties assessed by OSHA against the general contractor for a subcontractor’s safety violations.

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP

How Long is Your Construction Warranty?

Posted in Nebraska Construction

The Nebraska Court of Appeals threw a wrench into the calculation of your warranty iStock_000017987518XSmallearlier this year in Adams v. Manchester Park, LLC and Southfork Homes, Inc. In that case, the court found that the statute of limitations for a warranty claim started running after the homebuilder’s warranty expired. So, the four year breach of warranty statute of limitations did not begin until after the one year homebuilder warranty expired.

In this case, the homeowner purchased a home from Southfork in September, 2007. The purchase agreement provided for a one-year New Home Limited Warranty which covered material defects in workmanship and materials. The homeowner noticed cracks in the drywall and problems with windows within 6 months of the purchase. The builder told the homeowner to keep track of all the problems and they would be fixed at the yearend walk through.

The homebuilder brought in contractors at the yearend walk through and cosmetically fixed the problems. Afterwards, the homeowner continued to experience settling problems with the house, but the builder refused to fix the problems.

In September, 2011, slightly more than four years after closing on the house, the homeowner sued the builder, alleging breach of express and implied warranties. The builder moved to dismiss, arguing that the four year statute of limitations for bringing a breach of warranty claim had run because the lawsuit was not brought within four years of the house being completed. The trial court agreed and dismissed the case.

On appeal, the court of appeals found that the four year statute of limitations had not run. With very little analysis or explanation, the court of appeals concluded:

[after] the expiration of the 1–year limited warranty . . . the statute of limitations pursuant to § 25–223 commenced for an action based on an “alleged breach of warranty on improvements to real property or based on any alleged deficiency in the design, planning, supervision, or observation of construction, or construction of an improvement to real property” between [the builder] and the [homeowner].

So, the homeowner had, in essence, five years to file it claim—the one year homebuilder warranty plus the four year statute of limitations.

This is certainly an interesting development for Nebraska builders. The homebuilder in this case had asked the Nebraska Supreme Court to look at this issue, but as of the date of posting this blog, the court has not indicated whether it would take the case. While we wait for this matter to work it’s way through the courts, builders are well advised to consider that their express warranty may be adding years to the time by which property owners must sue for poor workmanship.

 

Preserving Your Construction Claim

Posted in Construction Claims

A recent article in the Construction Executive discussed the importance of preserving yourCraig Martin, Construction attorney Lamson Dugan & Murray, LLP claim, both in terms of timeliness of submitting your claim and making sure that you aren’t waiving portions of your claim when executing releases. These are all excellent points and bear some follow-up.

Timing Your Claim

I often review construction contracts that contain deadlines by which claims must be submitted. It may seem counter intuitive to think that you need to submit a claim when you are discussing the basis for the claim with an upstream contractor or the owner. But, there are more cases than I care to count where a contractor’s claim has been denied because the claim was not timely submitted.

Tool Box Tip: A good practice is to summarize the claim deadlines on a contract checklist so that you have the deadlines easily at hand when you are considering a claim.

Preserving Your Claim

When it comes to resolving disputes on a project, contractors are often asked to sign contract modifications or releases. While the purpose for the modification or release may be narrow, the release or modification may contain broad waivers of rights. As noted in the CE article, even governmental entities are not above using broad waivers, leaving it to the contractor to find the broad language and limit it. Contractors may also be asked to waive lien rights when receiving a partial payment that are much broader than the payment being made.

Tool Box Tip: Make sure that when you are being asked to waive rights, you read all the fine print and speak up if you notice that the rights being waived are broader than those sought to be resolved.

 

Beware of Statutory Limits on Change Orders

Posted in Public Contracts

While change orders are always part of construction projects, it’s important to know Craig Martin, Lamson Dugan & Murray, Construction Attorneywhether a public agency is limited on how much it can increase the scope of the work through change orders. A contractor in Virginia found out the hard way that the state agency did not have the authority to increase the scope of the project and thus the contractor could not collect for the extra work.

In Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, the contractor was hired by the housing authority to prepare a site for construction. The project did not go well and both sides blamed the other for delays and increased costs. After being removed from the project, the contractor sued the housing authority for, among other things, breach of contract. The jury awarded the contractor a total of $915,000 for the housing authority’s failure to pay for extra work and improper removal.

The trial court reduced the verdict to $215,000 based on a Virginia statute that restricts the amount by which a public contract may be increased through change orders. In essence, the court concluded that even if the housing authority demanded that the contractor perform extra work, the contractor cannot recover because the housing authority failed to obtain permission from the state to increase the contract amount.

This case illustrates a real problem for contractors on public projects in states that have statutory cap statutes. The contract may require the contractor to continue with the work pending negotiation/approval of the change order. And, even when both parties agree to the change order, the public entity may not have obtained the necessary approvals to implement the change order. In those situations, the contractor may not be able to recover the cost of the extra work.

Take Away: Contractors have to be aware of state laws that limit the amount by which a contract may be increased. If the state statute limits the increase to a certain percentage, the contractor must make sure that the agency obtains the proper permission to increase the scope of the contract before undertaking the additional work.

 

Top 10 Lessons Learned from a Construction Attorney

Posted in Best Practices

iStock_000038546718LargeI have had the pleasure of working with Cordell Parvin, who in his earlier career was a preeminent construction attorney, and now coaches attorneys.  Cordell has shared countless construction guides and presentations with me over the years, for which I am extremely grateful.  Below is Cordell’s Lesson’s Learned list, that is as true today as when he drafted it years ago.

  1. Contracts and owners are not all alike. Some are fairer than others. Some create greater risks of making the budget if we encounter changes, delays and impacts. We should appreciate the risks before bidding and not underestimate indirect costs of staff to deal with these situations.
  2. It is important to have a thorough understanding of the Contract Administration requirements of complex contracts. Identifying specifically what must be done when changes, delays and differing site conditions are encountered is one way to establish the understanding.
  3. If a project ever ends up in court, every letter, note, e-mail and memo is evidence and will be taken out of context by the opposing lawyer. Recording every mistake, miscalculation, problem or lesson learned during construction of the project will come back to haunt you.
  4. The owner’s project management and upper management may make promises or representations their lawyers will later not let them keep.
  5. It is easy to grossly underestimate or forget about the time and cost “impacts” on original contract work caused by design defects and changes made by the owner to correct them. Failing to include these costs in change orders makes it far more difficult to recover the costs later.
  6. When preparing a complex claim or request for equitable adjustment, it is important to have a clear understanding of legal entitlement, the main themes and what will cause the owner to make a fair settlement. Otherwise, a great deal of time and wasted effort will be expended.
  7. Many owners on difficult projects do not think as contractors do. Therefore, it is difficult to negotiate with them as we would with another contractor. Time may mean nothing to them; the cost of litigation may mean little to them; the fairness or logic of a situation may mean less. Because contractors are asking for additional money from owners, owners may have more leverage. They may wear contractors down and use liquidated damages or other set-offs to reduce the amount of a fair settlement.
  8. If the owner is reasonable, it is important to make best efforts at a fair settlement of a claim before filing a lawsuit. At the same time, it is unlikely a settlement will be reached if we appear too anxious or if we negotiate against ourselves. If the owner is unwilling to be reasonable, there is no choice other than filing suit or demanding arbitration. The sooner that action is taken, the sooner the matter will be settled or otherwise resolved because the pressure of trial will promote resolution. Once the lawsuit is filed, be prepared for it to be terribly expensive and to lose some control of the schedule and resolution.
  9. Jurors see the claim/case far differently than we do. Similar to a television western from the 50s, they will seek to determine who are the good guys and who are the bad guys. Once determined, they will tend to ignore anything inconsistent with their earlier formed opinion. Presentation to jurors is different than the presentation to the owner. It must be made in terms the jurors understand. A detailed description of the project will only serve to confuse them.
  10. As much as we would prefer to never actually try the case/claim in court, owners fear the trial even more. Most claims that are litigated are settled on the courthouse steps just before trial.

Pursuing construction claims can be difficult, but keeping these lessons in mind from the beginning of the project can make the journey more successful, and avoid that feeling that you are beating your head against the wall.

Improvements to AIA Contracts?

Posted in AIA Contracts, Uncategorized

Joel Sciascia, general counsel for the construction management company Pavarini McGovern, made some insightful comments in the Viewpoint section of the latest Engineering News Record magazine. He argues that architects should not be the initial decision maker (“IDM”) under AIA contracts. Instead of using the architect, Mr. Sciascia suggests the use of an independent dispute-resolution board.

In 2007, the AIA introduced a new concept into the A-201 documents through which the owner and contractor had the option of naming an independent third party to resolve disputes, instead of automatically allowing the architect to resolve disputes. But, if the parties did not select any specific independent decision maker, the architect would be considered the default initial decision maker.

Mr. Sciascia suggests that the AIA A-201 should be updatedto provide for a dispute resolution board that does not include the architect to decide the dispute. Mr. Sciascia contends that this would make the architect available as a witness for either party or the IDM, to assist with resolving the dispute.

Another point made by Mr. Sciascia is that the IDM must be required to make a decision. Under the current language, the IDM may make no decision. If the IDM refused to make a decision, I think all parties would agree that the entire exercise was a waste of time.

Finally, Mr. Sciascia suggests that the A-201 must require the parties to split the costs of the IDM. Given the potential cost of getting an architect, engineer, or attorney up to speed on a project could be expensive, it certainly makes sense to require the parties to split those costs.

Mr. Sciascia brings some common sense dispute resolution concepts to the table in his article. Only time will tell whether the AIA will think these common sense concepts should be added to the next version of the A-201.

 

The Insurance Coverage Debate on Construction Defects Continues

Posted in Insurance coverage

New Hampshire is the first court of 2015 to weigh in on construction defect coverage Craig Martin, Lamson Dugan & Murray, LLP Construction Attorneyissues. The case, Cogswell Farm Condominium Association v. Tower Group, involved a typical situation. Lemery Building Company was hired to build 24 residential condominium units. After construction, the condominium association sued the builder asserting that the weather barrier, including the water/ice shield, flashing, siding, and vapor barrier, was defectively constructed and resulted in damage to the units due to water leaks. The condominium association also sued Lemery’s insurer for a determination as to whether the builder’s Commercial General Liability (CGL) insurer had to provide coverage for the claim.

The trial court ruled against the condominium association, finding that the “your work” exclusion applied. The exclusion in the builder’s CGL policy provided that there was no coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”

On appeal, the condominium association argued that it was not seeking coverage for the poorly installed weather barrier, but only for the damage the poorly installed weather barrier caused to other portions of the property. The insurer argued that Lemery was the general contractor and the exclusion applies to preclude coverage for all damage caused by Lemery’s defective work.

The appellate court found that the exclusion could be interpreted two ways. The exclusion can be read broadly to exclude coverage for all damage to the insured’s work or more narrowly to exclude coverage only for those parts of the property on which the allegedly defective work was done. The narrow reading would preclude coverage for damage to the defective weather barriers, but allows coverage for damage to the non-defectively constructed parts of the condominium units that was caused by the weather barriers.

The court ultimately concluded that the insurance policy was ambiguous and must be interpreted to provide coverage. As such, the court ruled that the “your work” exclusion barred coverage for property damage to the weather barrier; however, the exclusion does not bar coverage for damage to those portions of the units that were not defectively constructed but were damaged as a result of the defective work.

This is another ruling that contractors will appreciate. But, the breadth of the “your work” exclusion is still being contested around country and how it will be resolved in your jurisdiction may still be unknown.

 

Why I Love Being Your Construction Attorney

Posted in Construction Law

I love working as a construction attorney because I get to work with clients who love what they do. As a construction attorney, I have the privilege of working with individuals who have taken their passion, created a business, and are striving for success. These individuals, that love the trade, love the work, but hate the legal red tape, are the reason I love doing what I do.

I was reminded of how lucky I am to be working with such great individuals in a recent article in the latest edition of Associated Builders and Contractors Construction Executive. This article highlighted Matthew Ramonoff, an electrician who grew up in the business and has grown the business to $65 million in sales in 2014 and a workforce of 400 employee. As noted in the article, this is a tremendous jump from the dozen or so craft professionals he started working with in 1993.

Although it not mentioned in the article, I am sure that Mr. Romanoff has an attorney or two who have provided him with counsel over the years that helped his company grow. Whether it was advice on how to deal with a problem employee, union organization, contract drafting, to succession planning, I have no doubt that there are some construction attorneys who had the pleasure of working with a client who was passionate about his trade and had the opportunity to watch a client grow exponentially over the years.

For me, nothing brings me more joy than helping a client work through the growing pains of becoming a successful company, whatever the trade. It is these hardworking individuals, like Mr. Romanoff, that make it a pleasure for me to come to work and help construction companies succeed and grow.  Thank you.

 

Construction Law Seminar–Free

Posted in Construction Law

SAVE THE DATE

Tuesday, March 10, 2015

 Best Practices in Construction Seminar

La Vista Conference Center

12520 Westport Parkway, La Vista, Nebraska‎

Goldleaf Surety is sponsoring a seminar on Construction Best Practices.  I will be presenting on the following topics:

Lien Claims in Nebraska and Iowa

  • Filing a lien may prove to be one of your best protections to get paid. But, doing it right is crucial to getting paid. During this presentation, we will discuss the differences between filing liens in Nebraska and Iowa, and how to make sure you get it right in both states. A few of the topics we will discuss are:
    • Who Can File?
    • When Do I File a Lien?
    • Where Do I File a Lien?
    • What Should the Lien Contain?
    • What Notices Do I Have to Provide?

Effective Project Documentation

  • How you document a project can make the difference between a successful claim and a waste of time. During this presentation, we will discuss practices that you can implement to better position your company to pursue claims. Our discussion will include:
    • Contract Summary Sheets
    • Contract Summary Sheets
    • Best Practices for Project Files
    • Supporting your Claim

Beware of These Construction Clauses

  • Construction contracts are full of dangerous provisions, which if enforced, could cause significant problems to the project and your operations. During this presentation, we will discuss the most hotly contested contract clauses and how you can better prepare your company to address these provisions. A few of the provisions we will discuss are:
    • Notice and Claim Procedures
    • Claim Waivers and Releases w/ Pay Applications
    • No Damage for Delay
    • Consequential Damages
    • Waiver
    • No Limit Liquidated Damages
    • Pay-if-Paid
    • Default for Convenience
    • Indemnification

There is no charge for the seminar.  We hope to see you there.

The Future Looks Bright for Construction in 2015

Posted in Construction Economy

Associated Builders and Contractors’ Construction Executive has painted a rosy outlook
Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP
for the upcoming year. ABC’s Chief Economist predicts a 7.4 percent increase in total nonresidential spending for 2015. This is great news for a construction industry that has climbing out of the recession through fits and starts over the last several months.

Perhaps the most telling statistic was ABC’s Construction Backlog Indicator, which reached an all time high in the third quarter of 2014. The back-log indicator reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead. ABC’s Construction Backlog Indicator showed substantial growth in the northeast of 8.7% and middle states of 7.9%. The west and south lagged at 1.1% and 2.2% respectively. These figures also correspond to larger backlogs for construction companies. In the West and Northeast, the back log increased by two months.

ABC’s economist anticipates that growth will be spread over several industries with projects relating to energy leading the way. Other strong sectors expected in 2015 include lodging, manufacturing and professional services, such as office space.

Perhaps typical of an economist’s conservative nature, even with these remarkable projections, ABC’s economist concludes that:

the next year should be a decent one for the U.S. economy.

Here to all of us having a “decent” 2015 with more than 7% growth.