A Massachusetts trial court recently ruled that a Construction Manager at Risk could not sue the owner for design defects even thought the owner provided the plans and specifications for the project. This ruling is a substantial shift from the Spearin doctrine which has historically made the party providing the plans responsible for any shortcomings or problems with the plans.
In the case of Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, the Massachusetts Department of Mental Health engaged Gilbane Building Company as the Construction Manager at Risk. Gilbane subcontracted the electrical work to Coghlin Electrical Contractors. Coghlin Electrical experienced problems on the job and sued Gilbane, alleging that Gilbane mismanaged the project, including design changes to walls and ceilings throughout the structure. Gilbane then filed a third-party action against the owner, asserting that the owner is responsible for any damages caused by design changes and design errors. The owner responded claiming that the Construction Manager at Risk contract, including a broad indemnity clause, made Gilbane responsible for any damages sought by Coghlin Electrical.
The court agreed with the owner, finding that the Construction Manager at Risk contract made Gilbane responsible for Coghlin Electrical’s claim. The court quoted a few section from the 59 page contract:
- The CM shall review, on a continuous basis, development drawings, specifications and other design documents. The design reviews shall be performed with a group of architects and engineers, who are either employees or independent consultants under contract with the CM. . . . The CM shall review the design documents for clarity, consistency, constructability, maintainability/operability and coordination among the trades . . .
- The CM shall indemnify the owner against all claims, damages, losses and expenses . . . arising or resulting from: labor performed or furnished . . . regardless of whether or not such claims, damages, losses and/or expenses, are caused in whole or in part by the actions or inactions of a party indemnified hereunder.
In ruling for the owner, the court found it significant that this was not a typical design-bid-build project, but was rather an “alternative delivery method.” The Construction Manager at Risk project delivery method allows a public entity to benefit from the Construction Manager at Risk’s expertise during the design phase of the project. The Construction Manager at Risk, in essence, takes on additional duties and responsibilities for the project, which may subject a Construction Manager at Risk to additional financial exposure. This material change in the role of a Construction Manager makes the Construction Manager at Risk responsible for design deficiencies.
Take Away: If you are serving as Construction Manager at Risk, the contract may expose you to more liability than simple cost overruns. The contract may also make you responsible for any problems with the plans and specifications.
Fellow blogger Chris Cheatham posted an interesting article on his The Electronic Claim blog about ways a contractor may profit from the labor shortage. The blog is based on an article, 5 Ways to Profit from the 2014 Labor Shortage, published by McGraw Hill-Dodge. An important takeaway deals with how subcontractors are responding to the greater need for their services and whether they are profiting from this change in the marketplace.
As the article notes, the need for competent subcontractors is rising, but the number of competent subcontractors is not. This may present a situation where a subcontractor can get back to selling the experience and expertise that they bring to the table instead of striving for the lowest bid for the job.
The article further notes that subcontractors in high demand trades may also be able to increase margins on the job. Of course, bids will still have to be in line with competition, but if a subcontractor has a track record of successfully completing projects, a general contractor may be more inclined to use that subcontractor, even though the bid is higher than some of the lesser known competitors.
At the end of the day, the article reemphasizes the old adage, do good work and you will get more work. But, the marketplace and labor shortage may also present opportunities to increase margins on projects, making your work more profitable.
We have all seen this situation before. The bids come in, the lowest is taken, and lo and behold, the subcontractor finds out that it cannot perform for the amount listed in the bid. When this happens, the subcontractor may take the position that the general contractor should have told the subcontractor that their bid was too low. The case of Fidelity And Deposit Co of Maryland v Casey Industrial Inc. shows that it is be very difficult for the subcontractor to show that the general contractor should have told the subcontractor that its bid was too low.
In this case, Fidelity And Deposit Co of Maryland v Casey Industrial Inc. to supply and install piping for a power plant. Topps Mechanical estimated that it would need 10,000 linear feet to complete the job. In actuality, 35,000 linear feet were required to complete the job, resulting in a cost overrun of $4 million. Topps bonding company assisted in getting the job completed and litigation ensued.
Topps, through its surety, claimed that Casey Industrial breached an implied duty of good faith and that Casey Industrial had superior knowledge such that it should have told Topps that its bid was too low. The superior knowledge doctrine is an exception to the general rule that contractors in a firm, fixed price contract assume the risk of increased performance costs.
The superior knowledge doctrine typically applies to those situations where:
- the contractor takes on a project without vital knowledge of a fact that impacts performance costs or duration;
- the owner is aware that contractor has no knowledge of this fact;
- any contract specifications supplied misled the contractor or did not put it on notice to inquire; and
- the owner failed to provide the relevant information.
The court found that Topps was fully informed of all relevant aspects of the project and Casey Industrial had no obligation to disclose the quantity of piping that would be needed for completion of the project. The court commented that the contract even cautioned that:
”Topps must satisfy themselves as to the amount of pipe and fittings required to complete this system.”
And, Topps employees even testified that they did not believe that Casey Industrial was “holding out” on them and not giving Topps all the information needed for an accurate bid.
Take away: A general contractor does not have a duty to tell the subcontractor that its bid is too low where the subcontractor has been given all information necessary to submit an accurate bid.
I had the pleasure of presenting to the Omaha chapter of the National Association of the Remodeling Industry (NARI) last week on steps they could take to ensure that they get paid for their work.
The majority of our discussion dealt with construction contracts and clauses that should be included in their construction contracts. The clauses that I recommended included:
- Identification of contract document
- Detailed scope of work
- Dealing with concealed conditions
- Payment terms
- Dispute Resolution
- Change orders
I appreciate the opportunity to present and I thought we had a great discussion about how the NARI members could improve their construction contracts. If you’d like a copy of my presentation, including sample construction clauses, please let me know.
My friend and construction attorney, Chris Hill, raises a great point in his blog, Construction Law Musings, this week. He addresses the two questions you should always ask when pursuing construction litigation. The first, “Can you win the case and get a judgment?” The second, and as important, “Can you collect on that judgment?”
I invite you to check out Chris’s post Think Twice About Heading to Court with a Construction Claim.
On June 17, 2014, the U.S. Department of Labor issued its proposed rules to implement Executive Order 13658 which requires federal contractors to pay a higher minimum wage. The Executive Order requires the hourly minimum wage to be increased to $10.10 an hour.
Here are a few highlights of the proposed regulations:
The proposed rule will apply to contracts that are entered into after January 1, 2015.
Only certain types of contracts will be covered. These include:
- Procurement contracts exceeding $2,000 for construction covered by the Davis-Bacon Act;
- Service contracts exceeding $2,500 covered by the Service Contract Act;
- Concession contracts under which the federal government grants a right to use federal property, – including those contracts excluded from the Service Contract Act coverage; and
- Contracts to provide services to federal employees, their dependents, or the general public on federal property.
Required Contract Language
The new rule requires federal agencies to include a minimum wage clause in all covered contracts and all contractors and subcontractors must include the same clause in lower-tier subcontract. A portion of the required language is:
(a) Executive Order 13658. This contract is subject to Executive Order 13658, the regulations issued by the Secretary of Labor in this part pursuant to the Executive Order, and the following provisions. (b) Minimum Wages. (1) Each worker (as defined in § 10.2) employed in the performance of this contract by the prime contractor or any subcontractor, regardless of any contractual relationship which may be alleged to exist between the contractor and worker, shall be paid not less than the applicable minimum wage under Executive Order 13658. (2) The minimum wage required to be paid to each worker performing work on or in connection with this contract between January 1, 2015 and December 31, 2015 shall be $10.10 per hour through December 31, 2015
The remainder of the required language can be found in Appendix A to section 10. Given the length of the required contract language, I hope reference can be made to the regulation instead of adding the entire clause.
The proposed regulations can be found here.
The Department of Labor’s fact sheet on its proposed rules can found here.
Down in Florida, CH2M Hill and AECOM Technical Services were vying for the billion dollar project. CH2M Hill and AECOM submitted their proposal in the spring of 2013. CH2M Hill then submitted materials directly to county official prior to its August presentation. CH2M Hill was awarded the project.
AECOM cried foul, claiming that CH2M Hill violated local rules when it submitted materials directly to county officials. The county’s ethics chief cleared CH2M Hill of any wrongdoing, but the mayor decided that bidding irregularities mandated an additional round of presentations before a newly assembled panel. This new panel decided that AECOM should be awarded the project.
CH2M Hill then started its torrent of claims, arguing that AECOM misled the county about its experience. The county investigated CH2M Hill’s claims and found that 14 of 15 were without merit. The county is now finalizing the details of the project with AECOM.
I don’t profess to know what happened at the county level and whether CH2M Hill violated the county’s rules by providing materials directly to county officials. All I do know is that CH2M Hill had the project in hand, was embroiled in an ethics investigation over whether it violated local rules, and then lost the project after the mayor demanded a new review panel because of bidding irregularities in the first go round. Maybe CH2M Hill’s conduct did not violate the rules, but it was close enough to the line to make the county reconsider its bid. How close to the line is your company getting? Could your conduct cost you a bid?
I recently came across an article in Construction Executive, by Edwin Foulke, listing 13 ways to improve your OSHA compliance record. Mr. Foulke is a prolific writer and presenter on occupational safety and health issues, and author of the Workplace Safety and Health Law Blog You can find a copy of his article here.
Although Mr. Foulke’s article mentions 13 actions that can improve your OSHA compliance, a few of them stood out to me.
Develop an overall safety plan. Although OSHA does not presently require a written comprehensive safety plan, it does require that supervisors be trained in specific hazard areas. Employers would be well advised to create a overall safety strategy to not only train supervisors, but to also review your safety practices to ensure they are up to date.
Understand OSHA’s Multi-Employer Citation Policy. All contractors on a worksite should understand that more than one employer may be cited for a hazardous condition that violates an OSHA standard. This concept is particularly applicable where one employer creates a hazard that causes harm to another employer’s employee.
Comply with OHSA’s record keeping requirements. OSHA’s compliance officers are paying close attention to employers’ record keeping practices, particularly the OSHA 300 Logs—the log of work-related injuries and illnesses. Employers would be well served to review their last several years of logs to make sure that they accurately reflect all injuries. It’s so much easier to review them now instead of reviewing them with an OSHA compliance officer.
These are just three highlights of Mr. Foulke’s excellent article. I recommend you review all 13 points he raises to improve your OSHA compliance efforts.
Today I’m guest posting on Chris Hill’s excellent blog, Construction Law Musings. I’ve written an article on the recent state court opinions addressing whether faulty construction is an occurrence under Commercial General Liability insurance.
Click here to see my post on Construction Law Musings.
BuildZoom recently published an article on Rising Construction Activity. What I found interesting was that Omaha has had the most consistent growth since 2011.
The article compared cities such as Atlanta, Durham, Sacramento, Portland, Seattle and Omaha. For the years 2011, 2012 and 2013, Omaha consistently outpaced the other cities listed in the survey.
As set froth in the article, in 2011, Omaha issued nearly 35,000 building permits, nearly 40,000 in 2012 and over 50,000 in 2013.
This is tremendous growth for any city, and it’s heartening to see that Omaha in particular is doing so well.