Thanks to everyone that attended last week’s Lunch & Learn on preparing claims. We had some great discussion from both the ranks of general contractors and subcontractors.
For those of you that missed the meeting or didn’t pick up the handout, A Winning Procedure to Develop a Request for Compensation, send me an e-mail and I’ll send it to you. My e-mail address is email@example.com.
In a nutshell, to develop a winning request for compensation, you must:
- Select the Right Team
- Identify the Issues
- Review the Contract
- Come Up with a Plan
- Review the Schedule
- Review ALL Job Docs, including change orders and correspondence
- Review Costs
- Determine Legal Entitlement
- Determine Funding Source
Submitting a claim is always difficult, but if you have a procedure in place, it can make the process easier and more successful.
Last week I presented to the Great Plains Chapter of the American Society of Professional Estimators on arbitration and litigation. Some of the questions related to the difficulty of appealing an arbitrator’s decision. A Florida appellate court recently confirmed this difficulty.
In Village at Dolphin Commerce Center, LLC v. Construction Service Solutions, LLC, a contractor filed an arbitration claim against the owner to get paid for its work. The owner claimed that the contractor could not maintain the claim to get paid because the contractor was not licensed. Apparently, there is a law in Florida that a contractor unlicensed at the time of the contract cannot maintain an action in Florida for unpaid work.
The arbitrator appears to have ignored the Florida law that an unlicensed contractor could not maintain an action to get paid for its work and ruled in favor of the contractor.
The owner appealed to the state court, arguing that the arbitrator misapplied Florida law. The court refused to hear the case, finding the parties had willingly submitted their claim to the arbitrator and they were bound by the results. In essence, the parties to the arbitration could not appeal the arbitrator’s decision.
Why You Should Care: Arbitration can be effective to resolve a claim, but you will likely be stuck with the arbitrator’s decision without a chance for an appeal.
Some time ago, I wrote about union THUGS (The Helpful Union Guys) that tormented merit shops to force contractors to use union labor on projects. The THUGS set fire to equipment, beat contractors with baseball bats, and picketed apartment complexes where contractors lived.
Recently two of the ten union members plead guilty to arson-related charges, including two counts of maliciously damaging property by means of fire, extortion, and RICO conspiracy charges.
For their actions, the union members are looking at up to 110 years in prison and over $1 million in fines. The judge is expected to sentence them in early 2015.
The Office of Federal Contract Compliance Programs (OFCCP) has been busy. In the last several weeks, the OFCCP has proposed regulations that will require contractors and subcontractors to provide summary compensation data and another rule prohibiting federal contractors and subcontractors from discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.
Equal Pay Report
The OFCCP has proposed Summary Compensation regulations which would require federal contractors and subcontractors with more than 100 employees to “provide summary data on the compensation paid to employees by sex, race, ethnicity, specified job categories, and other relevant data points.” Covered employers would have to submit three types of information:
- the total number of workers within a specific EEO-1 job category by race, ethnicity and sex;
- total W-2 wages defined as the total individual W-2 wages for all workers in the job category by race, ethnicity and sex; and
- total hours worked, defined as the number of hours worked by all employees in the job category by race, ethnicity and sex.
Prohibition to Pay Secrecy
The OFCCP announced a proposed rule to prohibit pay secrecy policies and actions by covered Federal contractors and subcontractors. The proposed rule will implement Executive Order 13665 by prohibiting federal contractors from discharging or discriminating in any other way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.
The OFCCP concluded that this rule will enable 28 million employees of federal contractors and subcontractors to discuss their compensation without fear of adverse action and will contribute to reducing pay discrimination and ensure that qualified and productive employees receive fair compensation.
Why you should care: If you are a federal contractor, these two rules are yet another rule proposed by the OFCCP which will impact your operations and will require additional reporting should they actually become federal regulations.
The National Association of Home Builders recently conducted a survey asking its members about the legal issues they faced in the last 12 months and whether they consulted their attorney to deal with the problem. Below are some highlights of the survey.
||% of Homebuilders
||% Contacted Counsel
|Warranty/call back claims
|CGL Coverage Questions
I was not surprised that over 80% of home builders contacted their counsel when dealing with contract disputes and defective installation and workmanship issues. But, I was surprised to see that only 33% of home builders contacted their counsel when dealing with OSHA problems. Given the potential penalties involved in OSHA violations, I thought that more home builders would contact their attorney to assist with the problem.
How often do you contact your attorney to discuss legal issues? Are these survey results in line with your business?
The Texas Supreme Court recently ruled that a “no-damages-for-delay” clause would not be enforced where the delay was caused by the owner. The court’s ruling flies squarely in the face of the contract language that attempted to insulate the owner from any delay claims, even those it caused.
In the case of Zachary Construction v. Port of Houston underlying contract, proposed by the Port of Houston, was heavy handed, to say the least. The contract provided:
[Contractor] shall receive no financial compensation for delay or hindrance to the Work. In no event shall the Port Authority be liable to [Contractor] … for any damages arising out of or associated with any delay or hindrance to the Work, regardless of the source of the delay or hindrance, including events of Force Majeure, AND EVEN IF SUCH DELAY OR HINDRANCE RESULTS FROM, ARISES OUT OF OR IS DUE IN WHOLE OR IN PART, TO THE NEGLIGENCE, BREACH OF CONTRACT OR OTHER FAULT OF THE PORT AUTHORITY. [Contractor’s] sole remedy in any such case shall be an extension of time.
Wow, that’s some one-sided language. If the contract was enforced, the contractor could not get any damages for delay, even those damages caused by the active interference of the Port of Houston.
During construction, the Port of Houston expanded the scope of the project. The parties entered into a change order with pricing based on the contractor’s proposed method of completion. After the change order, the Port of Houston insisted that the contractor resubmit plans to perform the work. Ultimately, the Port of Houston required the contractor to complete the project using the methods required by the Port of Houston, which caused delays and increased costs.
Not surprisingly, the contractor demanded that the Port of Houston compensate it for the increased costs of using the Port of Houston’s construction methods. The Port of Houston refused, citing to the no-damage-for-delay clause in the contract. The case went to trial and the jury found in favor of the contractor. Perhaps the juror realized that enforcing the no-damage-for-delay clause would simply not have been fair.
The case was appealed and the intermediate appellate court reversed. The case was then heard by the Texas Supreme Court, which reinstated the jury verdict. The Texas Supreme Court found that a no-damage-for-delay clause would not be enforced when an owner actively interferes with a project.
Takeaway: Fundamental fairness tells us that an owner should not be able to interfere with a contractor’s work and then expect to rely on a no-damage-for-delay clause to avoid liability. But, today’s legal environment also tells us that proving that the owner’s conduct was simply not fair can take a long time (8 years) and perhaps negotiating better contract language upfront will make the project run more smoothly.
The Nebraska Court of Appeals has ruled that a home builder that fails to adequately compact the soil does not have insurance coverage to repair damages to the home caused by the settling soil. In “insurance speak”, there was no occurrence to trigger coverage.
In this case, Cizek Homes, Inc. v Columbia National Insurance Company, a home builder contracted with a buyer to build a house. A lot was selected and the home was built. After the buyer moved in, the house started to settle, causing damage to the house. The buyer told the builder about these problems and the builder agreed to fix the problems. The builder also contacted its insurance company and requested coverage for the buyer’s claim. The insurer rejected the claim, determining that the buyer’s claim was not covered by the builder’s Commercial General Liability (CGL) insurance.
The insurer then filed suit asking the court to interpret the insurance policy and to determine whether the CGL insurance covered the claim. The court looked to the buyer’s allegations that the builder failed to construct the home in accordance with accepted construction and industry standards and that the builder was negligent in designing and constructing the home. The builder admitted that it was obligated to pay for the costs of repairs, but denied that it was negligent in constructing the home.
The first question for the court was whether there was an occurrence under the policy. Under the policy, an occurrence is defined as an accident including continuous or repeated exposure to substantially the same harmful conditions. Relying on established case law in Nebraska, the court determined that faulty workmanship, standing alone, is not an occurrence under a CGL policy. This means that if the faulty workmanship only damages the work, such as a roofer’s faulty work damaging only the roof, there is no occurrence.
Looking again to the allegations between the buyer and the builder, the court found that the there were no facts presented that would support an inference that the damage was caused by anything other than the builder’s negligence. Moreover, the only damage claimed was to the house, which means that the only damage was to the work itself, and thus there was no occurrence. Because there was no occurrence, coverage was never triggered.
This opinion makes clear in Nebraska that a contractor’s faulty work, that only damages the work that contractor performed, will not be covered by the contractor’s commercial general liability insurance.
Join us for our Fall Lunch & Learn
Thursday, October 16th at 11:30.
We will be discussing How to Prepare a Winning Request for Compensation.
The topics we will cover include:
- Developing a Roadmap to Prepare the Claim
- Determining Applicable Contract Terms
- The Impact of Change Orders
- Identifying the Important Documents
- Calculating the Amount Owed
Seating is limited, so please RSVP to Craig Martin, (402) 397-7300, or via e-mail: firstname.lastname@example.org.
Two more courts have weighed in on the “your work” exclusion in commercial general liability (CGL) policies, finding that contractors did not have coverage for work performed improperly. These cases highlight that whether you have coverage for poor workmanship will depend on the state’s law applied. It now appears that if you are in South Carolina or Massachusetts, you will not have coverage.
The South Carolina case, Precision Walls, Inc. v. Liberty Mutual Fire Insurance Company, involved a subcontractor hired to tape insulation. After taping the insulation, a brick veneer was installed on the exterior. During the brick installation, the mason reported that the tape was losing its adhesion and the subcontractor was instructed to repair the problem. In order to access the tape, portions of the brick veneer had to be removed and re-installed. The subcontractor then sought coverage for the costs associated with repairing the tape.
The insurer denied coverage and the subcontractor sued its insurer. The court ruled in favor of the insurer, finding that the defective tape was “your work” because it was “material furnished in connection” with the subcontractor’s work. The policy specifically excluded from coverage damage to property caused by “your work”. Thus, there was no coverage for the subcontractor.
The Massachusetts case, Pacific Indemnity Company v. Lampro, also found there was no coverage. There, the landscape subcontractor failed to abide by the environmental restrictions required by the permits and clear cut trees and brush. The homeowner’s property insurer paid $100,000 to fix the damage and the insurer then sued the contractor and its general liability insurer to recoup the money it paid to restore the property.
The court found that the general contractor’s CGL policy did not provide coverage, again, because of the “your work” exclusion. This policy excluded coverage for real property that must be repaired or restored because “your work” was incorrectly performed. The court also found that there was no occurrence under the policy because the subcontractor’s failure to abide by the permit restrictions was not an accident, but rather a risk of doing business.
Take Away: Getting an insurer to pay for damage to the work under a CGL policy is becoming increasingly difficult. You would be well advised to review your state’s laws to determine whether you have coverage.
As is often the answer in this blog, maybe. And, it will likely depend on which state’s law is applied. Over the last few weeks, courts around the country have reached differing conclusions on whether a general contractor may sue an architect that it did not hire.
Here’s the situation: The owner hires an architect to draft plans for a project. The project is then put out for bid and the owner hires a general contractor for the work. The general contractor and architect do not enter into a contract with each other.
If, during construction, the general contractor finds fault with the plans, it may seek Request for Information and Change Orders, to shore up the perceived problems with the plans. Ultimately, the general contractor may sue the architect to recover damages it suffered in completing the project.
Architect’s Defense: Typically, an architect sued by a general contractor will argue that it is not liable to the general contractor because it does not have a contract with general contractor and owed no duty to the general contractor. Instead, the general contractor’s claim is properly asserted against the owner.
Diverging Opinions: Over the past few weeks, courts have addressed this very situation in which an architect was sued by a general contractor that did not hire the architect. Although the underlying facts were nearly identical, two courts reached opposite conclusions on whether the architect could be held liable.
In a recent New Jersey case, a general contractor sued an architect alleging that the architect was professionally negligent in drafting the plans for the project. The architect moved to dismiss the claim, arguing it had no relationship with the general contractor and could not be held liable to the general contractor. The court disagreed, ruling that the general contractor could sue the architect directly, even though the architect and general contractor had no contractual relationship.
In a recent Texas case, the general contractor also sued an architect alleging that the architect was professionally negligent in drafting plans for a project. The Texas Supreme Court ruled that the general contractor could not sue the architect because there was no relationship between the two. Instead, the Texas court determined that any problems with the plans should have been addressed in the contract between the owner and the general contractor.
Take Away: Courts are split on whether a general contractor can sue an architect hired by the owner. Any determination will rely heavily on the contract between the owner and the general contractor and the applicable state’s law.