VB CGC Practice Group

VB CGC Practice Group
Vandeventer Black's Construction and Government Contracts Practice Group focuses on serving our business clients in the construction industry. We currently have offices in Norfolk and Richmond, VA, the OBX and Raleigh, NC, and Hamburg, Germany. For more information about Vandeventer Black, clink on the VB logo.

Monday, December 20, 2010

Owner responsibility for constructability, or not?

Historically, construction is Virginia is design-bid-build; that is the owner hires a designer to design the project, put the design out for bid, and the awardee contractor builds pursuant to the design. But what if the design is insufficient? Who's responsible for resulting damages? Generally, that responsibility lies with the owner, who according to Virginia Supreme Court precedent from 1924 impliedly warrants the accuracy of plans and specifications furnished to a contractor for construction; that is the owner warrants that if the contractor builds per specs the project should be constructable and sound.

That case was Southgate v. Sanford, etc., Co., 147 Va. 554, 137 S.E. 485 (1927). In it, the owner provided contract documents for the construction of a bulkhead. The bulkhead failed. The contractor blamed latent deficiency with the plans, while the owner claimed negligent construction by the contractor. The Virginia Supreme Court followed federal "Spearin Doctrine" precedent and concluded that so long as the contractor had no reason to know the plans were deficient before it started work that the owner bore responsibility for the latent defect in the plans.

In rendering that decision, the court further held that even though the contract had a common "disclaimer" obligation for the contractor to familiarize itself with the project or the plans, and that unless the contractor had actual notice of the deficiency then it would not be responsible if there turned out to be a problem with the plans or resulting construction. However, the court left open the possibility that a clear disclaimer could in fact shift the risk of responsibility, just holding in that case that the contract language did not clearly transfer that risk.

Lesson learned: Contractors are not held to a higher standard of guarantying results from plans furnished by owners; however, it is contractually responsible to shift that liability with clear and unambiguous contract terms. This result is one reason why design-build has become more popular, as that approach allows the owner to transfer virtually all construction risk to the builder. Again we have the theme here that, absent statutory prohibition, most risks are contractually allocable, so carefully consider what you might want to include, or alternatively what you are willing to accept, in your contracts; depending upon your position and risk tolerance.

Monday, December 13, 2010

150-day look back for mechanic's liens: What's the big deal?

This revisits Virgina mechanic's liens. One of the quirks of the Virginia code prohibits inclusion in a mechanic's lien of amounts for labor or materials furnished more than 150 days prior to the last day labor was performed or materials were furnished preceding the filing of the lien. But what if you do include prohibited amounts?

Most practitioners expected the answer as the court would simply deduct the unallowable amounts; however, the Virginia Supreme Court held in Smith Mountain Bldg. Supply v. Windstar Props., 277 Va. 387, 672 S.E.2d 845 (2009) that including prohibited amounts invalidates the entire lien; a much more draconian result. Therefore, establishing dates the dates of work is critical to lien enforceability.

Virginia Code § 43-4 provides, in pertinent part, that “no memorandum filed . . . shall include sums due for labor or materials furnished more than 150 days prior to the last day on which labor was performed or material furnished to the job preceding the filing of such memorandum.” However, Virginia Code § 43-15 provides as follows:

No inaccuracy in the memorandum filed, or in the description of the property to be covered by the lien, shall invalidate the lien, if the property can be reasonably identified by the description given and the memorandum conforms substantially to the requirements of §§ 43-5, 43-8 and 43-10, respectively, and is not wilfully false.

One would think the latter statute could be used to "save" a lien that might include proscriptive amounts. But the court in Smith Mountain in contrast held that the inclusion of sums for labor or materials outside of the 150-day period was not an inaccuracy, and therefore invalidated the lien in its entirety and denied any mechanic's lien relief to the contractor. One interesting aspect of that decision was how the court distinguished an earlier case where it applied the saving provision of Virginia Code § 43-15 to not invalidate the lien of a contractor that had included monies for a fine levied by the state beyond the 150-day deadline.

In doing so, the court noted that the fine was not labor or materials. Therefore, even though the earlier decision was written then in terms of discussion of the 150-day rule, the court noted in distinguishing it later in Smith Mountain that since the fine was not labor or materials it fell with the definition of an inaccuracy, whereas - it concluded - including non-allowable sums for labor or materials was a prohibition and not an inaccuracy.

While such thin distinctions are regularly made by courts, one of the key problems with that decision lies in the impracticality of determining every date of labor or materials, and their values, and the unfairness to contractors who look to mechanic's liens as their best, and often only, means of getting paid. Lesson learned: days count, and the dates of when labor or materials were furnished and their value in relation to the filing of a mechanic's lien are critical and must be analyzed before filing a lien.

Friday, December 10, 2010

PR: Careful what you tell you PR company; it may come back to haunt you

With the ever-increasing media world, public relations assistance to help manage public perceptions respecting companies, projects, or specific project events, like a casualty, are increasingly helpful and common. However, for your PR company to help effectively spin those perceptions, they need information. Companies seek to cloak such disclosures with the attorney-client or work product privileges, but there are conflicting views in the courts about that.

For example, the Southern District of New York has looked at similar privilege claims in two separate cases. In one, the PR company was hired for general PR assistance, but helped on the specific matter. In the other, the PR company was specifically retained for crisis management with respect to the underlying litigation. In the former case, the court held that disclosure of information to the PR company was a waiver of any privilege, but in the latter the court held that there was no waiver, relying in part upon the close working relationship with counsel.

As a result, there's no clear cut answer. The closer the relationship is to one of assisting counsel than simply managing public perception, the more likely the communications are to be privileged, but it is important to recognize that because there is no hard and fast rule any communications to PR companies might be subject to later discovery. That is not to say PR companies should be avoided for that reason; to the contrary they are an increasingly important part of many casualty or crisis management situations; just recognize that, even if retained by counsel, the information exchanged with them is not sacrosanct.

Wednesday, December 8, 2010

Think those materials are warranted? Maybe not.

Manufactured products typically come with installation instructions. If the installer follows them, one would presume the warranty would stand. But one Virginia Supreme Court case, Bridgestone/Firestone v. Prince William Square, 250 Va. 402, 463 S.E.2d 661 (1995), calls that presumption into question.

In that case, the installer installed per manufacturer's instructions. Although the installer used fasteners not furnished by the manufacturer, the manufacturer inspected and accepted the roof, and the fastener use was per the instructions. But after several years of responding to warranty claims for leaks, the manufacturer claimed its warranty was void because the installer used the fasteners that the manufacturer did not furnish.

The lower court rejected that claim, but the Virginia Supreme Court agreed with the manufacturer because it concluded the written warranty terms were clear that the manufacturer only agreed to repair leaks caused by workmanship or materials it supplied and it had not supplied the fasterners that had been determined as the cause of the leaks. The court refused to consider the installation was consistent with the installation instructions and by an authorized applicator of the manufacturer, and instead applied the warranty strictly as written.

Bottom line, warranties need to be carefully reviewed to verify the exact terms and conditions of the warranty, and that language you think might be insignificant could very well be the deciding factor in whether the warranty exists or has been voided.

Monday, December 6, 2010

Virginia Public Bodies Cannot Avoid Delay Damages With Limited Markup Provisions

Increasingly over the years, public bodies have sought to use express markup provisions as the limited extent of their liability for delay damages; however, the Virginia Supreme Court has rejected that approach as contrary to Virginia's statutory prohibition of delay damage waivers for public projects in Virginia Code Sec. 2.2-4335. That code section voids any provision purporting to require a contractor to waive, release or extinguish rights to recover costs or damages for unreasonable delay in performing a public construction project if the delay was caused by the public body. Liquidated damages agreements are excepted from this provision, and in Martin Bros. Contractors, Inc. v. VMI, 277 Va. 586, 675 S.E.2d 183 (2009), the school argued the contract provision limited delay recover to the agreed percentage markup was such a permissible liquidation. The Virginia Supreme Court disagreed, noting that the markup was for administration, but not delay impacts of themselves, and that the markup provision sought to operate as an absolute bar to the recovery of the contractor's delay expenses, and therefore was void and unenforceable. This can be good news for contractors whose delay costs exceed such an agreed markup; however, they must be able to prove the delay, and its cost, rather than relying upon any agreed formula. Even despite this case holding, I have heard of several agencies trying to enforce a similar limiting percentage markup. If, however, your delay costs exceed the agreed percentage, you'll want to point out, respectfully of course, the error of their position. Of note, the Martin Bros. case only applies to public projects subject to the Virginia Public Procurement Act, and in particular it would not apply to void such a percentage liquidating agreement in a commercial project; leaving for such commercial contracting parties the need to consider either requiring or accepting such a liquidating percentage provision. As discussed in other posts about contract terms, it's all about risk allocation versus dollars.

Friday, December 3, 2010

New Crane & Derricks Standard

For those unaware, there's a new OSHA standard for cranes & derricks in construction. That standard, CFR 29 Part 1926 Subpart CC was published July 9, 2010 and became effective last month on November 8, 2010. It's a 200 page standard so I'm not going to try and summarize it all; however, there are several notable changes, which include personnel titles and minimum qualifications, with options to meet those qualifications. Charlie Bird did an excellent job discussing the new standard in a recent edition of the Commonwealth Contractor, Issue 15 of November 2010. Below is a link to his article and if you're work involved cranes & derricks it's an important read:


Wednesday, December 1, 2010

Surety Project Completion: No one size fits all

What happens if a party who's bonded doesn't or can't complete their work? There's no single answer to this, but if you're the party that issued the contract (the "obligee") you should pat yourself on the back for getting the performance bond in the first place. If not for the performance bond, you'd be out of luck and have to complete yourself, and then try and recover any overage against the non-performing party. But if there's a surety bond, the surety will at least come into the picture, although that doesn't mean the surety will necessarily complete the work for you.

The surety's rights and obligations will be dictated by the wording of the performance bond, which like any other contract will be enforced as written. There are some form performance bonds, like the AIA performance bond, but many other individualized forms are used. Remember, the surety's obligation is limited by the "penal sum" or amount of the bond, less the value of accepted work to date reducing the contract value. That means one option of the surety is to do nothing and just pay any remaining balance that can then be used to offset the obligee's cost to complete.

More commonly, the surety will either "tender" a completion contractor who will then be put under direct contract to the obligee under the bond or will hire its own "takeover" contractor to complete the work through the surety. Both have pros and cons, although most sureties will often prefer the tender approach, which often is of benefit to the obligee to as it involves one less party in completion.

As in most completion circumstances, there's no single approach and the best approach will vary depending upon any number of facts. Again, the good news is there is a performance bond though, which as least provides those various approaches for consideration.  I'll talk more specifically about these various approaches in later posts.