Construction Fundamentals: Avoiding Common Pitfalls

Transcription

1 Construction Fundamentals: Avoiding Common Pitfalls Matthew M. Hoffman, Esquire Tucker Arensberg, P.C. June 21, 2017 Copyright 2016 Tucker Arensberg, P.C. All Rights Reserved.

2 Program Standardized Contracts Critical Contract Issues Separations Act of 1913 Payment Disputes Delay Claims Dispute Resolution 2

3 Standardized Contracts Contract Document Families American Institute of Architects (AIA) Engineers Joint Contract Documents Committee (EJCDC) Associated General Contractors (AGC) Design Build Institute of America (DBIA) Construction Management Association of America (CMAA) 3

4 Standardized Contracts Contract Document Families American Institute of Architects (AIA) Engineers Joint Contract Documents Committee (EJCDC) Associated General Contractors (AGC) Design Build Institute of America (DBIA) Construction Management Association of America (CMAA) 4

5 Benefits: Standardized Contracts Readily accepted in industry Reflect years of experience Have been tested and interpreted by courts Familiar to arbitrators False sense of security Knowledgeable review and revision 5

6 Design Professional Agreement Scope Issues Attendance at meetings Municipal approvals PlanCon Frequency of site presence Architect role / responsibility for contractor performance As-built drawings Project documentation Warranty review and assistance 6

7 Design Professional Agreement Responsibilities for rebidding of project Assistance with analysis and defense of contractor claims Assistance with defense vs. service as fact witness 7

8 Design Professional Agreement Codify in contract applicable standard of care The Architect shall develop Construction Documents that, to the extent consistent with normal professional standards, are adequate and sufficient to accomplish the purposes of the Project and comply with applicable laws, statutes, ordinances, codes, orders, rules and regulations in force as of the date of the development of the documents. 8

9 Design Professional Agreement Fee basis If based on cost of work, define elements If stipulated sum, define scope, allowances, limits, etc Additional services Duration of hourly rates Define what constitutes additional services Control Require prior notice Explanation of need Estimate of additional compensation Impact on or adjustment to schedule Advance written approval 9

10 Design Professional Agreement Change orders impact on fees / costs Design professional Owner requested additions Unforeseen conditions Errors and omissions no lost work Errors and omissions lost work 10

11 Design Professional Agreement Add and deduct alternates District control Impact on fees Reimbursable expenses Define Markup Limits / allowances 11

12 Design Professional Agreement Ownership and use of design documents Right of continued use to complete project Right of use as information for future maintenance, additions and renovations Licensing fee for continued use if design professional terminated Termination Rights For cause and/or for convenience Termination fees Continued use of work product Revision by subsequent design professional 12

13 Contractor Agreement - Scope of Work Ambiguity leads to disputes Owner has broad interpretation while contractor has narrower interpretation Owner expects higher standard of quality of materials while contractor anticipated lower standard of quality Proprietary specification and substitutions Design specification vs. performance specification Design specification materials and methods specified Performance specification objective specified and contractor obligated to attain result 13

14 Contractor Agreement - Scope of Work Scope defined by design professional work product Bloomsburg Mills v. Sordini Construction, 164 A.2d 201 (Pa. 1960) plans and specifications provided by architect are warranted to be free from defects and fit for their intended purpose U.S. v. Spearin, 248 U.S. 132 (1918) if contractor builds strictly according to plans and specifications, he is not responsible for defective results BUT if contractor knows or reasonably should know of defects, he has a duty to provide notice prior to building 14

15 Contractor Agreement Other Issues Delivery of organized project documentation Assignment of sales tax refund rights Simplify and expedite owner remedies to stop or perform work Require prompt notice, detail, itemization and documentary support for claims Termination rights 15

16 Contractor Agreement Other Issues Waiver of consequential damages Home office overhead Limit use of measured mile, Eichleay and Manshul formulae Loss of bonding capacity Lost profits 16

17 Time Limitations on Claims AIA Document B101 (Owner-Architect Agreement) ARTICLE 8 CLAIMS AND DISPUTES 8.1 GENERAL The Owner and Architect shall commence all claims and causes of action, whether in contract, tort, or otherwise, against the other arising out of or related to this Agreement in accordance with the requirements of the method of binding dispute resolution selected in this Agreement within the period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the Work. 17

18 Time Limitations on Claims AIA Document A201 (General Conditions) 13.7 TIME LIMITS ON CLAIMS The Owner and Contractor shall commence all claims and causes of action, whether in contract, tort, breach of warranty or otherwise, against the other arising out of or related to the Contract in accordance with the requirements of the final dispute resolution method selected in the Agreement within the time period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the Work. 18

19 It is Good to be King Time limitations on owner claims Nullum tempus occurrit regi ( no time runs against the king ) Standardized provisions may require claims to be brought within the applicable statute of limitation or time period specified by applicable law Outcome: Nullum tempus doctrine waived Solution: Expressly reserve nullum tempus doctrine 19

20 Separations Act of P.S (School); 53 P.S (Municipal) and 71 P.S (State) Requires separate contracts for plumbing, electrical and HVAC scopes of work for projects exceeding $4,000 20

21 What is plumbing? 21

22 Separations Act of 1913 Wheels Mechanical vs. West Jefferson Hills SD Issue involved site utility work within general contractor work scope main water line, storm sewer and sanitary sewer Long-standing (but unwritten precedent) that plumber s work ends at a point 5 feet from the building and does not extend beyond 5 feet outside of the building envelope Judge O Reilly opinion if water flows through it Commonwealth Court opinion 22

23 Payment Disputes Withholding of payment for improper performance Defective work not remedied Damage to completed work, work of others or other owner property Third party claims Failure to pay subcontractors and materialmen Joint checks Payment bonds 23

24 Payment Disputes Pennsylvania Procurement Code Retainage Maximum at 10%; reduced to 5% at 50% completion 150% of potential liability to another prime contractor Withholding for deficiency items according to terms of the contract Notice to contractor within the time period specified in the contract or 15 calendar days of the date that the application for payment is received. 24

25 Payment Disputes Contractual or statutory interest Penalty of 1% per month for amounts withheld in bad faith Attorneys fees to prevailing party for bad faith Bad faith = arbitrary or vexatious Withholding requires: Good faith basis Itemization of cost or good faith estimate of cost of completion or correction 25

26 Liquidated damages Delay Claims No damages for delay provisions Failure to provide extension of time Affirmative interference or failure to perform essential act are bases for liability of owner Common bases of claims: Lack of coordination of multiple contractors Inadequate plans and specifications Late or incomplete approvals 26

27 Delay Claims Types / elements of delay damages Extended general conditions Direct additional labor costs Extended home office overhead Material and wage escalation costs Idle equipment 27

28 Dispute Resolution Agreement should specify dispute resolution procedures Default is traditional court litigation Architect / engineer initial review / decision Mediation Arbitration Litigation 28

29 Dispute Resolution Arbitration vs. litigation considerations: Time Arbitration typically speedier Limited appeal rights eliminate process that can delay finality 29

30 Dispute Resolution Arbitration vs. litigation considerations: Flexibility Litigation controlled by statutory / procedural rules Arbitration process can use established rules (e.g., American Arbitration Association) Contract can establish rules (limited discovery rights, prehearing disclosures, level of detail in arbitrator s award etc.) 30

31 Dispute Resolution Arbitration vs. litigation considerations: Cost Arbitration often less costly, primarily due to limited pretrial proceedings while, in court litigation, significant expense devoted to discovery and motion practice Cost differential decreasing as discovery processes becoming more prevalent in arbitration 31

32 Dispute Resolution Arbitration vs. litigation considerations: Pre-hearing discovery Witness depositions, interrogatories, document productions available through civil court rules Extensive pre-hearing discovery may not be available in arbitration Trial by surprise vs. cost of discovery 32

33 Dispute Resolution Arbitration vs. litigation considerations: Arbitrator / Judge / Jury Arbitrator selected by parties; judge assigned to parties Same arbitrator involved with pre-hearing disputes; in some courts, no individual judge assigned to case before trial Expertise may vary Arbitrator typically has construction industry experience Judge may or may not have relevant case experience A jury to quote the philosopher Forrest Gump is like a box of chocolates. You never know what you're gonna get. 33

34 Dispute Resolution Arbitration vs. litigation considerations: Appeal rights Pennsylvania standard of review highly deferential to arbitrator award. [A]rbitrators are the final judges of both law and fact, and an award will not be reviewed or set aside for mistake in either. Patriotic Order Sons of Am. v. Hartford Fire Ins. Co., 157 A. 259, 262 (Pa. 1931). Under Pennsylvania law, award subject to reversal only for fraud, misconduct, corruption or other irregularity Federal Arbitration Act allows a court to set aside an arbitration award that manifestly disregards the law or fails the test of fundamental rationality. Agreement must specify application of FAA or else Pennsylvania standard applies 34

35 Suggestions: Dispute Resolution Include contract language that allows the school district to select arbitration or litigation depending on the claim Include contract language that establishes desired pre-hearing procedures for arbitration Include contract language that elects between Pennsylvania common law or Federal Arbitration Act standard of review 35

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