construction fundamentals: avoiding common pitfalls · 2. standardized ... construction management...
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© Copyright 2016 Tucker Arensberg, P.C. All Rights Reserved.
Construction Fundamentals: Avoiding Common Pitfalls
Matthew M. Hoffman, EsquireTucker Arensberg, P.C.
June 21, 2017
Program
Standardized Contracts Critical Contract Issues Separations Act of 1913 Payment Disputes Delay Claims Dispute Resolution
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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)
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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)
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Standardized Contracts Benefits:
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
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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
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Design Professional Agreement Responsibilities for rebidding of project Assistance with analysis and defense of
contractor claims Assistance with defense vs. service as fact witness
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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.
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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
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Design Professional Agreement Change orders – impact on fees / costs
Design professionalOwner requested additionsUnforeseen conditionsErrors and omissions – no lost workErrors and omissions – lost work
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Design Professional Agreement Add and deduct alternates
District control Impact on fees
Reimbursable expenses Define Markup Limits / allowances
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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
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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
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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
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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
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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
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Time Limitations on ClaimsAIA Document B101 (Owner-Architect Agreement)ARTICLE 8 CLAIMS AND DISPUTES§ 8.1 GENERAL§ 8.1.1 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.
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Time Limitations on ClaimsAIA Document A201 (General Conditions)§ 13.7 TIME LIMITS ON CLAIMSThe 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.
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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 lawOutcome: Nullum tempus doctrine waivedSolution: Expressly reserve nullum tempus
doctrine
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Separations Act of 1913 24 P.S. § 7-751 (School); 53 P.S. §1003
(Municipal) and 71 P.S. §1618 (State) Requires separate contracts for plumbing,
electrical and HVAC scopes of work for projects exceeding $4,000
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What is plumbing?
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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
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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
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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.
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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
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Delay Claims Liquidated damages 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
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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
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Dispute Resolution Agreement should specify dispute resolution
procedures Default is traditional court litigation
Architect / engineer initial review / decision Mediation Arbitration Litigation
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Dispute Resolution Arbitration vs. litigation – considerations:
Time Arbitration typically speedier Limited appeal rights eliminate process that can delay
finality
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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.)
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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
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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
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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.“
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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
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Dispute Resolution Suggestions:
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
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