RECOVERING DELAY RELATED DAMAGES FROM PUBLIC PAYMENT BOND

imagesOne of the advantages to subcontractors of public payment bonds issued under the Federal Miller Act (or even the Little Miller Act) is that there is an argument for the recovery of unexecuted change orders and, and as it particularly pertains to this article, impact-related costs (whether delay or inefficiency / lost productivity). This should not be overlooked although language in the governing subcontract, etc. could dilute these arguments. However, having the argument and opportunity to recover impact-related costs from a payment bond is a huge upside.

 

If a subcontractor is owed money for inefficiency or delay, etc., and there is a public payment bond in place, it should not automatically forego pursuing these claims against the bond. Unlike a lien where these types of costs / damages are not lienable and could render an otherwise valid lien fraudulent in Florida, these are damages that could be pursued against a public payment bond. The subcontractor should carefully craft its argument in furtherance of maximizing its best chance to recover these types of damages.

 

For example, in the opinion of Fisk Elec. Co. v. Travelers Cas. and Sur. Co., 2009 WL 196032 (S.D.Fla. 2009), a subcontractor sought inefficiency / lost productivity damages against a payment bond surety that appeared to be issued under Florida Statute s. 255.05 (also known as Florida’s Little Miller Act). The payment bond surety moved to dismiss the subcontractor’s complaint arguing that these types of damages are not recoverable under the bond. The Southern District, relying on federal cases interpreting the Federal Miller Act, found that a subcontractor can pursue such damages against the payment bond for its out-of-pocket unreimbursed expenses. See, e.g, U.S. f/u/b/o Pertun Const. Co. v. Harvesters Group, Inc., 918 F.2d 915, 918 (11th Cir. 1990) (finding that subcontractor could recover under Federal Miller Act bond for out-of-pocket expenses resulting from prime contractor’s delay).

 

To maximize the recoverability for impact-related costs, the costs should be supportable costs that the subcontractor actually incurred in the performance of its contract work. Organizing the back-up supporting these costs and theory of the impact is critical and the subcontractor looking to pursue these costs from a public payment bond should consult counsel to best position its arguments to support recovery.  On the other hand, the prime contractor should ensure that its subcontract has contractual provisions that will make it challenging and provide hurdles for the subcontractor to recover such damages.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

TERMINATION FOR CONVENIENCE PROVISIONS ARE ENFORCEABLE UNDER FLORIDA LAW

TermLast year I discussed the enforceability of termination for convenience provisions in the case of Vila & Son Landscaping Corp. v. Posen Construction, Inc., 99 So.3d 563 (Fla. 2d DCA 2012).    In that case, the contactor terminated its subcontractor for convenience because it found another subcontractor at better pricing. The Second District Court of Appeals found that there was no wrongful termination and the termination for convenience provision in the subcontract was enforceable.

 

Recently, in a non-construction contract setting, the Fourth District Court of Appeals in Handi-Van, Inc. v. Broward County, Florida, 38 Fla. L. Weekly D1350b (4th DCA 2013), discussed the enforceability of termination for convenience provisions which are “contractual provisions which ‘permit one party to terminate a contract, even in the absence of fault or breach by the other party, without suffering the usual financial consequences of breach of contract.’” Id. quoting Harris Corp. v. Giesting & Assocs, Inc., 297 F.3d 1270, 1270 (11th Cir. 2002). The Fourth District maintained in a lengthy discussion that termination for convenience provisions are enforceable under Florida contract law. In that case, the party challenging the termination tried to argue that there was not sufficient consideration for the termination for convenience provision (and, thus, it was not enforceable); however, the court seemed to quickly dismiss this argument by finding that because the provision required 90 days written notice prior to the termination for convenience, this notice constituted sufficient consideration to uphold the enforceability of the provision.

 
Parties that challenge termination for convenience provisions in Florida often rely on federal procurement / government contracting cases because there is a “bad faith” exception, i.e., a federal agency cannot terminate a contract for convenience in bad faith. See TigerSwan, Inc. v. U.S., 110 Fed.Cl. 336, 345 (2013). This is no different than the parties in Hani-Van or Vila & Son Landscaping that tried to challenge the termination for convenience provisions in their respective agreements. However, this bad faith exception has really been pushed to the bottom of the barrel in Florida contract law because courts are not in the business of rewriting contractual provisions in order to relieve a party from a provision contraced for and agreed to.

 

 

Termination for convenience provisions are important provisions for owners, contractors, and even subcontractors that utilize sub-subcontractors. The key is for the provision to be clear and it is good practice to include that the party can exercise the termination for convenience provision by giving the other side notice (whether it is 7 days, 10 days, etc.) to remove any argument whatsoever that there was not sufficient consideration for the provision.

 

For more information on termination for convenience provisions, please see: https://floridaconstru.wpengine.com/the-enforceability-of-termination-for-convenience-provisions/

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

A GENERAL CONTRACTOR NEEDS TO UNDERSTAND CERTAIN LEGAL DOCTRINES BEFORE SUING A STATE (INCLUDING AGENCY OR SUBDIVISION) AND DESIGN PROFESSIONAL THAT IT DID NOT HIRE

HIGHWAY-CONSTRUCTION-1The recent Florida district court case, Posen Construction, Inc. v. Lee County, et al., 2013 WL 375430 (M.D.Fla. 2013), ruling on various motions to dismiss, is an interesting case that discusses two important doctrines. In this case, a roadway contractor constructing a road project for Lee County sued Lee County and Lee County’s design professionals (hired by the County) for delays and additional costs it incurred in the performance of its work. This case, among other things, discusses a state’s (inclusive of a state agency or subdivision) sovereign immunity for claims for additional work (absent a change order) and the duty of care for purposes of a negligence claim that a design professional owes to a general contractor (when the general contractor did not hire the design professional).

 

The first doctrine is known as the Miorelli doctrine which refers to a state’s (or its agencies or subdivisions) soverign immunity for extra-contractual work claims that arise on a construction project. The Miorelli doctrine is based on the Florida Supreme Court case, County of Brevard v. Miorelli Engineering, Inc., 703 So.2d 1049 (1998). The Miorelli doctrine, as maintained by the Posen court, has evolved into the following doctrine: “A claim for damages predicated on work ‘totally outside the terms of the contract’ is barred by the doctrine of sovereign immunity [unless memorialized in a written executed change order], whereas damages caused by extra work done at the state’s behest and in furtherance of contractual covenants (express or implied) are potentially recoverable.” Posen Construction, supra at *3 citing Miorelli, 703 So.2d at 1051. In applying the Miorelli doctrine, the Posen court expressed:

 

“To be clear, if Posen’s [contractor] claim is predicated on work ‘totally outside the terms of the contract’ it will fail by application of the Miorelli decision. On the other hand, claims for damages caused by additional work performed in furtherance of either express or implied covenants of the written contract  fall within Florida’s implied waiver of sovereign immunity…”

 

If a contractor is suing a state (or a state agency or subdivision) for additional costs that are not memorialized in a written executed change order, it is important that the contractor is aware of the Miorelli doctrine in order to best craft arguments to potentially recover the additional costs. The reason being is that the contractor can almost be certain that the state will raise the Miorelli doctrine through the motion to dismiss and/or summary judgment stages to establish that the state has sovereign immunity for such claims and damages. The key is that the argument should center on the additional costs being covered by the expansive scope of work set forth in the contractor’s contract with the state versus constituting work that is materially different than what the contractor bargained for.

 

The second doctrine is known as the A.R. Moyer doctrine which refers to a design professional’s duty of care to a general contractor on a construction project (when there is no contractual privity between the contractor and design professional). The A.R. Moyer doctrine is based on the Florida Supreme Court case, A.R. Moyer v. Graham, 285 So.2d 397 (Fla. 1973). In A.R. Moyer, a contractor sued a supervising architect in negligence. The Florida Supreme Court in A.R. Moyer maintained:

 

Each of the [following] conditions would present a cause of action [in negligence against a supervising architect or engineer]: (a) supervising architect or engineer is negligent is preparation of plans and specifications; (b) the supervising architect or engineer negligently causes delays in preparation of corrected plans and specifications; (c) the supervising architect or engineer negligently prepared and negligently supervised corrected plans and specifications; (d) the supervising architect or engineer failed to award an architect’s certificate of completion of the project; (e) the architect or engineer was negligent in exercise of supervision and control of contractor…” Posen Construction, supra, citing A.R. Moyer, 285 So.2d at 402.

 

Stated differently, the design professional must have a supervisory role or element of control (also referred to as a close nexus to the contractor) in order for the design professional to owe a legal duty to the contractor. The Posen court clarified that “supervising architects and engineers are liable for the foreseeable injuries to general contractors proximately caused by their negligent conduct even where there is an absence of contractual privity, whereas nonsupervising engineers and architects—irrespective of when they are hired—will not be.” Posen Construction, supra, at *12.

 

If a contractor is suing a design professional in negligence, it is important for the contractor to understand the A.R. Moyer doctrine and that the required legal element of “duty” is based on the supervisory status of the architect or engineer. This will allow the contractor to best phrase legal theories knowing that the design professional will raise this doctrine at the motion to dismiss and/or motion for summary judgment stages. However, absent this supervisory status or close nexus between the design professional and general contractor, the design professional will not be deemed to owe a legal duty to the contractor.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

OWNERS: UNDERSTAND AND APPRECIATE THE STATUTE OF LIMITATIONS FOR CONSTRUCTION DEFECTS

imagesCASAN61XHaving an understanding of the statute of limitations when an owner notices a construction defect with their property is essential to ensure that legal actions are timely filed. Not having this appreciation could have a devastating impact. It could result in an owner being legally barred from pursuing an action for debiltating construction defects or damages. This should never be the case.

 

The statute of limitations for construction disputes is primarily governed by Florida Statute §95.11(3)(c). This section provides that there is a four year statute of limitations for:

 

An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.”

 

Now, what exactly does all of this mean? To begin with, this means that the statute of limitations for construction disputes commences on the latest of: i) the owner’s possession of the property, ii) the issuance of the certificate of occupancy by the governing building department, iii) the date construction was abandoned if the project was not completed, or iv) the date the contract was terminated (which would also typically be the case if the project was not completed).

 

For a completed construction project, the dates I like to focus on are the temporary and/or permanent certificates of occupancy dates because these signify the dates the owner is entitled to occupy their property in whole or in part. These are also hard dates that can be confirmed through the building department and the closing of the building permit. The owner has four years to initiate a lawsuit from this date.

 

However, when an owner discovers a construction defect or damage to their property (i.e., water intrusion or leak, mold, cracked or spalling stucco, etc.), it is frequently a discovery that occurs many years AFTER completion and occupancy. When this occurs, the statute of limitations becomes less clear.

 

The discovery of a defect or damage after completion is referred to as latent defect because the defect or damage was not patently visible during construction (or reasonably discovered with the exercise of due diligence prior to the owner’s acceptance and occupancy of the property). In this circumstance, the statute of limitations commences on the date the latent defect was discovered. But, under the law, in no event can the cause of action be pursued more than ten years after the factors referenced above (project completion). This cap on when an action can be filed with respect to a given construction dispute is referred to as the statute of repose.

 

For example, let’s assume a project was completed on December 31, 2010. Many years later, on December 31, 2017, the owner discovers serious latent defects. This discovery starts the running of the statute of limitations. But, the owner would not have four years to sue on these latent defects because if he waited the four years until December 31, 2021, his suit would be barred by the statute of repose, which would cap suits relating to the project ten years from completion on December 31, 2020.

 

Understanding when the statute of limitations would commence and when actions would be barred under the law is important and, many times, factually complicated. Recently, the Third District Court of Appeal in Hochberg v. Thomas Carter Painting, Inc., 36 Fla. L. Weekly D1200f (3d DCA 2011), analyzed the running of the statute of limitations in a construction dispute. In this case, owners hired a contractor to build their beautiful new home. After the home was completed in 2003 and the owners moved in, they discovered mold and water intrusion damage. The owners immediately hired an engineer to analyze their discovery and the root of the defects. The expert produced a preliminary report in 2004 addressing the cause of the defects.

 

In 2008, the owners sued the subcontractors responsible for the defects for negligence and violation of Florida’s building code. Subcontractors argued that the owners filed their lawsuit outside of the statute of limitations because they discovered the defects in 2003 but waited until 2008 to file their lawsuit. The owners argued that the statute of limitations should be tolled until they discovered the exact nature of the defects or magnitude of the underlying problem and which trade subcontractors the defects could be attributed to.

 

The appellate court held that, “Florida law is clear that ‘where there is an obvious manifestation of a defect, notice will be inferred at the time of manifestation [discovery] regardless of whether the plaintiff has knowledge of the exact nature of the defect.’” Hochberg quoting Performing Arts Center Auth. v. Clark Constr. Grp., Inc., 789 So.2d 392, 394 (Fla. 4th DCA 2001). In other words, even though the owners did not understand the magnitude of the defects or what specifically was causing the water intrusion into their home, the court maintained that their initial discovery of water intrusion and related damage (i.e, mold, wet carpeting) triggered the commencement of the statute of limitations.

 

This holding is important because when an owner discovers construction defects and damage, they do not discover or appreciate the magnitude of the discovery. For instance, an owner may discover wet interior finishes, smell or discover mold, discover cracks in their exterior finishes, or a roof leak, but will not typically know the specific defects causing these problems. They also typically will not have an appreciation as to the overall significance of the problem. Owners hire expert consultants to analyze these issues to not only determine the root and significance of the problem, but the method to fix the problems. The owners in this case tried to cleverly argue that the statute of limitations for latent defects should be tolled until an owner discovers the precise nature and cause of the defects, which would often correspond with the date the owners receive an opinion from their expert consultants. However, the court focused on the actual discovery of the defects or damage by the owners, rather than when the owner learned the magnitude of the problem.

 

Owners that discover a defect or damage with their home or property should absolutely not ignore the problem. Ignoring the problem could only exacerbate the underlying problems while potentially putting the owner in a situation where he is outside of the statute of limitations or repose and can no longer pursue an action against the parties responsible for the problems. Again, this should never be the case.

 

For more information on the statute of limitations and the statute of repose, please see: https://floridaconstru.wpengine.com/watering-down-the-10-year-statute-of-repose-period-for-construction-disputes/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.