SUBCONTRACTORS: MAKE SURE YOU DILIGENTLY REVIEW THE CONTRACT DOCUMENTS

Posted on January 28, 2016January 28, 2016 by Edward Garber

Subcontractors: make sure you review, and I mean review, the contract documents (drawings and specifications) and estimate properly. Seek clarification or submit an RFI if there is a conflict in the drawings and specifications. If you do not, you could be responsible for a drawing error that was not your fault no matter how unfair this sounds. This is illustrated in the recent opinion in U.S. f/u/b/o Asphalt Contractors & Site Work, Inc. v. Kar Contracting, LLC, 2015 WL 8074073 (S.D. W.V. 2015).

In this dispute, a prime contractor for a federal project was soliciting subcontractor bids for paving work / asphalt resurfacing. The prime contractor provided a subcontractor a link to a website where the specifications and drawings could be downloaded. (Not uncommon that drawings and specifications are furnished through an FTP site or web-based platform.) One of the plan sheets the subcontractor relied on was later determined—after the subcontract was awarded to the subcontractor—not to be drawn to scale. This error conflicted with another plan sheet. This error was neither the prime contractor’s nor the subcontractor’s fault. Unfortunately, this error resulted in the subcontractor underbidding the amount of asphalt required for the job. The subcontractor sought to recoup its additional costs associated with the drawing error from the prime contractor (and its Miller Act payment bond surety).

Not surprisingly, the subcontractor’s argument was that it should not be held liable for the drawing error that resulted in it underestimating the amount of asphalt required for the pavement work. The court found this argument unpersuasive. There was a conflict in the drawings relating to the amount of asphalt required. If the subcontractor relied on the drawing drawn to scale and requiring more asphalt, it would not have underestimated its costs. The subcontractor had the opportunity and obligation to review the plans and the prime contractor did not prevent the subcontractor from seeking clarification regarding the conflict in the drawings. Further, the subcontractor offered no evidence that the prime contractor was awaare of the drawing error or in any way induced the subcontractor to underestimate the amount of asphalt required for the pavement work.

When subcontractors prepare bids and enter into subcontracts, they generally have access to the full plans and specifications. It is incumbent on subcontractors to review the plans and specifications to ensure they are capturing all of the specifications and plan sheets applicable to their scope. Otherwise, if they make a mistake, whether it be failing to account for a certain detail, plan sheet, specification section, or addressing a conflict on the front end, that mistake can fall back on them.

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.

BURDEN OF PROOF CHALLENGING ASSESSMENT OF LIQUIDATED DAMAGES

Posted on January 23, 2016January 23, 2016 by Edward Garber

A contractor is working on a project that includes a contractual liquidated damages provision. The liquidated damages provision says the contractor is liable for $2,000 per day in liquidated damages if the contractor does not achieve substantial completion by January 1, 2016, a date extended through agreed-upon change orders. Substantial completion has not been achieved by this date and is not projected to be achieved until May 1, 2016. The owner already notified the contractor that it plans to assess liquidated damages and such assessment will be deducted from the contractor’s payment (retainage payment application).

When it comes to liquidated damages, who has the burden of proof: the owner or the contractor?

The owner’s burden is actually quite simple. It is merely a burden of persuasion. All the owner has to do is establish that the project was not substantially completed in accordance with the contract and any approved extensions of time. Typically, an easy burden of persuasion.

This shifts the burden of proof to the contractor challenging the assessment of liquidated damages to establish that the owner was the cause of delays to the substantial completion date (or other contractual date triggering the enforcement of liquidated damages) (e.g., design errors, change orders, change order directives, permit delays, differing site conditions, etc.). See, e.g., PCL Const. Services, Inc. v. U.S., 53 Fed.Cl. 479 (2002) (government has initial burden of persuasion showing contract was not completed on time shifting burden of proof to contractor to establish excusable delays); accord K-Con Bldg. Systems, Inc. v. U.S., 97 Fed.Cl. 41 (2011) (contractor failed to establish owner caused delays precluding the owner from assessing liquidated damages); Carrothers Const. Co. v. City of S. Hutchinson, 755, 207 P.3d 231, 241 (Kan. 2009) (“By placing the burden of proof on the party challenging a liquidated damages clause, we promote a public policy favoring settlement and avoidance of litigation, and allowing parties to make, and live by, their own contracts.”); TAL Fin. Corp. v. CSC Consulting, Inc., 844 N.E.2d 1085, 1092 (Mass. 2006) (“The burden of proof regarding the enforceability of a liquidated damages clause, therefore, should rest squarely on the party seeking to set it aside.”).

When you sign a construction contract with a liquidated damages provision, understand the application of this provision if the project is not completed in accordance with the provision. Make sure to ask for and document extensions of time and excusable delays. In other words, preserve your rights under any notice provisions in the contract asking for extensions of time or notifying the owner of scheduling impacts. Also, consult with a scheduling consultant, as may be necessary, to analyze the critical path of the schedule to isolate excusable delay and any concurrent delay establishing that although the project was late there were events or issues that would reduce or fully negate the number of days the owner is assessing liquidated damages for.

TIMELY FILE YOUR MILLER ACT PAYMENT BOND LAWSUIT

Posted on January 15, 2016January 15, 2016 by Edward Garber

If you are a subcontractor, sub-subcontractor, or supplier on a federal construction project, please make sure to preserve your Miller Act payment bond rights. This includes filing suit in a federal district court against the payment bond surety. The Eleventh Circuit’s ruling in Thomas v. Burkhardt, 2016 WL 143351 (11^th Cir. 2016) illustrates what can happen if you do not properly pursue your Miller Act payment bond rights.

In Thomas, a subcontractor sued a contractor in state court and recovered a judgment against the contractor. When the subcontractor could not collect on its judgment, it sued the contractor’s Miller Act payment bond surety. The problem was the subcontractor filed its lawsuit many years after the statute of limitations expired on the Miller Act. The subcontractor argued the contractor’s surety should be bound by the state court judgment against the contractor (the principal of the payment bond). The Eleventh Circuit said “No!” The surety was not bound by the state court judgment. Indeed, even if the surety had notice of the subcontractor’s state court suit against the contractor, the Eleventh Circuit still maintained that the surety would not be bound by the state court judgment and would not be estopped from raising the statute of limitations as a defense:

[T]he doctrine of estoppel against the surety rests on the principle that a surety with knowledge of a suit against the principal has a “full opportunity to defend” the suit and to protect its rights. But there is no such equitable principle at work here. The surety cannot protect its rights by joining in the defense of the suit. It cannot intervene as defendant any more than it could be named as defendant in the first place.

Thomas, supra, at *3 quoting U.S. Fid. & Guar. Co. v. Hendry Corp., 391 F.2d 13, 17 (5^th Cir. 1968).

The morale is to timely file your Miller Act payment bond claim against the payment bond surety. There is no reason not to!

CONSULTANTS’ COMPETITIVE NEGOTIATION ACT (“CCNA”) PRIMER

Posted on January 9, 2016January 9, 2016 by Edward Garber

Florida Statute s. 287.055 is known as the Consultants’ Competitive Negotiation Act (“CCNA”). This Act governs a public entity’s acquisition of professional architectural, engineering, landscape architecture, and surveying and mapping services. Applicable here, it indirectly applies to the procurement of design-build contracts for public projects in excess of $325,000. It also applies to the procurement of construction management contracts for public projects in excess of $325,00. See Fla. Stat. s. 255.103(2) (“A governmental entity may select a construction management entity, pursuant to the process provided by s. 287.055, which is to be responsible for schedule control, cost control, and coordination in providing or procuring, planning, design, and construction services.”)

First, the CCNA contains a competitive selection process as follows:

Public body shall evaluate current statements of qualifications and performance date on file, together with those that may be submitted by other firms regarding the project, and may require public presentations by no fewer than 3 firms regarding the firm’s qualifications, approach to the project, and ability to furnish the professional services;

Public body shall select in order of preference no fewer than 3 firms deemed the most qualified. Public body shall consider qualification factors such as “ability of professional personnel; whether a firm is a certified minority business enterprise; past performance; willingness to meet time and budget requirements; location; recent, current, and projected workloads of the firms; and the volume of work previously awarded to each firm by the agency, with the object of effecting an equitable distribution of contracts among qualified firms, provided such distribution does not violate the principle of selection of the most highly qualified firms.”

*Public body may request, accept, and consider proposals for compensation to be paid only during the competitive negotiation process.

Second, the CCNA contains a competitive negotiation process:

Public body shall negotiate contract with the most qualified firm at compensation public body determines is fair, competitive, and reasonable. “In making such determination, the agency shall conduct a detailed analysis of the cost of the professional services required in addition to considering their scope and complexity.”

If Public body unable to negotiate satisfactory contract with firm it considers most qualified at compensation it determines to be fair, competitive, and reasonable, public body shall terminate negotiations with this firm and move on to the second most qualified firm. (If public body cannot negotiate fair, competitive, and reasonable compensation with this firm, public body shall terminate negotiations and move on to third most qualified firm.)

With respect to design-build contracts, municipalities, political subdivisions, school districts, and school boards can either select design-builder based on above qualifications process(**) or can use competitive proposal selection process with the following minimum procedures:

Public body must prepare design criteria package. (“The purpose of the design criteria package is to furnish sufficient information to permit design-build firms to prepare a bid or a response to an agency’s request for proposal, or to permit an agency to enter into a negotiated design-build contract. The design criteria package must specify performance-based criteria for the public construction project, including the legal description of the site, survey information concerning the site, interior space requirements, material quality standards, schematic layouts and conceptual design criteria of the project, cost or budget estimates, design and construction schedules, site development requirements, provisions for utilities, stormwater retention and disposal, and parking requirements applicable to the project.”)

Selection of no fewer than 3 design-build firms as most qualified “based on the qualifications, availability, and past work of the firms, including the partners of members thereof.”

Evaluation criteria for evaluating design-build contractor proposals “based on price, technical, and design aspects of the public construction project, weighted for the project.”

Solicitation of competitive proposals from those qualified design-build firms and evaluation of responses from those firms based on evaluation criteria.

** If public body “elects the option of qualifications-based selection, during the selection of the design-build firm the procuring agency shall employ or retain a licensed design professional appropriate to the project to serve as the agency’s representative.”

CGL INSURER LIABLE FOR ATTORNEY’S FEES JUDGMENT AGAINST INSURED

Posted on January 3, 2016January 3, 2016 by Edward Garber

Commercial general liability (CGL) policies contain a section called “Supplementary Payments – Coverages A and B.” This section states in relevant part:

1. We [insurer] will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:

e. All costs taxed against the insured in the “suit.”

In the recent decision, Mid-Continent Casualty Co. v. Treace, 41 Fla. L. Weekly D60c (Fla. 5^th DCA 2015), an owner obtained a judgment against its contractor in a construction defect case. The court then entered a judgment for attorney’s fees and costs in favor of the owner. The owner then initiated a proceeding against the contractor’s CGL insurer to recover the judgments. The trial court refused to allow the owner to recover its attorney’s fees against the insurer and the owner appealed. On appeal, the Fifth District examined the above language in the contractor’s CGL policy that said the insurer would pay for “[a]ll costs taxed against the insured in the ‘suit.’” In examining this language, the court found that the language “‘all court costs’ could be read to include attorney’s fees, especially since there was no definition of that term in the policy…[T]he insurer did not, but could have, defined ‘court costs’ to specifically exclude attorney’s fees.” Treace, supra. For this reason, the court held that the attorney’s fees judgment was recoverable by the owner against the contractor’s CGL insurer.

This case provides a strong argument for a claimant that recovers a judgment against an insured in a construction defect lawsuit that includes attorney’s fees that attorney’s fees are recoverable under the insured’s CGL policy.