EVOLVING PROJECT DELIVERY METHODS AND RISK CONCERNS FROM A DESIGN PROFESSIONAL’S STANDPOINT

Posted on March 27, 2016March 27, 2016 by Edward Garber

I recently posted a presentation I put on regarding project delivery methods. In that presentation I discussed evolving project delivery methods such as Integrated Project Delivery and Public-Private-Partnerships and even sustainability / green building as a focus of certain delivery methods. I also discussed how BIM (building information modeling) and emerging, collaborative technology is utilized during the course of construction.

With evolving delivery methods (and the use of emerging technology) comes RISK concerns and issues that are different than the risk concerns and issues with more conventional project delivery methods. Below is a portion of a presentation I did addressing risk concerns and issues from a design professional’s standpoint, with the focus on evolving project delivery methods and emerging technology such as BIM.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/03/dP-risk.pdf”]

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.

PRIME CONTRACTOR INTERVENING INTO LAWSUIT AS PRINCIPAL OF MILLER ACT PAYMENT BOND

Posted on March 25, 2016March 25, 2016 by Edward Garber

In a Miller Act payment bond lawsuit (or any payment bond lawsuit for that matter), there are many times where a claimant (subcontractor, sub-subcontractor, or supplier) will sue the Miller Act payment bond surety and NOT the prime contractor or principal of the payment bond. There are also times where the prime contractor moves to intervene in the lawsuit as the principal of the payment bond. Perhaps the prime contractor wants to assert a counterclaim against the claimant or a third-party claim. These affirmative claims would belong to the prime contractor and not its surety; thus, the prime contractor moves to intervene in the lawsuit so that it can assert such affirmative claim(s) in the context of the dispute against its surety. Oftentimes, a federal district court will allow the prime contractor to permissively intervene in the lawsuit as the principal of the payment bond, especially if the prime contractor plans to assert an affirmative claim to allow for the efficient resolution and disposition of all such claims.

For example, in U.S. f/u/b/o Jackson Geothermal HVAC & Drilling, LLC v. Western Surety Co., 2016 WL 1030392, (D.N.J. 2016), the prime contractor hired a subcontractor to provide HVAC, geothermal services, plumbing, and sprinklers. The subcontractor, in turn, subcontracted the geothermal services to the claimant–a sub-subcontractor on the project. The sub-subcontractor (claimant) filed a lawsuit against the Miller Act payment bond surety for approximately $300,000. The prime contractor, as principal of the payment bond, moved to intervene in the lawsuit primarily to (a) assert an affirmative claim for negligence against the sub-subcontractor and (b) assert a third-party claim against its subcontractor for breach of contract and negligence. The issue before the court was whether the prime contractor should be able to intervene in the sub-subcontractor’s lawsuit against the Miller Act payment bond surety. The district could found that permissive intervention was appropriate to allow the prime contractor to intervene in the sub-subcontractor’s Miller Act payment bond lawsuit:

[T]he Court finds no reason to believe that permitting Ranco [prime contractor / principal of payment bond] to intervene in this matter will unduly delay these proceedings or unfairly prejudice the adjudication of Jackson’s rights. While Ranco could pursue its state law claims against B&S [subcontractor] and Jackson [sub-subcontractor claimant] in state court, “notions of judicial economy suggest aggregating them in a single proceeding […] rather than have different tribunals examine these issues at different times.” Indeed, as the Third Circuit has noted, the court’s policy preference, i.e., “judicial economy, favors intervention over subsequent collateral attacks.” As a result, the Court finds that intervention will protect all of the parties from having to revisit the main issues being litigated here in separate proceedings. Thus, the Court shall permit Ranco to intervene in this matter.

Western Surety Company, supra, at *4 (internal citation omitted).

There are times where a principal prime contractor intervening into a lawsuit against its surety may not be appropriate. But, if the principal has affirmative claims or if the surety happens to be represented by different counsel (such that the surety is not allowing the principal to defend it with the principal’s preferred counsel) the prime contractor has a stronger basis to intervene in the lawsuit as a principal of the payment bond. A prime contractor intervening in a lawsuit against its Miller Act payment bond surety is an important consideration based on the factual circumstances of the dispute.

QUICK NOTE: CGL INSURER LIABLE FOR ATTORNEY’S FEES IF IT UNJUSTIFIABLY REFUSED TO PROVIDE YOU DEFENSE

Posted on March 20, 2016March 20, 2016 by Edward Garber

If your CGL (or liability) insurer unjustifiably refuses to provide you a defense in a lawsuit, the insurer is liable for the reasonable attorney’s fees and costs you incur in defending that lawsuit. The operative word is “unjustifiably.” For instance, if you get sued and your CGL insurer refuses to provide you a defense and you retain private counsel to defend you, the CGL insurer will be liable for your attorney’s fees and costs if it should have provided you a duty defend in connection with that suit. Of course, on the other hand, if the CGL insurer justifiably refused to defend you (based on the allegations in the lawsuit / claim and coverage under the policy) then it will not be liable for your reasonable attorney’s fees and costs.

QUICK NOTE: SUIT AGAINST MILLER ACT PAYMENT BOND MAY NOT BE BROUGHT UNTIL 90 DAYS AFTER FINAL FURNISHING

Posted on March 18, 2016March 18, 2016 by Edward Garber

If you have a claim against a Miller act payment bond, a lawsuit cannot be brought until 90 days after your final furnishing date. This is set forth in 40 USC s. 3133(b)(1) that provides if you “have not been paid in full within 90 days after the day on which…[you]…performed the last of the labor or furnished or supplied the material for which the claim is made [you] may bring a civil action on the payment bond.” In other words, your claim is ripe 90 days after your final furnishing date. With that said, even if you prematurely filed suit before this 90-day period, there is authority that the lawsuit should not be dismissed, but rather, you can cure this by filing a supplemental pleading (relating back to the original pleading). Otherwise, if the lawsuit was dismissed, you could potentially be facing a statute of limitations argument barring your right to seek a Miller Act payment bond claim.

FRAUDULENT NONDISCLOSURE / CONCEALMENT AND RESIDENTIAL PURCHASE-SALE CONTRACTS

Posted on March 17, 2016March 17, 2016 by Edward Garber

When it comes to residential purchase-sale contracts, sellers are required to disclose known defective items / facts that materially affect the value of the property. Such residential contracts routinely include language that the “Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to the Buyer.” If such fact is not disclosed to the buyer, the buyer may have what is commonly referred to as a fraudulent nondisclosure or concealment claim against the seller (former owner) or a Johnson v. Davis claim named after the Florida Supreme Court opinion that recognized fraudulent nondisclosure claims.

Many sellers try to hang their hat on the fact that the residential contract contains an “as is” provision such that they are selling the property “as is”. Certainly, this is good language. However, an “as is” provision in a residential purchase-sale contract will not waive the duty imposed on the seller to disclose known items / facts that materially affect the value of the property and which are not readily observable. Solorzano v. First Union Mortgage Corp., 896 So.2d 847, 849 (Fla. 4^th DCA 2005).

A buyer (current owner) asserting a fraudulent nondisclosure claim against the seller (former owner) must prove four elements:

1. The seller must have knowledge of a defect [fact] in the property;

2. The defect [fact] must materially affect the value of the property;

3. the defect [fact] must be not readily observable and must be unknown to the buyer;

4. the buyer must establish that the seller failed to disclose the defect to the buyer.

Jensen v. Bailey, 76 So.3d 980, 983 (Fla. 2d DCA 2012).

The first element, “the seller must have knowledge of a defect” is the most challenging for the buyer to prove because the burden requires the buyer to “prove the seller’s actual knowledge of an undisclosed material defect.” See Jensen, 76 So.3d at 983; accord Eiman v. Sullivan, 173 So.3d 994 (Fla. 2d DCA 2015). Keep in mind, though, that this element does not require the buyer to prove the seller’s intent, only that the seller knew of a defect / fact that materially affected the value of the property and failed to disclose the defect / fact to the buyer. To prove actual knowledge, the buyer may need to put on circumstantial evidence establishing the seller knew of the defect / fact (but is perhaps lying about his or her actual knowledge today). See Jensen, 76 So.3d 980; see also Bowman v. Barker, 172 So.3d 1013, 1016 (Fla. 1^st DCA 2015) (“This evidence raises a question of fact about the appellees’ [seller] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”) (For more on this case, click here.)

If you believe you have a fraudulent nondisclosure claim, consult a lawyer that can best assist you in (a) proving your claim based on the required elements and (b) understanding your damages associated with the nondisclosure. Typically, this will require engaging an expert to testify as to the costs to repair the undisclosed defect(s) / fact(s) that materially impacts the value of the property.

DO NOT EXECUTE A WAIVER AND RELEASE IN CONSIDERATION OF PAYMENT THAT RELEASES CLAIMS YOU ARE NOT PREPARED TO RELEASE

Posted on March 13, 2016March 13, 2016 by Edward Garber

Absolutely do NOT execute a waiver and release in consideration of a progress payment that waives and releases claims (such as change order requests, lost productivity, or delay) that you are not prepared to release through the date of the release. Carve out such exceptions from the release—identify those claims or rights you are not prepared to release. Otherwise, when you go to pursue such claims, the waiver and release you previously executed will come back to haunt you!

For example, in U.S. f/u/b/o Chasney and Company, Inc. v. Hartford Accident & Indemnity Co., 2016 WL 852730 D.Md. 2016), a prime contractor on a federal project subcontracted with a mechanical and plumbing subcontractor. The subcontractor’s last partial waiver and release it executed in consideration of a progress payment was in November 2013 for payment through October 31, 2013. The waiver and release provided that the subcontractor waived and released all liens, claims, and demands against the prime contractor or its surety in connection with the project through the period covered by the payment (through October 31, 2013). The waiver and release included space for the subcontractor to identify exceptions. No such exceptions were identified. In fact, prior to November 2013, the subcontractor executed a total of 24 progress waivers and releases and never excepted a single item or claim from the release.

Notwithstanding, the subcontractor encountered design defects that caused it to incur additional costs and delayed its performance. The subcontractor asserted pass-through claims that the prime contractor submitted to the federal government. However, when the prime contractor and government settled their issues and a global settlement was reached, no amounts were assigned to respective items such as the subcontractor’s pass-through claims. The subcontractor then asserted the Miller Act payment bond lawsuit against the prime contractor’s Miller Act payment bond surety.

Applicable here, the surety and prime moved for summary judgment that any damages, including delay-related damages, that the subcontractor sought through October 31, 2013 were waived and released through the subcontractor’s November 2013 progress waiver and release. The District Court of Maryland agreed since all it had to look to was the last waiver and release the subcontractor executed where it waived and released such rights:

“By executing the October 31 Partial Release without exempting its claim, Chasney [subcontractor] relinquished its right to pursue the claim should it ever ripen. In hindsight, Chasney may regret its decision to sign such a release—but the Court’s task is to examine the agreement the parties did sign, not the agreement that one or the other now wishes they had negotiated instead….

***

In summary, the Court’s analysis begins and ends—as it must—with the unambiguous language of the Partial Releases. By signing each release, Chasney waived all claims relating to work performed through the covered period: no reasonable factfinder could conclude otherwise. While Chasney’s opposition brief teems with subtle linguistic maneuvers (and more than a few red herrings), Chasney cannot avoid the plain consequences of its contracting through artful argument….”

U.S. f/u/b/o Chasney & Company, 2016 WL at *7, 9 (internal quotations omitted).

Do NOT let this happen to you. Preserve your rights and claims and do NOT waive and release claims you are NOT prepared to release!

OWNERS: DON’T IGNORE THE STATUTE OF LIMITATIONS IN FLORIDA STATUTE s. 95.11(3)(c) FOR CONSTRUCTION DEFECTS / DAMAGE

Posted on March 5, 2016March 5, 2016 by Edward Garber

If you are an owner experiencing construction defects or corresponding damage (e.g., water intrusion) please consult with counsel. Not doing so can result in your lawsuit being forever time-barred by the statute of limitations! Do NOT let this happen to you; this means that any valid claims you may have associated with the construction defects or corresponding damage are gone.

The statute of limitations for construction disputes including construction defect disputes is embodied in Florida Statute s. 95.11(3)(c), set forth at the bottom of this posting. Please check out this article and this article for more information on the statute of limitations for construction defects.

For example, in Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5^th DCA 2016), homeowners experienced water intrusion from their windows and sued the company that installed the windows. The problem, however, was that the homeowners sued the window installer more than four years after the homeowners discovered the defect (the statute of limitations in s. 95.11(3)(c) as set forth below) but less than five years after the discovery of the defect. The homeowners tried to creatively argue that the five-year statute of limitations governing written contracts should control because the window installer was not a licensed contractor and should not reap the benefit of the shorter four-year statute of limitations. The Fifth District rejected this argument.

Regardless of whether your claims are against a licensed or unlicensed contractor, the four-year statute of limitations in s. 95.11(3)(c) is going to control your construction defect lawsuit. In the case above, the homeowners waited more than four years after discovering the water intrusion to sue their window installer. As a result, their counsel had to come up with an argument to try to circumvent the four-year statute of limitations. Unfortunately, the argument was not successful and the homeowners potentially valid claims were time-barred. Clearly, this is a situation you want to avoid so that you are not having to defend your valid claims with a statute of limitations defense.

Florida Statute s. 95.11(3)(c)

(3) WITHIN FOUR YEARS.—

***

(c) 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.