A client asked me about a contract he was asked to sign in which consequential damages were being waived. Consequential damages are those things that cost money which arise indirectly out of a failure of a party on a construction project. They can include:
- loss of use
- loss of rent
- loss of profit
- loss of bonding capacity
- extended overhead
- extended equipment rental fees
- increased material costs
Note that this is not an exhaustive list, and other consequential damages may be applicable depending on the project.
The standard industry contracts all have at least some waiver of consequential damages, as noted in this chart.
Bottom line: waiver of consequentials can be a good thing or a bad thing, but you will not know which when you are signing on the dotted line.
Just make sure that if there is a waiver, that it is mutual on both sides. Good luck, and “be safe out there”
Your turn. Have you ever waived your right to consequentials? Horror story to share about paying someone else’s costs? Share in the comment section.Dollar Photo (c) sivlen001. Chart (c) Melissa Brumback
Is there a dead body in your future? The first sign of trouble on the construction project (Law & Order: Hard Hat files Part 1)
Nobody dies in a construction dispute. At least most of the time!
However, just as the usual “thunk-thunk” chord in Law & Order warns the viewer that something is awry, there are warning signs that your construction project may be under similar dire straights. You should recognize these signs for what they are—early-warning lawsuit detection devices. Signs that a lawsuit may be in your future include:
- The “everything has gone wrong” situation. This one is fairly big and obvious, but it bears mentioning. If the project is delayed, over budget, and there are signs that the owner is looking for someone to take the fall, watch out.
- Much more subtle, but equally troubling, is the “start acting squirrely” syndrome. If you have always had a good working relationship with the general contractor, but suddenly he is aloof, watch out. If the owner is usually friendly and free with the flow of information, and he suddenly begins to clam up, be concerned.
- The “let’s document everything” protocol. Now, as a lawyer, I feel duty bound to tell you that I think documenting everything is best management practice. However, I do know that most normal folk don’t usually behave this way 24/7. So, if you are on a project where a contractor likes to write letters to the file almost as much as he does change order requests, be leery. Could be he just listens well to his lawyer’s proactive advice to document everything. Or, could be he is preparing a case from the get-go to claim design failures, construction administration delays, and the like. How to tell the difference? Often, you can only go with your gut. But take note—is Mr. Letter Writer documenting everything, or just items that might be considered “blame-able” ?
- The “I’m confused” RFI king. Similar to #3 above, but more specific, the confused RFI king always seems to need clarification or further information about your design. The requests for information flow so fast, you may have trouble responding timely. This may be part of the plan. Or, it may simply be a numbers game— either the contractor is asking RFIs to buy time on the project (often on a case with strong liquidated damages provisions), or he wants to later be able to point out the “excess number of RFIs” to prove “bad design.”
Now that you’ve caught the whiff of trouble brewing, how do you stop it before the dead body smell takes up residence in your car? Observe, document, and respond in kind.
If you are dealing with an RFI king, respond timely, and note when the RFI is asking for information that is readily available on the plans. You might even consider keeping your own running log of questionable RFIs, so you can readily show your lawyer, and a future jury, that although there may have appeared to be a large number of RFIs on the project, the fact was that most of them (X percentage) were questions about something that the contractor should have already known if he had reviewed the plans.
If you have a “document everything” guy on your hands, respond in kind. You should be doing this anyhow, of course, but if you have someone that is especially prone to documenting everything, you need to be extra vigilant that he is not stating anything that is untruthful, that the documentation is complete, and that any time you get a document that doesn’t completely tell “the truth, the whole truth”, that you supplement it with your own documentation accordingly.
If you have a squirrely acting client, you might consider just politely confronting him to ask if anything is going on. It could be something that has nothing to do with the project – internal politics, personnel crises, etc. In which case, you will find that out. If there is something more sinister afoot, you can probably determine that as well. The key here is to ask whoever you are (or had been) close to, and to ask them off the record, in person. You can learn a whole lot through non-verbal body language. If you find out, directly or indirectly, that there may be a claim afoot, then you can proceed accordingly.
If the project has gone to hell in a handbasket, there is not a whole lot you can do, other than to keep ensuring that you and your team are meeting all contract requirements. Part of this should include documentation for the eventual lawsuit, if it comes to that. You might also contact your lawyer or insurance company for assistance behind the scenes—something called “loss prevention”. Remember, reporting the dead body is the first step to clearing the air. It’s the cover up that usually gets folks in trouble.
Now it’s your turn. Drop me a note or comment below to share your own techniques for recognizing possible lawsuits. Next week in the series: the mechanics of being sued. Stay tuned!
Photo (which is not of a *real* dead body) (c) garlandcannon via cc.
Today’s guest post is from Christopher G. Hill, lawyer, Virginia Supreme Court certified General District Court mediator and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC, a LEED AP. Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals. Additionally, Chris is active in the Associated General Contractors of Virginia and a member of the Board of Governors for the Construction Law and Public Contracts Section of the Virginia State Bar.
First off, thanks to Melissa for this opportunity to post here at Construction Law in North Carolina. Having co-presented with her and discussed construction contracting from all perspectives, I can safely say she’s good at what she does and shares great insight here at her blog.
Now that the formalities are out of the way, I thought I’d share my thoughts as one who represents many subcontractors and general contractors on the topic of good relationships meaning good business. I am always a bit surprised at the failure of either side of the GC/Sub dynamic to act in a businesslike manner.
Remember, the General Contractor and the subs are in the boat together in many ways. They both have a job to do and, ultimately, an owner at the top of the payment food chain that is looking to get a project done on time. Ultimately, they both have an architect/engineer representing the owner that may or may not be up on the job (sorry Melissa) and may not be trained in project management. If the general and its subs aren’t “playing well in the sandbox” together, the relationships up and down the project chain get all out of whack and cause delays in completion and importantly in payment.
Another phenomenon that happens more frequently than I would like is the general contractor “burning” good subcontractors in an area through making payment (particularly final payment) difficult to receive. While this type of activity occurs on what I am sure is the minority of projects (and fully acknowledging that my practice makes me think that Murphy was an optimist) I am always flabbergasted by this sort of treatment given to a subcontractor that should be helping pull the boat.
While it is obvious that subs need to play nice with GC’s because they have the money, it may seem less obvious how the above can hurt a general contractor. The short answer (and don’t worry I won’t be going into the long one) is that burning good subs eventually means that good subs won’t work with you. Subs talk to each other. Your reputation will precede you. Eventually the economy will improve and you won’t be the only game in town. Not to mention that such actions are the stuff of which claims are made.
In short, getting along costs your local construction lawyer money because he or she doesn’t get to go to court for you. It is almost always less expensive to get along, finish the job and work out payment than to get we attorneys involved in the construction claims process.
To make a long story somewhat less long, GC’s work with the subs and subs, play nice with the GC’s. It’s the best way to a lower stress project and a higher monetary payoff.
Thanks, Chris, for your insights from the contractor’s side of things. Even if you did (politely) slam the hard-working design professionals. Reader, now it’s your turn. Share your thoughts, comments, or questions with Chris or me in the comment section, below.
As we’ve previously discussed, the statute of limitations for construction claims in North Carolina is generally three years. That is, once 3 years have passed, you are generally protected from any lawsuit filed after that time.
Does that mean that no lawsuit can be filed against you subsequent to that time? No. First, the statute of limitations is an affirmative defense, meaning that you must timely assert the defense as part of your response to the lawsuit.
Secondly, it is sometimes not apparent when the three year period begins to run. Substantial completion or final completion? What if your work is finished, but the project is not– does the three year period not start until project completion? The issue of whether the statute of limitations has run is complex, and a mixture of law and fact questions. See, Lord et al v. Customized Consulting Specialty, Inc. et al, 182 N.C. App. 635, 643 S.E.2d 28 (2007).
Finally, be aware of the hidden danger of hidden dangers.
The three years does not start to run until it becomes obvious that there is damage stemming from your professional negligence. The applicable statute states that the three years “shall not accrue until bodily harm to the claimant or physical damage to his property becomes apparent or ought reasonably to have become apparent to the claimant, whichever event first occurs.” N.C. Gen.Stat. § 1-52 (2005).
In other words, if there is a defect that is not readily observable and visual, the three years may not start to run until it becomes observable (e.g., through destructive testing, repair work, or renovation work). This is what is known as a “latent defect”, and it can impose liability far beyond the initial 3 years.
Does the latent defect rule extend liability indefinitely? No, it does not. The statute of repose (6 years in NC; other states vary) will impose an absolute final date on real property improvements, after which no further liability can successfully be claimed.
Questions? Drop me a comment, below. Also, be sure to sign up for regular email updates and our free Construction Professional newsletter by entering your contact information on the top right of the homepage.
Welcome Back! The “regular season” of Construction Law in NC blog posts has now officially started.
Recently, I had the privilege of writing on the subject of Private, Single Panel Arbitration on Chris Hill’s blog. Please read the article if haven’t already.
The first issue of my brand-spanking new newsletter, The Construction Professional, went out yesterday to those on the email list. If you want to be one of the cool kids, be sure to sign up now by visiting the right hand side of the blog. (Or, you can simply shoot me an email at mbrumback at rl-law dot com).
Finally, today’s post is a guest post by Susan Wells. Susan is a freelance blogger who enjoys writing about automotive and health news, technology, lifestyle and personal finance. She often researches and writes about automobile, property and health insurance, helping consumers find free insurance quotes, and the best protection available. Susan and I welcome your thoughts and comments on this article.
The Insurance Institute for Business and Home Safety (IBHS) sits on a 90-acre parcel of land in South Carolina. The research facility is dedicated to advancing building science by evaluating various residential and commercial construction materials and systems.
In layman’s terms, IBHS builds things and then attempts to destroy them by recreating conditions of natural disasters. In a studio-like production, the laboratory builds houses and then submits them to fire, wind, ice and water damage.
The IBHS research center even has a few videos on YouTube that demonstrate the effects of wind damage and fire.
This destruction is an integral part of the construction industry as insurers work to identify risks and mitigate them through improved materials and structures. IBHS President Julie Rochman explains that the research center allows them to produce controlled experiments that are not being conducted anywhere else in the world. No longer forced to rely on case studies or opinions, the IBHS can record its findings and actively search for (and test) stronger systems.
Engineer Scott Sundberg explains the value of the research center in a single sentence, saying, “One test is worth a thousand expert opinions.”
To those at the IBHC, the information produced by these experiments is essential to advancing a sustainable community. Using hard data and conclusive evidence, such large-scale and detail oriented research allows the insurance and construction markets to focus on effective mitigation techniques. The average consumer will also have more access to product knowledge and has the potential to become more informed about products and strategies that can make their homes and buildings safer.
“Predictability and reliability of building materials and information is extremely important to the sustainability of the community, “says Mississippi Housing Director Gerald Bessey.
“Collectively as we apply these to public policy decisions and as the market place makes market choices. I think the market will react to good information that’s reliable and stable.”
In insurance underwriting laboratories like IBHS, disaster resistant and energy efficient technologies are merging to produce a new definition of sustainability.
Admittedly, there are few market standards for “green” products, and the FTC is actively working to mitigate the damage caused by “greenwashed” products that touted false claims of durability and environmental benefit. For uninformed consumers and construction managers, the wrong green system could put building structure at risk.
Some elements, such as vegetative roofs, can actually serve as fuel for fires or pose a threat under high winds. The IBHS proposes that energy efficiency and structural durability can work in tandem to create a truly sustainable product: one that will be environmentally friendly yet resilient in the face of environmental disasters.
One such recommendation is retrofitting older homes. Owners can replace windows and doors with energy efficient and wind resistant materials and seal energy leaks. Simple weatherization steps can actually help the average homeowner reach a new level of sustainability without rebuilding their home using entirely new green technology.
Interestingly, there are green insurance policies that allow policy holders to rebuild after a disaster using green upgrades. This would allow for recycling of debris, LEED certification as well as coverage for new appliances.
Most insurance policies do not currently consider products like wind-resistant glass to be a green upgrade, but as research begins to define standards of sustainability, it’s only a matter of time before green technologies and resistant materials merge to produce the highest standards of construction.
Thoughts? Comments? Questions? Drop me an email or leave your musings below.