Category Archives: Contracts

Tues Tip: “Business” of architecture & engineering

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Love your work but hate the “job” portion of it? You know, quoting scope of work, dealing with fees, and getting paid?  If so, check out Milton Gregory Grew’s great article about setting fees that can realistically account for your overhead and other indirect costs, “The Business of Architecture (Oxymoron?)”.

Of  the tips Greg discusses, step #2, “Put it in writing” is key,  as I’ve discussed earlier here.

Moreover, for fee issues, a written agreement is the gold standard.  In a written agreement you can even account for collection costs, higher interest charges, and “reasonable” attorney fees if you later (heaven forbid) have to sue a (former) client for payment of services.  Without a written agreement, you are stuck with statutory limits on what you can recover.

As they say, an ounce of prevention is worth a pound of cure.Gold 1 oz

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Photo “Gold1oz” by Olegvolk via Creative Commons Attribution 2.5 license.  

“Substantial Completion” on the Construction Project: How is it defined? (Law note)

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Substantial completion is another one of those “terms of art” that lawyers love.  What does it mean when your project is substantially complete? If you are an owner, you really are only interested in one thing: when is it done? Right? Well, not exactly.  Particularly on larger projects, there may be a big difference between when a project is substantially complete and when it is finally complete, so it’s good to know what the difference is and what your contract provides.

Substantial completion is generally a defined term in a contract, but regardless of exactly how it is defined in essence it means that the owner can use the building as intended.  It usually indicates that only minor, punch list type work remains.

In the AIA general conditions, substantial completion is defined:

 § A.9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or use the Work or a portion thereof for its intended use.

While this is standard language found in most form contracts, it can–and should–be altered to fit any unusual circumstances you anticipate on your project.

Note that the AIA general conditions do not state that either a temporary or permanent certificate of occupancy must be issued for substantial completion to occur.  For example, in the case of an office building, once the building is able to be used for upfitting purposes by the owner it is substantially complete, even if the building is not yet able to be occupied.  This can be signficant if the owner is self-performing much of the upfit work, and the acceptable degree of finished work may be something altered by the parties at the time of contract negotiation.

Whatever the defined date of substantial completion in your contract, however, it is extremely important.  This is the date that triggers:

  • retainage release
  • the warranty period
  • determination of any actual or liquidated damages
  • the running of the statute of limitations and repose

Therefore, it is important that you read your contract and understand what the date of substantial completion will be for each of your projects.

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Photo courtesy of constructionphotographs.com.

 

The Architect’s and Engineer’s “Standard of Care” (Law note)

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drawing architectural plans

Architects and engineers are required to meet the appropriate standard of care for their work on a construction project.   Such a simple phrase is actually a very loaded statement.  What, exactly, is the “standard of care” that the design professional is required to meet?  This is one of the “terms of art” that lawyers love and everyone else tends to hate.

Basically, the “standard of care” is a shorthand description that states the designer owes a duty to perform reasonably well on the project.  How is “reasonably well” defined?  It is not perfection.  It is, however, the showing of “reasonable care” and performing the “level of skill and diligence those in engaged in the same profession would ordinarily exercise under similar circumstances.”  Again, what?  If you are an architect practicing in, for example, Raleigh, you will be presumed to:

1.  possess the required degree of learning, skills, and experience that is ordinarily possessed by similarly situated professionals in the community (that is, perform as well as other architects practicing in the Raleigh area);

2. use reasonable and ordinary care and diligence in the exercise of your skill to accomplish your professional tasks; and

3. use your best good professional judgment in performing your professional tasks.

Notice that nowhere did I say that the architect’s plans had to be perfect.  However, the plans do need to meet a “typical” standard.  They must meet the applicable Codes.  They must generally be sound.  But they do not have to be perfect.  (Question: Is there ever a perfect set of plans?).

Courts in North Carolina have spent a lot of time, and a lot of ink, discussing the deceptively simple concept of “standard of care,” but essentially this is how it is defined.  If you want to read caselaw discussing the standard, a good case is RCDI Const. Inc. v. Spaceplan/Architecture, Planning, & Interiors, PA., 148 F. Supp. 2d 607 (W.D.N.C. 2001).

Note for Contractors & Subcontractors

If you are not a licensed professional, are you off the hook?  No.  But your duties fall under the “implied duty of workmanship“.  Essentially, you have a duty to make sure your work is sufficiently free from defects such that it meets the requirements of the Contract documents.

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Photo Drawing up the plans (Doors & Windows) by Sailing “Footprints: Real to Reel” (Ronn ashore) via Flickr and made available via an Attribution-Noncommercial-Share Alike 2.0 license.

 

Implied Warranties on Construction Projects

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warrantyA contractor client asked me to explain to him what it meant when someone told him that he had given implied warranties to an owner.  This is an excellent question.

Implied warranties are warranties that the law presumes you have given to the other party.  Even if you never make any written warranty or guaranty, North Carolina courts will often find that you are still liable for certain warranties unless  you explicitly disclaim them.

The warranties that are generally implied in construction contracts include:

 

  • Warranty of Merchantability

 

  • Warranty of Fitness for a Particular Purpose

 

  • Warranty of Habitability (residential construction only)

 

  • Warranty of Plans and Specifications

 

  • Warranty of Workmanship

 

  • Warranty to not delay or hinder any other parties on the Project

 

 

What do these warranties mean?  Essentially, they all mean the same thing:  that your product or labor is at least acceptable.  It may not be perfect—but it meets certain minimum expectations.

Disclaimable Warranties

Warranty of Merchantability—Under the Uniform Commercial Code, this warranty states that the merchant or supplier of a  product delivered to the buyer warrant that the product is able to be used as intended.

Warranty of Fitness for a Particular Purpose—This warranty, also under the Uniform Commercial Code, states that a product will be able to be used for a specific purpose which the buyer has told you about.  It is usually less of an issue that merchantability—however, if a buyer tells you of an unusual need that he is expects the product you supply to him will meet, it can come into play.

Both of these warranties can be disclaimed—that is, you can assert that you are making no such warranties in your written contract or purchase order form.  Certain requirements apply to make a disclaimer valid, so check with legal counsel.

Nondisclaimable Warranties

The remaining warranties—Habitability, Plans and Specifications, Workmanship, and Not to Hinder or Delay—are warranties that, in general, cannot be disclaimed.

Warranty of Habitability– The contractor for new residential construction owes a duty to build a house (and related fixtures) such that it can be lived in for normal residential purposes.  This duty extends to both the original purchaser and subsequent purchasers, so long as statute of limitation and repose are met.

Warranty of Plans and Specifications–The owner impliedly warrants to the contractor that the plans and specifications provided to the contractor are adequate.  This is also called the “Spearin doctrine.”

Warranty of Workmanship—Every contractor impliedly warrants that his construction will be built in a workmanlike manner and sufficiently free of major defects.  This implied warranty is sometimes made express in written contracts—such as in AIA A201 3.5.1.

Warranty to Not Delay or Hinder—This warranty is owed by each contractor to his subcontractors, prime contractors to one another, and the owner to the contractor.

If a warranty is breached, the other party has a claim for breach of the implied warranty at issue.

  Question Mark Have a question about implied warranties?  Shoot me an email at mbrumback @rl-law dot com.

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Photo “Warranted/Day 70” by Aaron Goselin via Flikr made available via an Attribution-Noncommercial-Share Alike 3.0 License.

NC State Construction projects– Privity, Multi-Prime Contracts, and the Ability to Be Sued by Parties You Don’t know (Law note)

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At the recent seminar on construction law in North Carolina, I was asked whether parties could be sued by other parties on state construction projects when there is no contract between those parties.  The answer is yes. In the following series of blog posts, I will address three major cases which address this question in several different permutations.

For today’s post, I will discuss contractual privity, the multi-prime statute, and how the two apply on North Carolina state construction projects.  In later posts, I will discuss the application of that statute to different parties in the construction context.

Multi-prime contracts

In North Carolina, the state entity who is the owner of the construction project must bid the project pursuant to one of several designated ways.  One common method sometimes required of public bidding is the “mulit-prime” contract, in which the State has at least 4 separate contracts, for:

(1) Heating, ventilating, and air conditioning

(2) Plumbing and gas fittings

(3) Electrical wiring and installations

(4) General construction relating to erection, alteration, or repair on public property

N.C. Gen. Stat. §143-128(a). 

The purpose of the multi-prime statute is two-fold:

  1.  It encourages lower bids by preventing pass-through cost mark-ups to the state
  2. It allows smaller specialty contractors to enter bidding directly with state without having to have a working relationship with a general contractor, thereby opening up state jobs to a wider array of potential contractors
Contractual Privity

 In general, contractual privity is required to sue another entity on a construction project—that is, you have to be in a contractual relationship with the party you are suing.  There are exceptions to this rule.  For example, you can be sued in negligence for property and personal damage by a party that you do not have a contract with.  (See my post discussing the architect’s liability for economic loss  resulting from breach of architect’s common-law duty of due care  ).  In addition, the state legislature has provided the ability for contractors to sue one another, or other entities involved in the construction project, without having to sue the owner or deal with the State Construction Office.

 NC statute on liability:

Each separate contractor shall be directly liable to the State of North Carolina, or to the county, municipality, or other public body and to the other separate contractors for the full performance of all duties and obligations due respectively under the terms of the separate contracts and in accordance with the plans and specifications, which shall specifically set forth the duties and obligations of each separate contractor. For the purpose of this section, “separate contractor” means any person, firm or corporation who shall enter into a contract with the State, or with any county, municipality, or other public entity to erect, construct, alter or repair any building or buildings, or parts of any building or buildings.

N.C. Gen. Stat. §143-128(b).   [Emphasis added].

This statute has been interpreted over the past decade to allow essentially any party to sue any other party directly on state construction projects.  In the next blog post, I will discuss the first of three major cases dealing with this issue.