Category Archives: Law Notes

Developers Rejoice Over Impact Fees Decision (news note)

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Today I’m unveiling a new column here at Construction Law in North Carolina called “News Notes”.  News notes will be postings of current news items relating to the design (and construction) community.  [This means that sometimes I must be a tad drier than my usual festive self.  Consider yourself warned.]  If you have an idea for a News Note, drop me a line.

Much to the delight of developers and realtors across the state, the North Carolina Supreme Court recently affirmed a decision which struck down local school impact fees. The fees had been assessed to fund construction of new schools in the Cary portion of the Wake County schools to help with the Town ofCary’s  rapid growth.

Impact fees are usually enacted by local boards and town councils as Adequate Public Facilities Ordinances (APFO).  In 1999, the Town of Cary began assessing school impact fees on developers in certain portions of the town which faced overcrowding.  The revenue brought in by the fees was earmarked to pay for expansion of existing school facilities.  Notably, the Town of Cary has no separate school system from the rest of Wake County, and did not have the legal authority to control the provision of school facilities within the district. 

Last month, the state Supreme Court, in a tight 3-3 tie decision (with one abstention) left the Court of Appeals decision in place, rejecting the Town’s attempt to collect school facilities fees and declaring the fees illegal.  [As an aside, my firm represented another developer who intervened in the lawsuit; however, the facts were somewhat different and we were not involved in this appeal.]

The Cary case is not the first time the issue has arisen in the state.  Currituck County once proposed a similar APFO to fund school construction during the real estate boom as out-of-state residents from Virginia crossed into North Carolina in an attempt to flee the taxes and dismal school system in Chesapeake,Virginia.

The Currituck proposal was widely criticized by both local and state homebuilder’s associations. Across North Carolina, homebuilders and realtor groups worked together to stop attempts at passing such impact fees. These organizations have run into problems as cash-strapped local governments see impact fees as one method of paying for increasingly expensive public school construction.

The theory is that developers of new homes pass the impact fees along to new home buyers by raising the price of homes or lots. Existing residents are spared the tax increases caused by a rapid influx of new residents with school-aged children. Thus, the people responsible for the increased strain on the school system – the new residents – bear the burden of the tax increase.

school

Over the past decade, Durham, Union County, and Cabarrus County have instituted similar impact fees. All three such attempts were disallowed by various courts. Thus far, virtually all attempts at imposing such fees have been struck down, although there appears to be wiggle room in the case law. For example, impact fees collected for improvements that directly run to the property (such as water or sewer lines) are typically allowed. Additionally, other municipal governments impose fees related to schools that have not (yet) been decided in the state court system, and those may be broad enough to pass judicial scrutiny.

In this case, Cary’s ordinance assessed residential developments a mitigation fee if they did not first obtain a certificate from Wake County certifying classroom availability. Over $4 million was ultimately collected since the ordinance was first passed in 1999. Cary is now faced with the prospect of returning these fees, plus over $300,000 in attorney fees awarded to the developers who filed suit.  Ouch!!!

Comments or questions?  Post in the comment section, below.

Photo (c) Ivy Dawned via Creative Commons license.

Will Green Performance Bonds Be a Surety Requirement in 2012? (law note; guest post)

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Today’s Law Note is by Guest Blogger Alex Levin for JW Surety, the largest surety bond agency in the country.  When he’s not explaining the functionalities of surety bonds, he covers a variety of topics from construction-related news to eco-friendly building tips.

Green building design and construction is an attempt to conserve natural resources, reduce energy consumption, and protect the environment through reduction of pollutants. Green buildings are constructed with renewable, managed materials and are typically designed to take full advantage of natural light and passive heating and cooling environments.

In 2006, the District of Columbia enacted a local ordinance specifically designed to promote green buildings. The Green Building Act of 2006 becomes effective in 2012 and requires all new construction projects within the District to meet Leadership in Energy and Environmental Design, or LEED, certification standards.

Developed by the U.S. Green Building Council, LEED certification promotes the design, construction and operation of green buildings. There are four levels of certification, from LEED Certified to Silver LEED certification to Gold LEED certification and, at the highest level, Platinum LEED certification.

The District of Columbia was the first city in the US to require that privately constructed buildings meet LEED standards and already contains 24 buildings that are certified as Silver LEED or higher. An additional 150 projects are LEED registered.

The Green Building Act of 2006 did several desirable things for the District of Columbia. It established high-performance building standards for all new construction in the District. It created a green building incentives program to rewarded green construction projects with an expedited documents review process. It requires that properties with green building standards be given priority when the District leases buildings. Unfortunately, the Act also had an unintended consequence. As it is currently written, no structures can be constructed in compliance with the Act.

In routine construction contracts, performance bonds limit the risk that owners incur by using a particular contractor. The contractor buys the performance bond from a surety company, and the bond is issued to the project owner. If the contractor fails to perform, the owner can draw on the bond to hire another contractor to complete the project according to the design specifications. When the contractor does complete the project according to the design specifications, the bond is released and money is returned to the contractor. Performance verification is a simple matter of construction observation and comparison with the project specifications.

With a Green Performance Bond, however, there are multiple problems. Performance certification must come from a third party, such as the US Green Building Council, who would not be a participant in the surety bond. A delay on the part of the government agency could result in missed construction deadlines. To add to this, green standards are constantly changing. A project designed to meet Silver LEED certification requirements at the time construction starts may fall short of the certification requirements that are actually in effect by the time construction is completed.

The greatest hurdle to the Act is that Green Performance Bonds simply do not exist today. Surety companies will not issue such bonds when there are no clear standards for performance verification. [Editor’s Note: For more on the “unicorn” that is the green surety bond, check out Chris Cheatham’s discussion on the illusory bond way back in 2009].

The legal ramifications of this dilemma remain unclear. Will contractors who have been awarded construction contracts scheduled for 2012 be subject to liquidated damages if they are unable to bond and fail to start construction? If surety companies do issue Green Performance Bonds, will the bond be forfeit if LEED certification standards change during construction and the project is not Silver LEED certified? Will delays in certification be held against the contractor when projects are otherwise completed? There are no definitive answers to any of these questions.

The language of the Act is being re-examined, and a public hearing is scheduled for mid December. There is no alternative plan in place should the language of the Act remain unchanged and surety companies decline to issue these specialized performance bonds.

Thoughts, comments, or questions?  Post in the comment section, below.

Photo: (c) coolshots blog via Creative Commons license.

New NC Laws for Engineers, Architects, & other Construction Professionals (Tue Tip)

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NC flag

Today’s Tip is a big one….. a turkey-sized offering in advance of Thanksgiving.   At least 19 new North Carolina laws that effect construction professionals were passed this legislative season.  They run the gamut, including public project bidding requirements, building permits, code issues, and the use of design-build building methods.  For a complete listing of each bill that may effect your practice, check out this Legislative Spreadsheet prepared by Harry Lancaster of Lancaster, Craig & Associates, a North Carolina-based government relations firm based in Raleigh.

Of particular note to Design Professionals:

Senate Bill 708/Session Law 2011-269 reconciles certain rules adopted by the Building Council relating to the January 1, 2012 effective date of certain portions of the 2012 Energy Conservation Code and the 2012 NC Residential Code.

House Bill 616/Session Law 2011-304, which modifies regulations for Engineers and Land Surveyors, including general requirements for licensure.

Check out the spreadsheet for the other construction laws.  You can go directly to the language of the laws from links on the spreadsheet.  Happy reading!

Photo:  Mr. T in DC via Flicker/CC. 

Construction, er make that CONTRACT, Administration services: a primer (law note)

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[Update 12:42 pm ET, 11/3/11– CA is for Construction Contract Administration, or “Contract Administration” for short- thanks Liz O’Sullivan]

 One of the Architect’s responsibilities on a construction project is that of construction contract administration (“CA”).  While not every contract contemplates the architect performing a CA role, most commercial construction projects do.  What, exactly, should be included in the CA role?  The CA role can be whatever the parties agree upon.  In fact, the AIA A201 form contract documents anticipate that the architect’s role will be defined in an exhibit. 

Construction Construction Contract Administration
§ 4.2.10 If the Owner and Architect agree, the Architect will provide one or more project representatives to assist in carrying out the Architect’s responsibilities at the site. The duties, responsibilities and limitations of authority of such project representatives shall be as set forth in an exhibit to be incorporated in the Contract Documents.
What, then, should be included in the CA role assigned to the architect?  The nature of the construction administration role is project specific.  Some projects require a full-time on-site architect, a clerk of the works, or a weekly or bi-weekly site visit.  Because the nature of the CA role cannot be adequately described in a form document, it is especially critical that you take care to describe the specific CA duties assigned to the architectural team in detail.
site observation by architect
 
One of the main CA roles for the design team is that of site observation. Consider:
  • What frequency is contemplated for visits?
  • How long should those visits last? 
  • What is your role during such site visits?
I see many disputes that arise over a misunderstanding as to how often the architect should be on-site, and what his role is in observing the contractor’s work once he is there.  Again, being specific will only help you to avoid misunderstandings, possible litigation, or even extra liability later on.
 
Perhaps the most important concept to remember for your CA role on a construction project: never agree to “inspect” the contractor’s work.  Your role should be observation to see that the work is in general conformance with your design.  You cannot guarantee the contractor’s work (nor would such be insurable).  Therefore, be careful to use the word “observation” and not the word “inspect” in your CA description.
 
What have been your construction observation experiences? Drop me a line and tell me your story.  (And thanks to my many new readers to the blog this week!).
 
 
 
 Photo (c) Mark Hogan via CC.
 
 

 

Standard of Care for Engineers- the Jury Instruction (law note)

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Not perfection I’ve previously talked about the standard of care for design professionals on construction projects. 

As you should be aware, the standard is reasonableness, not perfection.  To illustrate the point, consider a standard North Carolina jury instruction on the standard of care for engineers:

 “Under our law, a professional engineer is required to exercise that degree of care which a professional engineer of ordinary skill and prudence would exercise under the same or similar circumstances, and if the engineer fails to exercise such degree of ordinary skill and prudence under the same or similar circumstances, the engineer’s conduct would be negligence.”

For an architect, just substitute the word “architect” for “engineer” in the jury instruction above.    Sometimes it can be challenging to meet a client’s expectations, and some clients believe that plans should (and can) be perfect.  In your discussions about the project with the client, be sure the client has reasonable expectations.  It is not reasonable to expect perfection in design plans.  Unforeseen conditions, changing criteria, and differing code inspector interpretations are all to be expected.  Educate your client about typical errors & omissions at the start of the construction project.
 
Do you have a question about the standard of care?  Drop me an email at [email protected].  Be sure to sign up for email delivery of blog posts directly to your inbox so you never miss a post!