Category Archives: Law Notes

Copyright Protection under ConsensusDOCS and AIA–which is better? (Law note)

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Large copyright sign made of jigsaw puzzle piecesWhich standard form contract provides “better” protection for copyright issues- ConsensusDOCS or AIA? The ever-so-hepful “it depends” is, as usual, the answer.

Are you the owner looking to use the plans you paid for even after you terminate an architect, or are you the architect looking to protect your work product?  If you are the owner, you will probably prefer ConsensusDOCS.  If you are the architect, your best bet is still the AIA documents.

Consider the following:

Under ConsensusDOCS 240,

  • the Owner receives ownership (except copyrights) of all documents, drawings, and data prepared by the architect or consultants for the Project, upon final payment for all sums due in the event of termination (Article 10.1).
  • the Owner has the option of being granted copyright ownership, contingent on making all payments required, including a stated copyright fee. (Article 10.1.1).
  • whether termination is for convenience or for cause by either party, the Owner can use the documents to complete the project, provided he pays all sums due (Article 10.1.2).
  • the Owner agrees to indemnify the architect for post-construction use of documents.  (Article 10.1.3).

Under AIA B101,

  • the architect and consultants are the owners of their respective instruments of service, retaining all rights, including copyrights (Article 7.2).
  • the Owner is granted a non-exclusive license in the instruments of service, soley for use in constructing, using, maintaining, altering and adding to the Project, provided the owner substantially performs, inclduing making prompt payments of all sums due (Article 7.3).
  • if the Owner does not pay all sums due, if the architect terminates the contract for cause, or if the Owner does not pay an extra fee after a termination for convenience, the Owner’s non-exclusive license terminates. (Article 7.3; Article 11.9).
  • the Owner must indemnify the architect against third party claims arising from the owner’s unauthorized use of documents. (Article 7.3.1).
  • if the Owner properly terminates the architect for cause, there is no indemnity against third party claims and no release of the architect from the owner’s claims arising from the use of the docuemnts (Article 7.3.1).

Do you have experience in managing copyright issues under either contract?  Which do you prefer?  Leave your thoughts in the comments section, below.

What if you have a non-standard contract?  Read about that at:  Copyright issues in non-standard construction contracts, including letter proposals.

 Photo (c) Horia Varlan via Creative Commons license.

Is your Contractor’s Surety Company financially strong? (Guest Post)

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Today we have a guest post from JW Surety on how to find bonding companies, check their solvency, and see how each surety company compares to one another.  As the design professional of record, the architect is often faced with reviewing the bid applications and paperwork, including bonding information.  With the increasing number of failing companies, including insurance companies, over the past few years, checking the bonding company’s financials makes good sense.

Much is unknown about surety bonds and, more importantly, what bond types are required in order to start your shop. The following three steps can help customers [Ed. note: or architects conducting due diligence] determine the best surety company for their bonding needs:

hand signing surety bond application

1)     Are they licensed?

As required by law, surety organizations must be licensed in order to operate as per their state guidelines. These licensing requirements are strict and involve background investigations into each company’s history. The benefit for customers is knowing that those surety companies which are licensed to operate are not only qualified, but they are ethically secure to practice. Those beginning the surety search can look through the U.S. Department of Treasury’s list of licensed companies to get a better understanding of which companies to reach out to.

2)     How are they classified?

Customers should get a firm understanding of how each surety company ranks in comparison to each other. To help make this process more manageable, consumer protection organizations do their own investigation and analysis and publicize their findings for others. Although there are several of these agencies, one of the most respected is Dun & Bradstreet, who offer their findings for a nominal fee. Customers can search through thousands of surety companies, gauge how long they’ve been operating, and assess which agencies they believe are most reputable for their bond needs.

3)     Is a surety broker a more viable option?

Brokers are similar to surety bond companies in that they are able to produce and distribute bonds. Typically, these individuals have established relationships with several high-level surety bond organizations, and can help advise customers on what types of bonds to secure, and how much it will cost them up front and annually. Often times individuals prefer the one-on-one relationship brokers offer. Customers interested in finding a reputable surety bond broker should look through the directory of the National Association of Surety Bond Producers.

Thanks JW Surety, for your guest post.  Welcome to my new subscribers this week!  Please contact me with any of your thoughts or concerns regarding construction law, and I’ll address them in upcoming posts.

Photo (c) JW Surety

Why words matter (aka Shakespeare for Architects & Engineers) (Law note)

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“What’s in a name? That which we call a rose
By any other name would smell as sweet.”

Romeo and Juliet (II, ii, 1-2)

Romeo & Juliet balcony

Words do matter.  In the context of construction law, there are some words that you should avoid at all costs.  Top of the list is the word inspect.  If your contract gives you the responsibility of inspecting the contractor’s work, stop.  Do not pass go.  Do not collect $200.  Inspection (at least to some owners and juries) connotes that a thorough review will be provided, and that every fault will be identified.  Instead of Inspection, a better word for your construction contract is Observe.  You should not be providing periodic inspection.  Instead, provide periodic observation.

Am I nit-picking? Perhaps.  But inspect implies a much stronger duty than observe.  (Just my personal observation!).  There are other words you should also avoid in construction contracts.

Instead of certify, try review

Instead of approving shop drawings, try No exceptions noted 

Instead of best (or highest) standards, try meet the professional standard of care

Instead of immediately, try without undue delay

This list is just a sample.  There are many other words to be leery of, including guarantee, warrant, insure, and ensure. 

In doubt about whether your contract contains dangerous words that may expose you to extra legal liability?  Write your contract as if your attorney is looking over your shoulder.  Keep in mind, both Romeo and Juliet learned the hard way that words do indeed matter.

Welcome to my new readers.  If you have not already done so, sign up for email delivery so you never miss a post from Construction Law in NC.  I welcome your comments & thoughts.

Photo:  (c) freefoto.com.

 

Insurance Issues for Construction Projects: the Court of Appeals takes a stab at CGL policies

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Update 3/9/2017:  George’s blog is no longer active on the web.  Therefore, I have edited this post to include my full article below.

Recently, I had the honor and privilege of guest posting on George Simpson’s blog, entitled North Carolina Insurance Law.  George’s blog is a gold mine of information for those concerned with insurance issues, and it is a staple of my blogroll.

My post is entitled:  “Court of Appeals Finds Applicable Coverage Under CGL Policies Despite Exclusionary Language”

insurance

The Court of Appeals has been busy this summer deciding two somewhat similar CGL policy cases, both of which the insurance professional should keep an eye on.

1.         Damage to Property Other than Work Product
First out of the gate, Builders Mutual Ins. Co. v. Mitchell, a case involving a declaratory judgment action between two CGL carriers for the same insured.  In that case, Umstead Construction Company was insured, at various times, by both Builders Mutual and by Maryland Casualty Co.  Umstead performed some renovation and repair work on a house on Figure Eight Island, and poor workmanship caused the home to experience water drainage issues and rot, damaging the home’s interior, marble terraces, and decks.
Builders Mutual settled the underlying claim at mediation, and sought contribution from Maryland Casualty.  In the declaratory judgment action, Maryland Casualty claimed that there was no coverage because there was no “occurrence” as defined in the policy.  However, the Court noted that “an occurrence” under the policy could include accidents resulting from faulty workmanship that caused damage to any property other than the work product.
Here, because there was damage to previously undamaged portions of the house that were not being worked on, an occurrence had arisen.  The Court also noted that the fact that the accident may have arisen from Umstead’s negligence did not prohibit coverage.

The Court held that Maryland Casualty’s definition of “your work”, to include all damage, even that of property other than the work product itself, was too broad to be upheld.

2.        Coverage of Consequential Damages and Lost Profit

Even more recently, the Court addressed CGL policies in Alliance Mutual Insurance Co. v. Glen Dove. In that case, a grain elevator ignited moments after some repair welding was conducted.  The mill owner sued for, among other things, cost to repair the elevator, cost to repair the grain bucket, and for lost business and revenue.

Alliance argued that since coverage for damage to the elevator itself was excluded under the “your work” exception, the portion of lost revenue and other consequential damages attributable to the loss of use of the elevator should also be excluded.  The Court, however, held that the “your work” exclusion does not cover lost revenue and other consequential damages.  The Court noted:

to adopt the plaintiff’s very broad reading of the exclusion clause would result in the exclusion clause swallowing up the whole of the commercial liability policy, and render any coverage contained therein illusory.

The Court therefore held that there was coverage for the loss of use and consequential damages flowing from damage to the specific property the insured was working on.

Insurance coverage issues are important to all design professionals, because if the general contractor doesn’t have applicable coverage, the A/E may be left holding the bag.

What are your thoughts as to what CGL insurance policies should and should not cover? Obviously, CGL policies are not meant to be performance bonds, but where does the line between coverage and non-coverage get drawn?  Share your thoughts in the comments.

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Photo:  “insurance” by Alan Cleaver via Creative Commons license.

Don’t Go Changing (My Date of First Work): The NC Court of Appeals Upholds Contractor Lien Rights (Guest Post)

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Today  [note: this article originally published August 17, 2011], a guest post by Bonnie Keith Green, a construction lawyer and litigator with Shumaker, Loop & Kendrick, LLP, in Charlotte, North Carolina.  Bonnie represents general contractors, subcontractors, materialmen, suppliers, and sureties in construction disputes. 

Through her involvement with the National Association of Women in Construction and the ACE Mentor Program, Bonnie developed a particular interest in representing minority and women-owned construction companies.  She currently chairs a joint committee of the North Carolina Bar Association’s Construction Law Section and the United Minority Contractors of North Carolina.  

Bonnie and the firm of Shumaker, Loop & Kendrick, LLP, represented Superior Construction Corporation from the beginning of the case (discussed below) through the appeal.

Green, BonnieIn a recent victory for contractors, a unanimous three-judge panel of the North Carolina Court of Appeals held that a contractor’s signing of a partial, interim lien waiver did not change the contractor’s date of first furnishing and that the contractor’s lien rights continued to relate back to the date of first furnishing, or first work on the project.

The decision is Wachovia Bank National Association, LLC and Preserve Holdings, LLC v. Superior Construction Corporation and Western Surety Company.

Superior was the general contractor and contracted with the original owner, Intracoastal Living, LLC, to construct a condominium development known as “The Preserve” in Oak Island, North Carolina. Superior began work on April 22, 2005.  Approximately one month later, Intracoastal, the owner, and Wachovia, the construction lender, executed a loan agreement and promissory note and recorded a deed of trust on the property.  During construction, Superior submitted regular pay applications, including its first two pay applications, dated May 11, 2005 and June 9, 2005.  Consistent with industry practice, these pay applications contained partial lien waivers.

Two years later, after failing to receive all payments due from the owner,Superiorfiled a claim of lien on the property, stating that it first furnished labor and materials to the project on April 22, 2005.

Wachovia eventually foreclosed on the project, also due to non-payment by Intracoastal.  In a separate lawsuit, Wachovia brought a declaratory judgment action, asking the court to rule that its deed of trust had priority overSuperior’s lien.  The case was transferred to theNorth Carolina Business Court.

Preserve Holdings, which was formed by a prior owner of Intracoastal, placed an upset bid during Wachovia’s foreclosure, and obtained title to the property, along with all of improvements made bySuperior.  Preserve Holdings was required to post a cash bond in the amount of approximately $950,000.00, because the status of Superior’s lien was uncertain.  After its purchase, Preserve Holdings replaced Wachovia as the plaintiff in the declaratory judgment litigation.  Superior’s bonding company, Western Surety, also claimed entitlement to the cash bond because of payments it made to subcontractors on Superior’s behalf.

The issue for the North Carolina Business Court in the declaratory judgment action was whether Superior’s lien related back to its date of first work and had priority over Wachovia’s subsequently-recorded deed of trust, thus entitling Superior to the cash bond; or alternatively, whether Superior had waived its lien rights by signing the partial, interim lien waivers along with its pay applications, placing its lien behind the deed of trust in priority, and thus entitling Preserve Holdings to the cash bond.

The North Carolina Business Court considered the language of the interim lien waivers and held that they unambiguously waived Superior’s right to lien the property for any work “up to and including” the date of signing the waiver.  The Business Court held that this language resulted in a change to Superior’s date of first work and placed Superior’s lien after Wachovia’s deed of trust.

The Court of Appeals reversed, ruling that Superior’s date of first work did not change because of the execution of partial, interim lien waivers.  Interestingly, the Court of Appeals looked at the exact same language as the Business Court, and also held that the lien waivers were unambiguous.  The Court of Appeals, however, held that the lien waivers unambiguously did not change the date of first furnishing.

The Court of Appeals focused on the language “on account of” contained in the lien waivers, holding that the “on account of” language indicated a causal connection between the contractor’s lien waiver and the specific payment being received by the contractor in exchange for its lien rights.  This causal connection meant that the lien waiver was only for that particular payment and did not waive Superior’s rights as to future work or retainage.

The Court of Appeals’ holding is more consistent with the construction industry’s long-standing practice of using partial, interim lien waivers—and the parties’ (at least the contractor’s)—intent in this instance.  The Court of Appeals’ decision may well be viewed as controlling precedent in any future cases involving similar lien waivers.  There is a need for caution, however.  Contractors, subcontractors, materialmen, and suppliers are cautioned to have lien waivers reviewed by their lawyers and to add language explicitly stating that the partial waiver of lien rights in exchange for payment does not alter or change the date of first furnishing and does not waive lien rights for future work or retainage.

The ruling comes at a time when the status of legislation to overhaul North Carolina’s lien laws is uncertain.  House Bill 489, which was introduced during the 2011 General Assembly, and would have required all parties to use standard, form lien waivers, has been referred to a Study Commission.  It may be considered for passage later this year, or possibly during the short session in 2012.  While the legislation is on hold at the moment, the Court of Appeals’ decision is favorable for contractors.  In these difficult economic times, any victory such as this in favor of the enforcement of contractors’ lien rights is a welcome development.

Bonnie and I welcome your thoughts and opinions on the case in the comments section, below.