Category Archives: Law Notes

The Expert Weighs in on construction contract “orders of precedence” (Guest Post)

Posted on by

Phil Kabza headshotThis past week, my post on the concept of contract “orders of precedence” generated a lot of comments and feedback from blog readers.  One reader, an expert in MasterSpec documents, weighed in with a weighty response that deserved a post of its own.  What follows is a Guest Post by Phil Kabza, FCSI, CCS, AIA.  Phil is a partner with SpecGuy, providing specifications and technical consulting and training to architects, engineers, and facility owners. 

Phil is a graduate of the University of Michigan College of Architecture and Urban Planning and WesternMichiganUniversity, and holds certifications as a construction specifier, contract administrator, and LEED professional. He has over 30 years experience in architectural and construction quality management and instruction. He is Past Chair of the AIA MasterSpec Architectural Review Committee, a contributor to The Construction Specifier magazine, and founding Chair of the Charlotte Building Enclosure Council. He is a Fellow of the Construction Specifications Institute and a member of Specifications Consultants in Independent Practice.

Your posting on order of precedence clauses covers a topic that is near and dear to the professional specifier’s heart. AIA contract documents and professional specifier practices maintain that order of precedence clauses are typically not called for – the drawings and specifications are a unified whole, and any conflict between or within them is subject first to interpretation by the architect/engineer, and if not resolved, is subject to resolution through the claims process.

What happened in the fuel tank replacement case you cite is the bidding subcontractor, whom we can assume to be reasonably competent and fully aware of the conflict between the two documents, sought a bid advantage by withholding their discovery of the product note conflict and by bidding the less expensive product, perceiving that the chances that they will be held to the higher product standard were low enough to take the risk of reversal of their claim.

Bidding subcontractors/suppliers are responsible for reading and interpreting a small portion of the drawings and one or two specifications sections out of the 200 or more sections on a project, the work results for which they are held to be specialists. The architect/engineer is responsible for preparing all of several hundred drawings plus the 200 or more specification sections describing work results for which they are held to be reasonably knowledgeable under their respective standards of care. So let’s keep in mind that the bidding subcontractor/supplier is in a position of superior specialty knowledge and is electing to withhold discovered information about the architect/engineer’s documents for his/her own business advantage.

To incorporate an order of precedence clause declaring that either a drawing note or a specification clause should take precedence in the contract will mean that 50 percent of the times where there are conflicts within the documents (I’m guessing the percentage), the owner will be entitled to receive a component that does not meet their design intent. The architect/engineer has either prepared or carried over a drawing note that includes erroneous information, or a specification has been written that is not coordinated with the drawing note or otherwise does not reflect the owner’s design intent in the product selection indicated by the architect/engineer.

Upon discovery of the conflict during the submittal process (assuming that it is discovered), the owner’s alternative is to negotiate for the appropriate component in a setting in which they have only one party with whom to negotiate – a contractor who is already under contract, who may have a financial interest in exploiting a delay through the negotiation, and who often has little incentive to provide the appropriate component for a reasonably adjusted price. While the order of precedence clause may make contract interpretation simple, it does nothing to ensure that the owner will obtain their design intent at a reasonable price – it just shifts the difficulty to the later price negotiation. Or worse.

What’s most troubling is the assumption that an order of precedence clause plus the normal submittal review process will protect the owner in such an instance by revealing the conflict already concealed by the bidding subcontractor. This is because the architect/engineer’s review of the contractor’s submittals takes place in a very different environment compared to the design environment in which the original product selection decision was made and the drawings and specifications were developed. Someone knew which underground fuel tank was required; was it the drafter of the drawings, or the specifier? Which should take precedence?

Submittal reviews are not as comprehensive and coordinated an architect/engineer activity as is design. Submittal reviews are not necessarily carried out by the designing architect or engineer. The purpose of submittal review is to establish basic conformance between the contractor’s submittals and the requirements of the contract documents – not to comprehensively review the content of the design documents. So the likelihood that the reviewer would miss the drawing note and your GC’s owner would receive a UL 142 underground fuel tank only to have it rejected by the authorities having jurisdiction during an onsite inspection is rather high – or worse, to have it installed and fail, resulting in an environmental calamity and giving rise to an extraordinarily expensive claim and drawn out resolution process that will cost thousands of times the difference in price between the two tanks.

It is in order to avoid such expensive experiences that the standard AIA documents place the management of the risk for the result of conflicting requirements in the contract documents in the hands of the party that they know is in the best position to perceive and handle the conflict:  the contractor whose specialist subcontractor/supplier has a high financial incentive to take note of the conflict and who can decide to handle it responsibly – or not. This is not an argument in favor of architect/engineers avoiding responsibility for their design errors; this is a case where the overriding interest of the owner and the public in achieving design intent should take precedence, because the potential for enormous loss to all parties plus their insurers is greatly reduced.

The AIA and professional specifier position that the bidding subcontractor should not withhold information but should seek interpretation during the bidding process is not unreasonable, even if it is not a popular one among contractors jostling for bidding advantage. One or two well published case precedents that uphold the contract clause requiring the contractor to provide the “more stringent requirement or expensive product” likewise would be enough to curtail the bidder practice of deliberately withholding information in order to secure a contract.

As for the specifics of the contract your party is wrestling with, a couple of well-deserved whacks on the architect/engineer’s mousing hand for placing specification information in the drawings, and for not relying on carefully prepared specifications to address this topic. Engineers are especially prone to doing this. That is one reason why two-thirds of architect’s potential claims result from their consultant’s poorly prepared documents. The Construction Specifications Institute’s maxim to “say it once, say it correctly, and say it in the proper place” is often ignored by the engineering community at their and their architect clients’ peril.

Let’s not let the owner off the hook, either. Words matter, and use of the term “more stringent” without the accompanying “or more expensive” phrase likely comes from the owner’s own custom contract and certainly gives the contractor something to hang their hat on in this dispute. It shouldn’t. The “more stringent” term is not in the AIA contract documents nor does it appear in MasterSpec, the AIA’s master specification library. (Disclosure:  We are a consultant to ARCOM, MasterSpec’s publisher and have produced several recent updates to the MasterSpec Division 01 General Requirements.)  This suggests that the owner has their own contract clauses or supplementary conditions that include the phrase “more stringent.”

Professional specifiers throughout the country decry the deplorable conditions of most public agency contracting documents, and this one is likely no exception. Case in point:  the State of North Carolina’s construction general conditions document OC-15 that intermingles the requirements for bidders and for the contractor, which apply to two different entities in two different phases of the project and should be well separated. The OC-15 also conflicts with the state’s own supplementary conditions document. The state also  dictates architect/engineer performance that conflicts with the professional standard of care. That’s not to mention the nearby city government whose general conditions consist of the 1976 AIA A201, much modified, and probably thoroughly misunderstood as well. Add to that any contract where the owner’s attorney incorporates the bidding requirements documents in the construction contract – unnecessarily providing meat for more interpretations, claims, and disputes, and fees.

It’s a wonder that anything gets built.  That it does is testimony to the many people in our industry who are determined to do good if imperfect work, build things, make a living, and stay out of court.

[Melissa here again]:  Well said, Phil.  Thanks for providing me a much better understanding of the Specifier’s position concerning “order of precedence” clauses.  The attorney in me still likes them, but I can understand your point that contractors can abuse their position by failing to inform the design team of conflicts in the documents.  I represent many such architects and engineers who have experienced such after-market bidding by contractors.  Sometimes it is difficult to know whether the contractor honestly missed the conflicts, or whether he saw it and is taking advantage of the situation.  I certainly agree that the contractor should bear some responsibility for reviewing his scope of work completely prior to submitting his bid.

Do you agree with Phil?  What is your position on the role and interplay of contract documents on the construction project?  Share your thoughts with Phil and me in the comments below.

Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

Posted on by

wine and cheese

Reader Mailbag:

For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction.  Dave writes:

I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 – a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.

The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.

My position is the word “stringent” according to Websters means “rigidly controlled, enforced, strict, severe.” The two specifications are written by Underwriter’s Laboratory and precisely decribe each type of tank clearly and without ambiguity for the purpose of rigidly controlling the qualities of the product. Consequently the two specifications are equally stringent. Stringent does not mean more expensive or what the pre-bid intent of the owner.

Is this sound reasoning, does it fall under Spearin and is there another defense I should take?

What Dave is experiencing is a poorly-constructed contract.  Obviously, the goal in a set of construction documents is to not have any conflicts.  However, between specifications, drawings, shop drawings, contract language, addendum, and change orders, the goal of absolute consistency in contract documents is impossible extremely hard to meet. 

The usual way around this very likely problem is to state the order of precedence of the various contract and construction documents, so that in the event of a conflict between two provisions, everyone knows which one prevails.  In the absence of any contract language stating the order of precedence, the parties are forced to argue contract law principles such as mutual mistake, which party is considered the contract drafter (and hence, disfavored), and other technical legal issues that numb the mind are only exciting to those of us crazy enough to go into the legal profession. 

Sure, you can have wine without cheese, but why would you?  The two should go together, in the same way that an order of precedence clause should go with any construction contract.

Dan has also raised the issue of “more stringent” requirements.  In general, when a contract contains instructions that are susceptible to two or more reasonable interpretations, these are considered “ambiguities”.  There is generally a duty on the contractor to point out conflicts between the documents.  However, where a conflict between the documents is not noticed by any party prior to the bidding, the plans arguably are defective under the Spearin doctrine. 

So, back to Dan’s question.  Dan– your situation is a mess!  I agree that your reasoning on the stringent requirements is sound; whether or not a Court will agree with your position remains to be determined.  Time to hire a good construction lawyer in your jurisdiction to negotiate a resolution to your situation!  (I see that you are in Arizona.  If you don’t have a lawyer, let me know and I’ll try to get you a recommendation or two).

Have you ever encountered a contract like Dan’s?  Did it cause any problems with conflicting documents later on?  How did you handle the situation?

—————————

 Photo:  054/365: Wine, cheese and crackers via Addison Berry/Creative Commons license. 

You Cannot Have Your Cake and Eat It, Too! (Estoppel) (law note)

Posted on by

slice of chocolate cake We’ve talked previously about the statute of limitations  here at Construction Law in North Carolina.  A recent North Carolina Court of Appeals case gives a vivid example of one exception to a statute of limitations defense– estoppel. Estoppel is the act of lulling a party into not filing a lawsuit through your actions.  You are then deemed “estopped” from asserting the statute of limitations as a defense. That is, a party cannot use the statute of limitations as a sword to benefit from his own conduct which induced a plaintiff to delay filing suit.  Proof of actual fraud or bad faith is not required; however.  The “basic question” is whether defendant’s actions “have lulled the plaintiff into a false sense of security and so induced [the plaintiff[ not to institute suit in the requisite time period.”  Cleveland Const., Inc. v. Ellis-Don Const., Inc. et al., __ N.C. App. __, 709 S.E.2d 512 (5 April 2011). In that case, the general contractor on a public hospital project, Ellis-Don, asked Cleveland Construction Inc. (CCI), one of its subcontractors, to delay making its own delay claim on the project.  The general contractor sent a letter to CCI  asking it not to sue it in order to present a “unified front” to the State during the State Construction Office’s administrative claims process. The Court found that Ellis-Don affirmatively represented to CCI that it was  pursuing CCI’s claims as part of its overall claim against the State. The Court further found that Ellis-Don affirmatively represented to CCI that CCI should not  initiate a claim because that would jeopardize the success of the total contractor recovery with the State.  As such, Ellis-Don lulled CCI into a false sense of security, as CCI reasonably believed that Ellis-Don would pass through to CCI any proceeds attributable to its claim from Ellis-Don’s settlement with the state.  Ellis-Don was, therefore, equitably estopped from asserting the statute of limitations when CCI later sued Ellis-Don on those same claims.   Here, Ellis-Don tried to benefit from including CCI’s claim in its overall claim at the State Construction Office, and later benefit from CCI’s failure to adhere to the time limits imposed on bringing claims.  The Court held that a contractor cannot have its cake and eat it too.  (After all, too much cake is bad for anyone). Practice Note:  Do not count on the theory of equitable estoppel for untimely claims.  A court could decide you were not reasonable in holding back from initiating legal action, in which case your claim would be denied.   Equitable theories are to prevent injustice, but you cannot and should not rely on them.  Have you ever delayed filing suit on the promises or statements of another party?  Did the Court find the other party was equitably estopped from claiming a statute of limitations defense, or did the Court allow such a claim?  Share your experience in the comments section below.

———————–

Photo:  (c) Dennis Mojado via Creative Commons license.

Why Misery Loves Company (aka Concurrent delay on the Construction Project) (law note)

Posted on by

You know the old saying, “Misery loves company?”  It’s true.  Even in the construction world.

misery license tag

What happens if, while the design team is asleep at the switch, the contractor is also delaying the project, or the owner is dithering about a materials selection?  Since there was more than one cause of the project delay, does that let you off the hook?  Maybe so.

The above scenario is, in its bare-bones basics, an example of concurrent delay.

What is concurrent delay?  Concurrent delay is delay to the critical path of construction, caused at the same time by multiple events not exclusively within the control of one party.  In other words, it is when two or more parties both contribute to the delay of the project.

In such a case, neither may recover damage from each other, unless there is proof of clear apportionment of the delay and expenses.  See Biemann & Rowell Co. v. Donohoe Cos.,147 N.C. App. 239, 245, 556 S.E.2d 1, 5 (2001).

Where both parties contribute to the delay, neither can recover damages, unless there is proof of clear apportionment of the delay and the expense attributable to each party.  In such an instance, the only remedy for both parties may be an extension of time to the contract.

Have you experienced a case where concurrent delays existed on a Project?  Were you able to apportion the delay damages, or did all the culpable parties pay the price?  Share below. 

Also, please sign up for email delivery of blog posts directly to your inbox!

—————————————

Photo: Misery by Molly Helzschlag via Creative Commons license.

Contracts are the Key to a Great Project (Guest Post)

Posted on by

 Today I have the pleasure of another guest post.  Christopher G. Hill is lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC, a LEED AP.  Chris has been nominated and elected by his peers to Virginia’s Legal Elite in the Construction Law category on multiple occasions. He specializes in mechanic’s liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.  Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals. 

Chris Hill

Chris Hill

First of all, thanks to Melissa for the great opportunity to post here at her blog.  She has been kind enough to post on two occasions (here and here) regarding the need for specificity and proper drafting in construction contracts.

Aside from the “back end” implications of a poorly drafted construction contract, there are other benefits to a well drafted set of construction documents.  The overarching reason for a well drafted contract is the setting of expectations.  Because the “contract is king” in most states, these initial expectations are key.

Without further ado, here are my thoughts on the proper setting of expectations.

1.            Make sure that the scope of work is well outlined.  Mere reference to “plans and specifications” is not enough.  You need to have at least a date for each of these or else a specific list of items to be performed and the specific scope of those items.

2.            Be sure that your dispute resolution procedures are well outlined.  This needs to be very specific and set forth any claims process.  While I am not a huge fan of mandatory arbitration, this is one area where you can tailor the dispute resolution to your needs.

3.            Make sure that the change order process is well defined and followed.  I cannot count the number of disputes that I have been involved in that come down to this process.

4.            While it sounds simple, define what “finished” means.  Does it mean acceptance by the architect? The Owner? The General Contractor?  What does “acceptance” mean?  All of these seem easy to think of answers to until the project is “finished” in your mind and not finished in the owner/general contractors mind.

5.            Attorney Fees, Attorney Fees, Attorney Fees! Without this provision (or a statute that allows for the recovery of these fees) most states’ courts will not allow you to recover the fees expended in resolving a contract dispute.

6.            Most importantly, read the contract and all of those pesky documents that are referred to by that contract.  Without a thorough understanding of the provisions of these other documents, you cannot know your expectations entering into a construction project.

In a world where one word in a contract makes all the difference, setting these expectations early can not only help you out with a dispute but can go a long way toward avoiding the disputes and (heaven forbid) do so without the intervention of your local construction lawyer.

 Chris and I welcome your thoughts and comments.  Be sure to stop by Chris’  blog and say “hi” too!