Category Archives: Law Notes

Statutory liability of Architects and Engineers to Contractors on State Construction projects (Law note)

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As noted in my last post, the state multi-prime bidding statute provides for liability between separate contractors on state projects.

 A specific case from the Middle District Court of North Carolina (federal court), interpreting state law, further extended this liability to architects and engineers on state multi-prime projects.  RPR & Associates v. O’Brien/Atkins Associates, P.A., 24 F. Supp. 2d 515 (M.D.N.C. 1998).

 In that case, which involved the George Watts Hill Alumni Center at UNC-Chapel Hill, the court held that an architect and consulting engineer could be held accountable to contractors who rely on their work on North Carolina construction projects based on the same statute as that imposing liability on multi-prime contractors on one another.

 The issue in the RPR case was whether the statute applied to architects and engineers, since they are not “prime contractors” under the North Carolina multi-prime contracting statute.  The RPR court held that for purposes of the statute, design professionals were “separate prime contractors” such that they could be sued directly by prime contractors on state jobs.

 While this case is now over a decade old, it still surprises many design professionals who incorrectly assume that since they are not one of the enumerated prime contractors that they are not subject to statutory liability to the prime contractors.

In my next and final (for the time being) post on this subject, I will address the application of the statute on subcontractors.

 

Contractors liable to other prime contractors on state construction projects in North Carolina (Law note)

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As we discussed in the last blog post, the state legislature created the multi-prime system for many state construction projects.

One of the first cases to deal with the statute allowing contractors to sue each other is Bolton Corp. v. T.A. Loving  Co., 94 N.C. App. 392, 380 S.E.2d 796, disc. rev. denied, 325 N.C. 545, 385 S.E.2d 496 (1989). 

In that case, which involved the construction of an 8 story library on the UNC-CH campus,  a HVAC prime contractor, Bolton, sued the project expeditor, TA Loving, for Loving’s breach of its contract with the State.  Bolton brought the claim on both its own behalf and on behalf of its subcontractor.

 The court allowed the suit, not based on tort, but based on the multi-prime statute (N.C. Gen. Stat. §143-128).   The court held that a prime contract can be sued directly by another prime contractor working on a state construction project:

We interpret N.C.G.S. § 143-128 to mean that a prime contractor may be sued by another prime contractor working on a construction project for economic loss foreseeably resulting from the first prime contractor’s failure to fully perform “all duties and obligations due respectively under the terms of the separate contracts.”

In my next post, I will discuss the application of this concept to design professionals.

 

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.

How Long Should My Construction Contract Be?

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shoulder shrugThe answer, as is always the answer when you ask an attorney a question, is “it depends.”  Lawyers don’t say “it depends” just to drive clients mad—really, we don’t.  The thing is, lawyers, by their very nature, are cautious.

Lawyers want to plan for all situations and possibilities.  Likewise, a construction contract can become an unwieldy document that only a lawyer could love, as it provides for all conceivable areas of dispute and all possible contingent situations.  Such a contract does no one much good.

The best contract for you is the contract that is appropriate for your construction project and the players in that project.  If the project is a multi-million dollar, multi-year project, you probably should not skimp on having a well-crafted, attorney-vetted contract specific to your deal.  If, on the other hand, the project is a one-day residential job, you can get by on much less.

Do not assume, however, that just because a contract is small in terms of dollars or man-hours that you do not need a contract. You do. (See my earlier post on the importance of a written contract.) Paradoxically, some of the most hotly contested lawsuits involve homeowners.  After all, their home is their castle.

In fact, a house is usually the single largest investment decision that most people will ever make, often involving a mortgage that may take as many as 30 years to pay off.     It is only natural, therefore, that homeowners will be extra exacting when it comes to issues relating to their home.

To go back to the original question—how much contract you need depends very much on the situation.  A two page, simple contract may be sufficient for your purposes, if it is carefully crafted to account for all common areas of dispute which may arise.  It is vital, however, that you have one, and that it is in writing.

Photo (c) Open Clip Art

Of Mice and Men: Yes, you need a written construction contract!

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Field mouse

Photo by delphywnd via Flickr*

 

Does a written contract *really* matter?   Yes; yes it does.

While you can get by for years- decades, even- on handshake deals—when something goes wrong you will wish you had a written contract.  Even the best projects, with familiar clients and trusted contractors, can go awry.  (“The best laid plans of mice and men often go awry”).

Many of my clients come to me after having been in business 20, 30 years or more.  They come to me because they have either already been sued, or the handwriting is on the wall and they are about to be brought into litigation.  They tell me they’ve never needed a written contract before now.  That’s well and good.  However, I’d bet dollars to donuts those same folks have fire insurance, and yet very few if any of them have actually experienced a house fire.  What’s different about business contracts?

The goal, of course, is that you will never need to rely on the written provisions in your contract.  But if you ever find yourself facing a lawsuit, you’ll wish you had a written contract.

A written contract spells out expectations, rights, and responsibilities.  It sets standards that may be understood by the parties, but very different from what the common law would allow.  Without a written contract, you are trusting yourself to laws you may not agree with or giving up protections you may otherwise have.  Why chance it?

Get something in writing—a signed proposal, an email which is confirmed—something that spells out basic agreements that might come into dispute later.  A thorough contract written for each project is ideal, though not always practical on smaller, quick-turn deals.  That’s fine.  But get something on paper.  You’ll be glad you did, if and when you ever find yourself on the courthouse steps.

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*Photo: Have you seen the Muffin Mouse by delphwynd via Flickr and made available via Creative Commons license.