Much has been written about whether and how COVID-19 qualifies as a force majeure event, and some additional information can be found here. But typical force majeure provisions entitle contractors to only schedule relief. While force majeure clauses may limit exposure to liquidated or consequential damages for delays, contractors who incur increased costs resulting from COVID-19 related delays should carefully evaluate the entirety of their contractual rights to not only an extension of time, but also recover prolongation costs. To assist in this endeavor, this article looks beyond force majeure to other potentially relevant contractual provisions. Potential remedies under the various contractual clauses discussed below will depend on the specific contractual language and project-specific facts.
Continue Reading COVID-19 and the Construction Industry: Looking Beyond Force Majeure to Recover Time and Costs for Delay
Enhanced Anti-Corruption Scrutiny in Construction Industry
Bribery and corruption have long plagued the construction industry, particularly in emerging markets in Latin America, Eastern Europe, the Middle East and Asia-Pacific. Large contracts often trickle down through layers of subcontractors and consultants, presenting opportunities for corruption at each level. The risk is enhanced in certain foreign jurisdictions where public officials may expect payment in exchange for state-issued licenses or government contracts.
Continue Reading Enhanced Anti-Corruption Scrutiny in Construction Industry
Georgia Court of Appeals Holds That Sovereign Immunity Shields County From Contractor’s Claims Based Upon Unwritten Change Orders
Fulton County v. Soco Contracting Company, Inc., 2017 Ga. App. LEXIS 568 (Ga. Ct. App., November 15, 2017)
Fulton County contracted with SOCO Construction Company (“SOCO”) to build a cultural center near the Fulton County Airport. The contract specified that the contract sum and the contract time could only be changed according to County procedure, which required “a written, bilateral agreement (Modification) between the County … and the contractor.”
Adverse weather conditions, design delays, change order requests, and a federal government shutdown allegedly delayed the project. Despite the County’s program manager listing more than 30 change orders in the project’s change order evaluation log, the County never issued any written change orders, including any change orders extending the contract time to account for the delays. The County also withheld payment from SOCO.
SOCO sued the County for breach of contract and bad faith performance of contract, and it sought attorney fees and injunctive relief.Continue Reading Georgia Court of Appeals Holds That Sovereign Immunity Shields County From Contractor’s Claims Based Upon Unwritten Change Orders
Bankruptcy Court Holds That “Economic Waste” Doctrine, as Adopted in Wisconsin, Prevented Owner From Recovering Costs to Repair Defectively Designed Digester and Awards No Damages, Even Though the Digester Was Not Designed to the Applicable Code
WTE-S&S AG Enters., LLC v. GHD, Inc., 2017 Bankr. LEXIS 2343 (Bankr. N. D. Ill. August 18, 2017)
This breach of contract dispute arises out of a contract to design and build a cow-manure digester on a farm in Wisconsin. The digester vessel designed and constructed by Defendant, DVO, Inc. (formerly known as GHD, Inc.), consisted of a 300-foot long tank with two side-by-side chambers which were each 35 feet wide. A thick concrete cover sat atop the vessel to prevent “free oxygen” from entering the digester. A center wall ran the length of the vessel, separating the two chambers and also serving as the interior load-bearing wall.
The Debtor/owner commenced this action against DVO, contending, among other things, that the interior center wall footing of the vessel was defectively designed in that it was undersized and not compliant with the applicable code for waste-storage facilities. Debtor’s expert testified that the undersized and overstressed wall footings could lead to settlement of the vessel and cracks in the foundation, which would compromise its structural integrity. Debtor’s expert further testified that to properly support the vessel weight, the currently constructed three-foot wall footing needed to be three-and-a-half to four foot wide.
The court agreed that DVO’s design was defective and constituted a breach of the contract because it failed to comply with the applicable code. However, applying the “economic waste” doctrine, the court denied Debtor’s request for damages of $988,475 to replace the entire vessel or, in the alternative, $655,000 to shut down and clean out the vessel to check for cracks or settlement issues.Continue Reading Bankruptcy Court Holds That “Economic Waste” Doctrine, as Adopted in Wisconsin, Prevented Owner From Recovering Costs to Repair Defectively Designed Digester and Awards No Damages, Even Though the Digester Was Not Designed to the Applicable Code
Supreme Court of Wyoming Strictly Interprets a Conditional Payment Provision to Trigger Payment Only After GC and All of its Subs Have Been Paid in Full
P&N Invs. v. Frontier Mall Assocs., 2017 Wyo. LEXIS 62 (Wyo. 2017)
This payment dispute arose over conditional language in a lease agreement between a mall and a restaurant operator. P&N Investments (“P&N”) leased space from Frontier Mall Associates, LP (“Mall”) to operate a restaurant. The lease contained a “finish allowance” under which Mall agreed to cover some of P&N’s costs to renovate the space, up to $150,180.
The finish allowance was conditioned on the following provision:
[P&N] shall have furnished evidence satisfactory to Mall from its general contractor and any subcontractors that any and all liens that have been, or may be, filed have been satisfied of record or waived and an affidavit that all work has been paid for.
P&N hired CCI as its general contractor, and CCI in turn hired subcontractors, to renovate the space. P&N paid CCI in full once CCI and its subcontractors completed the work. The amount paid was $308,930. CCI, however, failed to pay its subcontractors in full. The unpaid amount was approximately $90,000. Mall refused to pay P&N the finish allowance despite the fact that P&N paid CCI in full and submitted an affidavit stating that no liens were, or could be, filed because of time limitations for liens had expired.Continue Reading Supreme Court of Wyoming Strictly Interprets a Conditional Payment Provision to Trigger Payment Only After GC and All of its Subs Have Been Paid in Full
Supreme Court of Wisconsin Holds That Private Subcontractor Is Immune to Property Damage Claims by Adjoining Landowners Because it Followed Specifications Provided by the Wisconsin Department of Transportation
Melchert v. Pro Elec. Contrs., 2017 Wis. Lexis 169 (April 7, 2017)
The Wisconsin Department of Transportation (“DOT”) contracted with Payne & Dolan (“P&D”) as General Contractor on a road improvement project. P&D in turn contracted with Pro Electric Contractors (“Pro Electric”) to install concrete bases for new traffic signal poles. DOT provided Pro Electric with detailed plans and specifications for the project (“Project Plan”) that specified the location of the concrete bases and the excavation equipment to be used. Pro Electric was required to comply with the Project Plan and could only make deviations if approved by DOT’s engineer.
While excavating one of the specified locations, Pro Electric unknowingly severed a sewer line, causing sewage backup and flooding on adjoining private property. Pro Electric then backfilled the excavation site without inspecting the sewer line for damage. The private property owners (“Owners”) brought a negligence action against Pro Electric. The trial court granted summary judgment in favor of Pro Electric, ruling that it was immune from liability because it was merely implementing DOT’s design decisions. The court of appeals affirmed, and Owners appealed to the Supreme Court of Wisconsin.Continue Reading Supreme Court of Wisconsin Holds That Private Subcontractor Is Immune to Property Damage Claims by Adjoining Landowners Because it Followed Specifications Provided by the Wisconsin Department of Transportation
Supreme Court of California Holds That a Losing Bidder on a Public Works Contract Cannot Sue the Winning Bidder for Intentional Interference with Prospective Economic Advantage
Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 2017 Cal. LEXIS 1024 (Cal. February 16, 2017)
This tort lawsuit relates to a dispute over the bidding process on several public works contracts in California. Between 2009 and 2012, American Asphalt outbid Roy Allan Slurry Seal and Doug Martin Contracting on 23 public works contracts for the application of slurry seal to roadways in five California counties.
Allan and Martin suspected that American illegally underbid them, and they sued American for intentional interference with prospective economic advantage. They alleged that American illegally under-paid its employees to ensure that it won the bid as the lowest “responsible” bidder. Allan and Martin alleged that but for American’s illegal conduct, they would have been awarded the contracts because they were the second lowest bidders.
The trial court dismissed Allan and Martin’s complaint holding that it failed to state a viable claim for intentional interference with prospective economic advantage. The appellate court reversed the trial court, but American appealed to the Supreme Court of California.Continue Reading Supreme Court of California Holds That a Losing Bidder on a Public Works Contract Cannot Sue the Winning Bidder for Intentional Interference with Prospective Economic Advantage
Texas Court of Appeals Holds That Owner’s Change to Contractor’s Means and Methods Resulted in a “Breach,” Instead of a “Change” Subject to the Changes Clause
Port of Houston Auth. of Harris Cnty. v. Zachry Constr. Corp., 2016 Tex. App. LEXIS 13306 (Tex. App. Houston 14th Dist. Dec. 15, 2016)
This contract dispute dates back to 2004, when the Port of Houston Authority contracted with Zachry Construction to build a shipping wharf in Harris County, Texas. Zachry’s bid proposed, as part of its means and methods, building the wharf “in the dry” by using a frozen earthen wall to seal out water from the construction area. Several months into the project the Port Authority decided to extend the wharf. Zachry again proposed freeze-wall technology for the extension, and the parties entered into a change order.
The Port Authority then refused to approve Zachry’s frozen wall design, and directed Zachry to either present an alternative design or alternate means of mitigating risk. Unable to identify a viable alternative design, Zachry switched from the frozen wall design and completed the construction “in the wet.”Continue Reading Texas Court of Appeals Holds That Owner’s Change to Contractor’s Means and Methods Resulted in a “Breach,” Instead of a “Change” Subject to the Changes Clause
Western District of Virginia Confronts Several Legal Issues That Frequently Impact Multi-Party Construction Disputes – Economic Loss, Damage to Other Property, Third Party Beneficiary Status, Warranties, Subrogation, and Third-Party Joinder
Allstate Insurance Company v. Structures Design/Build, LLC, 2016 U.S. Dist. LEXIS 34349 (WD VA March 17, 2016)
This construction dispute case arises from a failed pipe connector that caused water damage to a facility and insured personal property, which Hillel at Virginia Tech, Inc. (“Hillel”) owned in Blacksburg, Virginia. Hillel contracted Structures Design/Build, LLC (“Structures”) to design and construct the facility. Structures, in turn, subcontracted PJ Little Plumbing, Inc. (“PJ”) for plumbing and mechanical installation. PJ purchased the failed pipe connector from CMC Supply, Inc. (“CMC”). Allstate Insurance Company (“Allstate”) insured Hillel for the damage to the facility and the personal property.
As Hillel’s subrogee, Allstate filed a complaint against Structures and PJ. Allstate sued Structures for various state law claims. It sued PJ for negligence and breach of express and implied warranties. PJ filed a third-party complaint to join CMC on a breach of implied warranty theory. PJ and CMC moved to dismiss the claims against them.Continue Reading Western District of Virginia Confronts Several Legal Issues That Frequently Impact Multi-Party Construction Disputes – Economic Loss, Damage to Other Property, Third Party Beneficiary Status, Warranties, Subrogation, and Third-Party Joinder
Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution under Prime Contract Was Not an Effective Waiver of Miller Act Rights
DVBE Trucking and Construction Co., Inc. v. McCarthy Building Companies, Inc., 2015 U.S. Dist. LEXIS 90052 (N.D. Cal. July 10, 2015)
This payment dispute case arises out of a Veterans Affairs (“VA”) construction project located in Palo Alto, California. McCarthy Building Companies, Inc. (“McCarthy”) was the prime contractor, Federal Insurance Company and Travelers Casualty and Surety provided the performance and payment bonds on behalf of McCarthy mandated by the Miller Act, and DVBE Trucking and Construction Company, Inc. (“DVBE”) was McCarthy’s subcontractor. Section 11.1 of DVBE’s subcontract required that, for any dispute involving the VA, it would follow the dispute resolution procedures agreed to by McCarthy in its contract with the VA, and agreed to be bound by the result of any such dispute resolution procedures to the same degree as McCarthy.Continue Reading Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution under Prime Contract Was Not an Effective Waiver of Miller Act Rights