YOUR CONSTRUCTION CONTRACT

Posted on March 23, 2024March 23, 2024 by David Adelstein

Your construction contract is an important topic. What’s even more important is YOUR process for reviewing and negotiating construction contracts.

Are you simply acting as a riverboat gambler willing to assume undue risk because you don’t value the investment in understanding what you are signing? If so, it becomes hard to complain about what you agreed to and signed when you chose NOT to invest in the process. Investing in the process means you are working with a construction attorney, you have an insurance broker that understands your industry, you have resources in place to ensure risk is negotiated and allocated, and you understand what risk you are assuming to make sure you are properly protecting and perfecting your rights, and transferring risk downstream.

When it comes to construction contracts, there are really three approaches:

1. Riverboat Gambler. This is the “I’ll sign whatever you give me because I don’t want to lose the contract / revenue.” Under this approach, you are not worried about undue risk because you don’t value the investment in the next two approaches. Your thought process is that you’ll care about the risk when an issue pops up, i.e., the riverboat gambler. This is not an approach I’d recommend because it is contrary to the adage, “an ounce of prevention is worth a pound of cure.” This is simply a reactive approach to issues and risks. The other two approaches are more proactive and better suited to understand and manage risk.

2. Budgeted Approach. Under this approach, you budget a certain amount of money to work with a construction attorney. The attorney works within this budget to provide you bullet points, red-line suggestions, or comments for consideration (e.g., adding PDF comments) within your budget and you factor this input into your business decision and negotiation. Based on this, you can consider whether to expand the budget or take the lead in the edits and negotiation. This approach is good for parties that have experience in understanding and allocating risk and negotiating deal points, and value the budget they are allocating.

3. Invested Approach. This is the most proactive because you are investing in resources to make sure you understand risk, allocate risk, negotiate risk, have the right resources and insurance for risk, educate your team on risk, and are willing to digest and consider deal points. This means working with a construction attorney on contracts as-needed based on your level of sophistication and experience and ensuring you have the right insurance broker that understands your industry and risks. This means an attorney would be engaged in red-lining contracts, negotiating contracts, and working with you and your insurance broker to make sure you understand assumed risk. An attorney prefers this approach because it is a value-added service.

Please reach out to me if you are interested in discussing the second or third approaches. Again, these are more proactive approaches for those that value and appreciate the risk and don’t want to be purely reactive. Since everything starts and ends with your contract, the riverboat gambler approach should be a non-starter to you. There is too much risk in construction to be a riverboat gambler.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE WORD “ESTIMATE” IN A CONTRACT MATTERS AS TO A COMPLETION DATE

Posted on January 20, 2024January 20, 2024 by David Adelstein

Language in a contract matters. The word “estimates” or “estimated” matters particularly when it comes to a date certain such as a substantial completion or completion date. Remember this.

Here is an example.

In Parque Towers Developers, LLC v. Pilac Management, Ltd., 49 Fla.L.Weekly D190a (Fla. 3d DCA 2024), a trial court held that the developer did not complete the construction of five condominium units by the date in the purchase agreements. The developer appealed because “[t]he agreements contain no date certain for the completion of the units, but rather include a clause that ‘Seller estimates it will substantially complete construction of the Unit, in the manner specified in this Agreement, by December 31, 2017, subject to extensions resulting from ‘Force Majeure (the ‘Outside Date’).’” Parque Towers, supra. Another provision in the purchase agreements stated, “[w]henver this Agreement requires Seller to complete or substantially complete any item of construction, that item will be understood to be complete or substantially complete when so completed or substantially completed in Seller’s opinion. Id.

The units were completed with closing taking place in early 2019 – LONG after the December 31, 2017 date. The purchasers sued the developer claiming the developer breached the contract, which the trial court agreed with in a non-jury trial. On appeal, the appellate court reversed…because language in a contract matters:

Here, the agreements did not require [the developer] to complete the units by December 31, 2017, or otherwise make time of the essence as to the seller’s obligations. The only completion date referenced in the agreements is specifically described as an “estimate” for when the units will be “substantially complete” according to [the developer’s] own opinion, and [the developer] ultimately did finish the units and schedule the closings within the time required by the agreements and upon proper notice. … Moreover, while the Purchasers all eventually notified [the developer] that they considered its failure to deliver the units by December 31, 2017, to be a default under the agreement, none of them claimed default or sought to enforce the agreements until April 2018 at the earliest, long after the original estimated date and after they had been informed that the estimated completion date had been changed. Thus, irrespective of the evidence supporting [the developer’s] claims of delays due to force majeure, the trial court could not find [the developer] in breach of a completion date that was purely estimated.

Parque Towers, supra (citations omitted).

CONTRACT SHOULD HAVE CLEAR AND DEFINITE TERMS TO AVOID A PATENT AMBIGUITY

Posted on November 19, 2023November 19, 2023 by David Adelstein

If you need more of a reason to have contracts with clear and definite terms, this case is it. This case exemplifies what can happen if the contract, not only does not have clear and definite terms, but contains a patent ambiguity. The contract will be deemed unenforceable which will make one of the contracting parties very unhappy!

In Bowein v. Sherman, 48 Fla.L.Weekly D2208a (Fla. 6^th DCA 2023), the buyer and seller entered into a real estate transaction. The transaction was for $2 Million. The purchase-and-sale agreement included the address and legal description of a parcel to be sold. However, there was a section in the agreement called “Other Terms and Conditions” which identified that the offer was actually for four properties that were being sold by the seller. When it came to closing time, the seller refused to close because the seller disputed that the $2 Million purchase price was for all four of his properties. The buyer sued the seller for specific performance to force the sale which the trial court agreed in favor of the buyer. However, the appellate court did not.

First, the appellate court held that “[t]he equitable remedy of specific performance may be granted only where the parties have actually entered into a definite and certain agreement.” Bowein, supra (quotation and citation omitted).

Next, the appellate court found there was NOT a definite and certain agreement because the contract contained a patent ambiguity. “[A] patent ambiguity is that which appears on the face of the instrument and arises from the use of defective, obscure, or insensible language.” Bowein, supra (quotation and citation omitted). Here, the appellate court found that “[t]he different legal descriptions and addresses in different parts of the sales contract on its face lead us to conclude a patent ambiguity exists.” Id.

Lastly, the appellate court held a patent ambiguity cannot be used through parol evidence. The contract is basically dead, i.e., unenforceable, because “a trial court cannot choose one contradictory provision of a contract over another without impermissibly rewriting the contract.” Bowein, supra.

Here the patent ambiguity was that the “Other Terms and Conditions” included three additional properties that were not identified on the first page of the contract as to the property to be sold. Had the parties, on the first page, identified “see Other Terms and Conditions” or clarified that the property to be sold was subject to the “Other Terms and Conditions,” there is no patent ambiguity. It was just a matter of CLEARLY identifying that the $2 Million sale price was not just for the property identified, but for the property identified plus the properties subject to the “Other Terms and Conditions.”

It seems that the seller had seller’s remorse. Because the real estate contract was likely done electronically and filled out electronically, the first page only had space for one parcel. The buyer figured he could identify the other parcels in the “Other Terms and Conditions” and perhaps could have made this clearer. Because there could have been better clarity as to what the $2 Million was for, the appellate court just found there to be a patent ambiguity based on the conflict between the first page of the contract with the “Other Terms and Conditions.” Was there really a patent ambiguity? Yeah, I do not know here because when the “Other Terms and Conditions” state that the offer was for the four properties, it seems clear the buyer was making the $2 Million offer for the four properties…but it could have been clearer which was the seller’s get out jail card on the transaction.

DON’T IGNORE THE DISPUTE RESOLUTION PROVISIONS IN YOUR CONSTRUCTION CONTRACT

Posted on May 21, 2023May 21, 2023 by David Adelstein

Don’t ignore dispute resolution provisions in a construction contract. Sometimes, you may want to. But dispute resolution provisions should be one of the first provisions you look to when a dispute arises recognizing these provisions will be raised if you fail to comply. Not only will they be raised, but the presumption is they will be enforced. This is the situation that was raised in Seminole County, Florida v. APM Construction Corp., 2023 WL 3555356 (Fla. 5^th DCA 2023).

Here, a contractor was terminated for cause by Seminole County. The contractor then filed suit against the County. The County moved to dismiss the lawsuit because the contractor failed to comply with contractual presuit administrative procedures in the contract prior to filing a lawsuit. While the trial court denied the County’s motion to dismiss, the appellate court granted the County’s petition for writ of certiorari quashing the trial court’s order denying the motion to dismiss. For purposes of granting the writ of certiorari, the appellate court held irreparable harm existed because “certiorari jurisdiction is properly exercised when a trial court permits a party to litigate when there is a contractual or legal obligation to first administrative proceed.” Seminole County, supra, at *2.

The contract between the County and its contractor contained the following dispute resolution provisions:

(a) In the event of a dispute related to any performance or payment obligation arising under this Agreement, the parties shall exhaust County administrative dispute resolution procedures prior to filing a lawsuit or otherwise pursuing legal remedies….

(b) In any lawsuit or legal proceeding arising under this Agreement [contractor] hereby waives any claim or defense based on facts or evidentiary materials that were not presented for consideration in County administrative dispute resolution procedures set forth in subsection (a) above which [contractor] had knowledge and failed to present during County administrative dispute resolution procedures.

Regardless of the termination for cause, the appellate court noted “nothing in the contract shows that the parties intended to expressly exclude post-termination disputes such as the one brought by [contractor] from the scope of its presuit administrative dispute resolution provisions.” Seminole County, supra, at *2. Thus, the presuit administrative dispute resolution procedures applied. The appellate court explained:

[Contractor] signed a contract in which it agreed that: (1) disputes regarding contract performance shall require the exhaustion of the administrative dispute resolution procedures prior to the filing of a lawsuit; and (2) the termination of [contractor’s] services under the contract by [the County] shall not affect any rights [the County] may have against [the contractor]. Furthermore, the contract contained no language that expressly excluded post-termination disputes—such as the claims being asserted in counts one and two of [the contractor’s] complaint—from the scope of the presuit administrative dispute resolution process. Lastly, we discern no present basis in the record to conclude that the required presuit administrative dispute resolution procedures will be futile.

Seminole County, supra, at *3.

CONSTRUCTION CONTRACT’S SCOPE OF WORK SHOULD BE WRITTEN WITH CLARITY

Posted on February 19, 2023February 19, 2023 by David Adelstein

The scope of work section in your construction contract should never be overlooked. In numerous instances, it is overlooked which leads to a dispute as to the precise nature of the scope of work. This dispute could be the result of an ambiguity in the scope of work section. Or it could be the result of an omission. Or it could be the result of a lack of clarification. Or it could be the result of not properly reviewing and vetting the scope of work section. This is a section—whether included in the body of your contract or attached as an exhibit—you absolutely, positively want clarity. Otherwise, you are potentially setting yourself up for a future dispute that could include (i) an additional work / change order dispute, (ii) an incomplete work dispute, or (iii) a failure to properly perform your work dispute. These are all disputes you want to avoid, and many times can avoid, by going through and negotiating the scope of work section to bring clarity to this section. Remember, clarity is a positive. Ambiguity or uncertainty is a negative.

An example of such an avoidable scope of work dispute can be found in All Year Cooling and Heating, Inc. v. Burkett Properties, Inc., 2023 WL 2000991 (Fla. 4^th DCA 2023). Here, an air conditioning contractor was hired to install six new split air conditioning systems. The scope of work provided that there were currently “two split systems that are currently existing, working perfectly and are not to be replaced as part of this contract.” The property manager claimed the air conditioning contractor was required to bring these two existing split air conditioning systems up to code as the contract provided that notwithstanding anything to the contrary, the contractor “will certify and shall ensure that all split systems in the building, upon completion of all the work, will be fully compliant with all codes and regulations and shall be responsible for any costs relates to the implementation and/or remediation of same.”

The air conditioning contractor disputed this added scope of work. After a bench trial, the trial court entered a judgment in favor of the property manager and against the air conditioning contractor.

On appeal, the trial court’s judgment was reversed and remanded back to the trial court for entry of a judgment in favor of the air conditioning contractor.

However, we do not read this code compliance provision as encompassing the existing split systems that were excluded from the contract’s scope of work.

Here, the general purpose of the contract as a whole – including pricing – was for the installation of six new split systems and the disposal of the old water tower. And the paragraph addressing the scope of work made it clear that the [two] existing split systems were “working perfectly” and were “not to be replaced as part of this contract.” Despite the use of the word “notwithstanding,” the code compliance provision must be read in a way that is compatible with the contract as a whole.

****

The contract required the Contractor to ensure that the six split systems it installed were code compliant, and nothing more.

All Year Heating and Cooling, supra, at *2.

If the property manager wanted or expected the existing split air conditioning systems to be brought up to code, it should have ensured this language was included in the scope of work section. It may have warranted additional pricing, but it would have avoided this dispute. And perhaps the contractor could have clearly excluded any work regarding the existing split air conditioning systems, although it did include language that such work was not part of the contract. The objective always remains to bring clarity to the scope of work section.

NOTICE AND CLAIMS PROVISIONS IN CONTRACTS MATTER…A LOT

Posted on February 12, 2023May 14, 2023 by David Adelstein

Technical contractual provisions in contracts can carry the day. Whether you like it or not, and whether you appreciate the significance of the provisions, they matter. Notice provisions in a contract mean something. Following the claims procedure in a contract means something. The moment you think they don’t mean anything is the moment they will be thrown in your face and used as a basis to deny your position for additional money or time. You may think these provisions are being used as a “gotcha” tactic. They very well might be. But these are provisions included in the contract you agreed to so you know this risk before any basis for additional money or time even arises.

The recent bench trial opinion in Metalizing Technical Services, LLC v. Berkshire Hathaway Specialty Ins. Co., 2023 WL 385413 (S.D.Fla. 2023) illustrates the reality of not properly complying with such provisions. The keys when dealing with any notice or claims provision, or really any technical provision in your contract, is to (a) negotiate the risk before you sign the contract, (b) chart the provisions so your team know how to ensure compliance, and (c) make sure you comply with them. Period!

In Metalizing Technical Services, a potentially garden-variety general contractor and subcontractor payment dispute, a subcontractor was terminated from a Florida Department of Transportation project dealing with repairing a causeway in Miami. The remaining subcontract balance of about $682,000 was not in dispute. Rather, the dispute centered on the subcontractor’s work stoppage and hazardous materials claims and the general contractor’s setoffs (i.e., backcharges). The subcontractor bore the burden of proof with respect to its claims and the general contractor bore the burden of proof with respect to its setoffs. The focus of this posting is the subcontractor’s claims and the Court’s application of the subcontract.

Work Stoppage Claim

The subcontractor had a work stoppage claim associated with the owner’s representative ordering a work stoppage. The general contractor argued the subcontractor failed to satisfy the requirements in the subcontract with respect to the claim. The subcontract provided that when the “Subcontractor believes that additional compensation…is due as a result of such suspension or delay, Subcontractor shall immediately notify Contractor in writing.” Metalizing Technical Services, supra, at *15. The subcontractor did NOT provide immediate notification as the only evidence of written notification was almost a month after the work stoppage. Although the subcontractor testified it notified the general contractor via texts and e-mails, none of these writings were introduced into evidence. (Note that the Court did not find waiting a month to provide written notification to be immediate written notification. The Court may have viewed this differently if the texts and emails were introduced into evidence, assuming they existed.)

In addition to the subcontractor’s noncompliance with the notice provision, the subcontract also prevented the subcontractor from recovering for delays that do not impact the Project’s critical path: “Subcontractor shall not under [any] circumstances be entitled to any monetary compensation for delays or impacts whatsoever to any activities or items of Work that are not a Controlling Work Item [an activity or work item on the critical path], as defined in the Prime Contract.” Metalizing Technical Services, supra, at *15. Therefore, “[b]ecause the [work] stoppage did not impact the critical path, no Controlling Work Items were impacted; [subcontractor] is not entitled to recover compensation for items that are not on the critical path.” Id.

And if bases under the subcontract were not enough to bar this claim, the Court found that the subcontractor stilled failed to prove its damages for the work stoppage with a reasonable degree of certainty. The witness supporting the claim could not remember (i) how he generated prices for the claim, (ii) how he calculated costs for the idle equipment, or (iii) the equipment included in the claim.

Hazardous Materials Claim

The subcontractor submitted a claim associated with unexpected hazardous materials discovered at the Project. The presence of hazardous materials was not an issue in dispute. The subcontractor’s compliance with the claims process was an issue in dispute and the subcontract provided that the subcontractor’s failure to comply with the claims process was an absolute waiver of its claim.

The claims process provided that upon the subcontractor’s written request, the general contractor could submit to the owner the claim for additional compensation and institute an action or proceeding to recover any claim or appeal any decision by the owner. Subcontractor was required to post whatever security the general contractor required to cover the general contractor’s costs and expenses. Subcontractor’s written request to appeal the owner’s decision “must be delivered to Contractor within the earlier of five (5) calendar days from Contractor’s notice to Subcontractor [of owner’s] ruling or decision, or as otherwise provided under the Prime Contract [between owner and general contractor], or Subcontractor shall be deemed to have irrevocably waived its claim.” Metalizing Technical Services, LLC, supra, at *6.

The owner initially denied the hazardous material claim and the subcontractor failed to notify the general contractor to appeal the decision within the subcontractual time period. This resulted in a waiver of the claim. Moreover, the general contractor requested the subcontractor to provide $75,000 in security to cover the appeal costs which the subcontractor did not pay. “[General contractor] has no obligation to proceed on [subcontrator’s] behalf because [subcontractor] never posted security.” Metalizing Technical Services, LLC, supra, at *17.

And if these reasons were not enough, the subcontract further provided that subcontractor would not be able to recover any payment from the owner that the owner had not paid subcontractor. The general contractor was able to settle the claim with the owner for about half of the subcontractor’s claim. The subcontractor did not agree with the settled amount. This settled amount was tendered to the subcontractor and the subcontractor was pursuing the delta. However, since the general contractor was never paid the delta from the owner, the subcontractor was not able to recover from the general contractor the additional amounts even if it had not waived the claim.

A LACK OF SOPHISTICATION WITH THE CONSTRUCTION CONTRACT CAN PLAY OUT IN AN UGLY DISPUTE

Posted on October 16, 2022October 16, 2022 by Edward Garber

There are times where a lack of sophistication can come back to haunt you. This is not referring to a lack of sophistication of the parties. The parties, themselves, could be quite sophisticated. This is referring to a lack of sophistication with the construction contract forming the basis of the relationship. While parties don’t always want to buy into the contract drafting and negotiation process, it is oftentimes the first document reviewed. Because contract terms and conditions are important. They govern the relationship, the risk, scope, amount, and certain outcomes with disputes. However, a lack of sophistication can play out when that contract that should govern the relationship, the risk, the scope, the amount, and certain outcomes doesn’t actually do that, or if it does, it does it poorly. An example of how bad a dispute can play out when it comes to the lack of sophistication on the front end is Avant Design Group, Inc. v. Aquastar Holdings, LLC, 2022 WL 6852227 (Fla. 3d DCA 2022), where a cost-plus contract was treated as a lump sum contract.

Here, an owner planned to perform an extensive interior build-out to a residential unit. The owner had an out-of-country architect; because the architect was not licensed in Florida, the owner hired a local architect/designer to oversee construction and obtain goods and services for the residential interior build-out. The contract was nothing but a proposal of items and costs. The proposal stated the owner “would pay the cost of goods and services of the vendors, plus pay a ‘20% Interior Design & Administrative Fee’” to the local designer. Avant Design Group, 2022 WL at *1. The proposal further stated, “This preliminary budget of the Client’s construction costs include [sic] anticipated costs for construction materials, labor and sales tax. Any other cost, including but not limited to freight, cartage, shipping, receiving, storage and delivery are not included in the preliminary budget and will be invoiced separately.” Id., n.2.

The owner and its local designer executed 92 proposals for purposes of the interior residential build-out. Think about this: 92 proposals. Collectively, all of these so-called proposals formed the basis of the contractual arrangement between the owner and local designer. Terms and conditions, however, appeared to be skimpy at best. The bigger issue, mentioned below, is the application of the 20% fee, as the language would suggest it is a cost-plus contract where the fee of 20% was on top of actual costs.

A dispute arose. The owner thought it was being over-charged so it terminated the local designer. The local designer thought it was underpaid so it recorded a lien. Then, the inevitable lawsuit. At trial, the owner had a forensic expert that testified that the owner was overcharged by over $500,000. This was based on the owner’s position that the contract was actually a cost-plus contract. The local designer claimed it was lump sum. The type of contract—whether it was cost-plus OR lump sum—formed the basis of the dispute, and it mattered a lot. A cost-plus arrangement meant that the local designer would be entitled to a cost of the goods and services plus its 20% fee markup. A lump sum meant that actual costs did not matter–in other words, all of the proposals were simply mini-lump sum arrangements that could factor in the 20% fee markup.

“Generally, absent a finding of ambiguity, parol evidence is not admissible to assist the factfinder regarding the parties’ intent.” Avant Design Group, supra, n.10. Stated differently, expert testimony and the testimony of the parties is irrelevant when the contract is unambiguous. While here, the trial court did not render any findings that the contract was ambiguous, “both parties, without objection, elicited expert testimony regarding the nature of the parties’ contract.” Avant Design Group, supra, n.10. Both parties viewed the type of contract to be a factual issue and the trial court ruled that the contract was a cost-plus agreement. “As ample evidence supports the trial court’s finding that the parties entered into a cost-plus contract that limited [owner’s] payment obligation to the 20% Fee, we affirm the trial court’s principal conclusion regarding the contract’s payment terms.” Avant Design Group, supra, *4.

The determination of whether the contract was cost-plus or lump sum was really the dispute and determined the outcome. It was the dispute. This determination meant that the local designer was overpaid by over $500,000, its lien was fraudulent, and its lien should be discharged. Had the determination been that the contract was lump sum, the entire outcome of the case should have been different. Keep this in mind. If your intent is lump sum, make that intent clear. Conversely, if it is cost-plus, it is a completely different contract relationship and contract administration because you cannot add your markup to what you are already marking up as that is double dipping. Notably, the case of Avant Design Group has a number of interesting issues to be discussed. Those will be probably be discussed separately in shorter postings. The key, though, is that the dispute centered on a cost-plus contract being treated as lump sum, when that was clearly not the case.

IS THE EVENT YOU ARE CLAIMING AS UNFORESEEABLE DELAY REALLY UNFORESEEABLE?

Posted on August 27, 2022August 27, 2022 by Edward Garber

Is the item or event you are claiming as an unforeseeable, excusable delay really unforeseeable? This is not a trick question.

Just because your construction contract identifies items or events that constitute unforeseeable, excusable delay does not mean those items can be used as a blanket excuse or crutch for the contractor. That would be unfair.

For instance, it is not uncommon for a construction contract to list as unforeseeable, excusable delay the following events or items: “(i) acts of God or of the public enemy, (ii) act of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers.” See, e.g., F.A.R. 52.249-10(b)(1). While the itemization of excusable delay may be worded differently, the point is there may be a listing as to what items or events constitute excusable delay. An excusable delay would justify additional time and, potentially, compensation to the contractor.

The Civilian Board of Contract Appeals explained that a listing of items or events leading to unforeseeable, excusable delay is NOT intended to give the contractor free rein or a get-of-jail free card if the contractor encounters such delaying item or event:

Nevertheless, the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses. “The purpose of the proviso,” which is “to protect the contractor against the unexpected, and its grammatical sense both militate against holding that the listed events are always to be regarded as unforeseeable, no matter what the attendant circumstances are.” As the Supreme Court has explained, “[a] quarantine, or freight embargo, may have been in effect for many years as a permanent policy of the controlling government” and, if so, may not meet the definition of a cause “unforeseeable” at the time of contract award, even if quarantines and freight embargoes are listed in the contract as examples of possible excusable causes of delay.

Further, even if an unforeseeable cause of delay occurs, the contractor cannot sit back and fail to take reasonable steps in response to it — once such an unforeseeable event occurs, the contractor affected by it has an obligation to attempt to mitigate the resulting damage to the extent that it can. If the contractor fails to do so, it “may not recover those damages which could have been avoided by reasonable precautionary action on its part.”

Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, 2017 WL 4296219 (CBCA 2017) (internal citations omitted).

Now, think about your construction contract. It may list similar items or events constituting delay. Perhaps it expands on this list and identifies COVID, the Russia-Ukraine war, or supply chain impacts. Similar to the reasoning above, “the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses.” Yates-Desbuild Joint Venture, supra. We know of the existence of COVID, the Russia-Ukraine war, and current supply chain impacts such that they are not unforeseeable. And, encountering such an item or event cannot be used to compensate for other delays as the contractor “cannot sit back and fail to take reasonable steps in response to it.” Yates-Desbuild Joint Venture, supra. The contractor still must mitigate the item or event it claims is causing excusable delay.

This serves as an example as to why you want clarity in your construction contract. If you are identifying an item or event as unforeseeable, make sure it truly is or specify the context in which the item or event constitutes excusable delay.

DOES THE RUSSIA UKRAINE WAR LEAD TO A CONSIDERATION IN YOUR CONSTRUCTION CONTRACTS?

Posted on March 26, 2022March 26, 2022 by Edward Garber

Material costs are still affecting the construction industry. Supply chain impacts too. The volatility started with COVID-19 (and, in certain cases, before with the imposition of tariffs) and has continued through present date.

But what about the war between Russia and Ukraine and the impact this has had or may have on the supply chain? I think the spillover from the war (with oil, gas, the energy sector, etc.), including the imposition of any sanctions, is not fully realized other than the concern exists in an economy that is already battling through material costs and supply chain disruptions.

How does this affect you?

It may not.

Or you may regularly enter into construction contracts in which you would be smart to address material costs and supply chain impacts. The reason being is that everything from a risk standpoint should begin with your construction contract. Not addressing an issue does not actually mitigate the risk. Confronting the issue does mitigate the risk because you are contractually addressing a concern and know where the other party stands relating to that concern so that business decisions can be made.

This does not mean the Russia and Ukraine war provides you a get-out-of-jail free card for every material cost or supply chain issue you deal with. It does not and should not. That would not be fair, right? What is currently affecting the construction industry should not be a basis to shield from accountability or causation. You still need to connect dots by tying a material cost escalation or supply chain impact to an actual event. The key is ALWAYS to understand how this will be dealt with in your construction contract and there are many ways to do so. Sure, the volatility of the market makes it difficult to predict any material cost in the near future and whether certain products will be impacted by supply chain disruptions. Recognizing the risk is the first step in trying to negotiate the allocation of that risk in your contract.

Remember, simply calling something a force majeure event post-contract does not actually make it so, particularly if you know about the event and the potential of the risk at the time of contract.

THERE IS NO SYMPATHY IF YOU FAIL TO READ CLOSELY THE FINAL NEGOTIATED CONSTRUCTION CONTRACT

Posted on February 20, 2022February 20, 2022 by Edward Garber

When an opinion in a case starts with, “Unlike some motions, not even the most ingenious lawyers could make this one complicated,” you know you are in for an interesting read. This was how the opinion started in U.S. f/u/b/o Hambric Steel and Fabrication, Inc. v. Leebcor Services, LLC, 2022 WL 345636 (M.D. GA. 2022), which concerns a Miller Act payment bond dispute between a subcontractor and prime contractor on a federal construction project.

As demonstrated below, the moral of this case is in fact simple. Read what you sign BEFORE you sign! No ifs, ands, or buts. Failure to do so will garner very little sympathy.

This case dealt with a prime contractor arguing that the subcontractor pulled the wool over its eyes by surreptitiously altering the final negotiated redlined contract between the parties. In particular, the prime contractor claimed that the dispute resolution provision was supposed to include a Virginia venue provision. However, the subcontractor “fraudulently” changed this provision to make it a Georgia venue provision after the final contract had been agreed to during the negotiation. Yet, it is undisputed that the executed contract between the parties included a Georgia venue provision.

The Miller Act contains a statutory venue requirement; however, this requirement can be modified by a venue provision / forum selection clause in the subcontract. Here the prime contractor wanted venue to be in Virginia even though the executed subcontract contained a Georgia venue provision. The BIG problem for the prime contractor:

[The prime contractor] has not pointed to any evidence that it was prevented from reading the revisions to the contract draft related to the forum selection clause. Through the exercise of reasonable diligence, [the prime contractor] certainly could have discovered the change. It possessed the revised draft, had ample time to review it, and chose to sign it. While [the subcontractor] may have edited the forum selection clause in a manner different than other revisions made during the negotiation process, nothing prevented [the prime contractor] from reading the final revised draft in its entirety before signing it. Choosing not to do so for the sake of convenience does not excuse it from being bound by the contract that it signed. Moreover, [the subcontractor’s] failure to affirmatively and specifically highlight the changes for [the prime contractor] does not amount to fraud. The revision was clearly set out in the final draft document and could have been noticed through reasonable diligence. Signing a contract that is different than the one the party thought it had negotiated is not a sufficient basis, standing alone, to reform the fully executed written agreement.

Leebcor Services, supra, at *2