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Archive for the ‘Construction & Design Professional’ Category

Architects & engineers: the unintended risks of seeking recovery for unpaid fees

Posted on: July 26th, 2021

By:  Janice Lai and Edward Storck

Architects and engineers sometimes find themselves in a situation where clients fail to pay their fees for services rendered. When bringing suit is unavoidable, such as the case where unpaid fees may be substantial, architects and engineers are oftentimes faced with a professional negligence claim by their clients in response to their efforts to collect unpaid fees by way of a counterclaim. When this happens, the Architect and Engineer Professional Liability Insurance policies may not cover the claim, as the decision in Continental Casualty Insurance v. Lawrence Parnoff, 795 Fed. Appx. 38 (2nd Cir. 2019) illustrates. Therefore, as a risk management principle, architects and engineers should avoid bringing claims against their clients for unpaid fees when possible.

As mentioned above, in Connecticut, the recent case of Continental Casualty Insurance v. Lawrence Parnoff, 795 Fed. Appx. 38 (2nd Cir. 2019) provides some guidance as to when such a claim may not be covered by insurance.  The Second Circuit Court of Appeals affirmed the federal trial court’s decision to deny insurance coverage for a professional liability policy issued to a professional who was being sued by his client over his fees. The Second Circuit found that the fee dispute did not constitute “damages” or “claim expenses” arising out of an act or omission committed by the insured professional in the performance of his services necessary to invoke insurance coverage under his professional liability policy in question. 

Thus, the Second Circuit concluded the insurance carrier had no duty to defend or indemnify this professional in the litigation. Therefore, the professional would be responsible for his own defense costs and legal fees out-of-pocket, as well as have exposure for personal liability for any damages recovered by his client in the fee dispute. Additionally, the professional has uninsured, potential exposure of paying his client’s attorney’s fees if the written contract with the client has a “prevailing party” clause and the client prevails in the litigation.

Of course, one of the best ways to avoid the Continental v. Parnoff scenario is to resolve fee disputes with clients amicably without resorting to litigation. Architects and engineers can also be proactive in protecting themselves from these issues in the future through their Architect and Engineer Professional Liability Policy by seeing if their carrier offers a Fee Dispute Mitigation Reimbursement coverage endorsement as additional supplemental coverage. Alternatively, architects and engineers can also reach out to trusted legal counsel for additional advice in navigating this sure to be a frustrating decision.  

For more information, please contact Janice Lai at [email protected] or Edward Storck at [email protected].

We’re not in Kansas anymore: standards for buildings in tornado country

Posted on: July 23rd, 2021

By: Kyle Virgin

The American Society of Civil Engineers (ASCE) recently released its draft version of the 2022 edition of its building standards and, for the first time, the standards may very well include guidance on the design of facilities, such as schools and hospitals, to withstand tornadoes. Similar natural disasters, e.g. hurricanes, floods, earthquakes, have long been included in the building standards, but tornadoes have been excluded due to the common misconception that they are simply too powerful and rare to warrant specific design standards.

The impetus for this change is research conducted by the National Institute of Standards and Technology (“NIST”) which found that more than 70% of the total damage caused by an EF5 tornado in Missouri stemmed from lower wind speeds farther away from the center of the storm. These findings support the position that design standards should be implemented for average strength tornadoes, much like the standards already in place for hurricanes and earthquakes.

If these new standards set forth by the 2022 edition of the ASCE 7 are adopted by model building codes and/or state and local building codes, design professionals, especially those located in areas routinely dealing with tornadoes, should take notice and review the draft standards which can be accessed from the ASCE website – http://www.asce.org/structural-engineering/asce-7-and-sei-standards/

For more information, please contact Kyle Virgin at [email protected].

Georgia Legislature Resolves Glaring Issue with Mechanic’s Lien Law

Posted on: June 11th, 2021

By: Shaun Foley

In Georgia, anyone who furnishes labor, materials, or professional services for the improvement of private property has the right to file a mechanic’s lien. Liens are especially useful for contractors who do not receive payment after work is performed because filing one provides them with a security interest in the property. This is often more effective in helping to secure payment than a traditional lawsuit can be. In practice, perfecting a lien is seen by contractors as protection in addition to a right to file a breach of contract claim. You can always just file a lawsuit if you attempt to use lien laws and that doesn’t work out, right?

To answer that question, one must first understand that while there are a lot of avenues attorneys can take to fix a mistake (usually some form of paperwork and a court filing), Georgia lien law is unforgiving. Simply stated, this area of law is historically strictly construed, and your lien rights die if a mistake, no matter how minor, is made.

Lien waivers are documents that put the relevant parties on notice that an entity is giving up the right to file a lien in exchange for payment. These are common instruments used amongst owners and their general contractors (and their subcontractors). Georgia is one of 12 states that requires a specific form and, in fact, if a form used on the job site does not conform with the statutory form, the waivers are invalid. Further, if a contractor executes one and is not paid within 90 days[1], they must file an Affidavit of Nonpayment or, prior to 2021, file their lien claim. If 90 days passes from execution of the waiver without the filing of an Affidavit, your claim of lien dies and hence the discussion above regarding the unforgiving nature of lien law. So, I am an electrical contractor for a large development and the owner has asked the General Contractor that I execute a lien waiver. I do so, but I was not paid, and I failed to file an Affidavit of Nonpayment. On to breach of contract then, right? Wrong.

It is not a stretch to say that most if  not all members of the construction industry (owners, general contractors, subcontractors, suppliers, etc.)  would have assumed that lien waivers were applicable only to liens and not to a party’s ability or inability to sue for breach of contract. However, it turns out that Georgia’s statutory lien waivers were waiving more than just lien rights; they were waiving a contractor’s ability to sue in state courts as well. There were several simultaneous cases concerning this exact issue making its way through Georgia courts before ALA Construction Services, LLC v. Controlled Access, Inc., 351 Ga. App. 841 833 S.E.2d 570 (2019) received the case and concluded that “…the plain and unambiguous language of OCGA § 44-14-366 (f) (1) clearly provides that the General Assembly intended the Waiver to be binding against the parties for “all purposes,” not just for the purposes of preserving the right to file a lien on the property. OCGA § 44-14-366 (f) (1) (the execution of a waiver and release under this Code section “shall be binding against the claimant for all purposes”)”. It is hard to argue with the Court electing to utilize the plan and unambiguous language analysis because the statute does say what it says, but from an equity standpoint, ALA was heard loud and clear by those in the Georgia construction legal space and their connections and colleagues in the Georgia legislature. Many construction lawyers believed the Court missed the mark in terms of the purpose of the statute.

Georgia Senate Bill 315 was a direct response to the Court’s decision in ALA and as of 2021 is now in effect. The first section of O.C.G.A. §44-14-366 will now read: “Waivers and releases provided for under this Code section shall be limited to waivers and releases of lien and labor or material bond rights and shall not be deemed to affect any other rights or remedies of the claimant.”

Now, should a contractor execute a lien waiver and fail to file an affidavit of non-payment, it will still be able to bring a breach of contract action against the proper party.

For more information contact Shaun Foley at [email protected]


[1] This requirement is also new pursuant to the law change. The time frame was 60 days prior to the enactment.

Forum Selection Clause Dooms Subcontractor Suit

Posted on: May 28th, 2021

By: Ben Dunlap

The First Circuit Court of Appeals recently affirmed the dismissal of a subcontractor’s suit against a construction contractor, holding that the trial court correctly enforced the terms of the parties’ agreement as to where a lawsuit could be filed. The case focuses attention on an often-overlooked area of construction law contracting: the forum selection clause.

Atlas Glass & Mirror, Inc. v. Tri-North Builders, Inc., arose out of a hotel renovation project in Framingham, Massachusetts. The defendant Tri-North Builders, Inc., was the general contractor. After preliminary discussions, the plaintiff Atlas Glass & Mirror, Inc. submitted a one-page proposal to supply and install windows on the project. The proposal identified the window types, estimated prices, and specified the work, which called for the supply and installation of over 250 windows. It contained very few other terms. Tri-North neither signed nor returned the contract proposal. Instead, it requested that Atlas supply and install a sample window, and sent along an eight-page contract (the “Subcontract”), governing the installation of the sample window. The Subcontract identified the window to be installed, the work to be done, and the price. It also included additional “Terms and Conditions,” one of which specified Wisconsin as the forum and venue for any litigation or arbitration. Atlas signed and returned the Subcontract to Tri-North. After Atlas installed the sample Lockheed window, it supplied and installed another sample window at Tri-North’s request. Atlas then sent two invoices to Tri-North corresponding to the two sample-window installations. Each invoice specified “Terms” as “Per Contract” and identified the Subcontract as the pertinent contract.

Thereafter, Tri-North notified Atlas that it would send “a contract your way with the anticipated cost for all windows.” The parties never exchanged any new contract proposals. Instead, Atlas proceeded to supply and install additional windows, using the window specifications in its proposal, and invoicing Tri-North with reference to the Subcontract. 

The parties eventually disagreed over the amount and timing of payments due to Atlas. After efforts to settle failed, Atlas sued in Massachusetts Superior Court for amounts due, again referring to the Subcontract.

Tri-North moved to dismiss, arguing that the forum selection clause in the Subcontract barred Atlas’s Massachusetts suit.

The forum selection clause provided that in the event of any dispute arising from the Subcontract, Tri-North could choose whether the parties would resolve the dispute through (1) litigation, (2) the dispute resolution clause of the agreement between Tri-North and the project owner, or (3) binding arbitration in accordance with (at Tri-North’s option) either Wisconsin Statutes Chapter 788 or the Construction Industry Arbitration Rules of the American Arbitration Association then currently in effect. The provision then stated that “[f]orum and venue for any arbitration or litigation shall be Dane County, Wisconsin,” and that Atlas “consents to the jurisdiction of the courts of Wisconsin.” Finally, the provision stated that the Subcontract and “any dispute arising under” it “shall be governed and interpreted with the Laws of the State of Wisconsin.”

Atlas opposed the motion by arguing that the forum selection clause in the Subcontract was not applicable because the Subcontract had “no relationship to the work performed by Atlas . . . for which it is seeking to be paid.” The Trial Court disagreed and dismissed Atlas’s complaint.

On appeal, the First Circuit concluded that the forum selection clause was binding and therefore the suit was properly dismissed. The Court reasoned that although the Subcontract may not have contained all terms governing Atlas’s supply and installation for windows on the project (as it identified only the sample window), the terms and conditions of the Subcontract, including the forum selection clause, were clearly a part of the agreement between Atlas and Tri-North.

Atlas argued additionally that the forum selection clause should not be enforced because of the unequal bargaining positions of the parties. The Court considered but rejected this argument, noting that even though Atlas was a small 10-person company and Tri-North was a large contractor with revenues estimated in the hundreds of millions, that inequality alone does not make the forum selection clause unenforceable.

As a result, Atlas’s remedy lay not in Massachusetts where it is based and the project was located, but in Wisconsin, the home turf of Tri-North.

For more information, please contact Ben Dunlap at [email protected].

Contracting by Design: Understanding the Spearin Doctrine’s Effects on Express and Implied Warranties in Construction Projects

Posted on: May 27th, 2021

By: Ryan Mayo

Owners, contractors, and subcontractors should be aware of the importance of detailing warranties in construction contract clauses. Failure to clearly state such warranties could result in a party’s liability for violation of implied warranties should litigation occur.

Prior to the U.S. Supreme Court’s decision in United States v. Spearin, 248 U.S. 132 (1918), contractors generally bore all construction risks under the law, subject to two exceptions: (1) express exception made in the contract; or (2) when performance was made impossible by an Act of God or Nature. This remains the general rule today. However, the Spearin Court changed the balance of these risks considerably by imparting an implied warranty on owners under certain circumstances.  

In Spearin, a contractor was hired to build a dry dock according to plans and specifications prepared and furnished by the owner, an agency of the federal government. The plans required a relocation of a sewer, and the government did not tell the contractor about a defect in a part of the sewer. After the sewer was relocated, a flood caused the sewer to break, and the dry dock excavation site was flooded. The contractor refused to continue building until the government assumed responsibility for existing and future damages from the sewer. In turn, the government had the project completed by another builder under revised plans. The contractor then sued to recover the amount that he spent on the project and to recover damages for the contract’s annulment. 

The Supreme Court affirmed the award by the court of claims in favor of the contractor and found that the government breached its implied warranty that the sewer would be adequate if the contract complied with the government’s specification in relocating the sewer. Specifically, the Court ruled “Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered.” Most important for risk allocation, however, the Court ruled “[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”

The Supreme Court of Georgia first interpreted the Spearin Doctrine in Decatur County v. Praytor, Howton & Wood Contracting Co., 165 Ga. 742 (Ga. 1928). In Decatur County, the Court ruled an owner was not liable for breach of contract because it “specifically represented” to the contractor particular adjustments to the piers of a bridge and contained allowances to adjustments in price based on construction changes. Because of the express disclaimer in the parties’ contract, the Court did not find the owner liable. 

The Spearin Doctrine has been examined in recent years by multiple courts across the country, and almost all 50 states have interpreted it in some form. In September of 2020, the Washington Court of Appeals in Lake Hills Invs., LLC v. Rushforth Constr. Co., 472 P.3d 337 (Wash. Ct. App. 2020) ruled a jury instruction misstated a contractor’s burden of proving its affirmative Spearin defense, reversing the trial court’s allowance of the instruction. The case is currently being petitioned for review by the Supreme Court of Washington, and an amicus brief submitted in support of the petition argues in part that the appellate court’s decision, if allowed to stand, would have negative effects on contractors’ abilities to use the Spearin Doctrine as a defense.

In Texas, lawmakers recently introduced legislation to realign the state’s law with the majority of states recognizing the Spearin Doctrine. The pending legislation, SB 219 and HB 1418, would largely reverse the law in effect since the Texas Supreme Court’s 2012 decision in El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012), which held that absent contract language allocating the risk, a contractor may be held liable for defects in the design documents provided by the owner or design professional.

These cases underscore the ongoing importance of assessing and negotiating construction risks on the front ends of projects and intentionally allocating these risks with express warranties. Where possible, contracts should use specific language that addresses individual aspects of projects. Carefully considered contractual language may be viewed favorably by courts in determining whether an express warranty was created before a project began. Parties who take these steps better protect their interests, potentially allowing them to avoid legal battles based on interpretations of Spearin and implied warranty.

For more information, please contact Ryan Mayo at [email protected].