Construction Law Blog
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This article provides an overview of the difference between indemnification and being added as an additional insured to an insurance policy. For further information on indemnification provisions, follow these links to a few of our previous blog posts: Top 10 Construction Contract Provisions – Indemnity; Anti-Indemnity Statutes to Prevent Overreaching; and Amendment’s to Washington’s Anti-Indemnity Statute.
Recent Court of Appeals Decision Finds in Favor of Contractor With Respect to Mechanic’s Lien’s Priority Over Lender’s Deed of Trust Based on Six-Hour Time Difference and Unsigned 18% Interest Provision—Part II: Interest
In Part I of this two part article, we addressed a recent Division 2, Court of Appeals case that addressed two issues of first impression: (1) whether a voluntary release of an earlier lien precludes filing of a second lien, and (2) whether an interest provision requires that the contract be signed. [i] Ultimately, the Court held that the contractor was not precluded from filing a second lien despite the earlier release and, therefore, the contractor’s lien had priority over the lender’s Deed of Trust based on work completed by the contractor just six hours prior to the lender recording the Deed of Trust. As discussed in more detail below, the Court also held that the contractor was entitled to interest despite the fact the interest provision was unsigned.
Recent Court of Appeals Decision Finds in Favor of Contractor With Respect to Mechanic’s Lien’s Priority Over Lender’s Deed of Trust Based on Six-Hour Time Difference and Unsigned 18% Interest Provision—Part I: Lien Priority
Recently, Division II of the Washington Court of Appeals addressed two issues of first impression: (1) whether a voluntary release of an earlier lien precludes filing of a second lien, and (2) whether an interest provision requires that the contract be signed. On appeal, the Court held that the contractor’s earlier release did not preclude the contractor from filing a second lien, which still retained priority over the lender’s Deed of Trust based on work completed by the contractor just six hours prior to the lender recording the Deed of Trust. The Court also held that the contractor was entitled to interest based on course of conduct despite the fact the interest provision was unsigned. As the Court acknowledged, the case has a long and complicated history. Thus, Part I of this blog article will address the lien release and priority issues. Part II will address the interest issue.
Contractors Should Limit Their Exposure to Consequential Damages and Ensure Liquidated Damages are the Owner’s Sole and Exclusive Remedy
There is some confusion in construction about the terms “liquidated damages” and “consequential damages,” so brief definitions are in order:
- “Liquidated damages” (sometimes called “stipulated damages”) are damage amounts the parties designate in the contract for the injured party (Owner) to collect as compensation for breach of contract, and are someimtes tied to project completion or milestone dates.
- “Consequential damages” are losses that do not flow directly and immediately from the breach of contract, but result indirectly from the breach. For example, in hotel construction, if the hotel does not open on time, consequential damages could be the revenue lost by the hotel operator.
A Contractor should be aware of the relationship between liquidated damages and consequential damages. These concepts are mutually exclusive. Owners should provide for one or the other, but not both. Liquidated damages are essentially a type of consequential damages, but are intended to provide certainty by removing the difficulty of proving damages. Generally, liquidated damages should replace consequential damages, not supplement them.
Teaming agreements are arrangements entered into by two or more independent companies for the purpose of procuring and performing competitively-bid contracts. Such arrangements are generally formed so that contractors-who on their own would be unable to meet the bid requirements-can combine their respective expertise to compete in the realm of complex design and construction projects. The companies' expertise are generally complimentary rather than competitive, which offers owners the "best combination of performance, cost, and delivery for the services being sought."[i]
[i] R. Fazio, J. Killian, "Creating and Enforcing Teaming Agreements," Construction Law, Spring 2005, at 5.
A recent appellate decision leaves federal contractors in a lurch when trying to assess the risk faced after defrauding the government, whether accidentally or otherwise. Federal law requires the U.S. Court of Federal Claims to declare “forfeiture” for any person who even attempts to defraud the United States Government. See 28 USC § 2514. Forfeiture means that the defrauding party loses its rights under the contract, which almost always means a contractor loses its right to payment. Unfortunately, the statute does not explain how the forfeiture penalty should be applied or how its application may change when different types of fraudulent conduct are involved. Recent court decisions have left the issue unresolved.
The Port of Seattle recently awarded a design-build contract to Clark Construction for the new International Terminal at Sea-Tac Airport. The construction contract will be worth as much as $407 million dollars when it is finally negotiated. Clark Construction also built Concourse A for the Port in 2004.
We get more calls and are asked to review more contracts involving "indemnity" than any other construction issue. Indemnification, despite the legal mystery behind the concept, is actually quite simple. It involves an obligation by one person to provide compensation to another for a claim brought or loss suffered by a third person. Generally, in construction contracts, the owner requires the contractor to indemnify it in the event of a personal injury or property damage suffered by a third person whose damages arise out of construction operations. Oregon has a law, similar to many other states (including Washington and Alaska), prohibiting overbroad indemnity provisions in construction contracts. In the case of Montara Owners Ass'n v. La Noue Development, LLC, the Oregon Supreme Court ruled that an arguably overbroad indemnity provision is to be enforced within the statutory constraints rather than being entirely invalidated. The Court concluded that two sections of the anti-indemnity law, read together, had the effect of "saving" the overbroad indemnity clause.
Subcontractor Default Insurance ("SDI") continues to capture market popularity since its invention by the Zurich Insurance Company under the name SubGuard. SDI is an alternative to traditional surety bonding that provides the general contractor ("GC") protection from subcontractor default through a two-party contract (the GC and the insurer).
Readers of this blog are aware that we have been tracking and ranting about the poor condition of our national infrastructure since the blog’s inception. In May 2013, a truck carrying an oversize load collided with the “fracture/critical” I-5 bridge over the Skagit River near Mount Vernon and brought home to everyone the dismal condition of bridges, highways, power, water, and sewer infrastructure.