Construction Law Blog

In the recent unpublished decision, Tim McClincy v. Miller Roofing Enterprises (Div. I, May 7, 2012), the Washington Court of Appeals held that a roofing contractor, which provided its customer with a 5-year warranty on labor and substantially longer warranties on manufactured roofing materials was not liable on the manufactured materials portion of the warranty.  

In McClincy, McClincy Brothers Floor Covering ("Owner") entered into a written contract with Miller Roofing in 1997 for the construction and replacement of flat and pitched roofs at the McClincy Brothers commercial building.  The work was completed in 1998.  The written contract provided a 5-year warranty on labor, and 12- and 50-year warranties on the manufacture of "torch down" and "metal" components respectively.  In late 2007, severe weather resulted in extensive water intrusion and in excess of $1M damage to the building.  The alleged cause of the damage was defective construction of the torch down roof by Miller.  The Owner sued Miller Roofing in 2009.  The roofing contractor claimed that the Owner's claim was barred by the 6-year statute of repose, but the trial court ruled that Miller "stepped into the role" of manufacturer for the Torch down roof, that the 12-year warranty applied and awarded McClincy $1.387M in damages.   On appeal, Miller argued that it did not warrant the torch down roof as a "manufacturer," and the court of appeals agreed.   The court based its decision on the fact that Miller was not the "manufacturer" of the roof materials and that there was no evidence that Miller "stepped into the role" of manufacturer.  While it is not clear from the court's opinion, it does not appear that the Owner raised the argument that Miller's contractual warranty was broadly worded to encompass both its own labor as well as the manufactured products it installed. 

While the case was ultimately sent back to the trial court for resolution of other issues, Miller was fortunate to have the court of appeals interpret its warranty provision as it did.   Given the potential for claims and lawsuits years after a project is completed, it is essential that contractual warranty provisions be clearly and carefully drafted.  Contractors and subcontractors that install components, which are required to have extended manufacturers' warranties need to make clear that their warranty obligations as contractors are limited to labor and installation components only, and that any manufacturers' warranties will be supplied solely and directly by the manufacturer.

Recent years have seen a proliferation of lawsuits brought by lawyers who make their money from wage disputes for such things as the employer's failure to provide its employees with breaks.  Statutorily, employees are entitled to certain breaks during their work day.  The question was whether the state of California (the "nanny" state) may require that employers mandate and ensure that those breaks are taken.  That issue came before the California Supreme Court in Brinker Restaurant Corp. v. Superior Court.  Workers' attorneys argued that abuses are routine and wide spread when companies aren't required to issue direct orders to take breaks.  The case was filed approximately nine years ago against a parent company of Chili's restaurant (Brinker International) and other restaurants, and alleged that the companies had deprived their workers of meal breaks in violation of California labor law.  The court unanimously ruled on April 12, 2012, that although employers must free workers of job duties for the required 30-minute meal break, employers are "not obligated to police meal breaks and ensure no work thereafter is performed."  A management side employment lawyer termed the decision one that will free employers from the "specter of frivolous lawsuits  . . . [the] only clear losers today are the lawyers who make their money off of wage class-action lawsuits."

References:  Human Resource Executive and AP News.

Ahlers & Cressman attorneys will be presenting at two seminars this summer covering the American Institute of Architects (AIA) contract documents and key contract provisions.  The first seminar is on July 17 in Seattle and the second is on August 1 in Federal Way.  The seminars are put on by Lorman Education Services, who has graciously allowed Ahlers & Cressman to provide a 20% discount on Lorman's regular registration fee to our blog readers.  You will need to provide the discount codes listed below when you register. 

Both of the seminars will cover the same following topics:

• Overview of AIA Contract Documents (Contract Formation Issues and Other Considerations During Negotiations)
• Key Clauses in the AIA A201-General Conditions of the Contract for Construction (Contractor's Perspective vs. Owner's Perspective)
• Analysis of the AIA Design-Build Documents
• Analysis of the AIA Integrated Agreement Contract Forms
• Key clauses of the AIA A102-Standard Form Agreement Between Owner and Contractor (Guaranteed Maximum Price)
• Analysis of AIA B101-Standard Form Agreement Between Owner and Architect

For a full description of the topics covered during the seminars and speaker information, click here for the Seattle seminar and click here for the Federal Way seminar.

Here are the specifics for the Seattle seminar:

Date:                      July 17, 2012

Location:                 Courtyard by Marriot, downtown/Lake Union

                              925 Westlake Avenue North, Seattle, Washington

Registration:            Register online at http://www.lorman.com or call at

                              (866) 352-9539

Discount Code:            F2716129

Priority Code:           15999

Cost:                       $349 (before discount)

Here are the specifics for the Federal Way seminar:

Date:                      August 1, 2012

Location:                 Best Western Plus Evergreen Inn and Suits

                              32124 25th Avenue South, Federal Way, Washington

Registration:            Register online at http://www.lorman.com or call at

                              (866) 352-9539

Discount Code:            F2716129

Priority Code:           15999

Cost:                       $349 (before discount)

On February 9, 2012, Washington's Capital Projects Advisory Review Board ("CPARB") voted unanimously to approve revisions to its "Suggested Guidelines for Bidder Responsibility" that apply to public works projects.  The Guidelines are available online, click here.

Bidder responsibility has been a hot button topic for construction contractors who remain concerned that misinformed public works owners may use narrowly crafted responsibility criteria to restrain competition and use the Bidder Responsibility Statute, RCW 39.04.350 (see Ahlers & Cressman's blogs August 9, 2011 and August 11, 2011 for an analysis of this statute), as a means to subjectively select contractors.  The CPARB Suggested Guidelines for Bidder Responsibility provide the public works owners with tools, examples and provisions to ensure that bidders on public works projects are indeed responsible and that the projects will nevertheless be completed on time and on budget.

CPARB's Task Force responsible for publishing the Suggested Guidelines for Bidder Responsibility included Mike Purdy, a renowned and well respected public works contract consultant, who publishes a popular construction blog.  Mike has summarized the changes to the Suggested Guidelines for Bidder Responsibility succinctly; we will refer you to his blog of February 26, 2012 for details.

Closely related to the subject of bidder responsibility is the issue of obtaining qualified subcontractors on GC/CM projects (referred to as "subcontractor eligibility").  Mike Purdy has also summarized those issues.  Our readers are referred to Mike’s summary posted on March 25, 2012.

Occasionally we come across public contract invitations in which public works owners use prequalification or responsibility criteria in a manner contrary to Washington statutes.  The following is an example from Eastern Washington (the name of the public works owner has been redacted). 

In this particular contract, the owner is requiring that bidders be "prequalified" to bid on a municipal street project.  There is no legal basis for the municipality demanding that contractors prequalify for the work.  The same objective could be obtained by an appropriate use of bidder responsibility criteria, consistent with the Suggested Guidelines for Bidder Responsibility.  If our readers come across public works bids which contain responsibility criteria that unreasonably restrain competition and/or public works invitations that are contrary to the law, as the one cited above, please bring those examples to the attention of Bidder Responsibility Task Force, CPARB, Washington State Department of Enterprise Services, PO Box 41401, Olympia, WA 98504-1401.

The National Trust for Historic Preservation recently published a comprehensive study, "The Greenest Building: Quantifying the Environmental Value of Building Reuse," which analyzed the environmental impacts of demolishing existing buildings and replacing them with new construction, as compared to reusing and retrofitting existing buildings. 

The study examined several different types of rehabilitations such as mixed use/urban villages, single family residential, commercial office space, as well as conversions (e.g., warehouse to office), in Chicago, Atlanta, Phoenix and Portland.  The study concluded that it can take anywhere from 10 to 80 years for a new building that is 30% more efficient than an average performing existing building to "overcome, through efficient operations, the negative climate change impacts related to the construction project."  Of these rehabilitations, mixed use/urban villages took the longest time to overcome the climate change impacts of new construction, and thus, these building types make the most sense to rehabilitate, instead of build new.  The majority of the building types, even though utilizing more efficient and environmentally friendly materials, take between 20 to 30 years to compensate for the initial environmental impacts of the construction project.

The study further revealed that, even though rehabilitation has less of an impact on the environment, both the quantity and types of materials used in the rehabilitation can reduce or even eliminate the advantage of converting an existing building.  For example, converting warehouses to multifamily residential, which requires extensive modifications and new materials, can completely negate the benefits of rehabilitation.  "In the case of the warehouse-to-multifamily conversion scenario, the newly constructed building actually demonstrated fewer environmental impacts in the categories of ecosystem quality and human health." 

The report ultimately concludes that for those concerned with climate change and environmental impacts, "reusing an existing building and upgrading it to be as efficient as possible is almost always the best choice regardless of the building type and climate.  However, careful material selection and efficient design strategies for reuse are critical and can play a major role in minimizing the impacts associated with building renovation and retrofit projects."

With green construction at the forefront of today's building world, it is certainly worth considering from an environmental standpoint, as well as a business standpoint, the findings of the study and the potential benefits of rehabilitation.

Reference:  National Trust for Historic Preservation.

It is well known on construction sites that the party primarily responsible for the enforcement of a subcontractor's compliance with WISHA, OSHA, and/or the WACs is the supervising general contractor.  It is probably less known that under Washington's Stute v. P.B.M.C., Inc. case and, more recently, Kamla v. Space Needle Corp., if a property owner/developer retains the right to control the manner in which an independent contractor completes his work, the owner/developer has the same duty to enforce compliance with WISHA, OSHA, or the WACs that typically is assigned to a supervising general contractor. 

The court in Kamla, however, clarified that an owner does not retain sufficient control simply because it retains the general right to inspect and supervise to insure proper completion of the contract, to order the work stopped or resumed, to make suggestions or recommendations that need not necessarily be followed, or to prescribe alterations and deviations. 

To be liable, the owner/developer must have the authority to control the means and methods of the contractor's work so as to ensure the contractor fully complies with the contract provisions to a point where the contractor is not permitted to do the work his own way.  Thus, after Kamla, contractors that were injured on a worksite could no longer sue owners/developers for statutory negligence, unless the owner/developer had the authority to exercise sufficient control.  

This has of course led to creative attorneys for contractors injured on a worksite to file claims against owners/developers under common law torts.  Specifically, injured contractors filed claims as "invitees" against owners/developers.  Under common law, a property owner can be held liable to an invitee when the owner knows or by the exercise of reasonable care would discover a dangerous condition that involves an unreasonable risk of harm to invitees and fails to exercise reasonable care to protect them against the danger. 

Essentially, the contractor lawyers argued that, if injured contractors could ultimately prove that the property owner knew of a dangerous condition that ultimately caused the accident but did nothing to protect the contractor-invitee or, at the very least, inform the contractor-invitee of the danger, then the property owner should be held liable for the contractor's injuries.  

Just last month, however, the Washington Court of Appeals (Division III) held in Hymas v. UAP Distribution, Inc., et al that property owners cannot be held liable under common law torts for the injury of independent contractors caused by a hazardous condition on the property even when the hazard is known by the owner and the owner does not warn the contractor of the hazardous condition. 

In Hymas, a contractor fell into an unguarded trench.  The owner knew the trench was unguarded before handing the property over to the contractor, but did nothing to protect it and did not warn the contractor.  The Court stated that "nowhere [under common law] suggest[s] that a landowner who has prepared its premises for entry by an invitee and protected the invitee from existing hazards has a duty to superintend the activities of the contractor following its arrival and commencement of work." 

Thus, in a case of an contractor-invitee (and not a public-invitee), the property owner does not have an obligation to prepare its land and warn or otherwise protect the contractor.    The Hymas decision limits a contractors' claims against a property owners for injuries on a worksite, to only allow those claims where the contractor proves that the owner/developer had sufficient control over the means and methods of the contractor's work (per Kamla). 

Interestingly, however, the Hymas decision is silent regarding those cases where the hazardous condition is known by the owner but, by the exercise of reasonable care, could not be discovered by a contractor (i.e. concealed hole). Presumably, that would present a different set of facts that would be distinguished by the Court.

In International Engineering Services, Inc. v. Scherer Construction & Engineering of Cent. Florida, LLC, a steel subcontractor (the "Subcontractor") entered into a subcontract (the "Subcontract") with a general contractor (the "Contractor") to perform structural steel work on a project in Florida.  The Subcontractor performed all of the work required, but did not receive payment from the Contractor.

The Subcontractor sued the Contractor and sought the entire unpaid amount of the Subcontract.  Contractor contended that the Subcontract contained a "pay-if-paid" provision, which provided that payment by the Project Owner to the Contractor was an express condition precedent to any obligation of the Contractor to pay the Subcontractor, and because the Owner had not paid the Contractor, the condition precedent to the Contractor's obligation to pay the Subcontractor had not occurred, and payment was not due.

The trial court found that the Subcontract language was not ambiguous and was clearly meant to shift the burden of non-payment from the Contractor to the Subcontractor.  The Subcontractor appealed.  The Florida Appellate Court reversed.

In rendering its opinion, the Appellate Court relied upon the provision of the Subcontract, which incorporated by reference the terms of the Prime Contract.  The Prime Contract provided:

"Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner’s property might be responsible or encumbered (less amounts withheld by Owner) have been paid or otherwise satisfied."

This provision provided that the Owner was not obligated to pay the Contractor until the Contractor paid all of its subcontractors.  By incorporating the Prime Contract into the Subcontract, the "pay-if-paid" provision became ambiguous.  This ambiguity had to be resolved against Contractor and interpreted as a establishing a reasonable time for Contractor to pay Subcontractor.  Thus, the "pay-if-paid" provision did not bar the Subcontractor's entitlement to payment from Contractor.

Courts tend to bend over backward to get around these "pay-if-pay" provisions. For more information regarding the "pay-if-pay" (and "pay-when-pay") provisions, see our blogs dated March 17, 2008 and April 5, 2011.

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It seems like a simple question. What claims and damages are available when the parties to a contract have a dispute related to the subject matter of that contract? In the past, the answer was fairly simple in most cases. If the subject of the dispute was within the scope of the contract and implicated both contractual and tort claims, the aggrieved party was limited to remedies laid out in the contract. The idea was that parties could or should allocate risks and liabilities among themselves during the contracting process, and courts should not allow remedies that the parties have not contemplated and elected to include in their contract. This concept was labeled the "economic loss rule" and was intended to preserve the often hazy border between contract and tort law, with tort law historically governing claims for physical harm and contract law governing economic harm.

The "economic loss rule" reached a high water mark in the case of Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007). There, a couple who purchased a house learned the septic system was defective and sued the seller for fraudulently or negligently representing its condition. The Washington Supreme Court held that the negligent misrepresentation claim was barred by the economic loss rule because the defective septic system was an economic loss within the scope of the parties' contract. Although the court recognized that the rule does not bar tort claims of fraudulent inducement or common law fraud, it ultimately held that the home buyers had not established either type of fraud by the seller.

The rule was sent into a tailspin in late 2010 in the Washington Supreme Court's opinions in Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380, 416, 241 P.3d 1256 (2010), and Affiliated FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442, 243 P.3d 521 (2010). The court there indicated the name "economic loss rule" was a misnomer and instead adopted a new name, the "independent duty rule," because it more accurately captured the principle behind the rule: "An injury is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract." Eastwood, 170 Wn.2d at 389. According to the court, "mixed considerations of common sense, justice, policy, and precedent" govern whether a tort claim arises independently from the contract. In Eastwood, those considerations led the court to conclude that a tenant who failed to properly maintain a rented horse farm had violated an independent tort duty not to commit waste even though the lease had expressly required the tenant to maintain the property for the owner in exchange for a lower rental price.

The existing case law left lawyers and contractors guessing how a particular court's notions of "common sense, justice, policy, and precedent" might apply in a given case. Many perceive the cases as opening the door to tort-based claims for lost profits, incidental and consequential damages, etc., that might have previously been barred under a strict reading of the original rule.

The Supreme Court's latest pronouncement on this issue, Elcon Construction, Inc. v. Eastern Wash. Univ., No. 83690-6 (Wash. March 29, 2012), confirms that any simple bright line answer that might have previously existed is out the window. In that case, the court allowed a contractor to pursue tort claims of "fraud in the inducement" and "tortious interference with contractual relations" against a project owner even though the contractor had previously arbitrated and resolved claims for breach of contract (it appears the contractor brought the tort claims because it neglected to pursue prejudgment interest and attorneys' fees in the contract arbitration).

Galvanizing the "independent duty rule's" new name, the court concluded with little in-depth analysis that there was "no compelling reason, whether based on common sense, justice, policy, or precedent, to bar Elcon's fraud or tortious interference claim under the independent duty doctrine." Although the tort claims were not barred by the independent duty rule, the court nevertheless held the contractor had insufficient evidence to prevail on the merits of its claims. Of note to the court in rejecting the fraudulent inducement claim was that the bidding instructions had directed the contractor to ascertain the nature and location of the work (drilling), including the conformation and conditions of the ground, so the contractor could not reasonably rely on the owner to provide information about the conditions, and the owner's withholding of a hydrology report therefore could not carry the claim.

The bottom line here is that the court has opened the door to potential tort claims for damages that might not otherwise be available under contract, but the determination of what constitutes an "independent" tort claim will remain up for reasoned debate unless and until the high court decides to provide additional clarity.

On April 17, 2012, during a hearing before the Armed Services Committee, the chairman of the Small Business Committee, Representative Sam Graves, made several recommendations for small-business contracting reform in the National Defense Authorization Act for Fiscal Year 2013, including raising the annual small business contracting goal.

Specifically, Graves recommended the inclusion of a package of eight bills that his committee approved in March 2012 to reform federal procurement legislation and help small companies in the federal marketplace:

Graves stated that "[i]mproving small business opportunities for federal contracts is a triple play: (1) small businesses win more contracts; (2) workers win because small businesses create jobs; and (3) taxpayers win because small businesses bring competition, innovation, and lower prices, sav[ing] the government money and improve[ing] the health of the industrial base."    Graves further comments that the Armed Services Committee’s report on small business contracting opportunities complements the legislation marked up by his Small Business Committee and represents a common understanding of the issues facing small business participation in federal procurement.

The eight bills that were approved by the House in March 2012 are each designed to increase federal contract opportunities for small businesses:

• Government Efficiency through Small Business Contracting Act of 2012  (H.R. 3850): Raises the government's small business goals for procurement contracts awarded to small businesses from 23% to 25% of all prime contract awards and increase incentives (withholding certain benefits, including bonuses, from senior officials) crafted to encourage agencies to maintain these goals.  The small business subcontract goals would increase from 39.5% to 40%.   The goals for contracts awarded to small business concerns owned and controlled by service-disabled veterans (3%), qualified HUBZone small business concerns (3%), small business concerns owned and controlled by socially and economically disadvantaged individuals (5%), and small business concerns owned and controlled by women (5%) will remain the same.
• Small Business Advocate (H.R. 3851): Increases Small and Disadvantaged Business Utilization Agencies salaries and duties and also requires additional reviews of these agencies regarding compliance and best practices for maximizing small business utilization in federal contracting.
• Subcontracting Transparency and Reliability Act (H.R. 3893): Amends the Small Business Act  to assure that more procurement dollars go to small businesses by limiting the percentage of allowable subcontracting that a small business can pass on to non-small businesses. 
• Small Business Opportunity Act of 2012 (H.R. 3980) : Integrates small business advocates into the early stages of the federal agency procurement and acquisition planning processes.
• Building Better Business Partnerships Act of 2012 (H.R. 3985): The Mentor-Protégé programs, which are intended to partner small businesses with established mentors in order improve the small business's ability to win and perform on contracts and subcontracts, have created unnecessary paperwork burdens for participants due to the duplicative programs and lack of standardized measures of success.  The Building Better Business Partnerships Act allows the Small Business Administration to oversee civilian agency mentor-protégé programs to promote portability of agreements between the agencies, guarantee that the programs benefit the small businesses, and ensure that the mentor-protégé agreement doesn’t inadvertently harm the protégé’s small business status.
• Small Business Protection Act of 2012 (H.R. 3987): The SBA is creating new group size standards that will define what businesses qualify as "small." By the SBA's own analysis, these proposals lump different industries together and are excluding legitimate small businesses from the SBA contracting programs.  This bill aims to protect legitimate small businesses by requiring that the size standard assigned to each common group remain consistent with each individual North American Industry Classification System (NAICS) code that is put in the new group.
• Contractor Opportunity Protection (COP) Act of 2012 (H.R. 4081): The Contractor Opportunity Protection Act provides a stronger process to appeal unjustified bundling through clarification of the statutory limits on bundling, the creation of a third party arbiter, and more transparency in the contracting process. 
• Contracting Oversight for Small Business Jobs Act of 2012 (H.R. 4206): This bill addresses contracting fraud by helping small businesses comply with complicated contracting and size rules and providing a safe harbor for small businesses making a good faith effort to comply with those rules. The bill also ensures that potential cases of fraud are properly and transparently dealt with through the suspension and debarment process.

The bi-partisan support for these bills demonstrates agreement from both sides of the aisle that more should be done to increase opportunities for small businesses and that these firms play an important role in the country and industry's economic recovery.  For example, in 2010, according to the Small Business Administration, agencies spent $98 billion procuring products and services from small businesses, narrowly missing the current 23 percent goal.  According to the committee, increasing the goal to 25 percent would translate to an additional $11 billion more per year in federal contracts for small businesses.   The Armed Services Committee is expected to release its language for the National Defense Authorization Act on May 7.  We will continue to provide updates as the legislation continues to progress.