Construction Law Blog
Blog Disclaimer: The content provided on this website is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided is intended for general information which may or may not reflect the most current developments. Read More
Subcontractor Allowed to Sue Designer for Negligence: California Courts Chip Away at the Economic Loss Doctrine (Independent Duty Rule)
An architect may have to pay over $1 million to a subcontractor who was contractually obligated to rely on the designer’s plans – even though the architect was not a party to the contract. That was the ruling in U.S. f/u/b/o Penn Air Control, Inc. v. Bilbro Constr. Co., Inc. The dispute involved a $7.3 million design-build contract award to Bilbro Construction (“Bilbro”) to renovate a facility for the Naval Facilities Engineering Command in Monterey, California.
Bilbro hired an architect (“FPBA”) to serve as the designer of record and provide all the architectural design services. FPBA’s design team included an acoustical sub-consultant (Sparling). The general contractor (design builder) also retained Alpha Mechanical (Alpha) as the mechanical electrical and plumbing (“MEP”) design/build subcontractor.
The implied duty of good faith and fair dealing is implied in every contract, including construction contracts. Generally speaking, this implied duty requires parties cooperate with one another so that they each obtain the full benefit of their contracted bargain. Recently, the Court of Appeals (Division II) in Nova Contracting, Inc. v. City of Olympia discussed this duty’s application to a public works contract.
In early 2014, the City of Olympia published an invitation for bids to replace a culvert that conveyed a creek underneath a paved bike trail. Nova Contracting was awarded the Project. The specifications required that Nova submit a number of submittals, the approval of which was required before Nova could commence work. The contract also provided that the City’s decision with respect to these submittals would be final and that Nova would bear all risk and costs of delays caused by non-approval of any submittals.
For several years, the requirements for which parties must be named in a lien foreclosure action when a release of lien bond is in place have been cloudy. RCW 60.04 et seq., the “mechanics’ lien” or “construction lien” statute, provides protection for a party or person who provides labor, materials, or equipment to a construction project. That person or party, if not paid, can file a lien against the construction project property to secure recovery. As the lien impacts the property by “clouding title” and could potentially result in foreclosure of the property, the statute sets forth strict requirements with respect to timing, notice, and parties. For example, the lien must be recorded within 90 days of the person or party’s last day of work or materials or equipment supplied, and the lien claimant must then give a copy of the claim of lien to the owner or reputed owner within 14 days of the lien recording. RCW 60.04.081.
Subcontractors on public projects in Washington State will no longer be required to wait until final acceptance of the project to get their retainage money. A new statute, which goes into effect on July 23, 2017 and applies only to Washington public projects, will allow subcontractors to get their retainage sooner.
Under prior law, a subcontractor could only get its retainage prior to final acceptance if the general contractor provided a retainage bond to the public owner to secure a release of the general contractor’s retainage and the subcontractor then provided a similar retainage bond to the general contractor in the amount of its own retainage. If the general contractor decided to not provide a retainage bond to the owner, the subcontractor would be forced to wait until final acceptance of the project before it could get paid its retainage.
Construction attorneys rarely encounter state and local tax issues. However, in a recent negotiation over a disputed change proposal, an Owner’s attorney argued that Washington prohibits recovery of B&O tax as a separately-billed line item in the change proposal. Given that itemization of B&O surcharges seemed a fairly common business practice, I was initially skeptical of the position. Upon further review, it became apparent that the Owner’s argument was indeed correct and that many contractors may be unknowingly violating the law by separately itemizing and adding a percentage for B&O tax to their billings or change proposals.
A New AAA Study Confirms that Arbitration is Faster to Resolution Than Court – And the Difference Can be Assessed Monetarily
There has been a perception among some litigators that arbitration is more expensive than court due to several factors. Among them:
- The “upfront” costs are higher in that filing fees for arbitration exceed those in court. Arbitrators are paid, whether hourly or a flat rate, and the three arbitration panels can become very expensive.
- Some arbitration clauses preserve statutory discovery rights, basically defeating the advantage of a simplified arbitration process. Discovery wars are extremely expensive. Depositions are the most costly of discovery, and in arbitration, as opposed to court, depositions are limited or do not exist.
- Some arbitration clauses integrate the statutory rules of civil procedure, making arbitration almost equivalent to litigation. These types of clauses do the parties no favors
General Construction v. Grant County PUD: Chalkboard Notice is Invalid and Engineer Cannot Waive Notice Requirements
I previously posted a blog about the General Construction v. Grant County PUD case and the Court of Appeals’ rulings regarding notice and claim procedures.[i] The General Construction case is also noteworthy for two other issues that were raised in that case.[ii] The first issue involved whether a contractual written notice requirement is satisfied when the notice is provided on a chalkboard only. The second noteworthy issue is whether the Public Utility District’s (“PUD”) own in-house engineer could waive the contractual notice and claim procedures in the PUD’s contract.
Another court in Washington was asked to apply the Mike M. Johnson[i] decision to a contractor’s claim for extra work. This time it was the Division III Court of Appeals in Washington. The Division III Court of Appeals, which covers all of Eastern Washington, had a hand in the original Mike M. Johnson case. That court is the intermediary court that ruled in favor of the contractor in Mike M. Johnson. It held that there were issues of fact as to whether Spokane County, in the Mike M. Johnson case, had actual notice of the changed conditions and, thus, waived the notice and claim procedures that the County was attempting to rely upon. The Division III Court of Appeals was later overruled by the Washington State Supreme Court, which held as a matter of law that the County of Spokane had not waived the notice and claim procedures. This time around, the Division III Court of Appeals, for the most part, ruled in favor of the public entity and followed the Mike M. Johnson decision.
Generally, contractors choose arbitration because it is a cost-effective method of dispute resolution, and primarily because an award issued in arbitration is final. Vacating an arbitration award is only permitted on very narrow grounds. A party must demonstrate that the award was procured by corruption, fraud, or undue means, or that an arbitrator exceeded his/her power (very high burdens). Arbitration rules in other states are similar to the Washington statute. Stated simply, it is very difficult to reverse an arbitration award—or is it? These two cases do not indicate a trend but do remind us that an arbitrator’s power is limited to that power granted to him/her by contract.
For government contractors, an unfavorable performance rating review posted to the Contractor Performance Assessment Reporting System (“CPARS”) can be extremely costly. Many of the government-negotiated solicitations include past performance as an important, and sometimes even primary, evaluation factor for contract award. An unfavorable CPARS review on a past contract can cause the contractor to incur substantial extra costs in addressing the unfavorable review with contracting officers on future solicitations, and, in some instances, the contractor saddled with an unfair or inaccurate CPARS may have to challenge the review and recover some of these costs.