Construction Law Blog
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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.
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.
A drastic change has been implemented by the Washington State Department of Transportation (“WSDOT”) to the Disadvantaged Business Enterprise (“DBE”) Program in Washington. Effective June 1, 2017, WSDOT has implemented a “waiver” to exclude women-owned DBEs[i] from qualifying toward Condition of Award (“COA”) Goals on federally-funded projects. This move is significant. It will likely result in long-lasting detrimental impacts on the DBE community, women-owned businesses, and the entire construction community in Washington. The construction industry should be in an uproar over this change. Instead, it has largely gone unnoticed (likely because its impacts have not yet been felt). It is a de facto exclusion of women-owned businesses from the DBE program, and the severity of this change cannot be overstated.
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.
Although we live in a politically-divided nation, there is one issue on which there seems widespread agreement: our country requires a massive upgrade to its infrastructure. Rundown airports, crumbling highways, obsolete ports, and dangerous bridges are now endemic across the United States. By contrast, Asian airports and elegant European bridges and rails show that our country needs an upgrade, the cost of which will be enormous.
Blog: Congress Strikes a Blow to President Obama’s “Fair Pay and Safe Workplaces” Executive Order 13673
On October 25, 2016, the Federal Acquisition Regulatory Council (FAR Council) and the U.S. Department of Labor implemented former President Obama’s Executive Order 13673: “Fair Pay and Safe Workplaces” rules. The rules became effective on October 25, 2016 and fundamentally altered the way federal contractors and subcontractors will need to handle and resolve employment and labor claims, as well as compliance issues involving their entire workforce. The final rules can also result in otherwise-capable companies being “blacklisted” and effectively barred from federal contracts and subcontracts based on labor and employment law violations related or unrelated to prior or current federal contract performance. The centerpiece of the new regulatory scheme was the new disclosure and responsibility requirements. Contractors and subcontractors needed to disclose all “labor law decisions” that they had during the three years (prior to bid submission) as part of the process of applying for a new federal contract or subcontract. If a contractor or subcontractor has too many “labor law decisions” to report or the few it has are too severe, pervasive, repeated, or willful in the eyes of the government “experts,” the company could be deemed “non-responsible” and denied a contract.
Implied warranties are warranties created by law, legislation, or courts. In the construction industry, one of the most prominent implied warranties is that owners who provide plans and specifications to their contractors impliedly warrant the adequacy of their plans and specifications.[i] That implied warranty had its beginning in the 1918 US Supreme Court decision of U.S. v. Spearin[ii] and is, therefore, popularly known as the Spearin Doctrine. Under the Spearin Doctrine, if the contractor completes the work in accordance with the owner’s plans and specifications, but there is a deficiency or failure, the owner, not the contractor, is responsible. When the owner breaches its implied warranty, in most instances, the contractor is entitled to additional compensation for extra work performed, delays experienced, and other additional expense or loss occasioned by the warranty breach. A recent case demonstrates that this implied warranty is not “immunity.” The contractor must still act reasonably and diligently, particularly when the contract provisions so require.
Rotech Healthcare, Inc., a healthcare contractor, recently successfully protested the award of a home oxygen and durable medical equipment contract by the Department of Veterans Affairs to Lincare, Inc. based on an unsupported past performance evaluation and allegations of an unequal discussion. See GAO Protest File Number: File: B-413024 (August 17, 2016). The Request for Proposals (“RFP”) provided that award would be made on a “best value” basis to the offeror whose proposal was most favorable to the government based on the following evaluation factors with the following possible ratings:
- Joint Commission Accreditation (Acceptable or Unacceptable)
- Region of Service (Acceptable or Unacceptable)
- Past Performance (Excellent, Good, Satisfactory, Unsatisfactory, or Neutral)
- Technical Capability (Excellent, Good, Satisfactory, Unsatisfactory)
In a public works dispute in Massachusetts, a Massachusetts Court judge ruled that a general contractor could not recover any of its over $14 million claim against a public owner because it had violated its contract with the Owner by certifying that it had paid its subcontractors in full and on time when in fact it had not.[i] The case involves a contract dispute arising from a state and federally-funded project to design and construct a fiber optic network in western Massachusetts. The Owner was a state development agency established and organized to receive both state and federal funding to build a 1,200–mile fiber optic network known as MassBroadband123 in Western Massachusetts (the Project). Of that amount, $45.4 million was awarded pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA). One of the stated goals of ARRA was (as its title suggests) to create jobs in the wake of the 2008 recession and to provide a direct financial boost to those impacted by the economic crisis. In the context of the instant case, that meant that, if there were to be subcontractors on the job providing labor and materials, they needed to be paid on a timely basis in keeping with the statutory purpose of stimulating the economy.