Alternative Delivery Methods vs. Traditional Standards of Care

I was recently involved in a case that presented a set of facts that should be familiar to most construction law practitioners.  The architect prepared a set of plans and specifications.  Subcontractors bid on those plans and specs.  Later (after the subcontract had been executed), one of the subs discovered it had a bid bust---it had neglected to include the sort of equipment needed to meet code (and the design) in its bid.  Instead, it had bid presuming it could use non-code-compliant (and non-design-compliant) equipment.  The sub meets with the GC, and even though they both understand that code compliance requires a certain type of equipment, they agree that the sub should prepare a submittal for non-code-compliant equipment, submit the same to the architect, and see if they can get it approved.  The architect doesn't recognize from the submittal that the equipment is not code compliant (and not compliant with his design), and approves the submittal.  Later, the building department red-flags the equipment, the owner orders the GC to replace it, and the GC submits a claim for the increased cost of the code-compliant equipment, arguing that the architect approved the equipment installed.  The GC (and, eventually, the owner) takes the position that this is the architect's fault (should have been more careful reviewing the submittal!) and therefore, the architect ought to pay for it.

Again: this must sound common to many of you.  And, most of you probably have a good idea what you think of the merits of the claim against architect.  Now, let me add one additional fact: this was a design-build job, and the architect was under contract with the GC, not the owner.

Does that immediately change how you think about the case?  Should it?  The architect's standard of care is the same regardless of who hires him, isn't it?  Or, now that the architect is explicitly NOT acting as the owner's agent/protector, does that change the outcome of the claim?

Beyond any individual's thoughts about what the law ought to be in a situation like this, here's the stark reality: the law regarding professional liability for designers has grown out of 75+ years of traditional design-bid-build delivery.  The law has, often silently, incorporated this traditional view of the roles of the construction team.  We are far past the point where design-build can be described as a "new," or even really as an "alternative" delivery system.  It is quite commonplace nationwide.  But, as disputes grow out of those projects, they all too often encounter a legal system still utterly ignorant of how these new systems work.  When that happens, your client (or opponent) can fall through a crack in the precedent.  If I wanted to make a claim this architect, and explain why he was at fault for not catching the contractor's shenanigans, I could lay my hands on ample precedent to support my claim.  But here we have an architect actively deceived by his client, who conspired with a subcontractor to dupe the architect into approving a product both the GC and the sub knew was improper.  When the architect is acting on behalf of the owner, I know how that story ends (or I know how I could argue it should end, from both sides).  But when the architect is acting on behalf of the GC, the issue immediately gets muddy, both for me, and for the court.

It can scarcely be a surprise that the construction industry is evolving faster than the appellate courts can keep up.  This is true for many other industries as well.  The issue for we honored few, we construction lawyers, is: how to we figure out and create the new rules to govern the new industry?

2013 Public Private Partnership Conference

The 2013 P3C conference will be held on February 21-22 in Dallas.  I've never attended one of these conferences, but it looks like a meeting of major players in the public private partnership world.  More than 25 public agencies will be making presentations about upcoming projects.   You can learn about EB-5 Visa financing, the latest trends in public private partnerships, including public involvement in hospitality projects.  Public owners can learn how to attract private capital.  There will be sessions on New Market Tax Credits and lots more ....  

Check it out!

Keep Your Head Up!

The expense of purchasing and learning diverse BIM platforms and software has been a major factor holding back the effective and widespread use of BIM on projects.  That appears to be changing with the arrival  of BIM-in-the-cloud providers.  

ENR, August 27, 2012, "Newforma Deal To Offer VEO Platform ..."

Model-driven project delivery on jobsites could be taking a big leap forward with a license deal between project information management (PIM) provider Newforma and M-SIX's 3D software platform, called VEO. Robert Batcheler, a cofounder of the Manchester, N.H.-based Newforma, says with the VEO license, customers can view and navigate 3D building models without the need for the underlying software or authoring tools that were used to generate the model. This is a major trend in project delivery: deploying platforms that achieve true BIM-in-the-cloud functionality, including generative capacity, he says. With the VEO platform, if a project is working with models that were created, say, using Autodesk's Revit authoring tool, project teams can access the files on the VEO platform without a full Revit installation.

Accessing BIM models on project by construction teams "can be a challenge for mere mortals to master," Batcheler says.  Using the VEO platform, project teams can access the geometry of commonly-used 3D models though the cloud "without the risk of an untrained person damaging or corrupting the model," he adds. 

If that sounds similar to the souped-up BIM readers that are in use on many jobsites these days, think again, he says. It's true that many BIM readers for iPads and other smart devices are available, such as Bentley's ProjectWise for the iPad, Autodesk's hugely popularAutoCAD WS for iOS devices and Graphisoft's BIMx for iOS devices. 

Autodesk, reports ENR, is set to release a host of new cloud based tools in 2013.  Undoubtedly, these new tools will see more and more use in the courtrooms,arbitration rooms, and mediation rooms.

It's time for lawyers to get tech savy!  Keep your head up.  It works in tennis and skiing.  

Are Storm Water Run-Off Regulations Bad for Construction?

Engineering News Record tries to examine what a Romney administration would mean for construction.  Here is their tally sheet:

Contractors are hoping that a Romney administration might:  

• "knock down regulatory hurdles that get in the way of contractors"
• "place greater reliance on public private partnerships"
• "practice environmental streamlining"
• "scale back plans to stiffen regulations"
• "expedite projects"
• "reduce taxes on businesses"
• "repeal the job-killing Obama-backed health-care law"
• "ban project labor agreements on federal projects on day one"
• "eliminate estate taxes"
• lower wage surveys used for prevailing wage tables

On the other hand contractors are afraid that a Romney administration will:

• advocate spending cuts, including cuts in infrastructure spending
• When Governor, they fret, "he cut budgets across the board."  
• "Almost all new transportation projects stopped for his four-year term."
• "(His) stands on high-speed rail and Highway Trust Fund also are suspect"

As the article points out, reading the entrails of the campaigns to foretell the future health of the construction industry is tricky business.

What is clear is that across the country we have tremendous needs to refurbish decaying infrastructure and to build new infrastructure--roads, rail, airports, schools, water systems, electrical generation and transmission--so we can uphold our standard of living and be competitive in the world market over the next 50 years.  The country has needs for construction to be a $1.3 trillion plus industry again.  This calls for a government with an appreciation for the long term benefits of  fulfilling infrastructure needs now.

People differ on what it means to develop infrastructure well.  Some want to do it as cheaply as possible with as little government involvement as possible.  Some want to do it with regulation aimed at establishing minimum standards for worker safety, environmental stewardship, and transparency.  Some want to maximize the profits of contractors, some want to maximize the wages of workers.  Some want to assure that public dollars are spent without favoritism or undue influence.

What everyone agrees on is the industry needs projects funded.  Lots of them.  Our industry won't be able to fix the nation's ailing infrastructure, or return to a $1.3 trillion plus industry, if the government won't spend on infrastructure.

Whether we do this with more or less regulations to assure storm water doesn't carry away soil into streams, and with more or less health care for workers or society as a whole, is beside the point.  Lobbying for funding of construction is a matter of interest for the entire construction industry irrespective of political bent.  No matter who occupies the White House, the message should be "Just fund those projects.  You say you want storm water regulation?  We'll do it any which way you want!"  

A Sunday Question About Spearin v. U.S.

I am working on a presentation about the "Spearin" doctrine.  We normally think of this as the implied warranty of correctness of plans and specifications, without thinking about it too critically.  I will discuss three prongs.

1. The original holding of Spearin, which is (in a different example) that if plans require contractor to install a certain sized beam and that beam breaks because calculations were off, the owner (and engineer) are responsible, not the Contractor.  I don't think that is a warranty concept.  
2. The superior knowledge doctrine: owner has knowledge that should tell owner that representations made on plans are incorrect, or owner conceals relevant information. I don't think that's a warranty concept either (this is an aspect of fraud and covenant of good faith and fair dealing).
3. The implied warranty of correctness of plans; i.e. that plans are fully coordinated and sufficient for construction with no change necessary. [I think there is less support for this proposition in the law than we normally pretend] 

The third of these prongs implies that if a change is necessary in the field to carry out the plans, this is a breach of warranty by owner, and gives rise to damages. Another way to approach this issue is through the changes clause: if Kor is required to build as drawn, but building as drawn is impossible, there is a change and this change gets handled through the changes clause. There is no breach.

As to this third prong, the question arises: is the change already priced in the contract. For example, coordinating HVAC and electrical in tight quarters involves changes, but such changes are routine. They happen on every project. As such, many such changes are already included in the labor costs assumed at bid time. Labor costs are determined from experience on past similar projects; if past similar project had the same changes, the labor costs should reflect that.

Here is the question. How do you tell which means and method changes are included in the original price? I think it's not as easy as looking at the contractor's take off and bid documents because many means and method changes are assumed as part of the original labor cost. How do you draw the line? How do you determine what should give rise to extra costs, and what should not?  How can we address this issue in contract documents up front?

North Carolina State Building Commission: "Design Build is not Allowed; Please Ask us to Do Design Build"

North Carolina General Statutes Section 143-128 sets forth the general methods of contracting allowed to public agencies in North Carolina.  Broadly speaking the statute allows:  

1. Multiple-prime contracting
2. Single-prime contracting
3. Dual prime contracting (combination of multi-prime and single prime)
4. CM at risk
5. Or any other method allowed by the Building Commission

Although the authenticity of this is not self-evident, I got it from the Design Build Institute and have no reason to doubt it, the North Carolina Building Commission adopted a resolution on August 28, 2012 encouraging local entitites to apply to the Building Commision  for design-build approval. 

Here's the Building Commission: 

WHEREAS, the State Building Commission acknowledges the merit of the Design/Build delivery method for certain projects and has authorized the use of Design/Build in the past, with apparent success, now therefore,

BE IT RESOLVED, that the State Building Commissions encourages State agencies and institutions, local government units or any other entity subject to the provisions of G.S. 143 to utilize the procedures adopted by the State Building Commission when seeking authorize to use Design/Build as a construction contracting method and to consider the following:

1.   The public owner has the responsibility to secure construction services with method that will provide a fair and full opportunity for open competition and ensure that the public project is built at a competitive price to the taxpayer without favoritism.

2.   Licensed design professionals have responsibilities to public health, safety and welfare that cannot be lessened or delegated in any way because of the involvement as part design/build team. This suggests that appropriate design fees must always be part any Design/Build proposal.

3.   Although G.S. 143-135.8 allows bidders to be prequalified for any public construction project, the law does not allow a shortlisting process to restrict the number of potential bidders. Also, the final selection of the Design/Build team must be based on the low qualified bid pursuant to G.S. 143-129.

4.   The cost incurred by design and construction professionals, when responding to a Design/Build Request for Proposal, can be significant (a cost that can run well into fi figures) and could prove to be a deterrent to competition. Therefore, the State Building Commission believes it is essential that “bridging documents” be prepared by the o (or his independent design professional,) to be used as an objective basis for competitive responses to any Design/Build RFP.

5.   The cost to smaller design and construction firms to prepare a design build proposal may hamper their ability to compete with large firms, thus limiting the number of competitive proposals that the Owner receives.

6.   The Construction Manager at Risk construction delivery method authorized by G.S 1128 is a construction method which allows qualification based selection of the contractor and offers many of the advantages of the Design/Build method and, in addition, allows the Owner to have an independent assessment of the construction quality by licensed design professionals. Therefore, the Construction Manager at Risk delivery method should be considered prior to seeking authority for Design/Build.

Primer on Federally Funded Local Projects: From Design-Build Procurement to Traffic Control

The Federal Highway Administration has a website providing federal aid essentials for local public entities, but the site serves as a primer for anyone wishing to get oriented in the arena of federally funded local projects.

The website includes a series of videos covering:

• an introduction to project construction and administration
• project management and supervising agency requirements
• quality assurance
• design-build procurement
• project close-out
• scheduling and time managment
• change orders
• buy America field compliance
• job site posters and compliance
• payroll submittals, documentation, and compliance
• worker safety
• transportation plan management, and
• work zone traffic control  

As an incidental lesson, you can learn how not to overuse animation, which is done to the point of distraction in these videos.  But, hey, it's your tax-dollars at work ... so enjoy!