Back from Dana Point with Lots of Loot!

Andy Ness is a visionary, so the focus of the program was on the future of construction law.  How is construction and construction lawyering changing? What is coming down the pike? 

Here are a few of my take-aways and things to look for in the materials:

Plenary 1:  Legal Issues Arising from Future On-Site and Off-Site Construction Technologies.  (A)  BIM tools and how they are making proper project delivery and design choices more demanding.  No longer can a project team evaluate three or four different options and scenarios--with the aid of BIM, it is now possible to run 3,000 to 4,000 scenarios in order to pick the best solution for building cost, life cycle costs, and carbon footprints.  (B) For us lawyers, we need to be aware of new licensing issues.  (C)  For cloud computing, ask yourself:  where does the data reside?  Who controls it? What warranties are there with these computer models?  Who indemnifies?    (D)  Similarly, the trend towards off-site prefabrication is bound to raise interesting new labor law issues, as well as the potential for big busts if something is mass-produced off site and it does not work. (E)  Look out for counterfeit parts;  this has been a particular problem with electronic parts.  As lawyers, how do we protect the supply chain. 

Plenary 2:  Preference Programs--Will the Trend Continue?  (A)  Buzzword for identifying bona fide DBE's:  Do they serve a "commercially useful and substantial function?"  (B)  Look at the materials for discussion of pass-through schemes and certification schemes.  (C)  New computerized verification of certified payrolls makes it easy to identify illegitimate schemes.  (D)  Listing laws:  half the states have them; the feds don't. (E)  Look for an ABA 2013 publication on loopholes in ARRA buy America requirements. 

Plenary 3:  The Future of Construction and Insurance Bonding.  (A)  As billion, and even multi-billion projects become commonplace, the risks become too large to push down to the lowest level as we have traditionally done.  Need to share the risk among bigger and more players.  (B) Bigger insurance towers, with more insurers involved to absorb big risks.  Less re-insurance has been available.  (C) Be careful with blurring of traditional design vs. construction roles—what is covered by E&O insurance, what by CGL?  Architects can now work for contractors (about time, but it’s getting more and more complicated out there).  (D) Insurance products are backwards looking, not forward looking; they lag the industry and this presents opportunity for good lawyering! 

Adrian Bastianelly observed that when he started in this business, the body of construction law was small.  There was Spearin and a couple of things.  In the last 45 years the field has exploded.  As a result, of course, much of this is still in flux and less settled than we sometimes like.  Take the economic loss rule as one small example—“one bloody case after another” without much being settled one might lament. 

Plenary 6:  Reverse On-Line Auctions.  Harper Heckman managed to turn this into a really great shaggy dog story about his airstream.  Great stuff.  New York has a study of this delivery system in the works.  Keep an eye out for it.  It turns out RVO’s are popular with big box owners.  Who knew.

Plenary 7:  Forecasting Change in Construction Law Practice.  (A) There is a McKinsey 2025 study out.  Rest assured, there is lots of reason to be nervous.  Seems like we, in North America, are about to be marginalized in the new world economy.  If we want to swim with the big fish, we need to open offices overseas.  (B) There was an interesting discussion about statistics on case outcome with different types of teams.  The good news is that pairing men and women works best.  Vive la differance! 

Plenary 8:  International Dispute Resolution:  We learned that Rich Tyler looks really good in a night cap!  Check out the materials for all you need to know on the convention on the international sales of goods and international arbitration.  Want to collect a CA judgment in China—good luck!  Better to opt for arbitration and take advantage of the New York Convention of Enforcement of Foreign Arbitral Awards, which are more easily enforced.

Plenary 9:  The Future of Preserving, Finding, and Presenting Construction Project Data.  Hint—it’s not getting less complicated.  Check out the materials.

The Astronaut, Dr. David A. Wolf:  Flying in space is really cool! 

All that and good friends too!  See you in Washington, D.C. on September 26-27, 2013!

HOW DANA POINT CAME TO BE NAMED FOR A BOSTON LAWYER

We are back from the ABA Forum on Construction's Annual Meeting.  Dana Point was a great location for an inspiring program, and it's named for a lawyer who worked for the underdog and wrote a successful and influential book, Two Years Before the Mast.  The book is said to have influenced Herman Melville.  We should all do so well in our avocations! 

Chair Andy Ness has graciously shared with us his opening remarks at the Awards Ceremony honoring, among others, James Schenck (concluding his tenure as an officer of the Forum), Adrian Bastianelli (Cornerstone Award), and Ava Abramovitz (for working tirelessy on the new Strategic Plan). 

Here is Andy Ness:  

Dana Point, April 25, 2013

Welcome to Dana Point.  We are in the City of Dana Point, but Dana Point is also the dominant geographic feature of this area.  It’s a large headland that sticks well into the Pacific, with a great view both up and down coast from the small park up there.  Dana Point is the most prominent coastal feature between Los Angeles and San Diego.

Dana Point is actually named for a lawyer, Richard Henry Dana.  How that came to be is an interesting part of U.S. history.  Almost exactly 180 yrs ago, Dana had to drop out of Harvard College due to weak eyesight, and he was told by his doctor to take a long sea voyage to recover his health.  So he signed on as a common seaman on a sailing ship about to leave on a two year voyage to one of the most exotic and remote spots on earth.  The destination was a sleepy, far away northern province of Mexico called Upper California, which only a handful of Americans had ever seen, and vast majority knew nothing about whatsoever.

Dana’s ship stopped here at the Point several times to pick up cargo. and Dana would climb up and stand atop that cliff.  There was nothing whatsoever man-made to see here, although the Mission San Juan Capistrano was over the hill in the valley beyond. 

When Dana got home, he wrote a book about his adventure, and in it he described this unnamed Point and his other stops in detail.  He described the ample resources and outstanding climate, and talked about how much potential this very remote coast would have, if only it was populated by people who had some energy and ambition, like the people back home in New England.  His book became a best seller, titled Two Years Before the Mast.  Today it has long been considered an American classic, and it is still a good read.  And since the copyright has long expired, you can download it to an e-reader for free!

Dana’s book is how most Americans in the 1830s first learned about California, and it inspired a trickle of American settlers to  make their way to California over the next 10 years or so.  The book also played a role in the Treaty of Guadalupe Hidalgo ending the Mexican War in 1846, where one of the U.S. demands of Mexico was giving up claim to Upper California, this intriguing piece  of real estate that might prove valuable someday.  Then just two years later, about 400 miles North of here, one of those few Americans who had made their way to California discovered gold in 1848, and after that things happened very fast in California.

Richard Henry Dana went on to a distinguished legal career back in Boston, where he was best known as an advocate for the rights of sailors, having experienced the extreme mistreatment of sailors first-hand.  So that is how Dana Point came to be named for a Boston lawyer, who made a real difference in the world through his book, which was basically a travelogue about his very extended spring break.

Andy Ness

Annual Meeting, Dana Point--Division 4 Activities

Bags are packed, we're ready to go ...

to Dana Point.

Division 4 Activities are:

1.   Meet Poolside:  Wednesday April 24 at 4:00 p.m.

2.   Division 4 Dinner:

            When:               7:45 P.M. - Thursday, April 25, 2013

            Where:              Sapphire Laguna

1200 South Coast Hwy

Laguna Beach, CA 92651

949.715.9888

                                    www.sapphirellc.com

Sapphire Laguna is in Laguna Beach, a little more than 5 miles (10-12 min drive) from the St. Regis.  It’s a straight shot on CA-1 (South Coast Hwy), so it’s an easy ride.  It has a great outdoor dining area with views of the Pacific and a wonderful large fire pit.  The prix fix dinner plus wine is estimated at $125/person.  Please join us from some great food and even better company.     

Contact Arlan Lewis if you have not reserved your spot.  alewis@babc.com

 

3.  Friday Luncheon Presentation: Long Beach Courthouse.  Check out Eric Gruzen's write-up.  

The Long Beach Court Building: Myths and Facts

We’re gearing up for the lunch program on Friday, April 26 at 12:15 in the Mediterranean Room at the St. Regis Dana Point for our presentation from Clark Construction, the Design-Builder on the Long Beach Court Building, the first social infrastructure project in the United States procured under the principles of Performance-Based Infrastructure (PBI) contracting.

There has been some negative press on the project and there was a recent post by the California Administrative Office of the Courts (AOC) that dispels many of the misperceptions and myths of the Long Beach Court Building.  Our program will also include an update of the press this project is getting from the state budget debates and some of the misconceptions press and politicians are picking up on.

The main issues that are dispelled and discussed in the AOC post include:

• The project is actually not over budget;
• The project followed the best industry standards when determining the “Value-for-Money” analysis;
• The project is not “the $2.3 Billion Courthouse” as it is termed by its detractors. 

We are looking forward to discussing the successes of the Project with the team that made them happen.

Pre-Qualification of Teams, Followed by Submission of Competing Designs, Followed by Low-Bid Award for Phase II of Silver Line, Washington D.C. to Dulles

The Washington Post reports that Capital Rail Constructors / Clark Construction Group, LLC / Kiewit Infrastructure South Co. successfully submitted the low bid of $1.18 billion and looks to be on track for being awarded Phase II of the $5.5 million Metropolitan Washington Airport Authority (MWAA) Silver Line which will eventually extend to Dulles and beyond into Loudon County.

Bechtel has been constructing Phase I, which is slated for completion later this year.

Five teams were pre-qualifed for Phase II.   In order to encourage participation in the development of design  proposals and to encourage submission of bids from each of the qualified teams,  MWAA agreed to pay $1.5 million (one basis point of the engineer's estimate)  bid-preparation costs to each consortium.  Once the Authority was satisfied that it had five teams, each of whom would be qualified to perform the work, and that each had a design that was acceptable, Phase II of the project is being awarded on a low-bid basis.  

The five bidders were: 1) Fluor Enterprises, Tutor Perini, and Stacy and Witbeck, 2) Clark Construction and Kiewit Infrastructure, 3) Archer Western Contractors, PCL Civil Constructors, and Corman Construction, 4) Skanska USA, Granite Construction, G.A. & F.C. Wagman, Trumbull, and Facchina Construction, and 5) Bechtel Infrastructure, which built Phase I of the Silver Line from D.C. to Reston.

All bids were below the engineering estimate of $1.4 to $1.6 billion.

Martin Di Caro reports for New York Public Radio:

Once it was determined that the contractor teams' individual design proposals met the standards established in MWAA's design schematics, price became the only factor in deciding who will win the contract. Therefore, a bidding contractor with a superior design receives no advantage in the bidding process. [Patrick Nowakowski, the executive director of the Dulles Corridor Rail Project] says his office has been meeting with the competing contractor teams for months to ensure all the design proposals are sound.

"That's where the confidence level comes in, the amount of time we have spent working with them," Nowakowski said. "[We] make sure that the designs they produce meet the minimum standards that [we've] established in a specifications."

Critics say low bid invites trouble

Any number of issues can push a megaproject over budget, but the low-bid procurement process is particularly troublesome, critics say, because it entices a contractor to submit an artificially low bid with the intention of requesting change orders to drive up a project's final cost, paid for by the project's owner and into the contractor's pockets. In the case of the Silver Line, the owner is MWAA.

"The procurement on Phase II is not being done in an optimal way," said Brian Petruska, an attorney at the Laborers International Union of North America, one of the unions that supplied workers to build Phase I of the Silver Line. "For a contractor, the number one goal is to get the project."

Change orders usually occur in one of three ways: the project owner requests the change and then pays the contractor to include it; an unexpected problem arises in the construction process requiring a change for the project to proceed safely; or the contractor requests a change order from the owner. In the latter case, MWAA would have to approve any change orders that are requested by the general contractor.

"We've looked at projects such as the Wilson Bridge and the Springfield interchange where change orders were approved because the price of steel went up. You would think the contractor should factor in potential increases in the price of steel, so when they make the bid they take the risk," said Petruska.

MWAA insists its contract documents and oversight procedures will prevent unnecessary change orders and, therefore, stick to the Silver Line's budget.

"I worry about change orders from the day I sign the contract to the day I end it," Nowakowski said. "It's not a function of the low-bid procedure. It's a function of how well the contract documents were written and how well you manage the project from the day you start to the day you finish."

Reports from the Rebel Camp

Here at ABA Forum, Division 4, we've been reviewing literature on the available metrics of the cost of implementing different project delivery methods.  We have found that there is a lack of reliable comparative information.  Much of the information available is anecdotal and provisional.  Proponents of projects extoll the virtue of whatever project delivery method they happen to be involved with, or that they would like to be involved with.

As a result, it is not surprising that moving away from traditional design-bid-build delivery models is also accompanied by politics.  

We have covered the political troubles of the Long Beach Courthouse, and we will have a presentation on this Project at our luncheon at the annual meeting in Dana Point next week.  

In the meantime, ENR is reporting public push back to the imposition of tolls on existing roads in Virginia in order to support pending P3 projects. See April, 1, 2013 edition "Toll Fighters Put Virginia P3 Project Team on Defensive."   

And here is a view from a sociologist questioning the savings to be achieved with P3.  

Why, oh why, can't we have better metrics.    

Strict Liability in Construction and Insurance

Ben Cowling and Diana Hudson of Clyde & Co (an insurance coverage law firm based in London) have an interesting article on "decennial liability" for construction in Saudi Arabia.

What is decennial liability?

The roots of decennial liability lie in the French Civil Code and Egypt.  It has been widely adopted in Middle East civil code jurisdictions, including the UAE, Qatar, Kuwait and Jordan. 

Decennial liability is a strict liability applied to construction projects whereby the contractor and/or the design consultant will be held liable (in the absence of any evidence of breach of contract or negligence), to compensate an owner or employer in the event of defective works in built structures. The liability typically lasts for ten years after project completion.

Under Saudi law, the concept seems to be limited to the full or partial collapse of structures.  That idea, I've noted, dates back to the Hamurabi Code (~1,772 BCE).   Here is the relevant provision  from the Saudi government procurement code, Article 76: 

"A contractor shall provide a ten year warranty against partial or full collapse of what he constructs starting from the date of final handover to the Government Authority, if such collapse is due to a construction defect, unless the two contracting parties agree on a shorter period."

In the U.S., of course, we are moving towards strict liability models in areas like residential construction.  See e.g. CA Code of Civil Procedure Section 895, et. seq.  On the other end of the spectrum, in large power plant projects, contracts often limit an EPC contractor's liability to a one or two year warranty period, and (thereafter) the parties agree to look exclusively to insurance to cover the risk posed by latent construction defects.  It's still a no-fault system, but in this case the owner takes the risk and must take steps to assure that adequate insurance policies are in place.

The problem also arises in the context of integrated project delivery.  The idea of IPD is to complete a project for a target price, with the increased costs of construction shared on a no-fault basis--with money coming either from risk pools containing a portion of the profit of project participants, or from the party who agrees to accept the ultimate risk.  A problem to be thought through on such contracts is how to treat construction defects that arise after the risk pool funds have been distributed.  Are the architect and contractors released from further liability, or are they on the hook for latent defects.

One limitation for allocating risk of latent construction defects is that insurance products are still geared to a fault-based approach to contracting.  With that in mind, here's what Cowling and Hudson have to say about insurance in light of strict decennial liability in the Middle East.

Decennial insurance 

The obligation to maintain specific insurance against decennial liability is found in certain civil law countries, most notably France which introduced the requirement for the absolute obligation on the part of the contractor, the building designer and the building owner to insure themselves against decennial liability. Decennial liability insurance is not obligatory in much of the Middle East including Saudi Arabia. 

As a rule, decennial liability falls outside the scope of the standard cover provided by Contractors' All Risks (CAR) and Professional Indemnity (PI) insurance.  This is because CAR policies typically cover physical loss or damage to the works being executed, and will typically exclude liability for repair or replacement of property which is defective in design, specification, materials or workmanship. General PI is designed to protect a designers or consultants (and sometimes contractors) against third party claims in negligence. It does not generally extend to the presumption of (i.e. strict) liability imposed by decennial liability.  Furthermore, the indemnity limits of PI insurance rarely adequately cover a scenario such as a building collapse. As such, decennial liability is generally uninsured unless particular cover has been obtained. 

More recently, professional liability insurers have begun offering 10 year Extended Reporting Period (ERP) extensions to professional liability policies that, subject to the wording of the policy, may provide additional coverage for decennial liability claims by third parties. However, typical PI cover based on a "negligent act, error or omission" style wording would probably not cover decennial liabilities, whereas a broader civil liability type wording might do so.
In Saudi Arabia (and the Middle East generally) insurance coverage available for inherent defects and decennial liability is generally limited and, where available, would be expensive as a result of the need for insurers' heavy involvement in monitoring the design and construction process. That said, parties would be wise to balance the costs of obtaining such insurance against the long term risk which could be considerable. 

Conclusion

As we move away from fault based allocation of risk for construction defects attorneys need to become better versed in insurance matters.

UP!

Good news is gracing my home-town paper today.  

"Most of the current boom is for multiunit residences - apartments and condos - plus commercial and infrastructure projects. Construction of single-family homes in the Bay Area, which almost stopped during the downturn, has begun to ramp up in the outer suburbs, but much more slowly.

Cranes in the city
Still, in San Francisco, the two dozen tall cranes on the skyline vividly illustrate how new high-rise construction is pervasive throughout the eastern part of the city.
"It's been a major turnaround," said Tim Donovan, head of San Francisco's Local 6 of the International Brotherhood of Electrical Workers. "We had 40 percent of our members out of work during the downturn, and had a reduction in work hours for our apprentices. Things started to come back about a year ago, and we hit total employment for our members three months ago."

Read more: http://www.sfgate.com/bayarea/article/Construction-and-hiring-rebounding-4415492.php#ixzz2PpJ6y25M

Of Football Stadiums and Public Infrastructure

In March 2013 the Atlanta City Council voted to approve a new $1 billion stadium for the Falcons.  Officially the City will contribute 20 percent of the price tag.  However, the City has agreed to hand over 39.3 percent of its hotel and motel tax revenue to the Falcons until 2050, which means the contribution of the city could be considerably greater.

As the watchdog website Field of Schemes observes: "The Falcons will be playing in a new [$1 billion] stadium circa 2017, and the Georgia Dome, built at a public cost of $214 million in 1992 and renovated for another $300 million in 2007, won’t live to see its 25th birthday."

In the meantime, here is the ASCE infrastructure report for Georgia:

Water and Environment

DAMS

• 484 high hazard dams.

DRINKING WATER

•  $8.9 billion in drinking water infrastructure needs of the next 20 years.

HAZARDOUS WASTE

• 15 sites on the National Priorities List.

LEVEES

• Georgia has approximately 23 miles of levees on FEMA Midterm Levee Inventory.

WASTEWATER

• $89 million in wastewater infrastructure needs over the next 20 years.

Transportation

BRIDGES

• 878 of the 14,739 bridges in Georgia (6.0%) are considered structurally deficient. 
• 1,871 of the 14,739 bridges in Georgia (12.7%) are considered functionally obsolete.

ROADS

• $374 million a year in extra vehicle repairs from driving on roads in need of repair
• 19% of Georgia’s roads are in poor or mediocre condition.

Public Facilities

PARKS AND RECREATION

• Georgia has reported an unmet need of $123 million for its parks system.

SCHOOLS

• It is estimated that Georgia schools have $5.2 billion in infrastructure funding needs.