Under Construction - March 2018

Letter from the Editor

Welcome to the spring 2018 edition of our Under Construction newsletter. We hope 2018 is off to a good start for you and your company.

We start this issue with an article providing some practical solutions to common legal disputes in construction. Following these tips will hopefully help you with dispute avoidance, mitigation and resolution.

Next we take a look at the commercial operation of drones in construction. Drones are now used for everything, including real estate photography, evaluating and photographing construction or design problems, progress reports, roof inspections and surveying undeveloped land. Increased use of drone technology comes with an increased need for understanding the pertinent regulations and laws surrounding drone use.

In the world of construction, time is money. This is true even when the owner and the contractor are engaged in a dispute. Unfortunately, dispute resolution and litigation–whether in state or federal court, arbitration or any other private resolution system–still move at the pace established when the Federal Rules of Civil Procedure were created generations ago. Our next article discusses early mediation and how this strategy might help resolve disputes more quickly and economically.

We round out this issue with a look at some new laws and court cases. As we move into the second quarter of 2018, we would like to impress upon those with California projects that it may be important to review your California private construction contracts now, if you have not already done so. Our third article reviews a new California law that took effect January 1, 2018 that affects private works construction contracts.

Additionally, the Nevada Supreme Court recently issued a new ruling impacting an HOA’s ability to bring claims on behalf of its members. The Court addressed whether an HOA has standing to represent: 1) owners who have sold their units during litigation; and 2) owners who have purchased their units after litigation has started.

Finally, the construction group at Snell & Wilmer would like to congratulate the success of the American Cancer Society’s (ACS) inaugural Construction vs. Cancer Las Vegas event that was held February 10, 2018. Through the event, ACS was able to create an amazing fun-filled day for over 500 pediatric cancer survivors, their family members and 1,450 guests, as well as raise over $280,000 towards the fight against cancer. Snell & Wilmer is proud to have helped play a small role in making this event possible.

We hope you will find these articles informative and enlightening. Please let us know if you want us to address a specific construction issue in a future newsletter. Enjoy spring!

Regards,
James J. Sienicki

Practical Solutions to Common Legal Disputes in Construction

by Jason Ebe and James J. Sienicki

Tip Sheet for Dispute Avoidance, Mitigation and Resolution:

1. Do Your Due Diligence. Before accepting new work, consider conducting due diligence on the contractor, the design team, the subcontractors, the owner, and the project. Is there a history of success or failure? Is there transparency as to financing? Is the design complete? Are risks being appropriately allocated? As difficult as it may seem to pass on work, taking on a job that will cause you a loss may be worse than not taking the job. The only thing worse than no job is an unprofitable job.
2. Bid and Contract Smartly. Consider utilizing fair and balanced contract documents. If bidding, consider conditioning your bid on using a fair and balanced contract. Understand the terms, including without limitation, the insurance, termination, scope of work, payment, claims, change orders, liquidated damages, schedule, and dispute resolution terms and provisions. Consider negotiating away, if possible, any onerous or unfair terms.
   
   In negotiations, consider adopting terms from industry forms developed and endorsed by industry organizations serving the constituent parties with whom you are negotiating. For example, when negotiating with architects, consider language from the AIA forms. As another example, general contractors and subcontractors may want to consider guidance from the ConsensusDocs forms, which are endorsed by 40 leading construction industry organizations, including AGC and ASA, and represent fair and balanced terms. Remember that there may be terms implied by law that help you such as the duty of good faith and fair dealing, or statutes that help you like a Prompt Payment Act, or case law that may be helpful. Consult a knowledgeable construction attorney in the state where the project will be built.
3. Know and Follow Your Contract. You may want to exercise caution with signing and filing away. Consider referring to it on a regular basis. You may want to review the terms regarding schedule, delays and impacts, changes, and unforeseen conditions, so you can plan your work, perform to your plan, and react when your work doesn’t go according to plan. Equally important are contract provisions flowed down to you through your contract.
4. Communicate and Document. Consider maintaining regular, in-person communications with project participants. Consider attending the project meetings. You may want to consider doccumenting your communications, and documenting your performance (including narratives, photos/video, and contemporaneous job costs), even when work is going according to plan, which may establish a benchmark, and may signal when an issue impacting performance has arisen.
5. Investigate and React to Issues Quickly. Don’t ignore problems, or they may get worse. You may want to consider investigating the situation, evaluating your options, getting help if necessary (see #10), and reacting without delay. But don’t overreact, or you may make the problem worse.
6. Communicate and Document Again. You may want to investigate and determine your position, communicate and document. In person meetings and telephone calls often move the ball faster than written communications, but written confirmation of those communications may be essential. Consider providing the necessary notices, claims, and supporting documentation, and supplement when appropriate. Just a few examples where this step may be critical
   • The project is behind schedule
   • Actual site or work conditions don’t match the representations in the plans and specifications
   • Someone in the chain orders changes in the work or the schedule without written acknowledgement
   • Performance is hindered or disrupted by another party on the project
   • Payment is delayed by another party on the project
   • Receipt of a default notice, or a suspension of work or termination notice
   • The contractor or owner tenders a claim for defense or indemnity
   • Not receiving what is required by the plans and specifications
   • Receipt of a claim letter or need to prepare a claim letter
7. Don’t Be Salty. Too frequently discussions turn adversarial, with extreme positions and personal attacks. You may want to exercise caution with losing sight of the team work approach that likely got you the job, and may get you future jobs. Consider focusing on win-win rather than win-lose, or you may end up with lose-lose. You may want to exercise caution when saying or printing statements that may be awkward to explain later to management, clients or the arbitrator/judge/jury.
8. Attempt to Resolve Issues Early, but If Not, Reserve Your Rights. Consider working through issues early to mitigate future disputes. Many large projects engage Dispute Review Boards. Kicking every dispute to the end of the project may create an atmosphere of building the claim rather than the project. But, if reasonable efforts to resolve are unsuccessful, consider reserving your rights, clearly and expressly, and in writing. You may want to be cautious of statutory lien waiver forms such as: “this document becomes effective to release any mechanic’s lien, any state or federal statutory bond right, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to claim or payment rights.”
9. Evaluate Documents. If a claim arrives, consider evaluating the contract terms, notice requirements, change orders previously signed and pending, payment applications, lien waivers, and job cost reports.
10. Get Help. At the first sign of a dispute, consider utilizing project management resources, white papers, and tip sheets. See also Guidelines for a Successful Construction Project. Copyright © 2008, The Associated General Contractors of America / American Subcontractors Association, Inc. / Associated Specialty Contractors. And seek guidance from knowledgeable construction legal counsel, who can assist in contract drafting/revision/negotiations, early diagnosis and treatment of problem projects, engagement of effective consultants/experts, and resolution of disputes. Without good early help, the dispute may get much worse and take much longer to resolve.

Commercial Operation of Drones – What Construction Stakeholders Should Know

by Mark E. Konrad and James D. Carlson

The construction industry is one...