The most common theme in construction litigation is a dispute between owners, contractors, and designers as to who was responsible for a construction defect that caused delays or additional costs. In these cases, the matter is often determined by which construction delivery method was being used by the parties involved.
Most construction is done on a design-bid-build model, meaning that the owner hires a designer (architect/engineer) to put together plans and specs, and then the owner hires a contractor to build to those plans and specs. When the owner hires the contractor, they are given an implied warranty (the Spearin doctrine) that if the contractor builds in accordance with the plans and specs that the design is sufficient so that the contractor will achieve the intended purpose. In other words, if an owner gives the contractor plans and specs that will result in a building envelop, the owner can't then blame the contractor when the contractor builds in accordance with the faulty design.
By contrast, some construction is done on a design-build basis in which the owner hires one firm that is responsible for both the design and construction of the building. In that instance, if something goes wrong, the owner doesn't have to figure out who is at fault - they have one firm that carries all of the responsibility. Notably, even in cases where the construction was generally done on a design-bid-build basis is not necessarily dispositive, because sometimes contracts will leave specific aspects of the construction (such as HVAC) to be done on a design build basis. In those instances, the designer will provide most of the design for the building, but will intentionally exclude certain systems, with the understanding that the contractor (or more likely his sub) will likely design the particulars of their solution anyway.
When litigating this issue, take a look at the plans and specs to find out whether the roof was being done on a design-build basis as that will be critical to your analysis. Part of that analysis is looking to see whether the contract provides a "design spec" or a "performance spec" for that aspect of the work. A design spec allows the contractor to determine the means and methods of construction (how to perform the work), but tells the contractor the specific materials or sizes that are required. Where a design spec is used, the owner (and by extension, the architect) retains responsibility for the design being used. A performance spec, by contrast, simply dictates the desired outcome, but leaves it to the contractor to determine how to achieve that outcome. In these instances (even where the contractor still has to provide shop drawings for their solution to be approved), the contractor ultimately bears all responsibility for all aspects of meeting the defined objective.
News and commentary from the Construction Law attorneys at Preti Flaherty.
Mass Appellate Court Provides Another Reason to Ensure Indemnification Provisions Include Survival Clauses
Friday, October 4, 2013
Last week, the Massachusetts Court of Appeals ruled that a contractual indemnification clause does not necessarily survive termination, absent a survival clause keeping the obligation in force. While the Court applied Georgia law in reaching its decision, the principles that the Court applied would likely yield the same result using Massachusetts law.
In Fraco Products, Ltd. v. Bostonian Masonry Corporation, C.A. No. 12-P-933 (Mass. App. Ct., Sept. 26, 2013), an equipment manufacturer sold a piece of equipment to a masonry subcontractor on an installment payments basis. The contract included a “Transfer of Risk and Insurance” clause requiring the masonry subcontractor to indemnify the manufacturer from any losses caused by the equipment. The Transfer of Risk and Insurance clause did not state that it would survive the termination of the contract (while another section dealing with risk noted that that clause would survive termination).
After the final payment was made, there was an accident involving the equipment killing a passerby and two construction workers. The estate of one of the workers sued the manufacturer, and the manufacturer sued the subcontractor for indemnification.
The Court of Appeals dismissed the claim for contractual indemnity, stating that “Courts are to construe the language of an indemnification contract strictly against the party seeking indemnification.” The court went on to note that the “Transfer of Risks and Insurance” provision was “not followed by a survival clause.” Accordingly, since the “contract terminated by its own terms when [the subcontractor] made the final installment payment (sometime before the accident), the ‘Transfer of Risks and Insurance’ provision is not relevant here.”
This is another good reminder to contractors to make sure that their standard subcontracts include express language in their indemnification provisions that make clear that the subcontractor’s indemnification obligation survive termination.
In Fraco Products, Ltd. v. Bostonian Masonry Corporation, C.A. No. 12-P-933 (Mass. App. Ct., Sept. 26, 2013), an equipment manufacturer sold a piece of equipment to a masonry subcontractor on an installment payments basis. The contract included a “Transfer of Risk and Insurance” clause requiring the masonry subcontractor to indemnify the manufacturer from any losses caused by the equipment. The Transfer of Risk and Insurance clause did not state that it would survive the termination of the contract (while another section dealing with risk noted that that clause would survive termination).
After the final payment was made, there was an accident involving the equipment killing a passerby and two construction workers. The estate of one of the workers sued the manufacturer, and the manufacturer sued the subcontractor for indemnification.
The Court of Appeals dismissed the claim for contractual indemnity, stating that “Courts are to construe the language of an indemnification contract strictly against the party seeking indemnification.” The court went on to note that the “Transfer of Risks and Insurance” provision was “not followed by a survival clause.” Accordingly, since the “contract terminated by its own terms when [the subcontractor] made the final installment payment (sometime before the accident), the ‘Transfer of Risks and Insurance’ provision is not relevant here.”
This is another good reminder to contractors to make sure that their standard subcontracts include express language in their indemnification provisions that make clear that the subcontractor’s indemnification obligation survive termination.
Pay Promptly or Pay Penalties
Monday, August 26, 2013
The Vermont Supreme Court recently issued a ruling that should serve as a reminder to all contractors and owners of the importance of complying with prompt pay requirements.
In Dorr v. LaCoste, an owner refused to pay any part of a contractor’s inflated invoice. The Contractor sued. The court held that the owner was in the wrong for not paying the undisputed portion, and as a result, the court ordered the owner to pay its obligation, plus interest, and a penalty of 1% per month. The interest and penalties added up to nearly half of the original balance.
The takeaway from this case is that owners dealing with contractors (and contractors dealing with subs) should be extremely careful when withholding payment, and should only hold back money that is reasonably in dispute, and even then, it is essential to provide written notice of the basis for the withholding.
In Dorr v. LaCoste, an owner refused to pay any part of a contractor’s inflated invoice. The Contractor sued. The court held that the owner was in the wrong for not paying the undisputed portion, and as a result, the court ordered the owner to pay its obligation, plus interest, and a penalty of 1% per month. The interest and penalties added up to nearly half of the original balance.
The takeaway from this case is that owners dealing with contractors (and contractors dealing with subs) should be extremely careful when withholding payment, and should only hold back money that is reasonably in dispute, and even then, it is essential to provide written notice of the basis for the withholding.
Contractor and Designer Tips to Improve Chances of Getting Paid
Friday, May 3, 2013
Engineering News Record (ENR) recently featured an article in its Viewpoint section authored by Preti Flaherty attorney Kenneth E. Rubinstein and Shawmut Design & Construction Chief Legal Officer, Doug Lareau focusing on strategies that contractors and designers can use to improve their chances of getting paid. A copy of this article can be found here.
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