Boston Public School Master Plan Calls Construction Industry to Action

In March, Boston mayor Marty Walsh announced that the city is introducing a “new era of school investment,” a $1 billion, 10-year master plan called BuildBPS. Developed with planning firm Symmes Maini & McKee Associates, BuildBPS represents a major business opportunity for the local construction industry to play a part in shaping the future of Boston’s public schools.

Modernizing the Classrooms

A 2016 survey found that 60 percent of students, parents, and staff rated the condition of Boston’s public schools as “fair” or “poor.” More than 50 percent of Boston’s 127 public schools were built before World War II, and less than half of the buildings have been fully renovated. Through BuildBPS, the city plans to build modern classrooms with energy efficient environments, allowing for more fresh air and natural sunlight, and technology to promote 21st century learning and teaching methodologies.

Project Funding

Primary capital spending for BuildBPS will be funded by bonds issued by the City, with secondary funding through matching funds from the Massachusetts School Building Authority. Funding for the highest-priority projects is expected to be included in the proposal for Boston’s 2018 capital budget.

The Preti Flaherty Construction Law group is keeping abreast of this topic and will provide updates as it develops. Contact us with any questions or comments.

Oral Waiver Insufficient to Defeat Contractor’s Liability for Building Code Violation

The Massachusetts Appeals Court, in Downey, et al. v. Chutehall Construction Co., Ltd., 88 Mass. App. Ct. 795 (January 6, 2016), recently held that an oral waiver of compliance with the building code by a homeowner does not preclude the contractor’s liability for the violation, particularly where a violation carries potential public safety concerns.

In this matter, the contractor was hired to replace a roof and roof deck. The parties disputed whether the homeowners (1) represented to the contractor that there was only one layer of roofing at the time of the work; (2) refused to permit the contractor to do test cuts in the roof to determine the number of existing layers; and (3) specifically instructed the contractor to install a new rubber membrane over the existing roof. After installation of the roof was completed, the homeowners discovered four layers of roofing materials and evidence of leaking when installing HVAC equipment. A new contractor was hired to strip the roofing materials, put on a new roof, and reinstall the deck. A jury found that the contractor violated the building code, but awarded no damages, finding that the violation was a result of the homeowners’ directions.

After the case was appealed, the Appeals Court reasoned that permitting a waiver by a homeowner of his or her right to compel a contractor to comply with the contractor’s obligations under the building code would encourage contractors, and perhaps consumers, to waive provisions of the building code on an ad hoc basis, in the hope of saving money in the short-term, but endangering future homeowners, first responders and the public in general. Thus, even if the homeowners orally waived the building code requirement, the Appeals Court held that the contractor was still liable for the violation, entered judgment in favor of the homeowners, and remanded the matter to determine damages.

This decision makes it clear that a home improvement contractor must perform its work in strict accordance with the relevant building code, even if a homeowner requests certain code requirements be ignored in an attempt to save money. Contractors should use this result as an example when confronted with a request from a homeowner to deviate from the building code. This case also highlights the importance of proper documentation of the scope of work in a written contract. While this decision concerned an oral waiver, a different result may have occurred if the contractor documented in a written contract that the existing roof only had one layer of material which the new roof would be applied over. However, a written contract in which the homeowner acknowledges a request for the contractor to deviate from the building code may still leave the contractor liable due to public safety concerns.

Contractor’s Lawsuit Against Architect for Tortious Interference Allowed to Proceed

A U.S. District Court Judge for the District of Massachusetts has allowed a lawsuit to proceed brought by a contractor against an architect, alleging the architect falsely certified grounds for termination to the project owner. In a November 18, 2015 written decision in the matter of Barr, Inc. v. Studio One, Inc., C.A. No. 3:15-40056, the Court denied the architect’s motion to dismiss the contractor’s claims against it sounding in tortious interference with contractual relations and tortious interference with advantageous relations. The Court determined that in both instances, the contractor must demonstrate that the architect acted with an “improper motive or means.” The lawsuit alleged that the architect certified to the project owner that the contractor breached its contract with the project owner by “repeatedly refusing or failing to supply enough properly skilled workers or other materials.” Per the terms of the contract with the contractor and owner, this was a specific ground for termination. In the lawsuit, the contractor alleged the architect knew this was not true, and project correspondence and meeting minutes established the project delays were not the fault of the contractor. The contractor also asserted that the architect caused the owner to terminate the contractor for the architect’s own financial gain and to secure benefits with respect to compensation for post-termination services that would otherwise not have been available.

In seeking to dismiss the lawsuit, the architect argued that the contractor did not allege it acted with “actual malice,” which is more stringent than the “improper motive” which was alleged. In rejecting this argument, the Court held that intentional interference torts – such as tortious interference with contractual relations and tortious interference with advantageous relations – do not require a showing of actual malice. The contractor’s allegations in the Complaint, including that that the architect knowingly certified false reasons to induce the owner to terminate its contract with the contractor, met the elements of the intentional interference torts alleged and were sufficient to survive a motion to dismiss.

Under the standard AIA contract used here, the owner could not terminate the contractor for cause without the architect’s certification of the grounds for termination. The Court’s ruling confirms that the contractor’s Complaint sufficiently alleged that the architect was not carrying out its contractual duties objectively and in good faith. Despite being hired by the owner, the architect still has a contractual duty to interpret and decide matters concerning performance under the contract in good faith, and without partiality to either the owner or the contractor, which the contractor alleged it failed to do.

Alert: Massachusetts High Court Clarifies Construction Manager’s Role

The Massachusetts Supreme Judicial Court issued a very significant ruling yesterday regarding the use of the CM-At Risk delivery method, particularly on public jobs.

In Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, the Court held that a construction manager who performed preconstruction services to assist in the development of plans and specifications did not waive the owner’s implied warranty as to the sufficiency of the plans and specifications. In addition, the Court held that the contract’s language requiring the construction manager to indemnify the owner from any subcontractor claims did not bar the construction manager from suing the owner – even to pass along a subcontractor’s claim – for a claim based upon errors in the plans and specifications.

The Massachusetts Division of Capital Asset Management and Maintenance (“DCAM”) entered into a contract with Ellenzweig Associates to prepare designs to build a psychiatric facility at the site of the Worcester State Hospital (“Project”).

When the designs were partially completed, DCAM entered into a contract with Gilbane Building Company (“Gilbane”) as the CMAR. Gilbane then entered into a subcontract with Coghlin Electrical Contractors, Inc. (“Coghlin”), to perform electrical work. The subcontract incorporated by reference the terms of the contract between DCAM and Gilbane. A dispute arose between Coghlin and Gilbane regarding additional costs that Coghlin alleged resulted from various scheduling, coordination, management, and design errors. After Coghlin filed suit against Gilbane, Gilbane filed a third-party complaint against DCAM, asserting that, "in the event that Coghlin proves its claims against Gilbane," DCAM committed a breach of its contract with Gilbane by refusing to pay Gilbane the amounts claimed by Coghlin. DCAM filed a motion to dismiss the third party complaint claiming that Gilbane could not obtain indemnification for design defects when Gilbane had participated in the development of plans and specifications for the Project.

The Massachusetts Superior Court had originally held that a Construction Manager who provides design assist services could not make a claim against the owner when later problems arise on the job due to defects in the plans and specs. That lower court held that although Massachusetts recognizes the “Spearin Doctrine,” in which the project owner gives an implied warranty regarding the feasibility of the designer’s plans and specs, the CM could not raise that warranty, given their role in developing the plans and specs. The Court also held that the contract’s indemnification language (which required the construction manager to indemnify the owner from subcontractor claims) constituted a further waiver in this case, since the dispute originated with a subcontractor’s complaint regarding the plans and specs.

The reversed the lower court’s decision, holding:

“(1) under our common law, a public owner of a construction management at risk project gives an implied warranty regarding the designer's plans and specifications, but the scope of liability arising from that implied warranty is more limited than in a design-bid-build project; (2) the construction management at risk contract in this case did not disclaim the implied warranty; and (3) the indemnification provision in the contract did not prohibit the CMAR from filing a third-party complaint against the owner that sought reimbursement under the implied warranty for damages claimed by the subcontractor arising from the insufficiency of or defects in the design.”

The SJC reached its decision in part based on the fact that “t]he possibility that the CMAR may consult regarding the building design does not suggest that the CMAR should be the guarantor against all design defects, even those that a reasonable CMAR would not have been able to detect.” The SJC found that the scope of the implied warranty will depend upon whether the CMAR “acted in good faith reliance on the design and acted reasonably in light of the CMAR's own design responsibilities.” In making such determinations, courts will need to consider the “CMAR's level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the CMAR.” The SJC signaled that “[t]he greater the CMAR's design responsibilities in the contract, the greater the CMAR's burden will be to show, when it seeks to establish the owner's liability under the implied warranty, that its reliance on the defective design was both reasonable and in good faith.”

This is a significant decision because the lower court’s ruling, if upheld, would have a chilling effect on construction using the CM-At Risk method as builders would be far more hesitant to provide design assist services, if they thought that doing so would make them responsible for the entire design.

For further information, please contact Ken Rubinstein at 617.226.3868 / krubinstein@preti.com; or Nathan Fennessy at 603.410.1528 / nfennessy@preti.com.

Principal May Not Be Held Liable Under “Joint Action” Theory for Breach of Contract By Company, But May Have Individual Liability for Unfair or Deceptive Trade Practices

The Connecticut Supreme Court recently issued an opinion in Joseph General Contracting, Inc. v. Couto, (SC 19209) that preserved the limited liability of a principal for breach of contract claims against the company, but opened the door to individual liability for principals for unfair or deceptive trade practice act violations. The Connecticut Supreme Court reversed the trial court and first level appellate court decisions finding that the principal of a company could be held liable for breach of contract under a “joint action” theory with his companies. In a somewhat unprecedented action, the Connecticut Supreme Court rejected the factual findings of the trial court and concluded that there was no “blurring” of the distinction between corporate and personal liability for the original construction contract. It held that the trial court (and appellate court) improperly looked to other agreements to draw such a conclusion. Finding that the subsequent agreements between the principals and plaintiffs clearly distinguished between the principal’s personal obligations and the construction contract with the principal’s company, the court found no basis for imposing personal liability for breach of the construction contract.

On the other hand, the Connecticut Supreme Court found that the principal could be held personally liable under Connecticut’s version of the unfair trade practices act. The court adopted the test employed by federal courts in construing the Federal Trade Commission Act that an individual may be held liable for an entity’s violation of the unfair trade practices act if the individual “either participated directly in the entity’s deceptive or unfair acts or practices, or that he or she had the authority to control them.” It then concluded that “[a]n individual’s status as controlling shareholder or officer in a closely held corporation creates a presumption of the ability to control.” Since the principal in Joseph General was the sole shareholder exercising control over the company, the court concluded that he could be held personally liable.

New American Arbitration Association Construction Industry Arbitration Rules in Effect July 1

The American Arbitration Association has issued revised Construction Industry Rules and Mediation Procedures, which are intended to provide “a more streamlined, cost-effective and tightly managed process.”  Some of the most significant amendments include:

• A mediation step for all cases with claims of $100,000 or more (with both parties having the ability to opt out).
• Consolidation and joinder time frames and filing requirements to streamline these increasingly involved issues in construction arbitrations.
• New preliminary hearing rules to provide more structure and organization to get the arbitration process on the right track from the beginning.  
• Information exchange measures to give arbitrators a greater degree of control to limit the exchange of information, including electronic documents.
• Availability of emergency measures of protection in contracts that have been entered into on or after July 1, 2015.
• Enforcement power of the arbitrator to issue orders to parties that refuse to comply with the Rules or the arbitrator’s orders.
• Permissibility of dispositive motions to dispose of all or part of a claim or to narrow the issue in a claim.
  

 

To download a copy of the revised Rules, click here.  Preti attorney Ken Rubinstein is a member of the American Arbitration Association’s Panel of Construction Industry Arbitrators, and is available to provide additional information regarding the implications of the revised rules.  If you have any questions, please contact Ken at 603-410-1568 or 617-226-3868.

State May Not Disclose Trade Secrets Submitted as Part of RFP Response

If you have ever agonized about whether to include certain confidential business information in a bid for a state contract in New Hampshire because of concerns that your competitors might get their hands on it, you should find some comfort in the New Hampshire Supreme Court’s recent decision in CaremarkPCS Health, LLC v. New Hampshire Department of Administrative Services, No. 2014-120.  In 2010, the Department issued a Request for Proposals (RFP) for pharmacy benefit management services for the State of New Hampshire’s health plan.  Caremark submitted a bid and ultimately obtained a contract with the State to perform the work.   

In 2011, the Department received multiple requests to inspect and copy Caremark’s bid and the final contract. Two of the requests were made by Caremark’s competitors. Caremark, after being informed by the Department of the requests, responded that certain confidential information contained in the bid and final contract was exempt from disclosure under the Right-to-Know Law. The Department and Caremark disputed whether certain information was subject to disclosure.  When the parties failed to resolve the dispute, Caremark filed a petition for declaratory and injunctive relief seeking to enjoin the Department from disclosing certain information.

After Caremark prevailed at the trial court level, the Department appealed to the New Hampshire Supreme Court claiming that the Uniform Trade Secrets Act did not trump the public’s right to information under the Right to Know Law.  The Supreme Court disagreed.  The Court concluded that the Department’s disclosure of Caremark’s trade secrets to its competitors would constitute “misappropriation” under the Uniform Trade Secrets Act and therefore constituted an exception to New Hampshire’s Right to Know Law.  It also rejected the Department’s argument that public policy favored disclosure concluding that when the legislature enacted the Uniform Trade Secret Act it “made the policy determination to prohibit the misappropriation of trade secrets.”