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.”

Project Management Firm Not Liable for Subcontractor’s Injuries

The Suffolk (MA) Superior Court, in Rodrigues, et al. v. Tribeca Builders Corp., et al. (Civil Action No. 13-00730-C), recently granted summary judgment to a project management firm retained by a property’s landlord/owner, who was sued after the Plaintiff was injured at a construction site.  The Plaintiff was injured when a handicap chair-lift he was helping to move at the construction site fell on him.  The Plaintiff was employed by a subcontractor hired by the general contractor.  The Plaintiff brought claims against the general contractor, another subcontractor, and the project management firm hired by the landlord to provide project management services on its behalf.

The Court held that the project management firm owed no duty to the Plaintiff, and thus the Plaintiff could not assert a negligence claim against it.  In reviewing the contract between the landlord and project management firm, the Court found that the project management firm was to carry out a variety of logistical, managerial and administrative functions related to the construction, most of which involved monitoring the project’s adherence to its agreed budget and schedule.  The Court described the firm’s role as that of a conventional “Clerk of the Works,” functioning as they eyes and ears of the owner in respect to the administration of the project.  Nothing in the contract between the owner/landlord and the project management firm remotely suggested that the firm’s administrative functions extended in any way to matters of construction safety.  The Court also noted that the firm had no contractual relationship with the Plaintiff, the general contractor, or any subcontractors.

The Court also pointed out that even if the project management firm could somehow be deemed to owe a duty of care to the Plaintiff, the undisputed evidence was clear that the firm had nothing at all to do with the accident that injured Plaintiff.  The firm did not attend or participate in safety meetings, did not direct or instruct anyone regarding how their work should be performed, and had no knowledge of, involvement in, or communications regarding the handicap chair-lift that injured the Plaintiff, or the equipment used to move it. 

In sum, the Court noted that while the project management firm played a significant administrative role in coordinating the scheduling and other logistical aspects of the construction project, there is no evidence that it was in “control” of the job-site, directed the work of any subcontractors, or had any connection whatsoever to the operations or movement of the chair-lift that caused the Plaintiff’s injury.

Preti Attorneys Secure Significant Win for NH Construction Industry – NH Superior Court Rejects Bid to Expand Scope of Nullum Tempus

In City of Rochester v. Marcel A. Payeur, Inc. et al., the City of Rochester sued multiple parties after a water tower that it had built in 1985 sprung a leak.  New Hampshire has adopted the doctrine of Nullum Tempus, which means that statutes of limitations do not apply against the State.  The question for this case was whether cities and towns are immune from statutes of limitation.  Preti Flaherty attorneys Ken Rubinstein and Nathan Fennessy represented an ENR 50 Contractor who was named as a defendant in the litigation.

Although the NH Supreme Court has previously held that Nullum Tempus applies to claims brought by the State, the Superior Court soundly criticized the doctrine, and refused to allow municipalities to exercise the same rights.  This decision should help to limit the scope of liability for design professionals, contractors and subcontractors working on municipal projects, by allowing the statute of limitations to establish an outside date within which claims can be presented.

Maine Legislature Considers a Bill that Would Limit Indemnification Provisions in Construction Contracts

The Maine legislature is considering a bill that, if passed, would have a significant impact on Maine contractors and subcontractors.  LD-587 would make void and unenforceable any provision in a construction contract requiring the parties or their sureties or insurers to indemnify a promisee against liability arising from the negligence or willful misconduct of the promisee.  The bill has been referred to the Committee on Labor, Commerce, Research and Economic Development.

If passed, neither contractors nor subcontractors could be held liable for the actions of other parties to their contracts.  While there are currently some limits to what passes as an acceptable indemnity agreement in Maine, this law would significantly alter the risks of liability in many construction contracts, since owners frequently contract for broad indemnity agreements with their contractors.

The bill was introduced by Assistant Senate Majority Leader, Senator Andre Cushing (R-Hampden) at the request of the Associated Builders and Contractors of Maine.  While it is somewhat unusual for ABC Maine to support a bill limiting contractors’ rights to contract for indemnity from their subcontractors, ABC Maine states that it supports this bill because it holds parties responsible for their own actions, regardless of their leverage in contract negotiations. 

 A public hearing on the bill was held on March 17, 2015.  In oral testimony and written submissions, representatives of Maine contractors and subcontractors explained that they support this bill because they are frequently compelled to submit to onerous contract requirements given Maine’s competitive construction industry.  Opponents argued that the bill is vague, unnecessary, shifts risk from contractors to owners, and puts undue constraints on the free market.  They further argued that contractors should assume responsibility for workplace injuries since they should have primary control over the worksite and procure insurance for accepting that responsibility.

The bill currently remains pending in committee.  Similar bills have been brought before the Maine legislature several times in the past 20 years and have failed to pass. 

NH Supreme Court Limits Applicability of Consumer Protection Act to Construction Defect Cases

The New Hampshire Supreme Court confirmed in Murray v. McNamara, No. 2013-630 (N.H. March 20, 2015) that contractors are exempt from liability under New Hampshire’s Consumer Protection Act (RSA 358-A) for transactions occurring more than three years prior to the plaintiff learning of the alleged violation of the statute (though they may still have liability under other causes of action).  This issue arose in the context of a construct defect claim based on defendants’ purported breach of the implied warranty of workmanlike quality.  The defendants, owners of a construction business, constructed the house for the original owner in 2004.  Four years later, the plaintiffs purchased the home. After living in the house for several months, the plaintiffs discovered mold in in the house that was so widespread it forced them to vacate the property while they attempted to remedy the problem. 

The Defendants argued that the transaction was exempt from liability under the CPA because it was brought more than three years after construction was completed.  RSA 358-A:3, IV-a provides that “[t]ransactions entered into more than 3 years prior to the time the plaintiff knew, or reasonably should have known, of the conduct alleged to be in violation of [the CPA]” are exempt from the CPA.”  The federal courts in New Hampshire had interpreted this provision as being different from a statute of limitation because it “focuses on the plaintiff’s knowledge of the defendant’s wrongful conduct” to determine whether a transaction is exempt from the CPA rather than “the plaintiff’s knowledge of his injury and its [causal] relationship to the defendants’ conduct.”  The NH Supreme Court had not yet considered the issue since the provision was amended in 1996, but concluded in Murray that it agreed with the federal court’s interpretation finding that

To determine whether a claim is exempt from the CPA, we look back from the time that the plaintiffs “knew or reasonably should have known” of the alleged violation. If the transaction at issue occurred more than three years before that time, then it is exempt. The person claiming the exemption bears the burden of proving that the transaction is exempt. See RSA 358-A:3, V (2009).

The Court found there was no dispute that the transaction at issue - defendants’ alleged construction of the house with latent structural defects -  was completed in 2004 and that plaintiffs purchased the home four years later.  Because the allegedly wrongful transaction occurred more than three years before the plaintiffs “knew or reasonably should have known” of it, the construction of the house was an exempt transaction pursuant to RSA 358-A:3, IV-a.  The Court therefore reversed the trial court’s ruling on the CPA  claim, but left in place the jury award on the warranty claim against the contractor.

 

CPA claims are regularly included in complaints by plaintiffs against contractors because they provide an opportunity to recover attorneys’ fees and double or treble damages.  This decision should help limit the potential exposure of contractors for past construction defect claims by removing the plaintiffs’ ability to recover damages under the CPA for projects completed more than three years before the plaintiff knew of the conduct giving rise to the claim.  Contractors, however, will continue to have potential exposure to liability under other causes of action such as breach of warranty or breach of contract.

Equitable Adjustment Not Available to Remedy “Wholly Artificial” Bids

The Massachusetts Appeals Court has declined to award an equitable adjustment to a contractor who bid $0.01 to excavate a cubic yard of rock from a project site. See Celco Construction Corp. v. Town of Avon, 87 Mass. App. Ct. 132 (March 2, 2014).  The contractor constructed its bid based on its belief that the amount of rock on the site would be considerably less than the unverified estimate indicated in the contract bid documents, so that its low unit price would give it a competitive advantage when compared to the other bidders who assigned a unit price to rock removal that more closely approximated the actual cost.  When the amount of rock turned out to be 2524 cubic yards, and not 1000 cubic yards, as estimated, the contractor sought an equitable adjustment.  Initially, the contractor sought to increase the contract from $0.01 per cubic yard to $220 per cubic yard, and eventually dropped the request to $190 per cubic yard.

Massachusetts General Laws, c. 30, § 39N, which governs equitable adjustments in public construction contracts, provides that in all public construction contracts (such as the one at issue here), there must be a provision allowing either party to request an equitable adjustment in the contract price “if, during the progress of the work, the contractor or the awarding authority discovers that the actual subsurface or latent physical conditions encountered at the site differ substantially or materially from those shown on the plans or indicated in the contract documents.”  The contractor argued that the approximately 1500 more cubic yards of rock presented an appropriate occasion for an equitable adjustment to compensate it for the increased costs it incurred to remove the additional rock.

The Court disagreed, noting that there was nothing to suggest that the nature of the rock itself, and the means to remove it, differ in any way from what was anticipated in the contract.  The Court decided that in a contract in which the contract price is comprised of the aggregate of line items for various elements of the work, which in turn are based on unit prices for the quantities involved in each line item, no equitable adjustment is warranted by reason of a variation in the estimated quantities, standing alone, as compared to a deviation in the condition or character of the physical condition.  The Court confirmed that an equitable adjustment is required only when the contractor encounters a material difference in the “actual subsurface or latent physical conditions . . . at the site . . . of such a nature as to cause an increase or decrease in the cost . . . of the work.” 

The Court included in its opinion advice for all contractors in bidding on public construction jobs (and on all jobs in general): “Had [the contractor] in its bid assigned to rock removal a unit price reasonably approximating its estimated cost for such removal, instead of assigning the wholly artificial and unrealistic value of one penny, it would be in no need of adjustment to the contract price.  Put another way, [the equitable adjustment statute] is designed to protect contractors from unknown and unforeseen subsurface conditions, not from the consequences of their decisions to bid a unit price for the performance of work that is wholly unrelated to their anticipated cost to perform the work.  In such circumstances, it defies logic to invoke ‘equity’ as a basis for adjustment to the contract price.”