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In May of last year, we discussed an opinion in U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC.  If you recall, this case involves a three way payment dispute between a supplier, Thyssenkrupp, a subcontractor, Tessa Structures, and a general contractor, Vista Contracting.  As discussed in the prior post, Thyssenkrupp did not get paid on a federal project and filed a Miller Act bond claim against all of the appropriate parties and a breach of contract claim against Tessa Structures.  Tessa Structures then cross claimed against Vista Contracting for indemnification and contribution.  Vista Contracting moved for a stay pending mediation and/or arbitration of the cross claim.

Of course, the contract between Vista Contracting and Tessa Structures required mediation between subcontractor and contractor in one place and arbitration of any claim relating to the subcontract.  In the opinion (U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC) the U. S. District Court for the Eastern District of Virginia in Alexandria considered the interaction of the two seemingly contradictory clauses.  In doing so, the Court considered other courts’ opinions as to the application of the Federal Arbitration Act to mandatory mediation clauses.  After running through these opinions, the Court eventually determined that there was no need to talk about these distinctions given the broad nature of the arbitration provision of the contract.

In short, the Court determined that the broad language (i. e. any claim) required a stay despite Tessa Structures making the argument that its claim could not be determined until after the Court determined the validity and value of Thyssenkrupp’s claim.  The Court, as Virginia state and federal courts are want to do, looked at the plain language of the agreement and tossed this seemingly logical and practical issue aside.

The takeaway?  Look at dispute resolution provisions in your construction contracts very carefully. I have discussed arbitration clauses in the past and only like them in the right circumstances.  In this case, Tessa Structures got caught in a practical bind by moving forward with the broad mandatory arbitration language in its contract.  These clauses will be enforced, an properly so in most instances.  Should you, as a contractor or subcontractor, find yourself faced with such a provision, an experienced construction attorney can assist you in negotiating a more equitable clause.

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I have discussed on several occasions the fact that construction contracts matter.  The words in them matter and, in Virginia (as well as other states), most provisions, if not all will be enforced to the letter.  Recently, the Western District of Virginia federal court ruled in a way that reminded me of another reason for a well drafted contract.

In Rockingham Precast, Inc. v. American Infrastructure – Maryland, Inc. the Western District of Virginia Court considered a motion to transfer venue to Maryland filed by American Infrastructure.  The plaintiff, Rockingham Precast, a Virginia based company sued in Virginia.  American Infrastructure conceded that VA could be a proper forum for the lawsuit but argued that the form was much to inconvenient and costly for the party and non-party witnesses and that the cost made the forum an unfair place to try the case.

The Court disagreed and basically stated that non-party witnesses can be deposed in lieu of live testimony and that moving the case to MD would only inconvenience Rockingham Precast in the same way that VA inconvenienced American Infrastructure.  In short, the plaintiff’s choice of venue tips the scales of a virtual tie.

Now, how, you may ask, does this non-contract related decision illustrate that a good contract can help?  Read the first paragraph of this post.  Contracts will be enforced in Virginia.  This last axiom applies to jurisdictional and forum selection provisions.

While this court broke the tie with the plaintiff’s choice of forum, the outcome could have been quite different.  If the parties had a forum selection provision in their contract, the Court would have enforced it, regardless of where Rockingham Precast filed the case.  This would be true even if both companies were Virginia companies and every event of the transaction occurred in Virginia.  With a forum selection clause stating that Maryland would be where any suit had to be filed, American Infrastructure would have had an easy time getting the case moved.  Without it, American Infrastructure and not Rockingham Precast had to bear the additional travel and witness expenses, a not insignificant burden.

Of course these provisions cut both ways.  Because the contractual forum choice will be enforced, all contractors, subcontractors and suppliers should consult with an experienced construction attorney to assure that their contracts are written in the most advantageous fashion possible.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Musings takes a step off of the green construction and marketing train to discuss an interesting decision from the City of Richmond, Virginia Circuit Court.

As Musings has discussed on several occasions, the economic loss rule in Virginia states that where a loss occurs that relates in any way to a contract, the injured party cannot recover for tort related damages.

For example, in what is now an infamous case in Virginia construction circles, the Virginia Supreme Court held that an owner cannot recover for fraud even if a contractor lied about materials used to build a baseball diamond.  The Court decided that the contractor would not have had a duty to tell the truth if it weren’t for the contract and, therefore, the economic loss rule applies.

Betco Construction, Inc. v. NWJ Chesterfield Apartments, LLC gives some hope to contractors who are seemingly staring down the barrel of this harsh “economic loss” rule.  In Betco, the Plaintiff, a Virginia construction company, claimed that it was fraudulently induced to execute a contract by statements of the Defendant about its corporate status.  Betco plead that the Defendants signed a construction contract and several change orders under the name of a company that no longer existed.

After initially invoking the economic loss rule in dismissing the fraud claims, and allowing Betco to amend its complaint, the court reconsidered and allowed the claim to go forward.  The Court at least thought that the Amended Complaint stated enough to get the Plaintiff contractor off of first base.

This case is interesting given the seemingly unwavering and expanding dedication to the economic loss rule in Virginia.  Contractors, subcontractors and their counsel would do well to learn the circumstances of this case.  The key component, in my opinion, is that the Court must have held that the defendants had a duty to properly state their corporate status prior to execution of the contract.

The take away?  I believe it is two-fold.  1.  Always be honest in your dealings with contracts and construction.  The economic loss rule does not protect those that induce others to enter construction contracts through dishonesty or misrepresentation of facts outside of the contract.  2.  Make sure that you, as a construction professional, look at all the circumstances surrounding execution of your contract when seeking avenues of recovery.  Betco gives you at least a glimmer of hope that you could recovery for fraud if you can find facts showing a duty outside of the contract. Of course an experienced construction attorney can help you ferret out proper facts to show such a duty.

As always, I welcome your comments below.  Please subscribe to keep up with the latest Construction Law Musings.

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As we enter 2012 expectations for the new year are in all of our thoughts.  The best laid plans are made and possibilities seem endless.  New Year’s resolutions will be made (and possibly broken).

As a construction attorney here in Virginia, if I could ask contractors and subcontractors to make (and keep) one resolution for 2012 it would be to set expectations for a construction project before, during and after the project.  More construction claims and lawsuits arise out of poorly managed expectations for the project.  Everything from a poor explanation of the costs and benefits of green building to the simple failure to draft a solid contract with a well defined scope of work can lead to claims and conflicts that can only make attorneys happy.

Contractors (and even subcontractors and suppliers) must manage expectations through education of those “upstream” of them on the job site to avoid shock on the part of those with the money.  Such education takes many forms, I’ve listed several key ones  here (you will notice that many are are the same things that we lawyers love to see in contracts).

• A solid contract with a well defined scope of work.
• Written Change Orders!
• A pre-construction “educational” meetings
• Consistent communication throughout the project with status updates, etc.
• Resolving issues as close to their occurrence as possible
• E-mail confirmations of field changes
• Payment “reminder” letters

Setting realistic and understandable expectations for a project, and reinforcing them on a regular basis throughout, keeps all of the players in a commercial or residential construction project on the same page.  Following these relatively simple steps will keep expectations in line and avoid most issues on a construction job site.

I hope you have a great 2012.  Resolving to keep expectations and reality in line during construction will help.

I am happy to hear any other items that should be added to the above list in a comment or e-mail.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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As reported recently in ENR Magazine, among other publications, the ConsensusDOCS folks have updated their contract forms.  Why is this news?

First of all, it’s only been around three and a half years since these documents were officially released and this release is about 18 months sooner than anticipated (the original revision cycle was to be 5 years).  Why the revision? According to my friend and counsel to ConsensusDOCS, Brian Perlberg, one major rationale is that

the economics of the construction industry today looks nothing like it did [in 2007]

Among the changes are several terminology changes (“constructor” instead of “contractor” for instance), the addition of mandatory green building design as a basic service (these forms already have a Green Building Addendum)  if included in the Owner’s plan and the ability to provide for prevailing party attorney fees (before both sides of a dispute bore their own fees).

A couple of other notable provisions allow an Owner to audit a contractor’s books and a better placed and defined definition of Contract Documents.  These are not all of the changes, and the revisions are fairly extensive.

I recommend that you review the ENR article, any sample forms, and consult with a construction attorney to determine how these changes affect your present use of the ConsensusDOCS (if you use them) or if you should consider using them for your projects.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Wow! Another year has passed and 2012 is just about upon us!  I hope all of you had a great year and I look forward to a wonderful 2012 here at Musings.

As I sit here reflecting (or “Musing”) this day after Christmas, I am amazed at how quickly the first full calendar year of my solo practice has passed.  It seems like only yesterday that I was announcing the move and receiving the great response to that move.  Now, with that first full year under my belt, I am more sure than ever that my move was a great one.  Solo practice really suits me, and also lends itself well to my area of practice, construction law.  Where having a staff of one may have its outward limitations, the flexibility and sense of piloting my own ship more than makes up for this apparent limitation.  Judicious use of the cloud (through Clio, my Blackberry Playbook, my ScanSnap scanner, and other web based technology) makes this apparent lack of administrative support almost a non-factor.

I’ve also found that my potential client base (contractors, subcontractors and other construction professionals) find my solo status to be a strength rather than a weakness.  More flexible billing options, being a fellow business owner, and the responsiveness linked with a smaller structure are factors that my construction clients have seen as a bonus.  In short, those worries that I may have had relating to my move are no longer there.

This year I was honored to be named to both the Virginia Super Lawyers Rising Stars and the Virginia Business Legal Elite in Construction Law.  Add this to my new membership on the Board of Governors of the Virginia State Bar’s Construction Law and Public Contracts Section and appointment to the Executive Committee of the Richmond Chapter of the AGC of Virginia and this was a great year over all.  Thank you to all of you that were involved with these great honors.

On the Construction Law Musings front, the year has been an interesting one as well.  There was big news in 2011.  As my readers know in spades, the construction economy has been rocky to say the least.  The Virginia General Assembly made some key changes that will affect Virginia construction projects.  We found out that the Chinese Drywall claims in Virginia will be a sticky situation (also search Musings for “Dragas” for more on this issue).  Also, with the economy the way it is, sticking to the letter of your contract documents and getting written change orders is even more imperative.  I encourage you to peruse the various pages of Musings for some of the other 2011 developments in Virginia construction law.

Of course, 2011 would not have been such an interesting year here at Construction Law Musings without the wonderful Guest Post Friday contributions.  These posts ranged from IPad apps to green building to insights into federal contracting and claims.  These last few links are only a few of the great posts and perspectives provided by the wonderful guest contributors to this construction law blog.  Thank you to everyone that contributed (and continues to contribute) to the Guest Post Friday series here at Musings, this blog would not be the same without you.

Thank you to all of you who read and comment to this blog on a regular basis.  Your thoughts and support keep me going when the creative juices seem dry.  The encouragement provided by the knowledge that folks are out there reading is a real blessing.

Most importantly, and saving the best for last, thank you to my wonderful wife and great kids for the support, laughter and encouragement throughout 2011.  That support and love made the good times sweeter and the inevitable and occasional struggles worthwhile.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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I have discussed the necessity of following your well drafted contract documents and obtaining written change orders on numerous occasions here at Construction Law Musings.  Recently, the U. S. District Court for the Eastern District of Virginia in Richmond, VA gave a strong reminder regarding these two business practices for contractors.

In Carolina Conduit Systems Inc. v. MasTec N.A. Inc. the Court considered an all too familiar situation.  In Carolina Conduit, the general contractor told the sub contractor “not to worry” about payment for excess flowable fill provided by the subcontractor.  Based upon this representation, Carolina Conduit performed the additional work and then attempted to get MasTec to pay for that work.  As you may predict, a dispute arose regarding this issue and Carolina Conduit sued for (among other expenses) the additional expense it incurred based upon the unforeseen need to provide excess flowable fill.

MasTec then moved for summary judgment to have the case dismissed based on two points.  The first was that the “additional work” was actually part of the original scope of work and therefore was not extra work for which its subcontractor could claim additional payment.  The second was that even if the work was extra work, the contract between it and Carolina Conduit required written change orders.

While taking it as fact that the work regarding the flowable fill was extra work, the Court agreed with the general contractor and stated that merely being told “not to worry” about excess fill does not relieve a subcontractor from following the contract documents.  Additionally, course of dealing or even a major change in the specifications do not relieve a subcontractor of its responsibility to follow the contractual procedure.  The Court then dismissed the claims regarding the flowable fill.

The takeaway?  Always follow the terms of your construction contracts.  Even in the heat of an ongoing construction project, at the very least obtain written confirmation by e-mail or fax of the terms of any change and follow up with the formal change order.  Failure to do so can cost a contractor or subcontractor substantial amounts of money.

Also, make sure that you carefully review the contracts that you sign, preferably with the help of an experienced construction attorney.  Having your legal counsel review a contract before you start work can only help you know the expectations going into the project and hopefully keep you out of the situation in which Carolina Conduit found itself.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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You hear about burden of proof a lot in criminal cases.  We hear it on TV and in the news on a regular basis.  We hear it so often that it can be easy to forget that proof is a part of every dispute and/or trial, including those in my area of practice, construction law. Even in this area of the law, sometimes the truth of what happened and what you can prove happened (so that you can recover or defend) fail to coincide.

On numerous occasions, I spend time with clients and potential clients discussing this fact.  As much as I try and emphasize talking to me, or another construction lawyer, early on and on a regular basis, much of my practice involves putting the pieces back together after the fact.  Often I only get called once a dispute is to the breaking point.  This fact of life leaves me, or any other attorney, with only those tools that his or her client gives me.

Documents, memory, e-mails, and specifically, the construction contract and change orders themselves, are key.  These documents, much more than what all know to have occurred, will make all of the difference between a successful resolution of the dispute (whether through litigation or mediation) and potentially walking out of my office or conference room having left money on the table.  Memories fade, viewpoints differ and conversations are taken out of context.  What cannot be changed (short of fraud) are the written documents and correspondence that show what happened.  A well organized project file will make your attorney smile and start a great relationship.  As an aside, we attorneys do not like surprises, so please give us everything you have (good and, in your mind, bad) so we can deal with things up front.

Furthermore, following your contract documents to the letter will go a long way toward making sure that you, as a construction professional in Virginia (or any other state for that matter), have the best chance of recovery.  Almost every construction contract has a written change order provision that will be enforced in the Virginia courts.  Remember, Murphy was an optimist, that unwritten demand by the Owner to add something to the original scope of work will be in dispute later so you must have documentation.  You construction attorney will have nothing to work with after the fact if you don’t document throughout the project.

I have found over the years that having a strong, verifiable and provable position leads to settlement in more cases than not.  Having a well documented project and a paper trail that supports your position will put you in a position of strength that will assist in mediation, arbitration or, especially, litigation.

In short, without the documents, your construction lawyer will have a difficult time bridging the gap between the “truth” and the “proof.”

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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We have discussed issues that may arise in the context of a residential construction project.  Because most homeowners are not sophisticated in the ways of construction (and really shouldn’t be) expectations are key and keeping your nose clean as a contractor is key.  Courts in some instances will lean toward the party that they deem to be less sophisticated, i. e. the homeowner, so doing anything, such as walking from a job under anything but the worst circumstances, can be very detrimental after the fact.

Recently, the Norfolk, Virginia Circuit Court gave us another reason to stay on the straight and narrow.  In Builders By Design v. Wilson the Court looked at a relatively typical scenario in residential construction.  The Wilson’s contracted for the construction of an addition and renovation to their home.  During the course of construction, changes to the scope and price of work took place with more or less contention.  Without any warning and before the construction was complete, the homeowners sent an e-mail to Builders By Design stating that it should cease work and not enter the property without the Wilson’s express written permission.

Of course, the Wilsons had not paid what was owed Builders By Design for work done to that point of the project.  Needless to say, the contractor sued and the homeowners defended and counterclaimed stating that the work was not performed properly.

The Court entered judgment for the builder.  The Court stated that the contractor performed according to the contract, depending on the various passed inspections by the city inspectors office.  Furthermore, the Court stated that the Wilsons never told the builder that there were issues with construction and they did not find out about any alleged issues until after terminating the contractor.  Under these circumstances, the home owners were in first material breach of the contract and therefore the builder wins.  As always, I recommend that you read this case for more details.

The takeaway?  Homeowners should be careful when terminating a contractor and assure that they have proper cause aside from angst due to negotiation of change orders.  Homeowners certainly should not forbid a contractor from attempting to remedy any issues.  Contractors should correspondingly be careful before walking from a project no matter how crazy the circumstances.  This case from Norfolk shows that the one in first breach is the one that will suffer in the long run.

If you find yourself in an unworkable situation on a residential (or commercial) job site, be sure to consult an experienced construction attorney prior to taking any drastic action regarding the termination of the contract by either the home owner or contractor.

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Previously here at Musings, I discussed the application of pay if paid clauses and the Miller Act.  The case that prompted the discussion was the Aarow Equipment & Services, Inc. v. Travelers Casualty and Surety Co. case in which the Eastern District of Virginia Federal Court determined that a “pay if paid” clause coupled with a proper termination could defeat a Miller Act bond claim.  However, as I found out a couple of weeks ago at the VSB’s Construction Law and Public Contracts section meeting, the 4th Circuit Court of Appeals reversed and remanded this case in an unpublished opinion (Aarow Equipment & Services, Inc. v. Travelers Casualty and Surety Co.)

In it’s opinion, the 4th Circuit looked at some of the more “interesting” aspects of this case.  One of these circumstances was that Syska (the general contractor) directed Aarow to construct sedimentary ponds and other water management measures around the project (the “pond work”), which both agreed was outside of the scope of the work defined in their subcontract.  Syska asked that the government agree to a modification of the prime contract and asked Aarow to wait to submit its invoice for the pond work until after the government issued a modification to the prime contract and Syska issued a change order to the subcontract.

Several months later, no modification or change order had been issued, and Aarow submitted an invoice to Syska for the completed pond work. Syska instructed Aarow to list the pond work under a line item designated for certain finishing work on the project that had not yet been completed.  The government denied the subsequent change order request (submitted by Syska), stating that the pond work was in the scope of the original contract and Syska withheld money owed for other aspects of the work to make up the difference for the previously billed pond work.

In looking at these circumstances, the 4th Circuit Court of Appeals determined that the “prevention doctrine” may apply to these circumstances.  In other words, a reasonable jury could conclude that Syska was at least partially at fault for the government’s non-payment due to the the “unusual” billing procedures (i. e. including the pond work under certain finishing work) coupled with Syska’s failure to obtain the contract modification. Should the fact finder conclude that Syska was in fact at fault, Travelers could not rely on the pay if paid clause as a defense.

While I don’t know the final result of the remand, I commend Aarow’s construction attorneys for their creative arguments.  Construction professionals in Virginia would do well to obtain the advice of a qualified attorney when looking at their contracts and seeking payment in unusual circumstances such as these.

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