Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law
For this weeks Guest Post Friday at Musings, we welcome Surety Bonds.com, a leading online surety provider. SuretyBonds.com specializes in educating current and prospective business owners about local surety requirements. To keep up with surety bond trends, follow and Surety Bonds Insider blog and @suretybond on Twitter.
Professionals who work in the construction industry know the laws that regulate the market change constantly. Unfortunately, even government agencies are flawed, which means they sometimes establish nonsensical, arbitrary regulations that leave construction professionals even more confused as to how they’re expected to do their jobs.
For example, back in 2007 government agencies in Vancouver had to rework laws that mandated certain green building stipulations in regard to roofs. The city essentially created a law so risky that no insurance company would provide insurance for projects related to green roof building due to the high risk for potential claims. Because insurance companies refused to issue the necessary coverage to contractors, work could not begin on any new projects until the law was reworked. Construction professionals and surety providers alike are worried this kind of hindrance could result when Washington D.C.’s 2006 Green Building Actgoes into effect in January.
According to section 6b of the act:
On or before January 1, 2012, all applicants for construction governed by section 4 shall provide a performance bond, which shall be due and payable prior to receipt of a certificate of occupancy.
The bond, which could be worth up to $3 million, would be forfeited if a building should fall short of expected green building standards (such as LEED certification) outlined within the act.
In the last month the Virginia Supreme Court decided two cases that should be of interest to contractors, subcontractors and material suppliers in the world of Virginia construction. In this week’s Construction Law Musings, I will discuss the first, and you can tune in next week to find out my take on the second. The case that I will be discussing in this post is Royal Indemnity Co. v. Tyco Fire Products LP. In the Tyco case the Court considered an all important question under the Virginia Statute of Repose; namely: What is the difference between “equipment” and “ordinary building materials?”
Tyco involved a fire at an apartment complex that was linked to defects in the sprinkler system. After paying a claim, Royal sought indemnification from Tyco, the manufacturer of the sprinklers, and SimplexGrinnell, the installer of the system. In response to the suit, both parties filed pleas in bar asking the court to dismiss the negligence based claims pursuant to the statute of repose. The Circuit Court agreed with the defendants and dismissed the claims while ruling that the sprinklers were ordinary building materials and therefore the product liability claims relating to those sprinklers were barred.
Interestingly, the Virginia Supreme Court reversed the Circuit Court ruling as to Tyco. In doing so, it determined due to the technical nature of the sprinklers and the fact that the sprinklers were self contained pre-manufactured units (among other factors), the sprinklers installed at the building were equipment (not subject to the statute of repose) and not ordinary building materials (subject to the statute of repose). The Court then went on to state that, because Simplex merely installed the sprinkler equipment, it was in fact able to take advantage of the statute of repose and therefore was properly dismissed from the case by the Circuit Court.
The takeaway? Firstly, in case you didn’t think sprinklers were equipment now you have a court ruling to the contrary. More importantly, the Court added one more layer to the statute of repose analysis and gave guidance as to the differences between ordinary building materials and equipment. As you can see, this last distinction can mean the difference between a successful and relatively inexpensive defense of a claim and drawn out litigation should you be faced with a negligent design claim as a contractor or construction material supplier. The assistance of an experienced construction attorney can help you wind your way through the various facts and circumstances that allow the distinction to be made.
For this week’s Guest Post Friday, Musings welcomes Ryan Bowers (@ryanbbowers). Ryan is a construction law attorney and business litigator.Ryan’s construction practice draws on his years of hands-on experience in the construction field, which predates his practice of law. He also maintains Law under Construction, a blog built for Indiana construction professionals to monitor legal news and developments. Ryan is an attorney at Kroger, Gardis & Regas, LLP in Indianapolis, Indiana, a full service law firm founded in 1937.
First and foremost, I would like to thank Chris for the opportunity to guest post on Construction Law Musings. Earlier this year, I finally had the opportunity to pursue a blog that combined by two passions: construction and hockey the law. After stumbling across Musings in the wee hours following one too many coke zeros and a half finished fireplace remodel, I was both impressed and inspired. Law under Construction was born. I am honored to take my blog on the road so soon in its rookie season.
I am a construction junkie. Having a father who is a master plumber, licensed builder, and owner of a mechanical construction company will do that to you. Learning to solder at 15 will do that to you. Installing fire suppression systems at 19 will do that to you. Remodeling a 1929 house will…. So, I have found inspiration for my blog posts (many yet unfinished, like my house…) in the practical experiences of my past.
A recent thanksgiving post-turkey, pre-nap, conversation with my brother, the president of the aforementioned contractor, sparked one such idea. When the topic of LEED came up, he said, and I (sort of) quote “man, I am seeing LEED everywhere, should I get LEED accredited?” Honestly, I was a little stumped. Good thing the tryptophan set in.
I have since pondered the question: should contractors and subs seek LEED accreditation for someone on staff (or at least gain a working understating)? Fortunately, in the interim, I also had the opportunity to attend a wonderful event put on by SMPS Indiana, where owners who led green projects gave their post-LEED certification perspectives, which provided some very useful information (referred to herein as the “panelists”). Given the lack of litigation involving LEED issues, there is no clear answer. However, I am hopeful that you (and my bro) will find my insights useful.
The pros…
Obtaining projects: I recently read that the “green movement” is no longer a movement, but rather here to stay. Indeed, one of the panelists confirmed that her university has committed all future new construction or significant renovations to LEED silver certification (or higher). And it’s not just buildings anymore – “green” will encompass other critical infrastructure projects (see here). Thus, in order to obtain work on “green” projects, contractors may need to obtain accreditation or, at least, become knowledgeable. Although this applies more in the context of integrated project delivery, design-build, etc., it will likely only increase as green building increases. The economics of these project structures demand quality and skilled contractors. One of the panelists noted that one of their first steps was to bring in a LEED accredited contractor familiar with the local skill set and local supplies. Another noted getting novice subcontracts to understand the LEED process proved difficult.
Less potential for construction defects: Geothermal heating and cooling. Vegetative roofs. Mini-wind turbines. Hal 9000. Ok, I am kidding about the last one. But these are new, sophisticated, and often unproven technologies (especially with Platinum certification). It takes a careful reading of the spec manual. There is a risk of noncompliance and the need to allocate risk. LEED accreditation, as well as the required continued education that follows, may help a contractor’s understanding of these technologies and avoid future defect claims.
Fewer delays: Working on a LEED project with no prior experience may lead to project delays, such as the inability to follow the site-specific LEED action plan or unfamiliarity with submittals for LEED or the unique materials. One panelist noted that, although the project was publically bid, they were lucky enough to land a LEED contractor, as it was extremely beneficial. On the flipside, another had a demolition contractor with zero prior experience, who had to be constantly educated on LEED. This inevitably led to delays.
Equal (and green) footing: Often, the architect on a LEED project is accredited and leads the overall effort. Having equal knowledge of various LEED related processes, designs, technologies, etc. may be helpful. For instance, when you submit a LEED related claim to the architect, LEED knowledge may help you decide how to proceed after a denial. One of the panelists pointed out a situation where engineers on a project had designed to traditional specs, which the contractor caught thanks to LEED knowledge.
Likewise, the cost increases on LEED projects can range from 2-10% (based on various sources). One panelist noted a 3% increase. Knowing and recognizing these differences can help ensure accurate project bids and help maintain already thin profit margins. Furthermore, if you know LEED, you may actually be able to bid lower if you don’t have to add “risk” costs to your bid. Always a good result.
Finally, with guarantees of LEED certification popping up in contracts, new provisions affecting rights and liabilities on green projects may also pop up (i.e. for failure to achieve LEED certification or later decertification). There may also be special warranties for green products. Understanding these concepts prior to executing contract documents (or associating with a qualified attorney) will help minimize unknown risks.
Obtaining project bonds: Although not a current concern, it may be in the future. With the emergence of more green projects (and of greater value), the way sureties handle such projects may change. Since the surety is guaranteeing completion in accordance with plans and specifications, and given the concerns raised above, having a LEED AP on staff may become a prerequisite to qualify for a bond on a green project. Green insurance products are already emerging, this could be next. Remains to be seen. (thanks to my co-blogger, and resident surety expert, Jennifer Watt for the input here).
Safety: As a result of the way debris is handled on a LEED project (reuse, recycling, salvaging, etc.) one panelist noted a 0 accident site. And a healthy employee is a productive employee. On the flipside, I don’t often hear contactors complain about fewer workman’s comp claims.
Goodwill and peace on earth: Just as the panelists remarked that their green projects have resulted in an overall better public image (better recruiting of employees / students), a more eco-friendly image for a contractor can be a positive.
On to the cons…
Competing standards: Although the most widely recognized, LEED is not the only player in the game. Other “green” standards include Green Globes and Energy Star. Further, recently an individual filed a class action against the USGBC attacking LEED. (see here) Ignoring the merits (or lack thereof) to the case, why invest resources into something that may not stand the test of time. For example, one panelist noted that, while they achieved LEED certification with one project, on a subsequent project they were pursuing the LEED elements generally, but not seeking the formal certification due to time and money concerns. Another panelist was now pursing Energy Star on a project. One should also consider the new International Green Construction Code (IGCC). If the code achieves widespread adoption, simply building to the code may alleviate the concerns above, and separate LEED knowledge may become superfluous.
It is hard: As a lawyer studying for the LEED Green Assoc. exam right now, I can attest to this fact. Several of the most skilled plumbers and sharpest mechanical minds I know have had difficulty with the testing aspect of their master’s exam. Putting in the time (and money) may not result in accreditation. Plus, you need to maintain continuing education hours, an additional burden.
Enough actual “green” projects?: I don’t have any real data on this one, but it is worth considering whether you even want to get involved in this area.
Sub it out: There appear to be myriad LEED consultants out there (and likely one is already involved in your LEED project). Get the information from someone else when you need it.
Image: The “green movement” raises red flags in some people’s minds. For anyone with this mindset, I leave you with these thoughts: a hospital represented on the panel stated that it did not seek LEED certification to “save the world;” but rather to “save the sanity” of the staff with a better workspace (via incorporation of daylight). Further, many of the elements of the LEED project (no formaldehyde / no voc) were things that everyone already wanted – so there was no hard sell. Green building may simply be what people already want, but just don’t realize.
This week’s guest post Friday post is by Sally Davison. Sally is a graduate of Indiana Bloomington with a degree in English literature and a freelance writer by profession. She writes on the topic of fire science programs. She welcomes your comments at her email id: sallyd@firesciencedegree.com.
Construction crews and building owners know very well that they must be aware of the safety codes that need to be adhered to in commercial buildings, and anyone with a little common sense will understand that it’s easier to work in safety at the blueprint stage rather than break your head over how to include it in a building that is already half erected. In general, commercial buildings must take into consideration the health, welfare, and safety of any occupants the building may have in the future. And to this end, the construction crew must ensure that they adhere to both the International Fire Code (IFC) and the International Building Code (IBC) set by the International Code Council (ICC).
The IBC covers new buildings while the IFC is a standard that must be adhered to by both old and new buildings. In general, both codes contain policies and standards for the safe evacuation of a building in the event of a fire or other natural or manmade catastrophe. Most tall buildings fall under the evacuation safety guidelines defined by the IFC and as such must have luminous markings for exits and stairwells that show the way to safety in the event of a disaster. Escalators and elevators are out of action at the time, so the only option is to go down the stairs in an orderly fashion; to facilitate this and improve evacuation times, it is necessary that the markings showing the exits and other safety signs be in place when the building is constructed.
In buildings that don’t have occupancy 75 feet or more above the height that fire department vehicles can reach, the safety codes are a little different. Windows, if barred, must be breakable or contain emergency exits. The building exits should also be clear of any obstruction.
Besides adhering to these codes, care should also be taken to ensure that accidents do not take place during construction and that the crew members follow safety measures and protect themselves from accidental falls, injuries caused by falling debris and construction material, electrical fires and electrocution because of faulty wiring, injuries and loss of limbs from construction machinery, and various other freak incidents.
For this week’s Guest Post Friday, Musings welcomes back Timothy R. Hughes, Esq., LEED AP. Tim (@timrhughes on Twitter) is Of Counsel to the Arlington, Virginia firm of Bean, Kinney & Korman, P.C. In his practice as a business, corporate, and construction law attorney, Tim has served as the Chair of the Construction Law and Public Contracts Section of the Virginia State Bar. He has served in numerous volunteer, board and leadership roles with many organizations and has been recognized by Virginia Lawyer’s Weekly as a 2010 “Leader in the Law”. A regular speaker and writer, Tim is the lead editor of his firm blog, Virginia Real Estate, Land Use and Construction Law.
The last Musings post resonated with me on a very important point: you do not want to contact your lawyer too late in the game. Many people do not like talking to lawyers … we have a reputation (well earned by some) of being difficult, confrontational, obtuse and expensive. Many clients only call their lawyer when they are actually sued and absolutely must retain counsel. This is a very bad approach: your case is most often won or lost based on documents, facts and positions taking during the project. It is far more cost effective to involve counsel earlier in the game.
Even better, lawyers can provide the most cost efficient advice by helping you structure your business correctly, obtain proper licensing, and draft solid contracts. Especially in Virginia, your contract terms are critical to defining what happens in court. Drafting a solid contract form and using that contract is a great risk management tool and not an expensive investment. Incorporating and minimizing or eliminating personal liability is really inexpensive and a huge potential benefit.
Contrast that with calling too late. I have received many calls on cases where new clients did not incorporate. Clients have used weak contracts or even no contracts. Clients have moved forward on game changing critical elements of projects with no documentation. Clients have failed to reply or rebut highly inflammatory project correspondence that mischaracterizes events. Trying to use verbal testimony years later to rebut a letter during a project is a very tough sell to a jury. Engaging counsel too late means you are taking on tremendous risks and actually driving up your ultimate exposure and legal fees.
The real question of reluctance to call your lawyer may stem from a lack of trust and confidence. Clients should feel their lawyer has their best interests in mind, is concerned with the relation of costs and benefits, and adds value. Ultimately, this question may hinge on selecting the correct lawyer.
One of the more rewarding aspects of practicing law has been developing clients who came across my doorstep with significant corporate, contract and liability issues and helping them evolve into proactive risk managers. Involving a lawyer as a trusted business advisor from the start of the business or as early as possible is ultimately the most cost-efficient way to hire counsel. It is a lot cheaper to have a good contract than a bad lawsuit. This is not to say that a good contract ensures no suits or victory, but it does help set the playing field. It does establish significant advantage and leverage to resolve issues before they erupt.
Tim and I welcome your comments below. Also, please subscribe to keep up with this and other Guest Post Friday Musings.
