Construction Project Schedule and Delay Claims Seminar, 11/21/2014 in Seattle

On Friday, November 21, 2014 at the Hilton Seattle, Foster Pepper is hosting a program featuring a diverse group of top Construction Law Professionals who practice in and understand the unique issues of construction project schedule and delay claims. This seminar will address topics including CPM concepts, delay analysis, schedule disruption, impact costs, and acceleration claims. The program agenda is as follows:

9:00 Introduction and Overview
W. Gregory Guedel, Program Co-Chair
Foster Pepper PLLC
Daniel G. Quackenbush, PA, Program Co-Chair
Quackenbush & Associates, Inc.


9:10 30 Minutes to CPM Proficiency
Activities & Relationships; Forward Pass; Backward Pass; Float; Critical Path; Impacts and a Quick Simplified Demonstration of How TIAs Are Impacted in a CPM Schedule
Daniel G. Quackenbush, PA
Quackenbush & Associates, Inc.


9:40 Basic Scheduling Concepts for Delay, Acceleration and Mitigation
Project Delay; Internal Delay; Acceleration; Mitigation; Disruption; Impact and Lost Productivity; Frustrated Early Completion; 8 Common Schedule Analysis Techniques - The Procedures and Assumptions Built into Each Technique
Daniel G. Quackenbush, PA
Quackenbush & Associates, Inc.


10:00 Primary Legal Concepts for Delay Claims
Contract Terms; Notice Provisions; The Spearin Doctrine; Excusable and In-Excusable Delays; Compensable and Non-Compensable Delays; No Damage for Delay Clauses; Limited Damages for Delay Clauses; Claim Presentation Provisions; Apportioning Delays; Concurrent Delays; Directed and Constructive Acceleration; Legal Burdens and Standards of Proof
Gregory A.V. Clark
Foster Pepper PLLC


10:45 Break


11:00 Cost Analysis for Schedule and Delay Claims
Analyzing Delay and Acceleration Damages; Calculating Home Office Overhead and Jobsite Overhead Daily Rates; Cost Audits Related to Delay Claims
Megan S. Wells
Director of Global Construction Practice
Navigant Consulting, Inc.


11:45 Midday Break


1:00 Addressing Project Delays – Public Sector Perspective
Project Schedule Planning; Implementing Contract Provisions to Address Delay; Mechanisms for Resolving Delay Disputes in Traditional and Alternative Public Works Contracts
Mary DeVuono Englund
Senior Deputy Prosecuting Attorney
King County Office of the Prosecuting Attorney


1:45 Contracting Strategies for Schedule Issues
Key Terms and Concepts for Construction Contracts to Prepare for, Account for, and Allocate the Risks of Potential Completion Delays
Karin L. Nyrop, Senior Counsel
UW Division of WA State Attorney General’s Office


2:30 Break


2:45 Interesting Projects and Lessons Learned
Strategies for Managing Project Delays
W. Gregory Guedel, Moderator
Foster Pepper PLLC
Karin L. Nyrop, Senior Counsel
UW Division of WA State Attorney General’s Office
Daniel G. Quackenbush, PA
Quackenbush & Associates, Inc.
Christie True
King County Department of Natural Resources and Parks


4:00 Dispute Resolution and Arbitration of Schedule & Delay Claims
Adjudicating Schedule & Delay Claims – View from the Decision Makers; What Actually Works When Trying to Persuade the Decision Maker; Dos and Don’ts in Presenting Claims; What an Arbitrator or DRB is Looking for in Assessing Claims
Christopher J. Soelling
Christopher J. Soelling PLLC


5:00 Adjourn

More information about the program and registration may be accessed HERE.

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Insurers Can Be Liable For Damages Even In The Absence Of Coverage

The U.S. District Court for the Western District of Washington recently issued an important decision confirming that insurers can be held liable for damages even in the absence of coverage.  This decision underscores the importance of: (1) making sure insurers make proper coverage determinations; and (2) making sure insurers make coverage determinations in a timely, proper manner.  While the decision addressed coverage under a commercial general liability policy, the insurer’s duty to make proper coverage determinations in a timely, proper manner applies to every type of insurance: commercial general liability, builder’s risk, professional liability, property, title, and homeowners alike.

In City of Bothell v. Berkley, the insurer issued a commercial general liability policy to a general contractor that was hired to build a new driveway for a church located in the City of Bothell.  The City was to be named as an additional insured under that insurance policy. 

In July 2011, a bicycle accident occurred after the contractor failed to slope the driveway properly.  The injured individual made a claim against the City.  The City tendered the claim to the insurer, but the insurer denied coverage by claiming that the insurance policy only covered accidents that occurred during ongoing operations and that the accident occurred after the contractor’s operations were completed.  Two years later, when the injured individual filed suit, the City re-tendered the claim to the insurer, but the insurer failed to respond.  A month later, the City sent a follow-up letter to the insurer, but the insurer again failed to respond.  The City sent a second follow-up letter to the insurer, and the insurer finally responded, but denied coverage for the same reason the insurer initially denied coverage.  The insurer later asserted two additional reasons for denying coverage: (1) because there was no written agreement signed by the contractor requiring that the City be named as an additional insured; and (2) because the injured party was using the driveway for its intended use.

The City filed suit against the insurer for breach of contract and bad faith.  The Court quickly dismissed the insurer’s first two reasons for denying coverage because: (1) the lawsuit did not allege that the accident occurred after the contractor’s operations were completed; and (2) the contractor and the City had a written agreement requiring that the City be named as an additional insured.  However, the Court concluded that the insurer ultimately had no duty to defend the City because: (1) the insurance policy excluded coverage for injuries that occur after the portion of the work giving rise to the injury has been put to its intended use; and (2) the lawsuit alleged that the driveway had been put to its intended use at the time of the accident.

Even though the insurer ultimately asserted a legitimate basis for denying coverage, the insurer’s conduct was not without repercussion.  Notably, the Court held that the insurer acted in bad faith by failing to timely respond to the City’s communications, by misrepresenting requirements under the insurance policy, and by asserting serial justifications for denying coverage without adequate investigation and/or in contravention of Washington insurance law.  Similarly, the Court held that the insurer’s actions (and inactions) violated the Insurance Fair Conduct Act and Consumer Protection Act (which subjected the insurer to treble damages).

Jay Donovan is a member of Foster Pepper who focuses on representing policyholders (including general contractors, retailers, homeowners, transportation providers, and non-profits) in their pursuit of insurance coverage for a variety of claims (including claims for construction defects, title defects, property damage, and intellectual property claims). 
 

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7 Big Mistakes To Avoid In Residential Construction

 

1. Being Too Casual About Jobsite Safety

Even the most Responsible Developer knows that the odds are high that their company will experience a jobsite injury.  In Washington, it can be an emotional and costly experience.  You, as the general contractor, are ultimately charged with responsibility for jobsite safety.  You need to draft and maintain a comprehensive written safety program, enforce and fully document it, and fine or terminate workers who violate it.  Also, be sure to keep good records and make sure your premiums are paid.        

2. Use of Impractical Building Design and LOLs

Avoid eye-catching but problematic designs like steep roofs, small roof overhangs, high ceilings, stucco exteriors, west or south facing window walls, enclosed decks and porches that will be difficult to build and incredibly expensive to maintain.  In for sale projects, expect that many of your buyers will simply not maintain their homes, or will make an attempt, but will perform it poorly.  Later, when that bad design causes property damage or injury, you will be blamed, not your designer.  Best practice is to work with your designers on trouble shooting designs with the goal of agreeing on practical and enduring designs that require minimal maintenance.  Also, do not execute a contract with a designer who insists on limiting their liability to their fee.  Negotiate a more realistic agreement based on the risks posed for that particular project.         

3. New and To-Good-To-Be-True Building Products

If some new building product touts itself as saving you a ridiculous amount time, labor, or money, be suspicious.  Vet it with your peers and designers first.  Refuse to be some product manufacturer’s test subject.  Products that work in the Southwest and Southeast may not perform it the windy and rainy areas of Western Washington.  You veteran builders will recall the numerous product claims against cladding manufacturers, Simpson, Weyerhaeuser, CertainTeed, Louisiana Pacific, Georgia Pacific, Dryvit, Sto, etc.   

4. Workmanship Defects

Someone very wise said “it takes longer to be better.”  That wise person could have been a really good, reliable subcontractor.  That is the type of sub you should be contracting with.  Your nightmare is the sub that was scheduled to be onsite for three weeks, but completed its work in only ten days, including the weekend when your super was not present.  No one can produce quality work when working too fast.  You also cannot expect the city or county building inspector to do any in-depth level of inspection of that subcontractor’s work, because most jurisdictions do not have the staffing to do that, and they are likely immune from liability.  Here are some examples of defective workmanship we’ve run into recently which demonstrates this point: 

  • Roofing fasteners under driven and nowhere in the vicinity of the manufacturer’s installation instructions, which resulted in significant shingle blow off on 20, 2 story buildings;
  • Sticky flashings reversed lapped at wall penetrations in an entire subdivision;
  • An expensive rain-screen siding system where only 30% of the battens were actually nailed into the wall studs.  One-hundred percent of siding had to be removed, all for lack of due diligence and refusal to use a $10.00 stud finder to snap nailing lines.  This occurred in four different multifamily projects with first-class design oversight of the subcontractor’s work in progress.  

5. Outdated Contracts

Your purchase and sale and lease agreements, subcontracts, and supplier-purchase-order contracts should be well worded in order to mitigate your liability.  Like building designs, construction materials, methods and products, the law regarding residential construction liability also evolves. So every 2-3 years, make sure you gather your existing contracts and get them updated to conform to ever-changing Washington law, which often favors buyers and tenants.      

6. Insurance

A good insurance policy can be your safety net, your ace in the hole, and your get-out-of-jail-free card - if you did not go cheap.  Before you purchase insurance, meet with a good risk manager or broker who knows the residential insurance market.  Put the same emphasis on this purchase as you would for new, high-quality tools, equipment, and vehicles.  Buy the best because you want it to perform when you really need it to.

7. Insurance Companies and Claims

The nice person from the insurance brokerage that placed that policy for you with Lloyds of Hackensack Contractors Indemnity Company may not be there for you when you have a claim.  A claims adjuster will be assigned to your claim, but a primary goal of adjuster is to find a way to deny your claim, in whole or in part, to save her company money.  The adjuster knows way more about her industry and that policy than you do, and if you take her on alone you have little or no hope of prevailing.  Instead, you will have to hire someone that knows the law and is fluent in “Insurance-ese.”  Yes, in a major claim, you face a choice of two evils, but if you actually expect to get a reasonable sum of money from your insurer, you will have to bite the bullet on this.

In sum, the author hopes you will never actually have to experience any of these problematic building and construction issues.  But, like your parents probably told you, hope for the best, but always be prepared for the worst.  If most builders embraced this philosophy, claims would be rare and claims adjusters and lawyers would be underemployed.

 

Governor's Executive Order Requires Consideration Of Clean Energy, Life-Cycle And Operating Costs In Public Works Contracting

Governor Inslee has issued Executive Order 13-03 requiring any entity in Washington state that receives funds from the state’s capital budget to consider operating costs, life-cycle costs, and the inclusion of clean energy systems in any project funded from the state’s capital budget. The Order takes immediate effect.

New requirements for public works projects include:

• Utilizing life-cycle cost analysis as a primary consideration in the selection of building design;
• Consideration of life-cycle and clean energy experience in selection of architects and engineers;
• Including life-cycle, operating cost, and energy efficiency experience in selecting GC/CM and Design-Build contractors under RCW 39.10.

The purpose of the Order is to achieve more cost-efficient results for building construction and operation, and to increase the use of clean energy systems in public facilities. The Office of Financial Management will issue regulations implementing the Order within 180 days, after which agencies will need to submit life-cycle and project capitalization data to OFM prior to commencing construction on projects funded with capital budget dollars. The Order does not indicate a retroactive applicability to projects that are already in progress.
 

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How to Enforce Liquidated Damages

Construction (thankfully) is once again booming.  So Developers, Contractors and their lawyers are furiously drafting construction contracts including terms that assign liability for claims, like Project delay.  

Every Developer/Owner knows what liquidated damages are:  the fixed damages the Owner will assess the Contractor for each day that substantial completion is delayed;  the dollar amount the Parties agreed to in the AIA A-102 at Article 4; and the sum used to multiply by the number of days to calculate the Owner's total damages for delay.

The Responsible Developer/Owner knows what documentation needs to be in place before that contract number is inserted into the contract.  A separate document that was carefully drafted to support the calculation for the daily liquidated sum. 

Readers, your question may be, why would you try to calculate liquidated damages in advance, if you knew that, you would just assert actual delay damages after the fact, right?

Not exactly.

First, in any litigation the Owner is going to have to demonstrate that the liquidated damages number has a reasonable relationship to actual damages.  So before the contract is executed, the Owner should create a written record of the anticipated cost of the Contractor's delay in completing the Project.  You can probably look at your budget to derive most of these costs (administrative costs, temporary facilities, rentals, additional designer and consultant fees, lost rents, loss of use, extended financing and if a public project, regulatory fines).

Second, estimate these anticipated costs per day, add interest and place it into your project file.

Third, if or when your Contractor disputes the calculation of your liquidated damages, compare your pre-project to your actual damages.  

Owners:  You also need to know this as the failure to substantiate or timely assert liquidated damages can result in waiver of your claim.  To avoid this from happening to you in arbitration or litigation, here are some "must do" steps to avoid waiving your rights to liquidated damages. 

When it first appears the Contractor will not timely achieve substantial completion, place them on written notice with a reservation of rights to impose liquidated damages per the contract.  Make sure you factor in the days for any Owner caused delay (due to change orders or delays for any Owner supplied materials or equipment).  Insist on a date certain by which you will assess liquidated damages and establish the modified date for final completion. 

Finally, demand an updated schedule by a reasonable date.  If that day comes and goes without an updated schedule, further notify the Contractor you are going to hire a scheduling consultant and the cost will be deducted from the Contractor's fee.

The Responsible Developer/Owner takes all of these steps for two important reasons, to avoid claims, and failing that, to prevail.

Happy Contracting!

 

 

 

Washington Supreme Court: Insurer's Communications with Coverage Counsel Now Presumptively Discoverable

The Washington Supreme Court recently issued a landmark decision barring insurance companies from relying on the attorney-client privilege to avoid disclosure of communications with outside counsel related to the investigation, evaluation, negotiation or processing of bad faith insurance claims. Cedell v. Farmers Insurance Company of Washington, 295 F.3d 239 (2013). Because national insurance companies frequently rely on the expertise of local Washington coverage attorneys to adjust construction defect claims only to hide behind the cloak of attorney-client privilege after denying coverage, this decision will benefit all in the construction industry – contractors, subcontractors, and developers alike – by exposing insurance companies’ bad faith practices and subjecting them to liability under Washington’s Insurance Fair Conduct Act. 

 

*          *          *

 

The policyholder in this case, Cedell, suffered a loss in 2006. The insurance company, Farmers, delayed its coverage determination and eventually retained coverage counsel to assist with the handling of Cedell’s insurance claim. Eight months after the loss, Farmer’s coverage counsel sent Cedell a “one-time offer of $30,000” to settle Cedell’s insurance claim; an amount significantly less than the $105,000 exposure Farmers initially estimated. Cedell accordingly filed suit alleging, among other things, that Farmers acted in bad faith in handling his insurance claim.

 

After filing suit, Cedell issued discovery requests to Farmers.  Farmers produced a heavily redacted claims file and refused to answer interrogatories on grounds that the information sought was privileged. Cedell accordingly moved to compel the disclosure of that information and the superior court ordered that Farmers produce the documents it previously withheld or redacted. 

 

The Court of Appeals reversed the superior court ruling, but the Washington Supreme Court granted review. In siding with Cedell, the Washington Supreme Court established a four-step process by which insurance companies must abide to avoid disclosure of communications which may otherwise be protected by the attorney-client privilege: 

 

Ø      First, the Washington Supreme Court established that there is a “presumption that there is no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process, and that the attorney-client and work product privileges are generally not relevant.”

 

Ø      Second, “the insurer may overcome the presumption of discoverability by showing its attorney was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own potential liability; for example, whether or not coverage exists under the law.”

 

Ø      Third, if the insurance company makes such a showing, the insurance company is entitled to an in camera review of the questioned communications and “to the redaction of communications from counsel that reflected the mental impressions of the attorney to the insurance company, unless those mental impressions are directly at issue in the quasi-fiduciary responsibilities to its insured.”

 

Ø      Finally, if the court finds the attorney-client privilege applies, “then the court should next address any claims the insured may have to pierce the attorney-client privilege,” such as the fraud exception.

 

The Washington Supreme Court’s four-step process was established to protect two fundamental public policy pillars: (1) that insurance companies have a good faith, quasi-fiduciary duty to their policyholders under Washington law; and (2) that insurance policies, practices, and procedures are highly regulated in Washington and of substantial public interest. Those two fundamental public policy pillars apply to first-party insurance policies and third-party liability insurance policies alike; in fact, those two public policy pillars have even greater import in the context of third-party liability insurance policies because third-party liability insurers have an enhanced duty of good faith under Washington law. Thus, while insurers will likely argue the Cedell decision only applies to bad faith insurance claims involving first-party insurance policies, the four-step process established by the Washington Supreme Court necessarily applies to first-party insurance policies and third-party liability insurance policies alike.

 

Accordingly, insurance companies defending against bad faith claims in Washington can no longer rely on the attorney-client privilege to avoid disclosure of communications with outside counsel related to the investigation, evaluation, negotiation or processing of a policyholder’s insurance claim. As the Washington Supreme Court aptly noted, “[t]o permit a blanket privilege in insurance bad faith cases because of the participation of lawyers hired or employed by insurers would unreasonably obstruct discovery of meritorious claims and conceal unwarranted practices.” Id. at 245. 

 

Jay Donovan

Foster Pepper PLLC

Seattle, Washington

Complimentary Seminar/Webinar - Women In the Built Industry

Women in the Built Industry

Thursday, May 30, 2013 | 9:30 a.m. – 2:45 p.m.
Foster Pepper PLLC | 30th Floor Conference Center
1111 Third Avenue | Seattle, Washington

Foster Pepper invites you to participate in this complimentary seminar and webinar on May 30, 2013 as it focuses on success strategies for female professionals in all areas of the construction industry. Women business owners, managers, technical and trades professionals are fundamental to the construction industry, yet confront unique challenges in creating business opportunities and career pathways in both the private and public sectors. This seminar features presentations and discussion with industry leaders, who will share their experiences and guidance for achieving individual and organizational goals within the many construction disciplines, and provides the opportunity for direct networking with the speakers and guests.

Topics and Presenters

Women in the Built Industry – Challenges and Opportunities
Allison Raduziner | Pilchuck Business Consulting

Winning Projects: From the Initial Contact to the Interview
Karen Johnston | Johnston Training Group, Inc.

Current Legal Developments in the Construction Industry
Kelly Lennox | Foster Pepper PLLC

Getting It Done: The Process of Delivering Value through Contemplative Action
Darbi Krumpos | Built Works LLC CMS

Legal Issues in the Workplace – Employment Law, Discrimination and Policy Solutions
Katie Carder McCoy | Foster Pepper PLLC

Pathways For Success – Lessons Learned from Industry Leaders
Liz Evans | Associated General Contractors of America


CLE (Attorney) credits pending | Certificates of Completion available for other organizations


Schedule:
9:30 a.m. Registration
10:00 a.m. - 2:45 p.m. Program/Q&A (Lunch provided for in-person attendees)

TO REGISTER TO ATTEND IN PERSON OR VIA WEBINAR, CLICK HERE.

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News: Design Errors Add Delay and Cost To SR 520 Project

Does the Responsible Public Developer disclose design or construction defects to stakeholders?

Absolutely!

Timely and full disclosure engenders trust, and the sooner the issues are disclosed the sooner they can be remedied.

At Foster we work with our clients in the construction arena every day.  We know that no project is immune from defects in potential design or workmanship.  History is full of examples of problematic construction projects, going back to Hammurabi, who enacted the first building code in 1780 BC (with some rather strict penalties).  3,793 years later human error still impacts construction projects.

It’s no surprise, then, that costly design defects have been discovered on the pontoons that are a critical part of the $4.65 billion SR 520 project.  The Washington State Department of Transportation (“WSDOT”) has taken responsibility for most of the problem, stating that significant responsibility for cracks in those pontoons lies with its own engineers and that the pontoons will require expensive corrective work.

WSDOT designed the pontoons for the 520 bridge on a fast track, using its in-house engineers rather than having its contractor (Kiewit) responsible for the design. Designing the pontoons was part of  WSDOT's strategy to attract lower bids and to complete the floating section of the bridge by 2014. The winning bid to build the pontoons was $180 million less than WSDOT’s own estimate.

Inspections after post-tensioning the concrete pontoons revealed spalling and cracking.  The cracks in the pontoons and water leakage reportedly resulted from time-saving actions  taken by WSDOT engineers, who apparently did not carry out as many modeling tests as they might have, before the pontoons were built.  Existing cracks on the pontoons havewidened because there is insufficient steel rebar used to keep tendons in place.  In a WSDOT press release, outgoing Secretary of Transportation Paula Hammond stated: “The results of our internal review show that we did not follow standards of good practice to validate the pontoon design elements, and as an engineer, that is particularly frustrating.”

Here’s a link to WSDOT’s statement about the pontoon problem.

WSDOT has announced that its repair plan is to de-tension the steel tendons, remove the concrete, and add steel rebar reinforcement. Then new concrete will be poured and allowed to cure. The estimated cost to repair the pontoons is $100 million.

The good news for us is that in almost all significant public construction projects (like the SR 99 Bored Tunnel contract), the SR 520 contract included a $200 million contingency fund for impacts like design and construction defects.  The bad news is that half of the contingency fund will be devoted to solving a single problem, while the project remains delayed.

WSDOT’s incoming director, the Governor, and other state leaders, are working together to address these issues.  The parties will likely draw lessons from this latest setback and work collectively to maintain public confidence.  Just like Hammurabi.

No Time Bars on PW Projects But No Insurance Either?

Does the Responsible Developer/General Contractor and its subcontractors run the risk of not being insured in construction defect claims on public projects?

Yes, according to a new Washington Supreme Court case.  How can that happen?  

In can happen because, while no time may run against the King (public owner), time will absolutely run against the contractors when their insurance policies expire.

The new decision "WA State Major League Baseball Stadium Public Facilities District v. Huber, Hunt & Nichols-Kiewit", was actually part of an earlier decision from 2009.  The earlier decision was that the statutes of limitation and repose did not bar the (public) owner's suit against the general contractor.  The new decision is that the general contractor, provided it had well drafted contracts with pass through provisions, has no time bars between it and the implicated subcontractors. 

So if a public owner sues a general contractor beyond the applicable statutes of limitation and repose, the general can in turn join subcontractors.  That seems to be fair.  Most claims made this far out will be completed operations claims for allegedly defective construction and resultant property damage.  The general contractor and its subcontractors will all have incurred tens or hundreds of thousands of dollars in premiums to purchase commercial general liability insurance for the loss at issue.  This insurance asset was purchased so the collective contractors would not have to pay these types of claims out of their own coffers.

This new decision is problematic in several ways.  First, the owner's claim was more than 10 years from substantial completion.  So if this was a private project the owner's claim would have likely been time barred.  But the court ruled that based on ancient European laws involving doctrines like sovereign immunity, where "no time runs against the King" (along with "the King can do no wrong").  For public policy considerations, this "no time runs against the King" doctrine may be in the best interest of the tax payers.  One also hopes that contractors who work on these public projects will now incorporate the cost of that future risk into their bids, knowing they could be sued more than 10 years after completion.

The second problem is that if the public owner does make a claim 10 years later, the general has to expect that many of its subcontractors would be defunct (bankrupt, victims of the recession, etc.).  Tendering claims to defunct subcontractors may not get the general contractor any benefit, like money or services such as repairs of the defective construction.  Well, if nothing else, the general contractor can at least rely on the benefits of their own insurance and their subcontractors' insurance, right? 

Maybe not, and this is the third problem.  Even if the public owner's contractor is viable, and or the key subcontractors are also viable, there is another cold hard fact: after 10 years there may be no insurance money available for anyone because those policies EXPIRED!  If the claim is large and there is no insurance, even a general contractor may become insolvent, and that does not help tax payers. 

Many insurance policies contain expiration dates.  Here's they key language from one CCIP (commercial contractors insurance policy) that insures a national commercial general contractor doing public works projects here in Seattle:

Products-Completed Operations Hazard includes all bodily Injury and Property Damage occurring or discovered away from premises you own or rent within 10 years or the time period required by the contract, whichever is less.

Another popular OCIP insurer's policy contains this language:

The expiration of this policy period for the "products-completed operation hazard" is determined by applicable law or statute to a maximum extended policy period of ten (10) years.

So imagine you are the responsible contractor, you spend money on the best insurance you can buy, insure all of your subs, and a public owner sues you 11 years after substantial completion.  You tender to your insurer, but your insurer does not have to pay a dime, because your policy expired!

For future public projects in Washington, the responsible general contractor would want to purchase policies without expiration dates.  If the insurance market does not sell such a product, perhaps public contractors should take this issue up with the Legislature and the Office of the Insurance Commissioner.  It seems wholly inequitable for the courts to rule that are no statutory time bars to public owners' claims against their contractors, but then allow the insurance industry to sell policies with time bars for any claims made after 10 years.  Especially so when these contractors purchased those policies as the primary asset to protect them from the risks of those future claims. 

    

Who Knows What Evil Lurks Beneath...The Site?

Does the Responsible Developer in her contracts delegate responsibility for the cost of removing unsuitable soils, boulders, junk, debris and unknown water sources and a host of other things that could be lurking under the site, that could impact project cost? 

Of course, it can happen on any project, especially in the Puget Sound area.  

There are almost no local tunnel, bridge, highway, or other infrastructure projects where the contract does not specifically address the risk of what are called "differing site conditions."  A "differing site condition" is called that because it is a physical condition, that differs in type or amount, from what was expressly found or expected to exist under the site.

The risk allocation for differing site conditions is typically set forth in the RFP and prime contract and based on site borings, engineering, geotechnical and other investigative reports.  The information about what is known is shared with bidders and the costs of dealing with certain conditions are addressed as a set cost per unit, to be billed to a contingency or allowance fund that typically will have a cap.  If or when the contractor encounters these conditions he can make a claim against the allowance of contingency.  If, however, the prime contract also limits the contractors' ability to tap other sources once these funds are exhausted, the contractor may be barred from further recovery.  

Here are some samples of what bidders can expect to see in the RFP.

Bidder Declarations

The Bidder declares that he/she has carefully examined the Contract Documents for the construction of the project, has personally inspected the site, is satisfied as to the quantities involved, including materials and equipment, and the conditions of work involved, including the fact that the description of the quantities of work and materials, as included herein, is brief and is intended only to indicate the general nature of the work and to identify the said quantities with the detailed requirements of the Contract Documents, and that this Proposal is made according to the provisions and under the terms of the Contract Documents, which Documents are hereby made a part of this Proposal.

Each Bidder must be aware of the conditions relating to the execution of the work, inspect the site and become thoroughly familiar with all the Contact Documents. Failure to do so will not relieve the successful Bidder of the obligation to enter into a Contract and complete the contemplated work in strict accordance with the Contract Documents. It shall be the Bidder’s obligation to verify all information concerning site and subsurface conditions.

Prior to bid opening, the Owner will make available to prospective Bidders any available information concerning subsurface conditions and surface topography at the worksite. Investigations conducted by the Engineer of subsurface conditions were made for the purpose of study and design, and neither the Owner nor the Engineer assumes any responsibility whatever in respect to the sufficiency or accuracy of borings, or of the logs of test borings, or of other investigations that have been made, or of the interpretations made thereof, and there is no warranty or guarantee, either expressed or implied, that the conditions indicated by such investigations are representative of those existing throughout such area, or any part thereof, or that unforeseen developments may not occur.

Logs of test borings, geotechnical reports, or topographic maps showing a record of the data obtained by the Engineer’s investigations of surface and subsurface conditions that are made available shall not be considered a part of the Contract Documents, said logs representing only the opinion of the Engineer as to the character of the materials encountered and are available only for the convenience of the Bidders.

After the bidder is awarded the work, the Responsible Developer mitigates against differing site conditions claims by incorporating terms into the contract that are called "Site Condition Warranties."  These warranties are common in public projects.  Here are some examples.

Site Condition Warranties

Contractor agrees, represents, and warrants, that it has examined and thoroughly familiarized itself with all existing conditions affecting the Work, including:

1. All laws, rules, and regulations applicable to, or affecting the Work;

2. All conditions impacting transportation, disposal, handling, and/or storage of materials, equipment and/or supplies,

3. The character of materials, equipment and/or supplies and facilities necessary in the scheduling and execution of the Work and providing facilities to maintain Owner's operations; and

4. All site conditions that would impact Contractor's ability to successfully complete the Work on budget, on time, and within the required parameters set forth in this Contract.

This provision attempts to secure against the unanticipated site conditions that might impact the project. The provision requires the contractor perform a minimal examination of the site to ensure that the site is adequate for the various activities at the site, including the site use, the delivery and storage of materials on site, the ability for multiple trades to work on the site, and the general suitability of the site of the purpose of the project.

Unless substantial site investigation, such as core drilling analysis, occurs, subsurface conditions are often an unknown for the contracting parties. The presence of different soil types, large rock formations or aquifers can dramatically increase the costs of construction as well as the cost associated with construction. The contract should address the subsurface conditions in order to minimize the risk that these conditions will impact the project.
 

Subsurface and Site Conditions Disclosed

Contractor has examined all available records and documents and has made a field examination of the site and has informed itself regarding surface and subsurface conditions, and surface and subsurface water conditions.  All records or documents Owner possesses have been disclosed to Contractor.  These records and documents were made with reasonable care and accuracy. Owner does not warrant or guarantee as to the accuracy of these records or documents or any interpretation or conclusions that may be drawn from such records or documents.  Contractor acknowledges this and agrees it has formed its own opinion regarding surface and subsurface conditions and surface and subsurface water conditions. These records and documents are incorporated by reference to this Contract.

Impact of Differing Subsurface and Surface Conditions.

Should Contractor discover surface or subsurface conditions materially different from those anticipated by Owner and Contractor, and the differing surface or subsurface conditions prevent the successful completion of the Work under the terms of the Contract, Contractor shall notify shall notify Owner within 24 hours of discovery. The failure to notify Owner shall make the Contractor liable for any and all damages, including cost overruns, arising from such failures to act.  

Use of Information

Information derived from inspection of logs of test borings, or pits, geotechnical reports, topographic maps, or from drawings showing location of utilities and structures will not in any way relieve the Contractor from any risk or from properly examining the site and making additional investigations, or from properly fulfilling all the terms of the contract documents.

Site Investigation and Representation

The Contractor acknowledges that he has satisfied himself as to the nature and location of the work, the general and local conditions, particularly those bearing upon availability of transportation, disposal, handling, and storage of materials, availability of labor, water, electric power, roads, and uncertainties of weather, stream or river stages, or similar physical conditions at the site, the conformation and conditions of the ground, the character of equipment and facilities needed preliminary to and during the prosecution of the work, and all other matters which can in any way affect the work or the cost thereof under this Contract.

Potential Legal Bar to Compensation

If the Contractor does find differing site conditions that are arguably compensable but beyond what the contract funds provided, there is another risk.  If the Contractor's "notice of claim" is untimely and/or not in compliance with other contract provisions, the claim may be barred because Washington Courts have ruled that claim notice provisions must be strictly construed, even if the Owner was not prejudiced.     

Currently there are several ongoing and future projects in the Pacific Northwest where differing site conditions are likely to arise, examples include the 520 Bridge, the Alaskan Way Viaduct and Bored Tunnel, the Sound Transit  light rail expansion and the Columbia River Crossing. Given the history of our area, who knows what lurks beneath these sites. 

Regardless, in the event a claim manifests itself, the Responsible Developer and Contractor need to know how to efficiently interpret what the contract will allow or bar.  Doing so will reduce the cost of the claim and mitigate the cost of ADR or litigation.  So if you are contemplating involvement in a major excavation, expect differing site conditions and just plan accordingly, which means plan for the worst.  It's the responsible thing to do.