Upcoming Webinar: Differing Site Conditions on Washington State Construction Projects and Ways to Allocate Economic Risk Associated With These Conditions

Unexpected site conditions can be the most frustrating, difficult and expensive problems to overcome on a construction project. Oftentimes, existing utilities are marked in the wrong location on plans, underground boulders are larger than the geotechnical report indicated and soils are more saturated than tests had revealed. Because differing site conditions can result in enormous expense and delays, it is important for any party to a construction contract to fully understand their economic risks associated with such conditions.

Join us for the next webinar in our ongoing series focusing on pertinent construction topics and updates. This webinar, presented by Foster Pepper attorney Colm Nelson, will discuss the common law doctrines and specific contract mechanisms for shifting risk associated with differing site conditions in Washington state, and common reasons why differing site conditions claims fail.

CLE (attorney) credits pending.
Certificate of completion available for other organizations. 

When:
Thursday, February 18, 2016
2:00 – 2:45 p.m.

Speaker:
Colm Nelson, Foster Pepper PLLC

RSVP:
Please RSVP to events@foster.com by Friday, February 12, 2016. If you have a question you would like addressed during the presentation, please email Price Herriage-Wilson at herrp@foster.com.

Materials Available: "Using GC/CM Contracting for Construction Projects" Webinar

On November 18, 2015 Foster Pepper attorney Greg Guedel presented a webinar titled “Using GC/CM Contracting for Construction Projects.” The webinar was the fourth in an ongoing series focusing on pertinent construction topics. Greg discussed the General Contractor/Construction Manager (“GC/CM”) method of construction contracting, which is becoming increasingly popular for complex public works and private development projects. Topics included:

  • Advantages of GC/CM compared to traditional low-bid contracting.
  • Contracting and administration of projects using GC/CM.
  • The public works GC/CM process under RCW 39.10.

If you missed the presentation, you can review the materials or listen to a recording of the webinar here. To find materials from other presentations on construction topics, click here and scroll to the bottom of the page.

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Materials Available: "What Insurance Does My Construction Project Need?" Webinar

On July 16, 2015 Foster Pepper attorney Greg Guedel presented a webinar titled “What Insurance Does My Construction Project Need?” The webinar was the third in an ongoing series focusing on pertinent construction topics. Greg provided an overview of key issues and strategies for assessing construction project risks and obtaining appropriate insurance policies within the overall project risk management program. Topics included: 

  • Project risk coverage under CGL, Builders Risk, and E&O policies.
  • Contractor payment, performance, and retainage bonds. 
  • Additional insured status for owners and consultants. 
  • Policy documentation and claims management.
 
If you missed the presentation, you can review the materials or listen to a recording of the webinar here. To find materials from other presentations on construction topics, click here and scroll to the bottom of the page. The next webinar in the series will be hosted in late October – look for an invitation in September.   
 

Lenders in Washington May Not Be Able to Rely Upon Lien Release Forms in Light of a Recent Ruling

As case law evolves, so do best practices. A recent lien foreclosure opinion published by Division II, Court of Appeals of the State of Washington, Shelcon Const. Grp., LLC v. Haymond, 2015 WL 3419603 (2015), may cause construction lenders to examine their practice of wholly relying upon recorded lien releases and, moving forward, to seek further assurances from the releasing party that it has been paid in full. Shelcon not only breaks new ground on whether lenders can reasonably rely on recorded lien releases, it also clarifies Washington law on when a mechanic’s lien attaches to property. In securing priority ahead of a lender’s deed of trust, the contractor in Shelcon was successful in arguing that: (1) its lien rights attached “several hours” ahead of a lender’s deed of trust, as the contractor had begun marking boundaries before the deed of trust was recorded; (2) even though it had already executed a lien release required by the lender, the contractor could later file a second lien to recapture those earlier, released amounts; (3) the lender was not entitled to rely solely on a lien release executed by the contractor and instead should have obtained further assurances from the contractor that it had been paid; and (4) the contractor was entitled to an award of legal fees and costs against the lender.

In hindsight, the lender may have avoided a lien priority dispute by using lien release forms containing explicit lien release language, ensuring that the contractor executed a subordination agreement, and securing written representations from the contractor confirming receipt of payment in full. Developers and owners may also learn from this ruling and consider reviewing their lien release forms in order to avoid “resurrected” liens on their projects. 

I. FACTUAL BACKGROUND

While the Court of Appeals describes this case as having a “long and complicated history,” certain unique facts are prominent in the Court’s findings. In early 2006, a developer, Scott Haymond (“Haymond”), through his business entities began contract negotiations for clearing, grading, demolition and excavation with an earthworks contractor, Shelcon Construction, LLC (“Shelcon”). A scope and fixed price were eventually established, and Shelcon began measuring the property’s boundary lines at 8:35 a.m. on July 5, 2006. Shelcon identified boundaries using fluorescent ribbon, a practice it followed on all its projects. That same day, but several hours later at 2:14 p.m., Washington First International Bank (“Washington First”) recorded a deed of trust against the property in the amount of $1,540,000. The sequence of when Shelcon began marking boundaries and when the deed of trust was recorded would later dictate the result of this case.

Approximately two years later on June 20, 2008, Shelcon recorded a mechanic’s lien in the amount of $303,291.29. By then Haymond was behind on payments and in need of additional financing. He had begun negotiations with Anchor Bank, but when the Shelcon lien clouded title, Anchor Bank required that the lien be released as a condition of financing. On July 16, 2008, a fully-executed lien release was recorded, stating in part that “THE UNDERSIGNED LIEN CLAIMANT hereby releases the lien on the property owned or reputedly owned by....” The release, however, contained “no language addressing whether Haymond had paid Shelcon or whether the lien release was limited or conditional in any way.”

After the release had been recorded, Haymond advised Anchor Bank that the lien was a misunderstanding and falsely claimed that the amount owed was for an unrelated project. Anchor accepted this explanation without securing any confirmation from Shelcon. Shelcon, meanwhile, was unaware of Haymond’s misrepresentation.

Haymond then submitted several invoices to Anchor Bank, which were approved by Anchor Bank after it had inspected the project. But, Anchor Bank never communicated with Shelcon during this due diligence period – not even to secure a priority agreement. Ultimately, Anchor Bank relied primarily upon the lien release in approving and processing a loan to Haymond. Anchor Bank recorded its deed of trust on August 22, 2008.

In the fall of 2008, Haymond and Shelcon agreed to modify their agreement. A written contract was circulated, which included new payment provisions changing the contract to a cost-plus-fee arrangement, a standard merger clause, and a provision for 18 percent interest on all unpaid amounts.

Neither party signed the contract. Nonetheless, Shelcon began billing on a cost-plus-fee basis and Haymond paid the invoiced amount. Shelcon continued to work on the project until February 2009 and two months later recorded a second lien. Notably, the second lien included amounts owed under the first lien, which has been purportedly released.1

II. LEGAL ANALYSIS

A. The Lien Release Did Not Constitute a Complete Waiver of Lien Rights, Even Though the Release Was Never Conditioned on Payment.

The trial Court found that Shelcon’s first lien release “did not affect the amount for which Shelcon could subsequently lien after it had finished its work ...” Anchor Bank on appeal essentially conceded that Shelcon never executed a subordination agreement, a waiver or any document (other than the lien release) purporting to limit Shelcon’s lien rights. Anchor Bank mainly focused its efforts on arguing that, as a matter of law, the first release Shelcon signed precluded Shelcon from later liening for the (purportedly) already-released amounts.

The Court of Appeals, however, disagreed. Noting that there was no case law directly on point, the Court drew analogies to other cases discussing lien releases – cases some might find highly distinguishable. Ultimately, the Court’s decision hinged on a “liberal” reading of the mechanic’s lien statute and the fact the contractor had never been paid for the amounts intended to be released. This finding may cause lenders and owners to raise an eyebrow, because the lien itself never stated that the release was conditioned on payment. Title companies and others in the industry have relied upon lien releases of similar ilk in the past when removing clouds on title. Moving forward they may not.

B. The Lender Was Not Entitled to Rely Solely Upon the Lien Release.

As a secondary argument employed to defeat the contractor’s lien priority, the bank claimed that Shelcon should be prevented from recapturing the earlier, released amounts under the legal doctrine of equitable estoppel. For purposes of argument, the Court assumed Anchor Bank could meet all the requisite elements of the doctrine, except reasonable reliance. To invoke the doctrine, the Court held that Anchor Bank was required to prove that it had acted reasonably in relying on the release. The Court, however, found quite the opposite: that Anchor Bank’s reliance was not reasonable. This conclusion rested on the finding that “Anchor Bank had the means to discover the true facts [that Shelcon had not been paid to date], but it failed to do so.” The Court expressly adopted Shelcon’s argument that “Anchor Bank’s reliance was unreasonable in part because it failed to inquire of Shelcon.” While not discussed in the opinion, perhaps the bank felt it didn’t need to consult with Shelcon because it had already secured a lien release. It would now seem that releases alone are insufficient, depending on their wording.

C. A Contractor's Lien Attaches the Day it Begins Marking Boundary Lines.

Those in the industry know that a contractor’s lien generally (there are exceptions) attaches the first day labor, materials, equipment or professional services are first furnished to the site. In order for the lien to attach, however, the furnished items must be done for the “improvement of real property.” As a consequence, disputes have arisen over what type of work triggers attachment of a lien. For instance, drilling test pits has been found to be insufficient to allow a lien to attach because such tests do not constitute an “improvement” of the land.

From this murky legal precedent, the Court determined that marking boundaries fits the definition of professional services, as it is preparatory work in advance of “construction work.” In further support of this finding, the Court noted that the Shelcon’s boundary marking occurred just days before the construction work began. Because Shelcon’s first day of work occurred before both deeds of trust were recorded, Shelcon’s lien had seniority.

The Court awarded legal fees and costs in favor of the contractor. This award was not only against the owner under an attorney-fee clause in the contract, but also against the bank under the mechanic’s lien statute.2

III. CONCLUSION

The upshot of Shelcon is owners and lenders should consider updating their lien release forms, requiring priority agreements from contractors (most do already), and securing written representations from contractors confirming receipt of payment in full satisfaction of work performed (while careful to not make representations to the contractor). Whatever mechanisms are used, seeking further assurances that a contractor has been paid and that its lien rights have been waived seems prudent before relying upon a recorded lien release, in light of this unique case.

This publication is for informational purposes only and does not contain or convey legal advice.

Colm Nelson is a member (partner) at Foster Pepper PLLC and focuses his practice primarily on construction and real estate matters. He can be reached at colm.nelson@foster.com or 206.447.6470.

 

1. This article focuses on the lien priority issues discussed in the opinion, and does not discuss the Court’s findings regarding contract ratification by partial performance.
2. While not squarely addressed by the Court of Appeals (because the matter was moot), it is interesting to note that the trial court ruled that the Anchor Bank deed of trust stepped into the shoes of the Washington First deed of trust for priority purposes, under the doctrine of equitable subrogation. Without getting into the complexities of that doctrine, whether it applies when a mechanic’s lien is involved has not (to the author’s knowledge) been addressed by any appellate court in Washington. Other states have not applied the doctrine uniformly when mechanic’s liens are involved, meaning practitioners should monitor application of the doctrine in Washington.

Dirty Deeds Done Dirt Cheap

Construction in the Seattle area is booming.  The old buildings go down, in come the excavators, and the cranes go up.  Most of the Owners of these new commercial and residential projects, from small apartment complexes to massive mixed use towers with hotels, offices and restaurants, will have to work closely with their designers and contractors to employ due diligence to avoid dirty deeds, such as the potential high cost of delay and property damage involving soil related claims.

Soils claims can be extremely expensive to resolve (like the SR 99 project), especially the ones that are not discovered until after substantial completion where the cost to correct the problem may be huge.  It’s no secret these claims can be budget busters and many times these claims may not be covered by the average general liability insurance policy.

To avoid this scenario, here are at least seven steps (there can be many more) you should take, to ensure you will have the information you need to successfully prevail in the average soils related claim dispute.

  1. Retain a competent, experienced, geotechnical expert.  You should not accept the geotech’s contract.  Have a good construction lawyer draft one for you that protects you and your project.  Do not ever allow that geotech to limit his or her liability to their fee. 
  2. Make sure your geotechnical expert has the correct insurance in place.  Demand to see a copy of the professional and general liability policies before you contract with them.  If either of the geotech’s policies will expire before the scope of their services is complete, make sure you get a copy of the applicable policies.  Make sure that the policies do not contain a large self-retention.  If you do not fully understand the language in these policies, please call your insurance coverage lawyer.
  3. Once under contract, make sure your geotech does the testing required to determine whether or not you have any problematic soil conditions under the extended foot print of the project.  Have your geotech timely provide all the information required by the jurisdiction and or your lenders if required
  4. Retain a competent engineer to design soil nailing for temporary walls and to inspect for full compaction of loose soils, protector testing and inspection of any other areas where it appears there has been past evidence of soil movement.  Your engineer should be up to speed on the codes and standards in your jurisdiction.
  5. Despite all of your due diligence, you should be prepared for differing site conditions.  The Seattle area has been built and rebuilt, over decades.  The list of things you can expect to encounter includes uncompacted soils, cobbles, boulders, standing ground water, aquifers, sinkholes, contaminates, Native American remains, sand, and others.  The detailed written contract (AIA 102 and 201) with your general contractor should have addressed all the liability presented by these issues.
  6. Make sure your general contractor, and/or the applicable subcontractors, are involved with issues with temporary and permanent slope stability, pilings, excavation, soils, grading, trenching, and other dirt work.  Again, you must have detailed, explicit contractual language to assess and allocate liability to each of the parties to the project who have contributed to a soils claim.  Be aware that many general liability policies have exclusions for soil issues like subsidence.
  7. Finally, as soon as a soil issue arises, fully document it in detail, describe what soil related issues have occurred and provide written notices of claim to any party who may have culpability.  Also send written notices to the related insurers, the Owner’s general liability policy, the Contractors, the subcontractors and design professionals.  Depending on the size and cost of the claim, you should also provide notice to the lender.  Do not be tempted to just keep working to maintain the schedule and avoid delay.  Do the investigation and document the claim details when the facts are fresh.  Look to see how the contract addresses delay, either by liquidated damages or the actual cost of delay.  If the latter, then make sure to retain a good delay claim expert.

It is the responsible thing to do!

Materials Available: "How to Pick the Right Contractor for Your Construction Project" Webinar

On April 2, 2015 Foster Pepper attorney Greg Guedel presented a webinar titled “How to Pick the Right Contractor for Your Construction Project.” The webinar was the second in an ongoing series focusing on pertinent construction topics. Greg provided universal techniques for members of both the public and private sector to pick a contractor. He outlined the responsibilities a contractor should possess, the information contractor bidders should provide, the responsibilities of the subcontractors and warning signs from contractors, including debarment and lawsuits. 

If you missed the presentation, you can review the materials or listen to a recording of the webinar here. To find materials from other presentations on construction topics, click here and scroll to the bottom of the page. The next webinar in the series will be hosted in June 2015 – look for an invitation in May.   

Upcoming Webinar: How to Pick the Right Contractor for Your Construction Project

Join us for the second of our ongoing, complimentary webinars focusing on pertinent construction topics and updates. This webinar, presented by Foster Pepper attorney Greg Guedel, is titled “How to Pick the Right Contractor for Your Construction Project.”

Greg will take questions from the audience following the presentation. If you have a question you would like addressed, please email Price Herriage-Wilson at herrp@foster.com by Friday, March 27, 2015.

To see the materials or listen to a recording of Greg’s last webinar “How Long Can a Construction Claim Last?” click here.

CLE (attorney) credits pending.
Certificate of completion available for other organizations. 

When:
Thursday, April 2, 2015
2:00 – 2:30 p.m. 

Speaker:
Greg Guedel, Foster Pepper PLLC 

RSVP:
Please RSVP to events@foster.com by Friday, March 27, 2015. 

Materials Available: "How Long Can a Construction Claim Last?" Webinar

On February 19, 2015 Foster Pepper attorney Greg Guedel presented a webinar titled "How Long Can a Construction Claim Last?" The webinar was the first in an ongoing series focusing on pertinent construction topics. Greg provided updated guidance on the statute of limitations for construction claims and discussed critical dates and events, specifically substantial completion and termination of services, which determine whether a claim on a construction project has expired under Washington state law. Greg used the case Dania, Inc. v. Skanska USA Building, Inc. to illustrate the complexities of filing a construction claim. 

If you missed the presentation, you can review the materials or listen to a recording of the webinar here. To find materials from other presentations on construction topics, click here and scroll to the bottom of the page. Greg's next webinar is on April 2, 2015 at 2:00 p.m. and is titled "How to Pick the Right Contractor for Your Construction Project." 

Upcoming Webinar: How Long Can a Construction Claim Last?

Join us for the first of our ongoing, complimentary webinars focusing on pertinent construction topics and updates. This webinar, presented by Foster Pepper attorney Greg Guedel, will provide updated guidance on the statute of limitations for construction contract claims. Greg will also discuss the critical dates and events that determine whether a claim on a construction project has expired under Washington state law.

Greg will also take questions from the audience following the presentation. If you have a question you would like addressed, please email Price Herriage-Wilson at herrp@foster.com by Friday, February 13, 2015.

CLE (attorney) credits pending.
Certificate of completion available for other organizations.

When:
Thursday, February 19, 2015
2:00 – 2:30 p.m.

Speaker:
Greg Guedel, Foster Pepper PLLC

RSVP:
Please RSVP to events@foster.com by Friday, February 13, 2015.
 

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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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