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!

How to Know When Claims Are Time Barred

What does the Responsible Developer do first with regard to a notice of claim arising out of a completed project?

She does the math to see whether or not the claim is time barred.

Whether you are making a claim or defending against one, a first good step is to quickly gather the information to figure out whether the claims at issue are time barred. If the claims are barred, then it could be a waste of time and money to pursue them.  Yet time barred claims are made all the time, most are later dismissed.  In some cases the defending party is also awarded their fees and costs. Sometimes these claimants found out too late but some just failed to do the analysis. 

In order to know when a claim is time barred you need to do some project research. Most of the time the claims at issue for a typical real estate developer will arise out of a contract dispute based on written documents, such as a construction contract, purchase sale agreement, or a lease. Yet there are also times when a “contract” is really just an invoice or some other writing that may not meet the legal test to be a “written contract.” So quickly find and read those contracts and agreements.

A second step is to figure out what events start the clock running on your contract claim. These events generally can be when a contract was fully executed, when the scope of work under a construction contract was completed and when the claim event at issue was discovered. 

The third step is the hard part, you need to do the analysis and apply the math. The analysis is to determine what statute of limitations applies and the math is to determine how many years have expired since the contract was performed, and how much time you have left until the claim is time barred. Generally, the statutory claim time periods are three years for oral contracts (which includes writings that do not meet the legal test for a written contract) and six years for a formal written contract. Both the three and six year periods may be subject to what is called the “discovery rule” which can extend either statute. In case this analysis is not already complex enough, there is another statute, called the statute of repose, that acts as a bar to claims even if the discovery rule were to otherwise apply.

At about this point in the analysis many clients roll their eyes and call their lawyer to help them figure it out. This is a natural reaction given that this analysis can be tough even if you have a legal background. So to help with the analysis here, below is handy bar chart for construction claims.

The first red line is the three year statute of limitations for oral contracts (may be written but lack  essential terms). The second is the six year statute of limitations for written contracts (typical formal contract). The third red line is the six year statute of repose which bars claims that have not timely accrued. If the claims on your project are based, even in part, on a breach of performance by third parties (like designers or subcontractors), your contract may require those third parties to defend and indemnify you, so you need to know what events give rise to duty to defend and indemnity claims.

Again, expect your analysis to require modification as you gather more information.  If it's really complex and you think the claim is close to being time barred, call your lawyer, now, and good luck!