Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Impermissible Waiver of Public Bidding Requirements, Broadmoor, L.L.C. v. Ernest N. Morial New Orleans Exhibition Hall Auth., 876 So.2d 651 (La. 2004).
* What the Court Considered: The Ernest N. Morial New Orleans Exhibition Hall Authority (the "Authority"), a political subdivision of the State of Louisiana, was organized to plan, build, and operate the New Orleans Convention Center. The Authority announced its intention to receive bids on construction of Phase IV of the facility and received a low bid from a joint venture. The second lowest bidder submitted a formal protest to the Authority asserting that the joint venture had failed to (1) include a certificate of insurance or a letter of insurability; (2) attend pre-bid meetings and purchase a full set of bidding documents; and (3) submit a corporate resolution of authority.
* What the Court Said: Because the joint venture failed to satisfy all mandatory bid requirements, the Authority abused its discretion when it selected the joint venture as the lowest responsive bidder.
* What the Opinion Means: The Louisiana Public Bid Law provides that requirements contained in the advertisement for bids and the bid form of a public contract are non-waivable. When a public entity in Louisiana elects to place certain requirements in its advertisement for bids and on bid forms, the entity is bound by those requirements and may not choose to waive them at a later date. In this case, the bid instructions expressly stated that bidders were required to submit certificates of insurance or statements of insurability and joint venture affidavits and attend two pre-bid conferences. Because the Authority "impermissively waived" these requirements with regard to the joint venture’s bid, it abused its discretion by choosing the joint venture as the lowest responsive bidder.
2. Owner’s Liability Under The Americans With Disabilities Act Upon Purchase of Non-Compliant Facility, Rodriguez v. Investco, L.L.C., 305 F.Supp.2d 1278 (M.D. Fla. 2004).
* What the Court Considered: An owner (the “Owner”) formed a company to acquire a hotel that it planned to convert into a time-share community. The Owner hired an architect to design the hotel’s renovations and a consultant to assist the Owner in ensuring that the hotel complied with the Americans with Disabilities Act of 1990 (the “ADA”). Prior to the Owner’s purchase of the hotel, a plaintiff sued the hotel’s previous owner alleging discrimination because the hotel was not ADA compliant. Once the sale of the hotel was completed, the plaintiff added the Owner as an additional defendant.
* What the Court Said: The Owner was not liable under the ADA because the plaintiff did not demonstrate that he was subjected to or about to be subjected to prohibited discrimination by the Owner.
* What the Opinion Means: “[I]n a private lawsuit, relief [under the ADA] is available only to a disabled person who is being subjected to a defendant’s discrimination or who is about to be subjected either to a defendant’s failure to design and construct an ADA-compliant facility or to alter a facility consistent with [the ADA].” In this case, the plaintiff was not being subjected to the Owner’s discrimination because the Owner did not own the hotel at the time the plaintiff was a guest. Further, the plaintiff did not stay at the hotel after the Owner’s purchase of the facility and the Owner’s renovation efforts likely would bring the hotel well above the ADA’s minimum requirements.
3. Contractor’s Strict Liability for Ultrahazardous Activities, Vicknair v. Boh Bros. Constr. Co., L.L.C., 871 So.2d 514 (La. Ct. App. 2004).
* What the Court Considered: An owner hired a contractor to perform emergency sewer repair, which included pounding sheet pilings into the ground near the plaintiffs’ property. The plaintiffs alleged that vibrations from the contractor’s work caused damage to their home, including cracking in the slab, ceiling, and walls. The plaintiffs sued the contractor for the damages to their home, asserting that the contractor was responsible for the damage even if it was not negligent because the contractor’s work was an ultrahazardous activity.
* What the Court Said: The contractor was not strictly liable because its work did not constitute an ultrahazardous activity.
* What the Opinion Means: For an activity to be considered “ultrahazardous,” it “must be capable of causing injury to others despite the exercise of due care.” However, “if the activity can be conducted without a high degree of degree of risk of injury by exercising due care, then it is not ultrahazardous.” In this case, the work performed by the contractor did not create such a high risk of injury. Thus, although the contractor’s work did cause the damage at issue, the contractor was not liable for the damages because the work was not ultrahazardous and the plaintiffs failed to prove that the contractor was negligent.
4. Requirement of Requesting a Sum Certain for Claims Under the Contract Disputes Act, CPS Mech. Contractors, Inc. v. United States, 59 Fed. Cl. 760 (Fed. Cl. 2004).
* What the Court Considered: A dispute arose between a contractor and the United States Army (the “Army”) when the contractor alleged that the Army had directed it to perform work that was beyond the scope of its contract. The contractor performed the work as directed, but protested by sending several letters to the Army’s contracting officer stating that the work was additional work which entitled the contractor to an equitable adjustment under the contract. The contracting officer responded that the work was required by the original contract and no additional compensation was authorized. When the contractor later filed suit seeking an equitable adjustment, the Army argued that the contractor had failed to satisfy the requirements of the Contract Disputes Act of 1978 (the “CDA”) by failing to submit to the contracting officer a written demand seeking payment of a sum certain.
* What the Court Said: The contractor was not entitled to an equitable adjustment for the alleged additional work because it had failed to assert a “valid” claim under the CDA.
* What the Opinion Means: For a contractor’s submission to a contracting officer to be a “valid” claim under the CDA, “[i]t must be (1) a written demand or assertion, (2) seeking, as a matter of right, (3) the payment of money in a sum certain.” In this case, although the contractor’s letters put the contracting officer on notice of the basis of the contractor’s claim for equitable adjustment, the contractor failed to submit in writing a clear and unequivocal statement of the sum certain amount of the claim. Also, the contracting officer could not have determined the sum certain sought by mathematical calculation from the contractor’s letters. Because the contractor failed to satisfy the sum certain requirement of the CDA, the contracting officer could not meaningfully review the claim.
5. Owner’s Payment Obligations Under a Unit Bid Contract, Prunty Constr., Inc. v. City of Canistota, 2004 S.D. LEXIS 85 (S.D. 2004).
* What the Court Considered: Upon completion of a water and sewer project, the City of Canistota (the "City") paid its contractor the amount of the contractor’s original bid price, but refused to pay a final change order. The contractor sued the City for breach of contract. The City argued that the contract was a lump sum contract and the contractor was required to submit change orders for additional units and have prior authorization in order to be paid for any additional work beyond the contract amount. The contractor argued that the contract was a unit bid contract that required the City to pay for the actual units supplied.
* What the Court Said: The contract was a unit bid contract; accordingly, the contractor was not limited to payment in the amount of its original bid price.
* What the Opinion Means: Under a lump sum contract, "the contractor agrees to complete the work for a set price, regardless of the actual costs incurred in completing the construction." By contrast, a unit bid contract "is one wherein the contractor submits a price per unit for each of the various categories involved [and where] the final quantities of work cannot be determined with accuracy until final completion." To determine whether a contract is a "unit bid" contract or a "lump sum" contract, a court looks to the contract language itself. Here, both the advertisement for bid and the bid schedule invited the contractor to bid a price by unit based upon the City's estimated number of units, and the language of the bid form demonstrated that the contract was a unit bid contract. Thus, when the contract was read as a whole, it reflected the parties' intention that the work be paid for on a per unit basis. Accordingly, the contractor was not limited to payment in the amount of its original bid price.
6. Enforceability of No-Damage-For-Delay Clauses Under Nevada Law, J.A. Jones Constr. Co. v. Lehrer McGovern Bovis, Inc., 89 P.3d 1009 (Nev. 2004).
* What the Court Considered: Although the concrete subcontractor on an exposition center expansion project was prepared to begin its work on schedule, the excavation work of another contractor had not been timely performed. For that reason, the subcontractor was forced to use less efficient methods to perform its work and completed its first phase of concrete work eight months behind schedule. The subcontractor asserted a delay claim against the general contractor and the general contractor asserted the no-damage-for-delay clause in the concrete subcontract as its defense.
* What the Court Said: The subcontractor’s delay claim was barred by the no-damage-for-delay clause in its subcontract.
* What the Opinion Means: Under Nevada law, a no-damage-for-delay clause generally is an appropriate device by which contracting parties may assign the risk of unforeseen or uncontemplated delays. However, there are three exceptions to the enforceability of a no-damage-for-delay clause: “(1) delays so unreasonable in length as to amount to project abandonment; (2) delays caused by the other party's fraud, misrepresentation, concealment or other bad faith; and (3) delays caused by the other party's active interference." Because the delay of a third-party subcontractor did not fall within one of these exceptions, the concrete subcontractor was prohibited from asserting a delay claim against the general contractor.
7. Architect’s Right to Payment for Construction Management Services, Kourafas v. Basic Food Flavors, Inc., 88 P.3d 822 (Nev. 2004).
* What the Court Considered: A licensed architect contracted to design a facility for an owner. The architect then executed a second agreement with the owner pursuant to which the architect agreed to manage the construction of the facility it designed in return for ten percent of the construction cost of the project. The architect filed a breach of contract action when the owner paid the architect for its services under the design agreement but refused to pay for services rendered under the construction management agreement. The owner argued that, because the architect was not a licensed contractor, it had no right to be compensated for construction management services.
* What the Court Said: The architect was entitled to compensation for both its design and construction management services.
* What the Opinion Means: Under Nevada law, a contractor’s license is not necessarily required to perform construction management services. The scope of practice as an architect can include construction management and the lack of a contractor's license does not prohibit an architect from seeking compensation for construction management services rendered to an owner. An architect’s authority may include "administration of construction" and providing "consultations, evaluation, investigations, contract documents and advice and direction." Accordingly, an architect can, if its contract so provides, continue to assist in any phase of construction pursuant to its license under Nevada law.
8. Recognition of Pass-Through Claims Under Texas Law, Interstate Contracting Corp. v. City of Dallas, Texas, 135 S.W.3d 605 (Tex. 2004).
* What the Court Considered: A subcontractor encountered unanticipated conditions during its excavation work, which required the subcontractor to incur additional costs and decreased productivity. The general contractor brought the subcontractor’s claims against the owner pursuant to an agreement by which the subcontractor released the general contractor from liability in exchange for any recovery obtained by the general contractor against the owner. The owner argued that Texas law does not allow pass-through claims by general contractors on behalf of their subcontractors.
* What the Court Said: Texas law recognizes pass-through claims against owners by general contractors on behalf of their subcontractors.
* What the Opinion Means: Under Texas law, as in a majority of other states and under federal law, a general contractor may bring against a project owner pass-through claims on behalf of its subcontractors. However, the general contractor must remain liable to the subcontractor (such as through a pass-through agreement) for the damages sustained by the subcontractor. If the owner contests the general contractor’s pass-through suit on the grounds that the general contractor is not liable to the subcontractor, the owner has the burden to prove that the pass-through arrangement negates the general contractor’s responsibility for the costs incurred by the subcontractor.
9. Right to Assert Claim of Negligent Misrepresentation Without Contractual Privity, Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575 (Ky. 2004).
* What the Court Considered: In its owner-general contractor agreement, a general contractor expressly waived any rights as a third-party beneficiary of a separate owner-construction manager agreement. However, once the project was completed, the general contractor sued the construction manager for negligent coordination of the trade work and negligent misrepresentation regarding scheduling matters. The construction manager argued that the general contractor's claims lacked merit because the construction manager owed no independent duty to the general contractor in the absence of a direct contractual relationship.
* What the Court Said: Under Kentucky law, a general contractor may sue a construction manager for negligent misrepresentation, despite having no direct agreement with the construction manager.
* What the Opinion Means: Because the construction manager's alleged negligent coordination was a breach of its contract with the owner, an agreement to which the general contractor was not a party, the contractor could not maintain such claim against the construction manager. However, the contractor's claim for negligent misrepresentation of the schedule was a direct negligence action that the general contractor could pursue against the construction manager. “One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." Privity of contract is not necessary to maintain an action for negligent misrepresentation because the tort creates an independent duty for which the general contractor was an intended beneficiary.
10. Enforceability of Arbitration Clause in Construction Contract, Krut v. Whitecap Hous. Group, LLC, 2004 Ga. App. LEXIS 945 (Ga. Ct. App. 2004).
* What the Court Considered: By the terms of a contract for the sale of property, the buyer was authorized to use certain escrowed funds as the “remedy" to pay for construction work on the property if the work was not completed by the seller within 30 days of the sale. Although the seller performed some construction work on the parcel, a dispute arose as to whether the construction was completed in a workmanlike and timely manner. The seller demanded that the dispute be resolved by binding arbitration in accordance with the arbitration clause in the parties’ contract and filed a claim of lien on the property which the seller agreed to release upon payment of the escrowed funds. The buyer argued that the arbitration clause was unenforceable and filed a complaint against the seller.
* What the Court Said: The parties were bound to arbitrate their dispute under the Federal Arbitration Act (the "FAA").
* What the Opinion Means: Where, as in this case, a contractor uses employees from another state, material incorporated into the construction is purchased in another state, and some of the subcontractors are from another state, such facts are sufficient to support a finding that the construction contract at issue involved “interstate commerce" so as to bring the dispute within the scope of the Federal Arbitration Act (the “FAA”). Accordingly, because the agreement was sufficiently clear as to the parties' intent to arbitrate, the lower court was required to stay the suit filed by the buyer as to the escrow dispute so that the arbitration demanded by the seller could proceed. Such a result is required by the FAA's mandatory stay provision, which requires that a district court "shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed."
Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. Ryan Stinnett is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.