Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Troy Kiber
1. Continuing a Late Project as Waiver of Delay Damages, Morton Buildings, Inc. v. Correct Custom Drywall, Inc., 2007 WL 1641155 (Ohio App. 10th Dist. June 7, 2007).
* What the Court Considered: An owner sought quick completion of a free-standing garage. However, the contract it signed with the builder contained no completion date but only a approximate delivery date of July, 2002. The project was not completed by this date, but the owner continued to urge completion until February 2003, when it terminated the contract. The contractor argued that the owner waived its right to terminate for delay when it demanded construction to proceed past the original delivery date.
* What the Court Said: Because there was no definitive date on which non-performance resulted in a breach, the owner could continue to demand completion without waiving its right to terminate for delay.
* What the Opinion Means: When a contract fixes a time for completion, a party may waive its right to complain of the failure to meet that date when it demands performance after the fixed time. Here, however, there was no fixed time and thus no waiver of the right to terminate the contract at a later point.
2. Liability of a Co-Prime Contractor, Everman’s Electric Co. v. Evan Johnson & Sons Constr., Inc., 955 So.2d 979 (Miss. Ct. App. 2007).
* What the Court Considered: Rather than hire one general contractor, a school district contracted directly with three contractors. The electrical contractor encountered delays it attributed to the performance of the other co-prime contractors, and sought to bring suit against each. While the electrical contractor had no agreement with the other contractors, all three prime contractors had agreed to coordinate their work as not to hinder the other contractors and "resolve … claims directly with the other contractors."
* What the Court Said: Because the contractors had obligated themselves to cooperate, the electrical subcontractor could sue as a third party beneficiary to the contract entered between the other prime contractors and the owner.
* What the Opinion Means: A party separate from a contract may plead a third party beneficiary action when the contract contemplates a benefit to the third party and imposes a duty to that third party. Here, the benefit was the ability of the electrical contractor to perform its work and the duty was the requirement of cooperation and coordination.
3. Waiver of the Requirement that any Contract be in Writing, Jordan Panel Systems, Corp. v. Turner Constr. Co., 45 A.D.3d 165 (N.Y.S.2d 2007).
* What the Court Considered: In the preliminary term sheet sent to the subcontractor, the general contractor stated that it would not be bound to any term of the subcontract unless and until it had executed the document. The subcontractor was in turn not obligated to perform any work before the general contractor executed the subcontractor. The contractor notified the subcontractor that it had been awarded the subcontract in a conference call and in that same call directed the subcontractor to proceed with the work, which the subcontractor did. However, the general contractor never signed the subcontract and later replaced the subcontractor. The jilted subcontractor sued, claiming the contractor had waived the requirements of its preliminary term sheet.
* What the Court Said: Because the contractor notified that subcontractor that it would not be bound by oral statements, and never expressly waived the requirement of a executed contract, it was not bound.
* What the Opinion Means: The term sheet outlined what the actions of the general contractor would constitute assent to be bound. These requirements were never expressly waived, and could not be implicitly waived by the very conduct outlined as non-binding in the term sheet.
4. Recovering for Defective Plans and Specifications, Ace Constructors, Inc. v. United States, 499 F.3d 1357 (Fed. 2007).
* What the Court Considered: A contractor hired to construct a facility at an Army airfield bid on the project under what the government later admitted to being defective plans and specifications. The contract set out two possible means of testing concrete paving, but the Army Corps of Engineers initially required the more expensive method, until admitting that the cheaper method was preferable. The contract also provided two means of paving the concrete, but the contractor was forced to use the more expensive method. Finally, based upon the specifications, the contractor assumed that no extra fill dirt would be required, but it was later forced to import considerable fill.
* What the Court Said: Because the plans and specifications were defective, the contractor was entitled to an equitable adjustment in its contract price.
* What the Opinion Means: Based upon the plans and specifications, the contractor reasonably assumed it would be able to use the less expensive methods outlined as options in the contract. That an experienced engineer could have discovered that the plans were defective, and that the more expensive means would be required, did not make that reliance unreasonable.
5. Proving the Defectiveness of Plans, Caddell Constr. Co. v. United States, 78 Fed. Cl. 406 (2007).
* What the Court Considered: A contractor hired to construct a government hospital alleged that the contract documents were actually design specifications, and that the errors in these specifications caused it to incur damages. The contractor pointed to the high number of Requests for Information (RFIs) related to the steel fabrication as evidence that the plans were defective and thus unreasonably delayed performance.
* What the Court Said: A high number of RFIs, standing alone, did not show that the specifications were defective.
* What the Opinion Means: The court agreed that the structural steel portions of the contract were detailed enough to be design specifications, carrying an implied warranty that adherence thereto will result in satisfactory contract performance. However, the evidence of a high number of RFIs in a short period of time was not enough to convince the court that that warranty was breached. First, the contractor was obligated to issue RFIs. Second, the facts that so many RFIs were generated early in the project was likely due to an "extremely ambitious" schedule, rather than the specifications themselves. Finally, the contractor never sought a change order as a result of any RFI - demonstrating that these issues did not unreasonably delay performance.
6. Governmental Liability for Suspending Work After 9/11, Appeal of - Connor Bros. Constr. Co., 2007 WL 2376490 (A.S.B.C.A. October 23, 2007).
* What the Court Considered: After the September 11th attacks, a contractor constructing two buildings within Fort Benning, Georgia was ordered to evacuate. While other contractors were allowed back on to the site in a matter of days, this contractor was excluded from the site for weeks after the attacks as the Army Rangers prepared for deployment to Afghanistan. The contractor was offered a time-extension but sought delay damages. The government argued that the exclusion was a sovereign act, undertaken to prevent military actions from becoming public knowledge, for which it could not be liable.
* What the Court Said: Because the government had justifiable reasons for excluding this particular contractor, the exclusion was a sovereign act.
* What the Opinion Means: The government will not be liable for the sovereign acts that are public and general. The contractor argued that this action was not public and general because other contractors were allowed onto the site. Those contractors allowed on site, however, were reasonably deemed essential to the mission of deploying forces. This contractor, however, had a considerably larger workforce that would necessarily have had greater knowledge of the goings-on at the base because of the position of their worksites. Those facts made this contractor more akin to civilians and journalists who were also excluded.
7. The Standard of care for an Environmental Consultant, WATCO v. Pickering Envtl. Consultants, Inc., 2007 WL 1610093 (Tenn. Ct. App. June 5, 2007).
* What the Court Considered: A developer purchased property in 1995, relying on a report prepared by an environmental consultant that there were no significant environmental concerns. When the purchaser began to develop the property in 2004, however, it discovered the remains of a municipal garbage dump, and sued the consultant for professional negligence. The consultant had followed the American Society for Testing and Materials ("ASTM") procedures, but the developer argued that the standard of care went beyond ASTM standards and required further investigation.
* What the Court Said: While the legal standard of care for environmental consultants is not controlled by the ATSM standards, the developer failed to establish that this consultant breached any professional duty.
* What the Opinion Means: Professionals are judged according to the standard of care required by their profession. A standard like the ASTM only becomes the standard of care if it is "embraced as the ordinary way things are done." This court was convinced - by evidence that environmental consultants’ work routinely failed to conform entirely to the ASTM standard - that the standard of care for environmental consultants was not equivalent to the ASTM standard.
8. Architect’s Duty to Inspect, Turner v. Moen Steel Erection, Inc., 2007 WL 1658683 (D. Neb. June 5, 2007).
* What the Court Considered: An injured employee, and the insurance company that paid his workers compensation benefits, sued for injuries sustained when a concrete pre-cast wall fell on a parking deck project. The installer admitted that it departed from the installation specifications, but alleged that the original design was impossible to construct. While there was a dispute about the anchoring system utilized in the field, it was clear that the building code required the owner, architect, or engineer to employ a special inspector. No such inspector was employed, but the architect sought to avoid liability by arguing that it delegated responsibility to the engineer.
* What the Court Said: The architect’s failure to employ a special inspector could be the basis of liability for resultant injuries.
* What the Opinion Means: While the contract between the owner and the architect exculpated the architect from responsibility for means and methods or safety precautions, the architect retained a duty to employ special inspectors. This duty was not delegated to the engineer because the architect retained the duty to inspect the engineers work for compliance and overall coordination.
9. Foreclosing on a Lien, Action Concrete v. Portrait Homes-Little Suwanee Point, LLC, 647 S.E.2d 353 (Ga. Ct. App. 2007).
* What the Court Considered: On the same day that a subcontractor filed a claim of lien, the contractor filed a voluntary petition for bankruptcy in federal court. Some months later, the subcontractor filed a proof of claim in the bankruptcy proceeding, but failed to file a notice of that action in the county it had earlier filed its claim of lien. The contractor argued that the filing in the bankruptcy court was the "commencement of an action" triggering the requirement to file a notice within 14 days.
* What the Court Said: Because the subcontractor did not file a notice of commencement of the action within 14 days of filing in bankruptcy court, its lien was unenforceable.
* What the Opinion Means: Georgia Law requires that an action to recover on a lien be commenced within 12 months of filing the lien. Within 14 days of commencing such an action, the claimant must file a notice in the county where the lien was filed, even if the suit is filed in the same county. A proof of claim in a bankruptcy proceeding is considered the "commencement of an action" triggering the 14 day period.
10. Agreements to Restrict the Number of Condominiums, The Waterfront, LLP v. River Oaks Condominium Assn, Inc., 651 S.E.2d 481 (Ga. Ct. App. 2007).
* What the Court Considered: An owner constructed three phases of a condominium development, amending the initial declaration of condominium each time. The fourth amendment called for a fourth phase, limited to 30 units, on heretofore undeveloped land. Before the fourth phase was commenced, the owner sold its interest to a third party. The new owner sought to build more than 30 units on the land where the fourth phase was to be located - arguing that it was not bound by the fourth amendment to the declaration of condominium because the architect’s certification of the plans had not been filed as contemplated in the statutory requirements of the Georgia Condominium Act.
* What the Court Said: Because the restrictive covenant limiting construction to 30 units was properly filed, the new owner had constructive notice of the covenant and was bound by it.
* What the Opinion Means: The new owners argument that the Georgia Condominium Act had not been fulfilled was premature - the steps that had yet to be fulfilled were prerequisites only for a conveyance of a condominium unit. Regardless, the critical inquiry was whether or not the agreement to limit construction to 30 units bound the new owner. As that agreement was properly recorded, and relied upon by other condominium owners, it was binding upon the new owner.
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. Troy Kiber is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.