CALIFORNIA CONSTRUCTION LAW
Table of Contents
PREFACE
xxvii
ABOUT THE
EDITORS xxix
CHAPTER ONE
1
CONTRACTOR LICENSING
LAWS 1
I.
OVERVIEW OF CALIFORNIA’S CONTRACTOR’S LICENSE
LAW 1
A.
Purpose of License Laws 2
B.
Applicability of License Laws 2
C.
Violations of License Laws 3
II. WHEN
A CONTRACTOR’S LICENSE IS AND IS NOT NEEDED 3
A. When a
Contractor’s License is Required 3
B. When a
Contractor’s License is Not Required 5
1.
Theoretical Exceptions to Contractor’s License
Requirement 5
2.
Statutory Exceptions to Contractor’s
License Requirement 6
III.
CONTRACTOR LICENSE CLASSIFICATIONS 7
A. Class
A - General Engineering Contractor 7
B. Class
B - General Building Contractor 8
C. Class
C - Specialty Contractors 9
IV.
ISSUANCE OF THE CONTRACTOR’S LICENSE 10
A. Form
of the Business 10
B.
Requirements for a Contractor’s License 11
C.
Reciprocity 11
V.
QUALIFYING PERSONS 12
A.
Individual 12
B.
Partnership 12
C.
Corporation 12
D.
Limited Liability Corporation 12
E.
Requirements for a Person Qualifying on Behalf
of an Individual or
Business Organization 12
VI.
VIOLATIONS OF CONTRACTOR’S LICENSE LAWS 14
A.
Acts Resulting in Automatic Suspension
14
1.
Disassociation of the RMO/RME/RMM
14
2.
Failure to Maintain Workers’ Compensation
Insurance 15
3.
Failure to File or Maintain Required
Bonds 16
4.
Failure to Pay Taxes 16
5.
Failure to Comply with Arbitration
Award 16
6.
Failure to Pay Civil Penalty or Comply with
Order of Correction or Citation 16
7.
Partnership Issues 17
8.
Corporation and LLC Issues 17
9. Joint
Venture Issues 17
B. Acts
Resulting in Disciplinary
Actions 18
1.
Misrepresentations or Failure to Report
Changes to the CSLB 18
2.
Abandonment of Contract 18
3.
Failure to Diligently Prosecute Work
18
4.
Diversion or Misapplication of Funds or
Property 18
5.
Failure
to Promptly Pay Subcontractors 19
6.
Disregard of Plans, Specification, or
Accepted Trade
Standards 19
7.
Violation of Statutes or Safety
Provisions 19
8.
Failure to Keep Records for 5 Years
19
9.
Failure to Cooperate in CSLB’s Investigation
of Complaint 20
10.
Failure to Complete Project for Contract
Price 20
11.
Avoidance of Settlement Obligations
20
12.
Willful or Fraudulent Act 20
13.
Acting as Contractor While Improperly
Licensed 20
14.
Willful or Deliberate Failure to Pay for Material
or Services 20
VII.
PENALTIES FOR VIOLATING CONTRACTOR’S LICENSE
LAWS 21
A. The
“Shield”: Denial of Unlicensed
Contractor’s Right to Sue for
Compensation 21
B. The
“Sword”: Disgorgement of
Unlicensed Contractor’s
Compensation 23
C. Other
Civil Actions 24
D.
Criminal Penalties 24
VIII.
SUBSTANTIAL COMPLIANCE PROVIDES PROTECTION FROM THE
“SWORD” AND THE “SHIELD” 25
IX.
MISCELLANEOUS ISSUES 26
A.
Checking a Contractor’s License
26
B.
Nontransferability of a License
26
C. Risks
of Hiring Unlicensed Contractors
27
D.
Additional Licensing Requirements for Public
Works Projects 28
E.
Contracting Requirements 28
F.
Advertising Issues 29
G. Increased Enforcement of License Laws
29
ENDNOTES
30
CHAPTER TWO
38
FUNDAMENTALS OF
CONSTRUCTION CONTRACTS 38
I. BASIC
CONTRACT PRINCIPALS 38
A.
Contract Formation 38
1.
Capacity to Contract 38
2.
Consent/Offer and Acceptance 39
a.
Offer 39
b.
Acceptance 39
3. Lawful
Purpose 40
4.
Consideration 40
B.
Contract Interpretation 40
1. Intent
of the Parties 41
2.
Extrinsic Evidence 41
3.
Hand-Written Modifications 41
4.
Meaning of Contract Terms 41
5. Order
of Precedence 42
6.
Implied Obligations 42
C.
Standard Form Contracts 43
II.
RELATIONSHIPS AMONG THE PARTIES – PROJECT
DELIVERY SYSTEMS 45
A.
Design-Bid-Build 45
B.
Design-Build 47
C.
Multi-Prime 48
D.
Construction Management 49
E. Public
Private Partnership 50
III.
PRIME CONTRACT ISSUES 51
A.
Contract Price 51
1. Lump
Sum/Fixed Price 51
2. Cost
Plus Fee 52
3. Time
and Material 52
4.
Guaranteed Maximum Price 53
B. Scope
of “Contract
Documents” 53
1.
Contractors are Entitled to Rely on Public
Contract
Documents 53
C.
Liquidated Damages 55
D.
Changes 55
1.
American Institute of Architects Standard
Form A201-2007 Article 7 56
E.
Limitations on Delay Damages 56
F.
Differing Site Conditions 59
G.
Contractual Dispute Resolution
Procedures 59
1.
Alternative Dispute Resolution
Provisions 60
a.
Arbitration 61
b.
Mediation 62
c.
Disputes Review
Board 62
H.
Termination 63
1.
Termination for Convenience Clause
63
2.
Default Termination Clause 64
I.
Subcontractor Payment 64
ENDNOTES
66
CHAPTER THREE
68
PUBLIC CONTRACT
BIDDING 68
I.
INTRODUCTION TO PUBLIC CONTRACT BIDDING
68
A.
Purpose 68
B.
Exceptions 69
C.
Failure to Adhere to Competitive Bidding
Procedures 70
II.
PRE-BID PROCEDURES 70
A.
Prequalification 70
B. Public
Disclosure of RFP Proposals
71
C. Plans
and Specifications 71
1.
Adoption of Plans and Specifications
71
2. Bidder
Opportunity to Review Plans
72
3.
Changes to Plans and Specifications
72
III.
BIDDING PROCESS AND BID DOCUMENT
REQUIREMENTS 72
A.
Requests/Invitation for Bids 72
1.
Contents 72
2.
Alternate Bid Items 75
3. Amount
of Bid Security, Performance and
Payment
Bonds 77
4. Period
of Bid Irrevocability 78
5.
Advertisement/Publication
78
B.
Instructions for Bidders 78
C. Bid
Forms 79
IV. BID
OPENING/RETURN OF LATE BIDS 80
V. BID
MISTAKE AND WITHDRAWAL 80
A.
Statutory Grounds for Withdrawal
81
B.
Forfeiture of Bid Security 82
C. Award
After Withdrawal or Forfeiture of Bid
Security 82
D.
Participation in Re-Bid 83
E.
Subcontractor Bid Mistakes 83
F. Waiver
of Irregularities 84
VI.
EVALUATION AND REJECTION OF BIDS 85
A. Bid
Responsiveness and Responsibility
85
1.
Responsiveness 85
2.
Responsibility 86
a.
Statutory and Common Law
Definitions 86
b.
Relative Superiority Analysis
Prohibited 87
c.
Hearing/Due Process 87
B.
Subcontractor Listing Law 88
1.
Subcontractor Substitution 89
2.
Subcontractor Case Law 89
a.
Unlicensed Subcontractors 89
b.
Subcontractor Legal Actions Against
Prime 90
C. Bid
Protests 91
1.
General 91
2. Bid
Protest Procedures 93
3.
Judicial Remedies 94
a. Writ
of Mandate 94
b.
Monetary Damages 95
c.
Injunctive Relief 95
4.
Judicial Review of Bid Protests
95
VII.
PROJECT DELIVERY METHODS 96
A.
Design-Bid-Build vs. Design-Build
97
1.
Design-Bid-Build 97
2.
Design-Build 98
B.
Construction Management 100
C.
Multiple Prime Contracting 101
1.
Advantages 101
2.
Disadvantages 101
D. Job
Order/Annual Contracts 102
VIII.
SELECTION OF DESIGN PROFESSIONALS 103
A.
Statutory Requirements 103
B. Design
Services Contracts 104
1. Public
Contract Code Section 20103.6
Disclosure of
Indemnification Provision 104
2.
Further Limits on Indemnity Provisions for
Design
Professionals 105
IX.
CONCLUSION 105
ENDNOTES
107
CHAPTER FOUR
110
COMMON CONTRACT
DISPUTES 110
1.
COMMON OWNER BREACH 110
A.
Owner’s Wrongful Non-Payment
110
B.
Owner-Caused Delay 111
1.
Categorizing the Delay 112
2.
Contractor’s Burden of Proof for Delay
Claims 116
3.
Recoverable Delay Damages 117
a.
Direct Costs 117
b. Idle
Time/Equipment 118
c.
Extended Field and Home Office
Overhead 118
d.
Increased Costs for Labor and
Materials 118
e. Lost
Profits 119
f.
Impeded Access to Project 120
C.
Defective or Incomplete Plans and
Specifications 121
1. Design
Errors and Omissions and the Effect
On
Performance 122
2.
Determination of Design Errors and
Omissions 123
D.
Acceleration by Owner 124
1. Types
of Acceleration 124
2. Impact
and Costs 126
3. Notice
to Owner 126
E.
Wrongful Termination by Owner 126
1.
Termination in General 126
2. Types
of Termination 127
3.
Wrongful Termination 128
4.
Recoverable Damages 130
II.
COMMON CONTRACTOR BREACH 132
A.
Performance 132
1.
Defective or Non-Conforming Work
132
a.
Contractor’s Non-Compliance with
Contract Documents 132
b. Recoverable Damages 133
c.
Theories of Liability 133
2.
Delayed Performance 134
a. Types
of Delay 134
b.
“Abandonment” Versus
“Substantial Completion”
135
c.
Recoverable Delay Damages
136
B.
Non-Payment of
Subcontractors/Suppliers 138
C.
Suspended/Revoked Licensure 138
ENDNOTES
140
CHAPTER FIVE
143
CHANGE ORDERS AND EXTRA
WORK 143
I. THE
CHANGE ORDER CLAUSE 143
A. The
Purpose of the Change Order Clause
143
B. The
Rights and Obligations Created by the
Change Order Clause
144
C. The
Importance of Following the Contractual Change
Order Procedures
144
II.
TYPES OF CHANGES 145
A. Actual
or Owner Acknowledged Changes
145
B.
Constructive Changes 146
C.
Cardinal Changes 146
III. THE
CHANGE ORDER 146
A. The
Change Order Form 146
B.
Disputes Over Change Order’s Scope of
Work 147
C.
Pricing the Change Order 147
D.
Authority to Issue Change Orders
149
1.
Private Projects 150
2. Public
Projects 150
E.
Releases and Reservations in Change Order
Forms 151
IV.
PROCEEDING UNDER PROTEST 151
A.
Compliance with Contractual Notice and
Documentation
Requirements 152
B.
Documenting Cost and Time Impacts
152
V. ORAL
CHANGES: WAIVER OF THE WRITING
REQUIREMENT 153
A.
Private Contracts 153
B. Public
Contracts 154
VI.
VALIDITY OF CHANGE ORDERS ISSUED AFTER
THE
CHANGED OR EXTRA WORK IS PERFORMED 156
VII.
A CHANGE ORDER IS NOT REQUIRED TO
RECOVER
FOR EXTRA WORK CAUSED BY
OWNER’S BREACH OF THE IMPLIED WARRANTY
OF
CORRECTNESS OF PLANS AND
SPECIFICATIONS 156
VIII.
IMPLICATIONS OF CALIFORNIA’S FALSE
CLAIM
ACT ON CHANGE ORDERS 157
IX.
MATERIAL CHANGES: THE
DOCTRINES
OF
ABANDONMENT OF CONTRACT AND
CARDINAL CHANGES 158
A.
Abandonment of Contract 158
1.
Private Contracts 158
2. Public
Contracts 159
B.
Cardinal Change 160
C. Total
Cost or Modified Total Cost Measure of
Damages 160
ENDNOTES
162
CHAPTER SIX
164
TYPES OF CONSTRUCTION
CLAIMS 164
I.
OWNER CLAIMS 165
A.
Delay 165
1. Types
of Delay 165
a.
Excusable vs. Inexcusable Delay
165
b.
Compensable vs. Non-Compensable
Delay 166
c.
Concurrent Delay 166
2.
Viability of Recovering for Delay
166
a.
Liquidated Damages 167
b.
Ownership of Float 167
B.
Failure to Perform 168
1. What
Constitutes a Failure to Perform
168
2.
Viability of Recovering for Failure to
Perform 169
a.
Owner’s Breach of Implied
Warranty 169
b.
Waiver by Owner 170
C. Breach
of Warranty 170
1. Types
of Warranties 170
2.
Viability of Recovering for Breach of
Warranty 171
D.
Termination 171
1. Types
of Termination 171
a.
Termination for Convenience 171
b.
Termination for Default 172
2.
Viability of Recovering for
Termination 172
E. False
Claims 173
1. What
Constitute a False Claim 173
2.
Viability of Recovering for False
Claims 173
F.
Disgorgement/Licensing 174
1.
California’s Licensing
Requirements 174
2.
Penalties for Failing to Comply with
California’s Licensing
Requirements 175
II.
CONTRACTOR CLAIMS 175
A.
Delay 175
1.
Identifying Delays 175
2.
Viability of Recovering for Delay
176
3. No
Damages for Delay Provisions
177
B.
Acceleration 178
1. What
Constitutes Acceleration 178
2.
Viability of Recovering for
Acceleration 178
C.
Disruption and Productivity Impacts
179
1. What
Constitutes Disruption or
Productivity
Impacts 179
2.
Viability of Recovering for Disruption and
Productivity
Impacts 179
D.
Changed/Extra Work and Differing Site
Conditions 180
1.
Changed/Extra Work 180
a.
Actual Changes 181
b.
Constructive Changes 181
c.
Cardinal Changes 181
d.
Contractor’s Duty to Proceed
182
2.
Differing Site Conditions 182
a. What
Constitutes a Differing Site
Condition 182
b.
Contractual and Legal Allocation of Risk
for Differing Site Conditions 183
3.
Contractor’s Claim for Owner’s Breach
of
Implied Warranty of Correctness of Plans and
Specifications 184
E.
Failure to Make Payments 184
1. Types
of Payment Made to the
Contractor 184
a.
Progress Payments 185
b.
Retention/Final Payment
185
2. Time
Period for Payment and Prompt Payment
Statutes
185
3.
Contractor’s Ability to Cease Performance
Based on the Owner’s Failure to
Make Progress
Payments 187
F.
Suspension of Work/Stop Work Notice
188
1. What
Constitutes Suspension of Work/Stop
Work Notice 188
2.
Viability of Recovering for Suspension of
Work/Stop Work Notice
188
G.
Termination 189
1. Types
of Termination 189
a.
Actual Termination 189
b.
Constructive Termination 189
2.
Viability of Recovering for
Termination 190
III.
CONCLUSION 190
ENDNOTES
191
CHAPTER SEVEN
196
TYPES OF RECOVERABLE
COSTS/DAMAGES 196
I.
INTRODUCTION 196
II.
BREACH OF CONTRACT DAMAGES 196
A.
Measure of Damages 196
B. Direct
vs. Consequential Damages
197
C.
Mitigation of Damages 197
D.
Recoverable Damages for Typical
“Owner” Claims 198
1.
Contractor’s Failure to Perform
According to
Plans and
Specifications 198
2.
Contractor’s Failure to Complete
Work 199
3.
Owner’s Rightful Termination of
Contractor 199
4.
Liquidated Damages 199
5.
Contractor-Caused Delay 200
E.
Recoverable Damages for Typical
“Contractor”
Claims
200
1. Extra
Work 200
2.
Owner’s Defective Plans and
Specifications 200
3.
Owner-Caused Time-Related
Damages 201
4.
Owner’s Wrongful Termination of
Contractor 201
5.
Lost/Impaired Bonding Capacity
202
6.
Profit 203
7. Lost
Future Profits 203
8. Other
Claims 204
F. Other
Damages Associated with Breach of
Contract
Claims 204
1.
Punitive Damages 204
2.
Interest 205
a.
Pre-judgment 205
b.
Post-judgment 206
c.
Prompt Payment Statutes 206
3.
Attorneys’ Fees 206
a.
American Rule 206
b.
Mutuality of Remedy 207
c.
Indemnification Provision or
Attorney Fees Provision 207
d.
Attorney Fees as Consequential
Damages 208
e.
Statutes 209
III.
TORT DAMAGES 209
A.
Measure of Damages 209
B.
Commonly Asserted Torts in Construction
Disputes 210
1.
Fraud 210
2.
Interference with Contractual
Relationship 210
3.
Interference with Prospective Economic
Relations 211
4. Design
Professional Negligence
211
C. Other
Damages Associated with Tort
Claims 211
1.
Punitive Damages 211
2.
Interest 212
3.
Attorneys’ Fees 212
IV.
CONCLUSION 212
ENDNOTES
213
CHAPTER EIGHT
218
CALCULATING AND PROVING
DAMAGES 218
I.
INTRODUCTION 218
II.
METHODS OF CALCULATION 219
A. Actual
Cost Method 219
B. Total
Cost Method 219
C.
Modified Total Cost Method 220
D.
Quantum Meruit 221
E. Jury
Verdict Method 222
III.
DIRECT COSTS 223
A. Labor
Costs 223
1. Direct
Labor Overrun 223
a.
Additional Labor Hours 223
b.
Determination and Application of Wage
Rates 223
c. Labor
Burdens 223
2. Labor
Escalation 224
3. Lost
Productivity 224
a.
Reasons for Lost Productivity 224
b.
Calculating Lost Productivity 224
i.
“Measured Mile” Analysis
224
ii.
Comparison to Similar
Contracts 225
iii.
Project Productivity Studies
225
iv.
Industry Standards and
Manuals 226
v.
Expert Analysis 226
vi. Bid
Comparisons 226
vii.
Actual vs. Anticipated
Manloading Studies
226
B.
Material Costs 227
1.
Reasons for Material Cost Claims
227
2. Other
Associated Costs 227
3.
Calculating Additional Material
Quantities 228
4.
Calculating Additional Material Costs
228
C.
Equipment Costs 229
1.
Determining Additional Usage 229
a.
Recording Additional Hours 229
b.
Productivity of Equipment and
Quantity of Work 229
c.
Additional Contract Time 230
d.
Correlation to Manhours
230
e.
“Modified” Total Usage
230
f.
Standby/Idle Time 231
2. Cost
of Equipment 231
a.
Actual Cost 231
b.
Outside Rentals 232
c.
Intra-Company Charges 232
d.
Industry Guides 232
e. State
and Local Compilations 233
IV.
OTHER DIRECT COSTS 233
A.
Insurance 233
B. Bond
Premiums 233
V.
OVERHEAD COSTS 233
A.
Jobsite Overhead 234
B. Home
Office Overhead 234
VI.
PROFIT 235
VII.
DELAY DAMAGES 236
A. Basis
and Proof of Delay Damages
236
B.
Escalation Costs 236
C.
Extended Performance Costs 236
1. Idle
Labor 237
2. Idle
Equipment 237
3.
Jobsite Overhead 237
4. Home
Office Overhead 237
VIII.
CONCLUSION 238
ENDNOTES
240
CHAPTER NINE
244
CALIFORNIA PUBLIC WORKS
CLAIM PROCEDURES 244
I.
CONTRACTUAL CLAIM PROCEDURES 244
II.
STATUTORY CLAIM PROCEDURES 244
A. State
Contract Act 244
1. No
Government Code Claim Required by
Statute 245
2.
Arbitration 245
a. Time
to Initiate 245
b.
Arbitration Procedures 246
i.
Commencing Arbitration 246
ii.
Selection of Arbitrators 247
iii.
Discovery 247
iv.
Motions, Hearings and Award
247
B.
Government Code Claims 248
1. Filing
a Claim 248
a. Time
to File Claim 248
b.
Amendment of Claim 249
c.
Presentation of Claims 249
2.
Contents of Claim 249
3. Public
Entity Response 250
a.
Notice of Insufficiency of Claim
250
b.
Action by Public Entity on Claim
251
c.
Notice of Rejection of Claim 251
4. Filing
Suit on Claim 252
C. Local
Public Entity Claims Less Than
$375,000 252
1.
Definition of a “Claim”
252
2.
Submission of the Claim 253
3.
Procedure Following Submission of
Claim 253
a. Time
for Public Agency Response
253
i.
Claims Under $50,000 253
ii.
Claims Over $50,000 253
b.
Claimant’s Demand for a Meet and
Confer Conference 253
c.
Filing a Claim Pursuant to the
Government Contract
Code 254
4.
Statutory Mediation and Arbitration
Procedures 254
a.
Non-Binding Mediation 254
b.
Non-Binding Arbitration 254
5. Court
Trial 254
6.
Undisputed Portion of Claim; Interest
255
III.
CALIFORNIA FALSE CLAIMS ACT 255
A.
“False Claim” Defined
255
B.
Materiality of the False Claim
257
C. Civil
and Criminal Penalties 257
D. Public
Enforcement 257
E.
Private Enforcement 257
F.
Voluntary Disclosure 258
ENDNOTES
259
CHAPTER TEN
262
PRESERVING THE RIGHTS TO
PAYMENT – MECHANIC’S
LIEN, STOP PAYMENT NOTICE,
PAYMENT AND
PERFORMANCE
BOND 262
I.
SUMMARY OF REMEDIES 262
II.
MECHANIC’S LIENS 262
A. Nature
of Mechanic’s Lien Remedy
262
1.
Foreclosure as Ultimate Remedy
262
2.
Practice Tip: Mechanic’s Lien as
Leverage 263
B. Proper
Claimants 263
C.
Priority Issues 264
1.
First-in-Time Rule 264
2.
Mechanic’s Lien Priority Relates Back to
Commencement of Work 264
3.
Super-Priority of Site Improvement
Liens 265
4.
Standard Priority for Designer’s
Liens 266
5.
Optional Advances of Construction
Lender 267
D.
Preliminary Notice 267
1.
Purpose and Description 267
2.
Required Elements 267
3.
Claimants Required to Serve 268
a.
Practice Tip: Prime Contractors Should
Serve a Preliminary
Notice 268
4.
Mechanics of Proper Service 268
5. Effect
of Failure to Serve 269
E. Notice
of Mechanic’s Lien
269
F.
Recordation 270
1.
Contents of Mechanic’s Lien
270
2. Timing
of Recordation 270
a.
Deadline for Recording a Mechanic’s
Lien 270
b.
Earliest Time for Recording a
Mechanic’s Lien 271
3. Amount
of Lien 272
a. Delay
Damages 272
b.
Stored Materials 272
c.
Attorneys’ Fees 273
d.
Interest 273
G. Lis
Pendens 273
H. Notice
of Non-Responsibility 273
1.
Purpose and Description 273
2.
Participating Owner Exception 274
III.
SPECIAL ISSUES INVOLVING DESIGN WORK 274
A.
Designers May File Mechanic’s
Liens 274
B.
Pre-Construction Designer’s
Liens 274
1.
Special Requirements 275
a.
Pre-Lien Notice of Breach 275
b. Same
Owner Rule 275
c.
Government Approval Rule 275
2.
Ordinary Priority Rights 275
3.
Expiration Upon Construction 276
C. Filing
Suit to Enforce Mechanic’s
Liens 276
D.
Removing Mechanic’s Liens
276
1.
Summary Proceedings to Remove Mechanic’s
Lien 276
a.
Petition to Release Mechanic’s Lien:
Civil Code Section 8480 277
b.
Motion to Expunge: Code of Civil
Procedure Section 405.30 et seq.
277
2.
Mechanic’s Lien Release Bonds
277
3. Waiver
and Release Forms 278
a. Civil
Code Releases 278
b.
Practice Tip: Collection of Releases
for Recording Purposes 278
c.
Practice Tip: Collection of Lien
Releases With Payment Applications
278
IV. STOP
PAYMENT NOTICES 279
A. Nature
of Stop Payment Notice Remedy
279
B.
Private Works 279
1. Proper
Claimants 279
2.
Preliminary Notice 279
3.
Contents of Stop Payment Notice
279
4. Timing
and Manner of Service 280
5. Effect
of Bonded vs. Unbonded Stop Payment
Notice 280
a.
Creation of Mandatory Duty to
Withhold 280
b.
Recovery of Attorneys’ Fees and
Interest 280
c.
Practice Tip: Serving a Bonded Stop
Payment Notice 281
6. Filing
Suit 281
7.
Assignment of Loan Proceeds 281
8. Effect
of Payment Bond 281
C. Public
Works 282
1. Proper
Claimants 282
2.
Preliminary Notice 282
3.
Contents of Stop Payment Notice
282
4. Timing
and Manner of Service 282
5. Filing
Suit 283
V.
PAYMENT BONDS 283
A. Nature
of Payment Bond Remedy 283
B.
Preliminary Notice 283
C.
Statute of Limitations 284
1. Public
Works of Improvement 284
2.
Private Works of Improvement 284
D. Bond
Notice Exception to Preliminary
Notice Requirement
284
1.
Practice Tip: Direct Contractors Must be
Vigilant to
Reduce Exposure to “Latent”
Payment Bond
Claims 284
E.
Defenses 285
1.
Surety-Specific Defenses 285
a.
Alternation of the Bonded Obligation
285
b.
Requiring Pursuit of Other Securities
286
2.
Surety’s Right to Assert Defenses of
Principal 286
VI.
PERFORMANCE BONDS 286
A. Nature
of Performance Bond Remedy
286
B.
Prerequisites 287
1.
Declaring Direct Contractor in Default
287
2. Notice
to Surety 287
C.
Defenses 287
1.
Surety-Specific Defenses 288
a.
Material Alterations to Bonded
Contract Without Surety’s Consent
288
b.
Overpayment 288
c.
Failure to Permit Investigation
289
2.
Surety’s Right to Assert Defenses of
Principal 289
D. Scope
of Exposure 289
1.
Completion Costs 289
2. Delay
Damages 289
E.
Statute of Limitations 290
ENDNOTES
291
CHAPTER ELEVEN
295
SURETY
295
I.
INTRODUCTION 295
II.
CREATING THE SURETYSHIP RELATIONSHIP 296
A.
Purpose: Answering for the Debt of
Another 296
B.
Formation of the Indemnity Agreement
296
1.
Indemnity Clause 297
2.
Collateral Securing Obligation
297
3. Right
to Settle 298
C.
Arguments Against Indemnity 299
D.
Surety’s Rights to Subrogation
299
III.
TYPES OF BONDS USED IN CONSTRUCTION
INDUSTRY 301
A.
Performance Bonds 301
B. Labor
and Materials Payment Bonds
301
C.
Indemnity Bonds 302
D.
Subdivision Bonds 302
1.
Subdivision Bonds Versus Traditional Public
Works
Bonds 303
E. Bid
Bonds 304
IV.
OVERVIEW OF PERFORMANCE BOND CLAIMS 305
A.
Statutes Requiring Performance Bonds; Minimum
Amounts 305
B. Types
of Damages Covered 306
1.
Liquidated Damages 306
2.
Attorneys’ Fees 306
3. Breach
of Implied Good Faith and Fair
Dealing 307
C.
Statute of Limitations 307
V.
OVERVIEW OF PAYMENT BOND CLAIMS 308
A.
Payment Bonds on Public Projects
308
1.
Statutes Requiring Payment Bonds; Minimum
Amounts 308
2.
Prerequisites 309
3. Notice
Requirements 309
4.
Statute of Limitations 310
5.
Recoverable Damages 310
B.
Payment Bonds on Private Projects
311
1.
Statutes Requiring Payment Bonds; Minimum
Amounts
311
2.
Prerequisites 311
3. Notice
Requirements 311
4.
Statute of Limitations 312
5.
Recoverable Damages 312
C.
Payment Bonds on Federal Projects
313
1.
Statutes Requiring Payment Bonds; Minimum
Amounts 313
2.
Prerequisites 313
3 Notice
Requirements 313
4.
Statute of Limitations 314
5.
Recoverable Damages 314
VI.
OPTIONS AVAILABLE TO SURETY UNDER
PERFORMANCE BOND CLAIM 315
A.
Takeover and Complete Bonded Project
315
B. Tender
to New Contractor 315
C.
Indemnity Bond Obligee 316
D.
Finance Bond Principal’s Completion of
Bonded
Project
316
E.
Relinquish Bond Penal Sum 317
F. Deny
Claim 317
VII.
SCOPE OF SURETY’S OBLIGATION UNDER PAYMENT
BOND 317
A.
Intended Coverage 317
B. Types
of Payment Bonds 318
1. Public
Bonds 318
2.
Private Bonds 319
C. Scope
of Coverage 320
VIII.
DEFENSES AVAILABLE TO SURETY AGAINST BOND CLAIMS
320
A.
Failure to Satisfy Condition Precedent
320
B.
Material Alteration 321
C.
Early/Advanced Payments 321
D.
Statute of Limitations 321
E. Fraud
or Misrepresentation 322
IX.
CONCLUSION 322
ENDNOTES
324
CHAPTER TWELVE
328
PREVAILING WAGE AND LABOR
ISSUES 328
I.
INTRODUCTION 328
A. Scope
of Chapter 328
B.
California Employment Laws 329
II.
PREVAILING WAGE 330
A.
Introduction 330
B.
Purpose of Prevailing Wage Laws
331
C. State
and Federal Prevailing Wage Laws
331
D. Public
Works Projects 331
E.
Prevailing Wage Rates 334
F.
Payment of Prevailing Wages 335
G.
Responsibility for Payment of Prevailing
Wages 336
H.
Liability for Violations of Prevailing Wage
Laws 338
I.
Enforcement of Prevailing Wage Laws
340
III.
UNIONS 342
A.
Introduction 342
B.
Project Labor Agreements 343
C.
Strikes 343
D.
Picketing 344
IV.
WORKERS’ COMPENSATION 346
A.
Introduction 346
B.
Insurance/Coverage Issues 346
C.
Additional Claim Types 346
D.
Preemption Defense 347
V.
UNFAIR COMPETITION 347
A.
Introduction 347
B. Trade
Secrets 348
C.
Covenants Not To Compete 349
D.
Solicitation of Clients and Employees
350
VI.
LAYOFFS 352
A.
Introduction 352
B. Worker
Adjustment and Retraining Notification Act
(“WARN”) 352
VII.
CONCLUSION 355
ENDNOTES
356
CHAPTER
THIRTEEN 361
RISK MANAGEMENT AND
INSURANCE 361
I.
INTRODUCTION – RISK MANAGEMENT ON CONSTRUCTION
PROJECTS 361
II.
AVOIDANCE 361
A. Scope
of Work and Exclusions 362
B. Loss
Prevention Programs 362
1. Right
to Repair 363
C.
Portfolio and Job Selection Management
364
III.
TRANSFER 365
A.
Indemnity Agreements 365
B. Waiver
and Releases 367
C.
Liquidated Damages Provisions 368
D.
Environmental Liability Transfers
369
E. Notice
Provisions 372
F.
Liability Shifting Upon Project
Turnover 373
IV.
LIMIT 373
A.
Limitations of Liability 373
B.
Consequential Damage Waivers 373
C.
Contractual Limitations on Commencement of
Actions 375
D.
Alternative Dispute Resolution
375
E.
Limitations of Remedies 376
V.
INSURE – THE ROLE OF INSURANCE ON
CONSTRUCTION PROJECTS 376
A.
Typical Insurance Products for Construction
Projects 376
1.
Workers’ Compensation 376
2.
Builders Risk 377
3.
General Liability 378
4. Design
Errors and Omissions 380
B. Novel
Approaches to Project Insurance
380
1.
Wrap-ups; OCIPs; CCIPs 380
2.
Project Specific Policy Considerations
381
3.
Subcontractor Default Policies
381
4. Cost
Cap Insurance 382
ENDNOTES
383
CHAPTER
FOURTEEN 385
GREEN CONSTRUCTION AND
BUILDINGS 385
I. WHAT
IS GREEN CONSTRUCTION 385
A.
Definitions 386
B. The
Green Construction Market 387
C. A
Growing Market 388
II.
IMPACTS BUILDINGS HAVE ON THE
ENVIRONMENT 389
A.
General Statistics Regarding the Effect of
Buildings
on the Environment 389
B.
Energy, Water and Land Use 390
C. Indoor
Environmental Quality and
Effects 391
D.
Materials, Waste and Storm Water
Runoff 392
III.
RATING AND CERTIFICATION SYSTEMS FOR SUSTAINABLE DESIGN AND
CONSTRUCTION 393
A. LEED
and the United States Green Building
Council 393
1. LEED
Rating System 393
2.
Documentation 394
3. New
Construction and Renovations
395
B. Legal
Challenge to USGBC Performance Claims and
Statistics 395
C. Growth
of LEED 396
D. Other
Organizations and Rating Systems
396
IV.
CODE REQUIREMENTS AND GREEN BUILDING 397
A.
California Green Building Standards Code
(CALGreen) 397
B.
Enforcement and Recognition Under
CALGreen 399
C. Local
Green Building Codes 400
1.
Cities 400
2.
Prescriptive Measures and Performance
Standards 401
3.
Enforcement 402
V. CONTRACTUAL RISK
ALLOCATION AND
LITIGATION 403
A.
Application of the “Spearin
Doctrine” 403
1.
Performance and Design Specifications
404
2.
Liability for Failing to Meet a Specified
Standard 404
B. Green
Contract Issues 406
C.
Standard Form Contracts 408
D. Green
Building Litigation 409
VI.
CONCLUSION 410
ENDNOTES
412
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