PENNSYLVANIA

PENNSYLVANIA CONSTRUCTION LAW

TABLE OF CONTENTS

PREFACE......................................................................................... xvii

ABOUT THE AUTHORS.................................................................. xix

ACKNOWLEDGEMENTS.............................................................. xxiii

DEDICATION................................................................................... xxv

PART ONE:

CONTRACT FORMATION AND BIDDING....................................... 1

CHAPTER ONE:

PRIVATE CONTRACT FORMATION................................................ 1

1.1 ELEMENTS OF A BINDING CONTRACT................................ 1

1.1.1 General Elements of a Contract (Common Law)............ 1

1.2 PROMISSORY ESTOPPEL AND SUBCONTRACTOR BIDS.... 4

1.3 THE UNIFORM COMMERCIAL CODE.................................... 6

1.3.1 Applicability of the U.C.C.............................................. 7

1.3.2 The “Battle of the Forms”............................................... 7

1.4 THIRD-PARTY BENEFICIARIES............................................ 10

ENDNOTES............................................................................. 12

CHAPTER TWO:

PUBLIC CONTRACT FORMATION................................................ 15

2.1 INTRODUCTION..................................................................... 15

2.2 THE PROCUREMENT CODE.................................................. 15

2.2.1 Applicability................................................................. 15

2.2.2 Competitive Sealed Bidding.......................................... 16

2.2.3 Bid Withdrawal............................................................. 16

2.2.3.1 Before Commonwealth Agencies.................. 16

2.2.3.2 Before Non-Commonwealth Agencies.......... 17

2.2.4 Bid Opening, Award and Execution of the Contract..... 17

2.2.5 Letters of Intent............................................................ 18

2.2.6 Post-Bid Opening Negotiations..................................... 18

2.2.7 Requests for Proposals and The Separations Act.......... 19

2.3 BID PROTESTS........................................................................ 20

2.3.1 Protests Against a Commonwealth Agency Under the Procurement Code 20

2.3.2 Protests by Taxpayers and Protests Against Non-Commonwealth Agencies 22

2.4 BIDDING STATUTES FOR NON-COMMONWEALTH AGENCIES 27

2.4.1 Schools......................................................................... 27

2.4.1.1 Colleges......................................................... 27

2.4.1.2 Community Colleges..................................... 27

2.4.1.3 Public Schools............................................... 28

2.4.2 Counties....................................................................... 28

2.4.2.1 Counties of the First Class............................. 28

2.4.2.2 Counties of the Second Class........................ 28

2.4.2.3 Counties of the Third Class........................... 29

2.4.3 Cities............................................................................ 30

2.4.3.1 Cities of the First Class.................................. 30

2.4.3.2 Cities of the Second Class............................. 31

2.4.3.3 Cities of the Third Class................................ 31

2.4.4 Incorporated Towns...................................................... 32

2.4.5 Boroughs...................................................................... 32

2.4.6 Townships.................................................................... 33

2.4.6.1 Townships of the First Class.......................... 33

2.4.6.2 Townships of the Second Class..................... 34

2.4.7 Municipal Authorities................................................... 34

2.4.7.1 Contracts for Public Improvements, Utilities,
and Services.................................................. 34

2.4.7.2 Contracts Involving Metropolitan Transporta-
tion Authorities.............................................. 35

ENDNOTES............................................................................. 36

CHAPTER THREE:

KEY CONTRACT CLAUSES............................................................ 45

3.1 INTRODUCTION..................................................................... 45

3.2 PAYMENT CLAUSE.................................................................... 46

3.2.1 Frequency and Timing.................................................. 46

3.2.2 Amount of Payment..................................................... 46

3.2.3 Conditions of Payment................................................. 47

3.2.3.1 “Pay-When-Paid” vs. “Pay-If-Paid” Clauses.. 47

3.2.3.2 Lien and Claim Waivers................................ 49

3.3 SCHEDULING AND TIME-RELATED PROVISIONS............. 49

3.3.1 Time Extensions........................................................... 50

3.3.2 Force Majeure and Excusable Delay............................. 50

3.3.3 No Damages for Delay................................................. 51

3.3.4 Liquidated Damages..................................................... 51

3.4 CHANGES CLAUSE................................................................ 52

3.5 DIFFERING SITE CONDITIONS CLAUSE............................. 53

3.6 DISPUTE RESOLUTION......................................................... 54

3.6.1 Jury Trial Waiver.......................................................... 54

3.6.2 Limitation of Liability................................................... 55

3.6.3 Waiver of Consequential Damages............................... 55

3.7 ORDER OF PRECEDENCE CLAUSE...................................... 56

3.8 INSURANCE REQUIREMENTS.............................................. 56

3.9 BONDING REQUIREMENTS.................................................. 57

3.10 SUBCONTRACTORS.............................................................. 57

3.11 INDEMNITY................................................................................ 58

3.12 TERMINATION....................................................................... 60

3.12.1 Termination for Default................................................ 60

3.12.2 Termination for Convenience....................................... 61

ENDNOTES............................................................................. 62

CHAPTER FOUR:

LICENSING, CERTIFICATION, AND REGISTRATION REQUIREMENTS 65

4.1 STATE WIDE REQUIREMENTS............................................. 65

4.1.1 Pennsylvania Does Not Have State-Wide Contractor “Licensing” Requirements 65

4.1.2 Pennsylvania Requires “Certification” or “Prequalification” For Three Specific Types of Contractors 65

4.1.3 Pennsylvania Mandates an Architecture License For Furnishing Design-Build Services 66

4.1.4 Pennsylvania Requires “Registration” of Home
Improvement Contractors, and Imposes Numerous Requirements on Home Improvement Contracts 67

4.2 MANY LOCAL PENNSYLVANIA JURISDICTIONS HAVE THEIR OWN LICENSING RULES 68

4.2.1 Allegheny County......................................................... 69

4.2.2 Altoona......................................................................... 69

4.2.3 Bethlehem.................................................................... 69

4.2.4 Lancaster...................................................................... 69

4.2.5 Philadelphia.................................................................. 70

4.2.6 Pittsburgh...................................................................... 70

4.2.7 Scranton....................................................................... 70

4.3 CONSEQUENCES OF FAILING TO COMPLY WITH

LICENSING, CERTIFICATION AND/OR REGISTRATION

REQUIREMENTS.................................................................... 71

ENDNOTES............................................................................. 74

PART TWO:

CHANGES AND CLAIMS................................................................. 77

CHAPTER FIVE:

CHANGES.......................................................................................... 77

5.1 INTRODUCTION……………................................................. .77

5.2 CHANGES CLAUSE GENERALLY........................................ 78

5.3 CONSTRUCTION DIRECTIVES............................................. 79

5.4 CHANGE ORDERS.................................................................. 80

5.5 CHANGE-RELATED CLAIMS................................................ 81

5.5.1 Cardinal Change........................................................... 82

5.5.1.1 Development of the Cardinal Change Doctrine 82

5.5.1.2 Pennsylvania State Courts.............................. 86

5.5.1.3 Pennsylvania Federal Courts.......................... 86

5.5.1.4 Summary....................................................... 87

5.5.2 Cumulative Impact....................................................... 88

5.5.2.1 Cumulative Impact Claims Generally............ 88

5.5.2.2 Pennsylvania State Courts.............................. 89

5.5.2.2.1 The Total Cost and Modified Total
Cost Methods as Ways to Compen-sate Cumulative Impact Expenses 89

5.5.2.3 Pennsylvania Federal Courts.......................... 91

5.5.2.3.1 Lost Productivity Damages as a Means of Recovering Cumulative Impact Expenses.................................................... 92

5.5.2.3.2 The Total Cost and Modified Total Cost Methods 93

5.5.2.4 Summary....................................................... 93

5.6 CONTRACTUAL CLAIM PRESERVATION

REQUIREMENTS AND EXCEPTIONS THERETO..... 94

5.6.1 Introduction................................................... 94

5.6.2 Waiver and Modification............................... 95

5.6.3 Hindrance/Impeded Compliance................... 97

5.6.4 Nether Providence and Strict Compliance..... 97

5.6.5 Estoppel......................................................... 98

5.6.6 James Corp., Actual Notice, and Lack of

Prejudice...................................................... 100

5.6.7 Conclusion.................................................. 101

ENDNOTES........................................................................... 103

CHAPTER SIX:

DIFFERING AND UNFORESEEN SITE CONDITIONS................ 111

6.1 INTRODUCTION................................................................... 111

6.2 DIFFERING SITE CONDITION CLAUSES........................... 111

6.2.1 Federal Acquisition Regulations (FAR)....................... 112

6.2.2 AIA General Conditions............................................. 113

6.2.3 PennDOT Publication 408.......................................... 114

6.3 CLAIMS FOR DIFFERING SITE CONDITIONS.................... 116

6.3.1 Affirmative Misrepresentation of Site Conditions....... 116

6.3.2 Constructive Fraud..................................................... 118

6.3.3 Active Interference by Owner.................................... 122

6.3.4 Negligent Misrepresentation........................................ 124

6.4 OWNER’S DEFENSES TO DIFFERING SITE CONDITIONS CLAIMS 126

6.4.1 Exculpatory Contract Clauses..................................... 126

6.4.2 Contractual Pre-Bid Site Investigation Requirements.. 128

6.4.2.1 Reasonableness Standard............................. 130

6.4.2.2 Contractor’s Actual Knowledge of Site

Conditions................................................... 131

6.4.2.3 Necessity of Performing Subsurface

Investigations............................................... 131

6.4.2.4 Time Available to Perform Investigation..... 133

6.5 THE PENNSYLVANIA ONE CALL ACT.............................. 133

6.5.1 Duties Under the One Call Act................................... 134

6.5.1.1 Design Phase............................................... 134

6.5.1.2 Construction Phase...................................... 135

6.5.2 Litigation Involving the One Call Act......................... 136

ENDNOTES…........................................................................ 139

CHAPTER SEVEN:

TIME-RELATED CLAIMS............................................................... 145

7.1 INTRODUCTION……………................................................ 145

7.2 TIME-RELATED CONTRACT CLAUSES............................. 145

7.2.1 Time Extensions and Excusable Delays...................... 145

7.2.2 No Damages for Delay............................................... 148

7.2.3 Liquidated Damages................................................... 149

7.3 TYPES OF TIME-RELATED CLAIMS................................... 150

7.3.1 Delay Claims.............................................................. 150

7.3.2 Acceleration Claims.................................................... 152

7.3.2.1 Directed Acceleration.................................. 152

7.3.2.2 Constructive Acceleration............................ 153

7.4 DAMAGES IN TIME-RELATED CLAIMS............................ 156

7.4.1 Delay Damages........................................................... 156

7.4.1.1 Direct Costs................................................. 156

7.4.1.2 Indirect Costs............................................... 157

7.4.1.2.1 Extended Home Office Overhead
and the Eichleay Formula.......... 157

7.4.1.2.2 The Eichleay Formula in Pennsylvania 157

7.4.1.2.3 Application of the Eichleay

Formula..................................... 158

7.4.1.2.4 Contractual Limitations on Right to Recover Home Office Overhead 159

7.4.1.3 Availability of Lost Profits.......................... 160

7.4.1.4 Duty to Mitigate Damages............................ 160

7.4.1.5 Enforcement of “No Damages for Delay” Clauses…………… 160

7.4.2 Acceleration Damages – The “Measured Mile”
Approach.................................................................... 161

7.4.3 Liquidated Damages................................................... 163

7.4.3.1 Enforceability of Liquidated Damages Clauses Generally 163

7.4.3.2 Challenging Liquidated Damages Clauses.... 166

7.4.3.2.1 Liquidated Damages as a Penalty 166

7.4.3.2.2 Owner’s Responsibility for Delays Triggering the Clause 169

7.4.3.2.3 Vagueness or Indefiniteness of the Liquidated Damages Clause 170

7.4.3.2.4 Inadequate Liquidated Damages 172

7.4.3.2.5 Absence of Actual Damages...... 173

ENDNOTES…........................................................................ 175

CHAPTER EIGHT:

PROMPT PAYMENT....................................................................... 185

8.1 INTRODUCTION................................................................... 185

8.2 COMMONWEALTH PROCUREMENT CODE...................... 185

8.2.1 Statutory Overview..................................................... 186

8.2.1.1 Interest on Late Payments............................ 186

8.2.1.2 Penalty and Attorney Fees........................... 187

8.2.1.3 Defenses – Withholding of Payment for Good-Faith Claims 187

8.2.1.4 Enforceability of Choice of Law and Venue Provisions 187

8.2.2 Case Law Interpreting the Prompt Pay Provisions of the Procurement Code 188

8.2.2.1 Interpretation in Light of the Parties’ Contract 188

8.2.2.1.1 Contractual Payment Terms....... 188

8.2.2.1.2 Requirement that Subcontractor
Sign Release in Exchange for Payment 190

8.2.2.2 Bad Faith in Administration of the Contract 192

8.2.2.3 Computation of Fee Award......................... 193

8.2.3 Applicability to PennDot............................................ 194

8.3 THE CONTRACTOR AND SUBCONTRACTOR PAYMENT
ACT (CASPA)........................................................................ 194

8.3.1 Statutory Overview..................................................... 195

8.3.1.1 Interest on Late Payment............................. 195

8.3.1.2 Penalty and Attorney Fees........................... 195

8.3.1.3 Defenses – Withholding of Payment for Good-Faith Claims 196

8.3.1.4 Enforceability of Choice of Law and Venue Provisions 196

8.3.2 Case Law Interpreting CASPA.................................... 196

8.3.2.1 Applicability of CASPA.............................. 196

8.3.2.2 Contractual Waiver of CASPA ................... 199

8.3.2.3 “Unreasonably” or “Wrongfully” Withheld. 200

8.3.2.4 Determination of “Substantially Prevailing
Party”.......................................................... 201

ENDNOTES........................................................................... 203

CHAPTER NINE:

CLAIMS AGAINST THE DESIGN PROFESSIONAL................... 209

9.1 INTRODUCTION................................................................... 209

9.2 NEGLIGENCE....................................................................... 209

9.2.1 Ordinary Negligence................................................... 210

9.2.2 Professional Negligence.............................................. 211

9.2.2.1 Standard of Care.......................................... 212

9.2.2.2 Statute of Repose......................................... 213

9.2.2.3 Certificate of Merit...................................... 214

9.2.2.4 Expert Testimony........................................ 216

9.2.3 Gross Negligence........................................................ 216

9.3 NEGLIGENT MISREPRESENTATION.................................. 218

9.3.1 Bilt-Rite Contractors, Inc. v. Architectural Studio....... 218

9.3.2 Interpretations of Bilt-Rite........................................... 219

ENDNOTES....................................................................................... 222

CHAPTER TEN:

TERMINATION ............................................................................... 229

10.1 INTRODUCTION................................................................... 229

10.2 TERMINATION FOR DEFAULT........................................... 229

10.2.1 Standard For Default.................................................. 230

10.2.2 Procedures for Termination........................................ 232

10.2.2.1 Requirement of Notice................................ 232

10.2.2.2 Role of the Architect................................... 233

10.2.2.3 Waiver......................................................... 233

10.3 TERMINATION FOR CONVENIENCE................................. 234

10.3.1 Requirement of Good Faith........................................ 234

10.3.2 Constructive Termination for Convenience................ 236

10.4 CONCLUSION....................................................................... 237

ENDNOTES........................................................................... 238

CHAPTER ELEVEN:

MECHANICS’ LIENS....................................................................... 245

11.1 WHAT IS A MECHANICS’ LIEN?........................................ 245

11.2 WHO HAS LIEN RIGHTS?.................................................... 245

11.3 WHEN MUST THE LIEN BE FILED?.................................... 247

11.4 WHAT NOTICE IS REQUIRED?........................................... 247

11.4.1 Pre-filing Notice......................................................... 247

11.4.2 Post-filing Notice........................................................ 249

11.5 HOW IS A LIEN ENFORCED?.............................................. 249

11.6 CAN LIEN RIGHTS BE WAIVED?....................................... 249

11.6.1 “Contemporaneous” Lien Waivers............................. 250

11.6.2 No-Lien Agreements on Residential Property............ 250

11.6.3 No-Lien Agreements on Nonresidential Work............ 251

11.7 CONCLUSION....................................................................... 251

ENDNOTES........................................................................... 252

PART THREE:

BONDING AND SURETY ISSUES................................................. 255

CHAPTER TWELVE:

BONDING REQUIREMENTS ........................................................ 255

12.1 INTRODUCTION TO CONSTRUCTION BONDING IN PENNSYLVANIA 255

12.2 BID BONDS........................................................................... 255

12.2.1 Introduction to Bid Bonds.......................................... 255

12.2.2 No Statutory Mandate................................................. 256

12.2.3 The Firm Bid Rule’s Affect on Bid Bonds.................. 256

12.2.4 Surety’s Liability Limited to the Bid Bond Amount.... 257

12.2.5 The Low Bid Rule’s Affect on Bid Bonds ................. 258

12.2.5.1 Overview of The Low Bid Rule................... 258

12.2.5.2 How Gaeta v. Ridley School District Affects the Low Bid Rule and Bid Bonds 259

12.2.5.3 A “Material” Limitation on Gaeta................ 260

12.2.5.4 Litigation in an Unclear Area of Law........... 261

12.3 PAYMENT BONDS............................................................... 261

12.3.1 Introduction to Payment Bonds.................................. 261

12.3.2 Pennsylvania Statutes Governing Payment Bonds...... 261

12.3.3 Determining What Statute Applies.............................. 262

12.3.4 Payment Bond Requirements of the Procurement Code 262

12.3.5 Payment Bond Requirements of the Bond Law ......... 263

12.3.6 Claimants Protected By Payment Bonds..................... 263

12.3.7 Damages Recoverable on Payment Bonds.................. 264

12.3.8 Governmental Failure to Comply with Statutory Bonding Requirements 266

12.4 PERFORMANCE BONDS...................................................... 268

12.4.1 Introduction to Performance Bonds............................ 268

12.4.2 Payment Bond and Performance Bond Case Law Should

Not be Conflated........................................................ 268

12.4.3 Pennsylvania Statutes Governing Performance Bonds 269

12.4.4 Performance Bond Requirements of the Procurement
Code........................................................................... 269

12.4.5 Performance Bond Requirements of the Bond Law.... 270

12.4.6 Surety Obligations and Rights..................................... 271

12.4.7 Surety Liability Limited to Bonded Amount............... 272

12.5 MAINTENANCE BONDS...................................................... 273

12.5.1 Introduction to Maintenance Bonds............................ 273

12.5.2 Recovery for Defective Completion........................... 273

12.6 BONDING ALTERNATIVES................................................. 274

12.6.1 Cashier’s Checks, Certified Checks and Cash Deposits 274

12.6.2 Letters of Credit.......................................................... 274

12.6.3 Contractor and Subcontractor Default Insurance........ 275

12.7 CONCLUSION....................................................................... 276

ENDNOTES........................................................................... 277

CHAPTER THIRTEEN:

PAYMENT AND PERFORMANCE BOND CLAIMS..................... 289

13.1 PAYMENT BOND CLAIMS.................................................. 289

13.1.1 General Limits to Payment Bond Claims.................... 289

13.1.2 Federal Regulation of Payment Bonds Under the Miller
Act.............................................................................. 291

13.1.2.1 Coverage of the Miller Act.......................... 291

13.1.2.1.1 When is a Miller Act Payment
Bond Required?......................... 291

13.1.2.1.2 Who is Protected by a Miller Act Payment Bond? 292

13.1.2.2 Payment Bond Claims Process Under the
Miller Act.................................................... 294

13.1.2.2.1 What Notice is Required for a
Miller Act Payment Bond Claim? 294

13.1.2.2.2 Perfecting a Claim..................... 296

13.1.3 Pennsylvania State Payment Bond Claims Under the
Public Works Contractors Bond Law (Pennsylvania
Little Miller Act)......................................................... 298

13.1.3.1 Coverage Under the Public Works Contractors Bond Law 298

13.1.3.1.1 When is a Payment Bond
Required?.................................. 298

13.1.3.1.2 Who is Protected by a Payment
Bond Under the Bond Law?...... 299

13.1.3.2 Payment Bond Claims Under the Bond Law 300

13.1.3.2.1 What Notice is Required for a Payment Bond Claim Under the
Bond Law?................................ 300

13.1.3.2.2 How is a Payment Bond Claim Perfected Under the Bond Law? 301

13.1.4 Private Payment Bonds............................................... 302

13.1.4.1 Coverage of Private Payment Bonds............ 302

13.1.4.2 Private Payment Bond Claims...................... 302

13.1.4.2.1 Notice Requirements................. 302

13.1.4.2.2 Making a Claim......................... 303

13.1.5 The Surety’s Additional Statutory Defense Against
Second-tier Claimants................................................. 303

13.2 PERFORMANCE BOND CLAIMS......................................... 303

13.2.1 General Limits to Performance Bond Claims.............. 304

13.2.2 Federal Regulation of Performance Bonds Under the
Miller Act................................................................... 305

13.2.2.1 Coverage of the Miller Act.......................... 305

13.2.2.1.1 When is a Miller Act Performance Bond Required? 305

13.2.2.1.2 Who is Protected by a Miller Act Performance Bond? 305

13.2.2.2 Performance Bond Claims Process Under the Miller Act 305

13.2.2.2.1 What Notice is Required for a
Miller Act Performance Bond
Claim?....................................... 306

13.2.2.2.2 Perfecting a Claim..................... 307

13.2.3 Pennsylvania State Performance Bond Claims Under the Public Works Contractors Bond Law (Pennsylvania Little Miller Act).................................. 307

13.2.3.1 Coverage Under the Public Works Contractors Bond Law 307

13.2.3.1.1 When is a Performance Bond Required? 307

13.2.3.1.2 Who is Protected By a Performance Bond Under the Bond Law? 308

13.2.3.2 Performance Bond Claims Under the Bond
Law............................................................. 309

13.2.3.2.1 Determining Default.................. 310

13.2.3.2.2 Nullum Tempus Occurit Regi (Time Does Not Run Against the King) 310

13.2.4 Private Performance Bonds........................................ 311

13.2.4.1 Coverage of Private Performance Bonds..... 311

13.2.4.2 Private Performance Bond Claims............... 312

13.2.4.2.1 Notice Requirements................. 312

13.2.4.2.2 Making a Claim......................... 312

ENDNOTES........................................................................... 313

CHAPTER FOURTEEN:

COMMON SURETY ISSUES ......................................................... 325

14.1 WHAT ARE THE DIFFERENCES BETWEEN SURETYSHIP AND INSURANCE? 325

14.1.1 Suretyship and Insurance Involve Two Different Types
of Relationships.......................................................... 325

14.1.2 Suretyship and Insurance Serve Different Purposes... 325

14.1.3 Pennsylvania Courts Have Identified Specific Factors
to Differentiate Between Suretyship and Insurance.... 325

14.2 CAN THE PENNSYLVANIA BAD FAITH INSURANCE STATUTE BE APPLIED AGAINST A SURETY?............................................................................................... 326

14.2.1 The Pennsylvania Legislature Passed the Bad Faith Insurance Statute After the Courts Declined to Allow
Bad Faith Claims Against Insurance Companies......... 327

14.2.2 The Pennsylvania Bad Faith Insurance Statute Likely
Does Not Apply to Sureties........................................ 328

14.2.3 Pennsylvania Courts Have Declined to Apply the Unfair Insurance Practice Act Definition of “Insurance Policy”
to the Bad Faith Insurance Statute............................... 330

14.3 UNDER WHAT CIRCUMSTANCES CAN IMPAIRMENT OF
A SURETY’S ABILITY TO CONTROL ITS RISK DISCHARGE THE SURETY FROM ITS OBLIGATIONS UNDER A
BOND?................................................................................... 331

14.4 WHAT IS THE DOCTRINE OF EQUITABLE SUBROGATION, AND HOW DOES IT APPLY TO SURETYSHIP?....................................................................... 334

14.4.1 Equitable Subrogation Allows a Surety to Exercise a Principal’s Rights and Remedies Under Equity Once the Surety Has Performed on a Bond................ 334

14.4.1.1 Equitable Subrogation is a Right Arising From Equity, Not from Contract 334

14.4.1.2 Equitable Subrogation Will Only Be Applied When a Claim Meets Certain Criteria 335

14.4.1.3 Equitable Subrogation Claims Do Not Carry
Over From One Contract to Another............ 336

14.4.2 A Surety Must Establish Certain Elements in Order to
Make a Claim for Equitable Subrogation.................... 337

14.4.2.1 There Are Four Prerequisites That Must be
Met for Equitable Subrogation to Apply...... 337

14.4.2.1.1 If a Surety Acted as a “Volunteer” There Can be No Claim for
Equitable Subrogation................ 337

14.4.2.1.2 There Can Be No Claim for Equitable Subrogation Against One Who Is Only Secondarily Liable..................... 338

14.4.3 The Doctrine of Equitable Subrogation Also Applies to

Public Construction Contracts..................................... 338

14.4.4 A Surety Must Complete the Contractual Obligations
of the Principal Before It Can Claim Equitable
Subrogation................................................................ 339

14.4.5 A Surety is Entitled to Claim Subrogation Regardless of Whether the Principal is Otherwise Indebted to the
Obligee....................................................................... 340

14.5 WHAT IS A GENERAL AGREEMENT OF INDEMNITY,
AND HOW DOES IT PROTECT A SURETY?....................... 341

14.5.1 Sureties Use General Agreements of Indemnity to Protect Themselves from Loss 341

14.5.1.1 Indemnity Provisions Often Require the Indemnitor to Put Up Collateral to Cover the Indemnitee’s Expenses................................ 342

14.5.2 Enforcement of Indemnity Provisions........................ 342

14.5.2.1 Standards for Enforcement Generally.......... 342

14.5.2.2 Pennsylvania Courts Have Only Held
Indemnity Provisions to be in Violation of
Public Policy in Select Circumstances.......... 343

14.5.2.3 Indemnity Agreements Sometimes Have
“Prima Facie Evidence” Clauses That Shift the Burden of Proof to the Indemnitor Once the Indemnitee Fulfills the Terms of the Clause 344

14.5.2.4 An Indemnitor May Escape Liability Under an Indemnity Agreement if the Indemnitee Fails
to Abide by the Controlling Language in the Agreement 345

14.6 CAN CLAIMANTS RECOVER ATTORNEY’S FEES,

INTEREST AND PENALTIES FROM A SURETY UNDER A PAYMENT BOND? 346

14.6.1 The Prompt Pay Remedies.......................................... 346

14.6.2 What Sums Are “Justly Due” on the Underlying
Contract...................................................................... 347

14.6.2.1 Attorney’s Fees Are Not “Justly Due” Under a Payment Bond 347

14.6.2.2 Finance Charges Are Not “Justly Due” Under
a Payment Bond.......................................... 348

ENDNOTES........................................................................... 350

PART FOUR:

DISPUTE RESOLUTION................................................................. 361

CHAPTER FIFTEEN:

TRADITIONAL COURT SYSTEMS............................................... 361

15.1 INTRODUCTION................................................................... 361

15.2 PENNSYLVANIA STATE COURTS...................................... 363

15.2.2 The Magisterial District Courts.................................... 363

15.2.3 Courts of Common Pleas............................................ 363

15.2.3.1 Judicial Arbitration...................................... 364

15.2.4 The Superior Court and the Commonwealth Court..... 364

15.2.5 The Supreme Court..................................................... 365

15.3 THE FEDERAL COURTS...................................................... 365

15.3.1 The United States District Courts................................ 365

15.3.2 The United States Court of Appeals for the Third Circuit 366

15.3.3 The United States Supreme Court............................... 366

15.4 THE PENNSYLVANIA BOARD OF CLAIMS....................... 366

ENDNOTES........................................................................... 367

CHAPTER SIXTEEN:

ALTERNATIVE DISPUTE RESOLUTION..................................... 369

16.1 NEGOTIATION..................................................................... 369

16.2 MEDIATION.......................................................................... 370

16.2.1 Mediation Privilege..................................................... 371

16.3 ARBITRATION...................................................................... 372

16.3.1 “Binding Arbitration” vs. “Non-Binding Arbitration”. 374

ENDNOTES…………………................................................. 375

CHAPTER SEVENTEEN:

EXPERTS AND CONSULTANTS.................................................. 377

17.1 INTRODUCTION................................................................... 377

17.2 WHEN IS AN EXPERT NEEDED?........................................ 377

17.3 WHAT QUALIFIES A WITNESS TO BE DEEMED AN
EXPERT?............................................................................... 378

17.4 WHAT CAN AN EXPERT TESTIFY TO?.............................. 379

17.4.1 Opinions, Facts, Scientific and Technical Principles
vs. Common Knowledge............................................ 379

17.4.2 Ultimate Issue............................................................. 381

17.4.3 Underlying Factual Assumptions................................ 381

17.4.4 Hypothetical Questions............................................... 381

17.4.5 Basis of Testimony..................................................... 382

17.4.5.1 Basis of Opinion Testimony by Experts...... 382

17.4.5.2 Personal Knowledge.................................... 382

17.4.5.2 Novel Scientific Evidence........................... 383

ENDNOTES........................................................................... 384