Womble Carlyle Construction Industry Blog

Paradoxes

2009-07-20T15:17:00.006-04:00

For the past six months or so, I've been using ConsensusDOCS agreement forms wherever I can reasonably do so ---- meaning that I'm using them for projects on which there is not an owner or architect who insists on using AIA documents. I usually represent owners, have used many AIA standard form agreements over the years (with modifications) and continue to use them.

But where there is not a vested interest in staying with AIA forms, I have tried to use ConsensusDOCS, because my twenty-plus years of experience as a construction lawyer has demonstrated that the premise on which they are based is valid --- a collaborative rather than an adversarial relationship among project participants will, without fail, result in more successful projects.

It is distressing, then, to say the least, to read in a recent Engineering News Record (June 29, 2009) that slow pay has now become a huge issue for contractors and subcontractors throughout the construction sector and in all parts of the country. Pay cycles for contractors have stretched from the customary 30 days, to 45 or 60 days. For subcontractors, pay cycles of 90 days are common. In addition, contractors and subs report that retainages are being held beyond any reasonable time frames, and change orders for indisputably changed work are more frequently being withheld by owners.

It is truly paradoxical that while the ConsensusDOCS are being endorsed by many and varied industry participants (including owners, contractors and subcontractors), the reality is that the economic straits in which we exist make it all but impossible to forge the collaborative relationship the documents contemplate and on which they are based. (This entry published by Karen Estelle Carey, a construction attorney and member of Womble Carlyle's construction group.)

ConsensusDOCS for Public Contracts? Yes, In South Dakota

2009-06-18T14:24:00.009-04:00

It will be interesting to see how quickly South Dakota begins using ConsensusDOCS for public contracts after the February 2009 legislation permitting the use of the "ConsensusDOCS 200 Standard Agreement and General Conditions Between Owner and Contractor." It seems safe to assume that the South Dakota chapter of the AGC will be working hard to encourage the use of this contract form, and indeed, it probably is in use now for some public projects.

Several press releases covering passage of the law permitting the use of ConsensusDOCS 200 hailed the law as revolutionary in showing other states how to have a better and more efficient contracting process (for one such release, click here). This could be true, if the ConsensusDOCS 200 is used pretty much "as is". However, H B 1212, the law that gives permission for the use of the form, also provides that any public corporation can modify or delete any portion of it. As with most other things like this, the devil will be in the details of what changes a given public corporation makes to the form. (Post published by Karen Estelle Carey).

How do you measure damages when a construction blunder saves an owner $200 million?

2009-03-23T11:54:00.006-04:00

A recent story out of Las Vegas, covered in the NY Times, poses an interesting question for construction and real estate lawyers ---- what would be the measure of damages for defective construction, the result of which is estimated to save the owner at least $200 million?

The Harmon hotel tower, part of MGM Mirage's acclaimed $9 billion development called the CityCenter, had been designed as a 48-story tower, the upper 20 floors to be luxury condominiums. But recently it was discovered that the rebar installed in the concrete beams in the first 15 stories already constructed had been positioned incorrectly, and could not safely support a 48-story tower. Correcting the problem would involve extensive and very expensive demolition and rebuilding.

So MGM Mirage made the decision to top out the building at 28 stories, and not build out the 200 condo units planned for the upper stories --- resulting in a savings estimated at $200 million. And also not being stuck with a lot of unsold condos in the very soft Las Vegas market. The chairman of MGM Mirage said "It takes pressure off of selling more condominiums; it takes pressure off of occupying more rooms."

The measure of damages for defective construction is normally the cost to repair the defective work. However, if the cost to repair is so enormous relative to the value of the structure that it would constitute economic waste to fix it ("economic waste" is a term of art with varying meanings depending on the facts and circumstances), then the measure of damages is usually the diminution in value of the structure.

Under these facts and circumstances, it appears there is a good argument that demolishing and rebuilding the existing 28 stories correctly would constitute economic waste, and that the appropriate measure of damages is the diminution in value of the hotel tower. But this appears to present a problem. In the absence of any obvious market for condos in Las Vegas these days, has the value of the building really been diminished at all?

It would seem not.

But there is something else to consider. The Harmon will be the closest building to the Strip in the CityCenter, so the shortening of the tower is going to change how the development looks. It seems that a lot of work has become necessary to figure out what the new skyline of the CityCenter should be and to satisfy City government on that score. Maybe that's the way to approach the damages calculation.

To read the articles in the NY Times, click here and here. (This blog was published by Karen Carey, a member of Womble Carlyle's Real Estate Development and Construction Law practice groups.)

Employee Free Choice Act Reintroduced; Battle Lines Are Already Drawn

2009-03-13T12:07:00.000-04:00

On Tuesday, March 10, George Miller (D-CA), Chairman of the House Education and Labor Reform Committee, introduced the Employee Free Choice Act (H.R. 1409). Asserting that the bill would “give workers the ability to stand up for themselves” and heralding the effort as a key component of economic recovery, Chairman Miller insisted the EFCA would restore employee rights. Co-sponsor Tom Harkin (D-IA) explained, “just as the National Labor Relations Act, the 40-hour week and the minimum wage helped to pull us out of the Great Depression and into a period of unprecedented prosperity, so too will the Employee Free Choice Act help reinvigorate our economy.”

The bill, essentially the same as one passed by the House but killed in the Senate two years ago, faces a stiff fight. Although President Obama has pledged his support to the legislation, employer organizations have mobilized a well-coordinated campaign to highlight what they perceive as significant weaknesses in the Act, also countering with their own proposal, the Secret Ballot Protection Act. To make matters even more confusing, on March 11 Joe Sestak (D-PA) proffered yet another alternative, the National Labor Relations Moderation Act (H.R. 1355), which Congressman Sestak describes as a “middle ground” compromise to preclude a divisive confrontation. As the rhetoric on either side escalates, examination of the key features of EFCA is essential.

To read about the key features of EFCA, continue here.

(This entry was published by Charlie Edwards, a member of the firm's employment law practice group.)

Real Estate Developers Ask for a Bailout

2008-12-23T15:54:00.002-05:00

The WSJ and the Washington Post report that some of the country's biggest commercial property developers have sought out government assistance as debt comes due.

Although the numbers vary by source, roughly $530 billion in commercial mortgages will be coming due in the next three years, with $160 - $400 billion coming due in 2009. Delinquency rates have begun to rise as rent prices fall and vacancies rise for commercial properties; despite the rise, delinquency rates are still below historic levels (i.e the vast majority of these loans are performing).

The problem is these types of loans are underwritten for five, seven, or 10 years with a balloon payment due at maturity. At maturity the loan is typically refinanced by the property owner. But the credit markets are virtually frozen (in large part because hardly anyone is securitizing commercial mortgages) and little, if any credit is available for refinancing (except for loans being made by HUD, Fannie Mae, and Freddie Mac).

To address this problem, property owners are asking the Treasury and the Federal Reserve to include the commercial real estate industry in the $200 billion loan program to rescue the consumer debt market, money intended to help investors purchase securities backed by those assets. Property owners hope that including commercial real estate will encourage banks to refinance mortgages coming due because the banks could securitize the mortgages. Some property owners have gone one step further and asked the Treasury to set up a separate fund just for commercial real estate.

The Treasury and Federal Reserve have said they will consider including commercial real estate in the $200 billion loan program.

Unfortunately, including commercial real estate in this loan program may not be enough to save the industry if only $200 billion is available and $160-400 billion in loans are coming due in 2009. Even if the program includes enough money to cover commercial real estate, Lenders may not be able to underwrite the loans; they may not be able to accurately price the assets because of plummeting property values.

Family Online Safety Institute (FOSI) Releases Online Safety Proposals

2008-12-22T17:33:00.001-05:00

The Family Online Safety Institute ("FOSI") released its report Making Wise Choices Online in which it provides a survey of ongoing initiatives to ensure the safety of children using the Internet as well as four policy proposals for the coming Administration to consider. The release coincides with the Second Annual FOSI Conference, held today in Washington, D.C., themed "Safe At Any Speed: Rules, Tools & Public Policies to Keep Kids Safe Online."
Womble Carlyle is pleased to have sponsored the FOSI Conference and to have forged a friendship with this organization.

Click here to learn more about FOSI's Internet safety proposals.

Entrepreneur Removes Home From the Power Grid with the Help of LEDs

2008-12-08T15:37:00.001-05:00

Eric Taub of the New York Times posted an interesting story this morning about Dean Kamen, the eccentric inventor of the Segway scooter. Mr. Kamen owns a small, three-acre island off the coast of Connecticut where he built his home, and he recently decided to take his entire island off the power grid--that is, produce his own electrical power (in this case through wind and solar).

To do that, Mr. Kamen had to dramatically reduce his power consumption. He accomplished that goal by using LEDs, or light-emitting diodes, to light his home's interior and exterior. Mr. Taub explains that an LED light fixture uses one-fifth to one-tenth of the power of a standard incandescent fixture. As a result of this change, Mr. Kamen was able to reduce energy consumption in the house by 70 percent. As an added benefit, the bulbs will not need to be changed for years.

The downside of this switch is cost. Although the price of LED fixtures are dropping, they are still significantly more expensive than an incandescent fixture. For that reason, it may be years before builders use this technology in spec homes and buildings.

Source: New York Times

Infrastructure Projects In the Obama Administration --- a Bright Spot In An Otherwise Gloomy Future

2008-12-03T16:58:00.001-05:00

From the early days of his presidential campaign, President-Elect Obama has emphasized the importance, and priority, of rebuilding our nation's infrastructure. At first, this was not particularly tied to the goal of job creation, or at least that part of the equation was not stressed. But as the economic downturn spiraled out of control in the past months, rebuilding infrastructure became explicitly tied to creating a large number of new jobs.

State and local governments are very much on board with investing in infrastructure, and doing it quickly. At a meeting of the National Governors Association earlier this week in Philadelphia, the governors told Mr. Obama that over $130 billion worth of infrastructure projects have already won regulatory approval and just need funding to "get the shovels in the ground". Thousands of jobs could be created if these projects could get underway.

It seems that the specific types of projects mentioned most frequently are roads, bridges and schools. This is certainly good news for construction companies who are in the business of horizontal construction and manufacturers of road and bridge-building materials. It is also good news for the many construction companies who have long done business with local counties and school boards.

There are other kinds of infrastructure projects that also should be undertaken --- light rail and other forms of mass transit, wide-ranging installation of broadband, and other things that are badly overdue and will help move our country forward. To read more about President-Elect Obama's conversation with the governors about this subject, click here. (This blog entry was published by Karen Carey, a member of Womble Carlyle's construction law and real estate development practice group.)

AASHE Conference Highlights Sustainability Agenda, Colleges and Local Governments

2008-11-26T15:10:00.003-05:00

The second biennial conference of the Association for the Advancement of Sustainability in Higher Education (AASHE) was held at the new Raleigh (NC) Convention Center from November 9-12. The purpose of the conference was to provide a "unique opportunity for every sector of higher education in the United States & Canada to come together to demonstrate how colleges and universities can lead the way to a sustainable future." AASHE lined up host institutions Appalachian State University, Duke University, North Carolina State University and the University of North Carolina at Chapel Hill with the theme of "working Together for Sustainability -- On Campus and Beyond." Admission also included a tradeshow highlighting sustainable solutions from a range of providers from Cree, Siemens and Duke Energy to Aramark, Ecolab and Johnson Controls.

The stated goals for the AASHE conference were to:

Advance sustainability practices on campus and beyond through partnerships and collaborations.
Increase the integration of social responsibility & social justice into mainstream campus sustainability.
Promote new pathways for elevating sustainability education and student leadership development.
Magnify the role of campuses as responsible members of communities, both local and global.
Involve a wider range of participants in advancing sustainability in higher education.

Further conference detail may be found at http://www.aashe.org/conf2008/schedule.php.

As reported in The Chronicle of Higher Education, the closing panel highlighted ways that colleges and other sustainability interests can work with local governments. Speakers included moderator Jim Elder, the director of the Campaign for Environmental Literacy, the clerk of courts from Miami-Dade County Florida, the mayor of Chapel Hill and Debra Rowe, a professor at Oakland Community College. Professor Rowe, "who is famously involved in countless sustainability organizations and efforts, said that many campus career offices don’t tell students about the sustainability jobs that city governments will need to fill in the future. Sustainability advocates, she said, should use that potential demand to push sustainability education on campus." (This entry published by Liz Riley, a member of Womble Carlyle's construction and real estate development practice group.)

Ten Battle-tested Rules for Communicating Well in Hard Times

2008-11-10T17:12:00.000-05:00

The line of organizations delivering bad news these days is a long one. And with the financial market challenges causing a ripple effect across the broader economy, that line may be long across America for some time. Communicating tough news is an unenviable task, and legal advisers are increasingly called upon to guide clients through the delivery of news that can be jarring: layoffs, declining profits, product recalls and ethical breaches, to name a few. Henry Fawell, a Strategic Communications consultant at Womble Carlyle based in the firm's Baltimore office, outlines how you can communicate effectively as an organization during difficult financial times.

Click here to read more...

Architects Feel the Hit

2008-10-31T12:09:00.004-04:00

A recent article in Architectural Record describes the economic downturn's effect on design firms, and the gloomy forecast for the forseeable future. According to the article, retail and hotel building will fall 10 per cent in 2009, with office construction constricting by 12 percent. While some regional banks for still making loans for projects that are not speculative, even this activity is undercut by fundamental problems in the construction industry, one of the most important being the steep rise in prices of construction materials.

Institutional projects are being impacted as well. Public projects are typically financed by bonds, and voter support this year is extremely uncertain. As for private schools, endowments are typically invested in the stock market, the volatility of which is front page news every day.

The article finds one potential bright spot --- for firms that are able to diversity with international projects. Since this article was published (October 15, 2008), however, it has become painfully clear that the economic downturn is global. To read the entire article, click here. (This entry published by Karen Carey, a member of Womble Carlyle's Real Estate Development and Construction Law practice groups.)

Housing Construction Decline Hits Long-time Construction Supply Company

2008-10-27T13:53:00.002-04:00

Stock Building Supply, established 86 years ago in Raleigh, North Carolina as Carolina Builders, "is slashing 3,000 jobs and closing 86 facilities in six states as it struggles with the biggest housing slump in more than six decades" reports the News & Observer. Parent company Wolseley Plc (UK), made the announcement on October 23. The story notes that other building suppliers are also cutting back as a result of the economic slowdown, although the Triangle and Charlotte may fare better than other areas such as Florida, California and Louisiana. (This entry posted by Liz Riley, a member of Womble Carlyle's Real Estate Development and Construction Practice Group.)

Zero Trans fat Homes?

2008-10-23T13:27:00.002-04:00

Michelle Kaufmann, an architect known for her line of prefab homes, recently proposed a standardized "nutrition" label to communicate the benefits of a green building to potential buyers. She notes that we traditionally buy a home based on qualities like location, curb appeal, size, and upfront costs, but exclude important factors like sustainability, healthfulness of the indoor environment, and the cost of operating a home.

The purpose of the sustainability label is to quantify the advantages of a green home in easy to understand terms. Her proposed label, similar to the nutritional label found on packaged food products, lists key figures such as energy consumption, carbon dioxide emissions, and insulation values. The label would allow consumers to compare the long-term cost benefits of homes on the market and a home's contribution to improving the environment. In the same way that nutritional labels have changed the way people buy food (for example, the recent push for zero trans fats), Michelle Kaufmann hopes that a standardized sustainability label will change the way people buy homes.

The label could also be married to existing green building standard, such as LEED. The LEED distinction on the label would promote USGBC's brand, and listing key figures on the label will help distinguish a LEED building from one built using traditional building standards.

For more information and an example of a "sustainability label" see Michelle's blog entry and her whitepaper.

House Energy Bill Seeks Improved Energy Efficiency and Green Development for the Built Environment

2008-09-23T13:38:00.003-04:00

On Tuesday of last week, the U.S. House of Representatives passed the much talked about energy bill, H.R. 6899, by a vote of 236 to 189. Politicians and the press have spent a great deal of energy focusing on this year's hot button issue, offshore drilling, but the bill also includes a number of provisions that could have an impact on sustainable development and construction. For example, Title VI of the bill is a reformulation of a bill originally proposed by Rep. Ed Perlmutter (D-Co) last spring, the Green Act of 2008.

Among other things, Title VI seeks to cause a 20% reduction in energy consumption for single and multifamily structures built or rehabilitated with HUD assistance; creates an energy efficiency demonstration program that applies to multifamily properties in certain enumerated federally assisted program (e.g. Section 8); establishes incentives for increasing the energy efficiency of multifamily housing, including discounts on premiums for mortgage insurance and allowing mortgages to exceed certain dollar amount limits prescribed by law; and authorizes HUD to make grants to states, cities, and counties to carry out energy efficiency programs for new and existing multifamily housing.

Rep. Perlmutter stated in a recent press release, "The Green Act measures will help revitalize our economy by making energy efficiency practices more affordable, accessible and achievable by consumers, businesses and government entities. By prioritizing energy efficiency practices, we can ease the woes of homeowners, lenders, financial markets, builders and our environment."

Earlier this summer, Karen Carey summarized the testimony of representatives of the National Multi-Family Housing Counsel (NMHC) and the National Apartment Association (NAA) who offered a number of recommendations to improve the original Green Act of 2008. Some, but not all, of these recommendations were incorporated into Title VI, such as including the new National Green Building Standard as one of the applicable green building standards. See Karen's entry on Womble Carlyle's Multifamily and Mixed Use Development Blog for a summary of the other recommendations and a link to the full testimony.

Sen. Saxby Chambliss (R-Ga) predicted that the House energy bill would go nowhere in the Senate. The Senate intends to unveil its own energy bill before it recesses next week, but does not intend to address it until after the November elections.

Sources: HR 6899, Atlanta Journal Constitution

California's Green Building Standard

2008-09-16T14:36:00.012-04:00

California's Green Building Standard, adopted by the California Building Standards Commission on July 18, 2008, appears to remain the only state-wide green building standard in existence --- which is somewhat surprising, given the sudden popularity of "going green" in so many business sectors. Hardly a day goes by without several emails in my In box advertising programs, books, events, etc. touting the benefits of being green.

California's standards appear to focus heavily on reducing water use --- by one account, the standards will require (when they become mandatory in a couple of years) that water use be reduced by 20 percent and water for landscaping by 50 percent for all new construction. The standards will also require reducing energy usage by 15 percent. Click here to find the final approved standards.

One thing that makes the California standards attractive is that they don't specify how to make the called-for reductions. Giving the construction industry the flexibility to choose how to reduce water consumption and energy should be helpful not only to the industry but also to consumers (whether this flexibility will carry over into the mandatory standards that are to be developed over the next two years or so remains to be seen).

It will be interesting to see whether, and when, other states follow California's lead. I suspect it won't be until after the economy bottoms out and begins to recover. It is hard to concentrate on much of anything else at this point. (This post published by Karen Estelle Carey, an attorney in Womble Carlyle's real estate and construction practice.)

First Measure to Link Transportation Funding to Urban Planning

2008-09-11T09:35:00.001-04:00

The Wall Street Journal recently reported that a revolutionary bill has just passed both houses of the California legislature and is on its way to Governor Schwarzenegger's desk for his signature or veto. The Bill, Senate Bill 375, intends to cut carbon-dioxide emissions by rewarding cities and counties that prevent sprawl and improve public transportation.

The bill requires California's regional planning authorities to develop plans to meet a set of emission reduction goals in order to receive transportation funding. Builders who construct projects closer to public transportation will be graced with a lighter regulatory hand (e.g. reduced requirements for environmental studies).

There were a number of concerns, including an increase in the cost of housing, the loss of a city's right to determine the use of its land, and a fear that the law would impede California's growth, but the bill was ultimately supported by environmentalists, local governments, and builders.

Proponents hope that this bill will be a model used by other states to reduce the spread of sprawl, increase transportation-minded development, and lower carbon-dioxide emissions.

There is no word yet on whether the Governor will sign the bill into law.

Another Construction Nightmare

2008-09-10T16:48:00.002-04:00

The Womble Carlyle Fair Labor Standards Act Law Blog chronicles the Act with a particular emphasis on the southeast United States. In a blog entry posted yesterday, Charlie Edwards focuses on the increase in new construction industry filings in several specific areas, including a dispute over what constitutes compensible time for purposes of recording worked time. For further information, see his blog entry here.

BIM for Facilities Management

2008-08-28T11:04:00.001-04:00

Today I listened in on a webinar presented by Autodesk on the subject of BIM in Facilities Management. Although I am a construction lawyer, not an architect or a facilities manager, I could readily see the value of BIM to facilities managers. To be able to have at one's fingertips complete information on all your facilities, including the physical structure, the mechanical and electrical systems, furnishings, furniture and equipment is quite remarkable. And although FM Desktop can amass much of this information, it is lacking the information that a BIM can provide, and now can be exported, as I understand it directly from Autodesk's REVIT in which the model was created.

I realize that some federal and state governmental agencies are now requiring the use of BIM in designing new buildings. I think large private institutional owners are not there yet, and it may be because the architects they typically use are not educating the owners about the benefits of BIM and giving them the opportunity to take advantage of these opportunities. From what I understand, most architects are still telling their owner clients that "BIM will not be used on this project". It's time for that to change.

In fact, it seems to me that the greatest value of BIM, when all is said and done, may be in the area of facilities management. (This post submitted by Karen Estelle Carey, a member of the Construction and Real Estate Development team.)

Couple Runs Afoul with Implied Warranty of Habitability

2008-08-25T10:05:00.002-04:00

A recent NC case arises from an Outer Banks construction lot in Duck, which according to an online resource on Duck is a town established in the 1870’s and named for the many ducks and water fowl in the area. A migratory town with around 500 full time residents, nearly a quarter million people flock there every summer.

Waddling through the tangled web of the case, Developer One built a bulkhead retaining wall around a lot fronting the Currituck Sound in Duck. Later, Mr./Mrs. Mancuso purchased the lot individually, and then had their company, Developer Two, build a house, swimming pool and second bulkhead. Buyers bought the house and less than a year later, Developer One’s first bulkhead sagged and bowed. Not wanting to pay the bill, Buyers filed suit against Mr./Mrs., but not their company Developer Two.

The North Carolina Court of Appeals reaffirmed that North Carolina recognizes a claim for breach of implied warranty of habitability against a "vendor" who is in the business of building dwellings. The implied warranty covers recently constructed dwellings, including all "fixtures," so they are sufficiently free from major structural defects and constructed in a workmanlike manner.

After ruling the bulkhead a "fixture" due to its "annexation to the land", the court needed to find that Mr./Mrs. are "vendors" to hold them liable. Since (1) Mr./Mrs. signed the contract as individuals, (2) Buyers did not know that Mr./Mrs. intended to contract the construction to a separate company, and (3) Mr./Mrs. were actively involved in the construction, the court ruled that Mr./Mrs. were out of luck and could not duck their implied warranty responsibilities by contracting with their own corporation. (This entry posted by Ken Michael, a member of Womble Carlyle’s real estate development and construction law practice group.)

Source: Regis M. Burek and wife, Lynda G. Burek v. Bernard Mancuso, Jr. and wife, Frances Mancuso, 657 S.E.2d 446, 2008 WL 565112 (N.C. App. 2008)

The Hidden Risks of Going Green

2008-08-19T10:04:00.001-04:00

In a recent article entitled "The Hidden Risks of Green Buildings: Avoiding Moisture and Mold Problems", authors J. David Odom, Richard Scott and George H. DuBose of the Liberty Building Forensics Group, LLC caution owners and other parties thinking of building a "sustainable" or "green" building to pay close attention to the materials being used to determine whether the materials have been adequately tested to ensure that the materials not only qualify as sustainable or LEED certified materials, but also to ensure that the materials are durable and will last as long as other non-green materials. The authors note that "[w]e don't believe that anyone would deem a structure "sustainable" if it cannot survive the first five years without a major renovation because of moisture problems."

As with all buildings, the authors note that the most important components of a building to be scrutinized are the building envelope and the HVAC system. The authors conclude with several recommendations for dealing with the increased risk in using green designs including, 1) a technical peer review of the design focusing on the performance of the HVAC and building envelope systems, 2) adherence to institutional knowledge in the fields of humidity control, waterproofing and building envelope design and resistance against "building flush out" and other practices that have fallen out of favor, and 3) new green products should be examined and evaluated in order to weigh the green benefit against the likely performance of the product, particularly in areas of the building where the risk of failure and the resulting cost to remedy the failure are the greatest. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

Source: The Hidden Risks of Green Buildings

Mutual Waiver of Consequential Damages Re-Visited

2008-08-06T17:11:00.001-04:00

From an Owner's perspective, the mutual waiver of consequences damages that was introduced into the AIA standard form design and construction contracts in 1997 and survives in the 2007 edition of these contracts continues to be problematic. While Architects and Contractors embrace this waiver, it is not so good for owners. In reflecting recently on how best to describe to an Owner the potential consequences of waiving consequential damages in the Owner's agreement with the Architect, I created the scenario below that illustrates how this waiver could be seriously detrimental to an owner. Although unlikely to occur exactly as played out below, the scenario is based on fact.

The Architect makes a negligent mistake in the mechanical design of the HVAC system in an assisted living facility. As a result, the air doesn't circulate properly. Word gets around about how terrible the air quality is in the facility. There is some bad press about it, and in fact the air quality is so unpleasant that a few people move out of their units. A particularly fragile lady falls and breaks a hip while moving out, and the family sues the Owner, claiming that she would not have had to move out except for the terrible air quality in her unit. Another resident develops pneumonia and dies, and the family sues the Owner claiming that the faulty air circulation was the proximate cause of the pneumonia. More bad press.

Whatever costs the Owner incurs in defending against these lawsuits and in repairing its public image, and whatever liability it is ultimately found to have would likely be consequential damages. If the Owner waives its right to recover consequential damages, the Owner would have no claim against the Architect for the damages the Owner suffered as a result of the lawsuits and the bad publicity it received.

The point is that Owners should not lightly accept a mutual waiver of consequential damages simply because it appears in the standard form agreement. (This entry was published by Karen Carey, a member of Womble Carlyle's real estate development and construction law practice group.)

Centralizing International Study on Campus: FedEx Global Education Center at UNC-Chapel Hill

2008-08-04T15:01:00.003-04:00

As noted in the "Buildings and Grounds" blog of The Chronicle of Higher Education, and recently highlighted at the Society for College and University Planning’s annual conference in Montreal, UNC-Chapel Hill has gathered its various international program elements under one roof at The FedEx Global Education Center at University of North Carolina at Chapel Hill, designed by Leers Weinzapfel Associates, and Pearce Brinkley Cease + Lee. Having a central home has improved the global education profile at UNC-Chapel Hill, with faculty, students, international visitors and others making good use of the Global Center since its opening last year. Although some question the ultra-traditional, almost utilitarian style of the building, a look beyond the red brick exterior reveals "a green roof and a large glassy facade. It is oriented around a central atrium that provides for serendipitous meetings between students and faculty members and also offers ample space for banquets. Classrooms in the building are open not only to international programs, but also to programs like biology and philosophy that might benefit from the international atmosphere." (This blog entry was published by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice group.)

Source: The Chronicle of Higher Education

NC Court of Appeals Holds That Risk Allocation Provision Does Not Violate North Carolina Anti-Indemnification Statute

2008-07-28T12:59:00.006-04:00

Indemnification and limitation of liability provisions are commonplace in construction contracts. By statute in North Carolina (N.C. Gen. Stat. § 22B–1 (2007)), any contractual agreement relating to the design, planning, construction, alteration, repair or maintenance of a building, road, appurtenance or appliance purporting to indemnify a party against liability for damages caused by such party’s own negligence, in whole or part, is unenforceable. This rule extends to the party’s independent contractors, agents and employees as well.

Recently, the North Carolina Court of Appeals clarified that N.C. Gen. Stat. § 22B-1 (2007), North Carolina’s version of the so-called “anti-indemnification statutes” that have been enacted across the country, does not apply to a limitation of liability provision agreed to by parties to a contract in the context of construction.

In Blaylock Grading Co. v. Smith, 658 S.E.2d 680 (2008), the North Carolina Court of Appeals upheld a “risk allocation” provision contained in a construction contract that limited the amount of liability that could be imposed on the defendant for the consequences of his own negligence. In Blaylock, the plaintiff, a grading company, brought a claim of breach of contract and negligence against the defendant, the surveyor on the project. On the issue of liability, the jury determined that the defendant breached the contract with the plaintiff and was negligent in the performance of its surveying duties. On the issue of damages, the jury found that the defendant was liable for over $500,000. The defendant appealed arguing that the Risk Allocation provision in the contract limited the defendant’s ultimate liability to $50,000.

On appeal, the Court of Appeals held that § 22B–1 did not apply in this case, noting that the statute only prevents one party to a contract from agreeing to be liable for the negligence of the other party to a contract. By contrast, the Risk Allocation provision contained in the contract at issue only limited the amount of damages recoverable by one contracting party from the other and did not impose liability and damages on the plaintiff for the defendant’s negligence. Consequently, the Court held that the Risk Allocation provision did not violate N.C. Gen. Stat. § 22B-1 (2007).

Thus, the lesson to be learned for contract draftsmen is that risk allocation provisions are a viable and powerful means to limit prospectively the damages for which a company may be liable. (This entry was published by Culley Carson, a member of Womble Carlyle's construction law practice group.) (PDF)

Source: Blaylock Grading Co. v. Smith (PDF)

Mobile Art Pavilion will make stop in Central Park - Then Disappear...

2008-07-25T11:44:00.002-04:00

According to a story in the July 24 New York Times, a traveling art building (of sorts) designed by London architect Zaha Hadid is heading to Central Park this fall. The "Mobile Art" pavilion will showcase works of contemporary artists as well as advertise for its sponsor, Chanel. The 7,500 square foot structure can be packed in 51 containers and shipped to various locations around the world. Mobile Art "will occupy the Rumsey Playfield, midpark at 70th Street, from Oct. 20 to Nov. 9. (It is Ms. Hadid’s first New York building, albeit temporary, and has already made stops in Hong Kong and Tokyo and is headed later for London, Moscow and Paris.) ...Ms. Hadid, who won the Pritzker Prize — architecture’s highest honor — in 2004, said that she liked the idea that a pavilion 'lands, creates a buzz and disappears.'" See full story, exhibition admission details and cool photos here. (This blog entry was published by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice group.)

Builders Instituting Lender Liability Lawsuits

2008-07-24T17:00:00.000-04:00

The Wall Street Journal reports that the "love affair" between lenders and builders that existed during the housing boom is over, and the lender liability lawsuits that characterized the real-estate downturn in the early 1990s are making a comeback.

Builders are beginning to file suits against lenders contending that the lenders forced the builders and their projects into insolvency by acting in bad faith. The bad faith allegations include delaying or stopping projects midstream by refusing to release funds from construction loans, launching lengthy audits and appraisals, and aggressively enforcing personal guaranties.

The Journal suggests that the clampdown is the result of financial institutions acting in the face of intense pressure from regulators and shareholders to reduce their real-estate exposure and avoid crippling losses.

For more information, see the Wall Street Journal.

Indemnification Provisions --- Owner-Architect Agreements

2008-07-14T17:32:00.001-04:00

Owners routinely require an indemnification in their agreements with architects. Architects frequently ask that the indemnification obligation be mutual, citing "fairness" as the reason.

On the surface, it does seem fair for a contractual indemnity obligation to be mutual --- but in a professional design contract, it is actually fair for it to be one-sided, i.e., the design professional gives an indemnity to the owner, but not the other way around. Here's the reason:

The design professional, in designing a facility for the owner, is providing a valuable service to the owner based on the designer's unique knowledge, skill and judgment. If the design professional is negligent in performing that service, there is at least a reasonable chance that a third party could be harmed as a result of that negligence and if that happens, that the third party will bring a claim against the owner --- after all, it is the owner's facility and the owner may be held responsible, as to third persons, for the injury. It is right that the design professional indemnify the owner in such a circumstance.

On the other hand, the owner's main obligation under a design contract is to pay the designer. The owner is not providing a professional service which, if performed negligently, may cause injury to a third person who could then hold the designer responsible for the owner's actions. In other words, the risks of the respective parties under a design contract are not reciprocal and, therefore, the obligations under a design contract should not be reciprocal.

That this is the right way to think about it is borne out by the fact that the AIA, in its new edition of its standard form design agreements, includes an express indemnification from the architect to the owner, but does not make it reciprocal. (This post published by Karen Estelle Carey, a member of the construction practice at Womble Carlyle.)

Italian Architect Poised To Build 80-Story Tower With Revolving Floors Powered By Wind Turbines

2008-07-09T17:01:00.002-04:00

It looks like Dubai will get yet another amazing feat of construction if David Fisher has his way. The Italian architect recently announced "the launch of a revolutionary skyscraper in Dubai dubbed as the 'world's first building in motion,' an 80-story tower with revolving floors that give it an ever-shifting shape." Fisher and his backers plan to offer apartments ranging from 1,330 square feet (at about $4 million) to a 12,900-square-foot villa (for almost $39 million,) as reported by a CBS affiliate. Although Fisher "is not well known, has never built a skyscraper before and hasn't practiced architecture regularly in decades," he plans to design similar buildings for New York and Moscow. Some of Fisher's credentials have recently been called into question, as well. See the Chronicle of Higher Education's blog, Buildings and Grounds. Images of the planned skyscraper may be viewed at wcbstv.com. (This entry published by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice groups.)

Court Doesn’t Leak Out Remedy for Homeowner’s Defective Roof

2008-06-24T17:13:00.003-04:00

An unhappy homeowner sued a roofing contractor for roof defects seven years after her roof was installed. Roemer v. Preferred Roofing, Inc., 660 S.E.2d 920 (N.C. App. 2008) (NC Lawyers Weekly No. 08-07-0634). The homeowner alleged negligence, breach of contract and breach of warranty, seeking only monetary damages. A few months later, the more unhappy homeowner voluntarily dismissed her negligence and breach of contract claims. Why? Because the roof contractor’s motion to dismiss pointed out North Carolina’s statute of repose, which bars actions that seek damages based on defective or unsafe conditions of improvements to real property six years from the date the roofing contractor substantially completed her roof installation.

But what about the homeowner’s remaining breach of warranty claim? After all, the roof contractor provided an express lifetime warranty of dependability. Further, in
Haywood Street Redevelopment Corp. v. Peterson Co., 120 N.C.App. 832, 463 S.E.2d 564 (1995), the N.C. Court of Appeals held a breach of warranty claim was not barred by the statute of limitations (rationale would similarly apply to statute of repose) because each day the warranty was breached a new cause of action accrued. However, the even more unhappy homeowner knew she was in hot water when the court ruled that her case was different because she sought money damages only, when the only remedy she had that could survive the six year statute of repose was for specific performance (court compel roof contractor to fix the problem), not money damages.

Is there a practice pointer here to save for a rainy day? Yes, the best way to keep your head above water is to file your breach of warranty claim within the applicable statute of limitations and repose periods. And if your breach of warranty action is filed more than six years after substantial completion, in addition to money damages, the face of your complaint should also seek specific performance. (This entry posted by Ken Michael, a member of Womble Carlyle’s real estate development and construction law practice group.)

Source: NC Lawyers Weekly

USGBC to Outsource LEED Certification

2008-06-19T10:23:00.003-04:00

GreenSource, a publication of McGraw Hill (publisher of ENR), reports that the US Green Building Council (USGBC) is preparing to outsource certification of buildings for its multitude of LEED rating systems. Outsourcing is intended to bring LEED into alignment with norms established by the International Organization for Standardization (ISO) for certification programs, which norms require the standard-setting organization to be separate from the certification organization.

Certification of buildings will be performed by independent, accredited certifiers overseen by the Green Building Certification Institute, a non-profit affiliate of the USGBC. In addition to providing a "high quality, auditable third-party certification", outsourcing should allow the USGBC to better manage the increasing demand for LEED certification of buildings and improve customer service.

Certification of buildings by independent, accredited certifiers will begin in January, 2009. For a more detailed description of how the process will work, visit GreenSource.

NC Supreme Court Alters Incorporation by Reference

2008-06-16T12:34:00.002-04:00

A recent case handed down by the North Carolina Supreme Court is likely to have a significant impact on how construction contracts are drafted in North Carolina.

In Schenkel & Shultz, Inc. v. Hermon F. Fox & Associates, 685 S.E.2d 918 (2008), the North Carolina Supreme Court held that the standard practice of incorporating the entirety of a prime contract into a subprime contract (e.g., subcontract or subconsultant agreement) by reference may be flawed. In Schenkel, the court considered whether Schenkel (the Architect) and Fox (the Engineer) intended to incorporate by reference the terms of an indemnification provision contained in the prime contract between Schenkel and the Charlotte–Mecklenburg Board of Education (the “Board”) in their subprime contract, the “Standard Form of Agreement Between Architect and Consultant (AIA Document C141 6th ed. 1987) (the “AIA C141 Agreement”).

The prime contract between Schenkel and the Board contained an indemnification provision that expressly provided for indemnification against loss arising from negligence or breach of contract. By contrast, the AIA C141 Agreement entered into between Schenkel and Fox only required Fox to perform its services “according to this Agreement with the Architect [Schenkel] in the same manner and to the same extent that Schenkel is bound by the attached Prime Agreement to perform such services for the Owner [Board].”

Fox contended that this language merely required it to perform its services in the same manner and to the same extent as Schenkel was to perform its services to the Board. Fox alleged that the term “services” should be construed narrowly so as to include only engineering services, and should not be broadly construed so as to include the indemnification obligations contained in the prime contract.

Schenkel responded that the language of the subcontract was a typical “flow–down” provision in which all the same rights and obligations of the subcontractor flow from the subcontract up through the general contractor to the owner, and conversely down the same contractual claim. Schenkel argued that the flow–down provision of the subprime contract incorporated by reference the entire prime contract, including the indemnification provision such that its subconsultant, Fox, should likewise be bound to the indemnification provision contained in its prime contract with the Board.

The Supreme Court agreed with the Court of Appeals and found that because the language of the AIA C141 Agreement was susceptible to differing yet reasonable interpretations, the contract was ambiguous and, therefore, summary judgment was inappropriate for either party. The Supreme Court sent the case back to the trial court for it to determine the “intent of the parties” with respect to whether the parties intended for the indemnification provision contained in the prime agreement to apply to Fox in the performance of its services under the AIA C141 Agreement.

The lesson to be learned from the Schenkel decision for construction law practitioners and professionals alike is to avoid the temptation to simply incorporate by reference the prime contract en toto. The better drafting technique, and the one that our Supreme Court appears to now require, is to expressly incorporate the provisions that the parties intend to govern in the event of a dispute, including, but certainly not limited to, the indemnification provision. (This entry published by Carson Culley, a member of Womble Carlyle's construction law practice group.)

19 Awards for Campus Architecture, Buildings, Plans and Landscapes

2008-06-12T08:59:00.002-04:00

The Society for College and University Planning (SCUP) and the Committee on Architecture for Education of the American Institute of Architects (AIA-CAE) have announced 19 awards in the areas of architecture, campus planning and landscape architecture. Winners included not just American universities but also projects on foreign campuses, such as the master plan for the faculty of arts and sciences at the Aga Khan University, in Karachi, Pakistan, by Payette.

Recognition went to a variety of new (Alice Paul Residence Hall at Swarthmore College) and renovated/restored (Dalton Hall at Bryn Mawr College) structures, from housing (Riverside Housing Initiative at Harvard University) to theaters (Performance and Studio Arts Campus at Columbus State University) to technical centers (PDSI (Physics, DMSE, Spectroscopy and Infrastructure) Project at M.I.T.) to a storm water-management master plan (Meadow Creek Regional Stormwater Management Master Plan at University of Virginia.).

A complete list and links to the awards and images may be found at http://www.scup.org/membership/awards/2008/. (This entry published by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice group.)

Dim on BIM?

2008-06-06T14:33:00.001-04:00

Sure the future of Building Information modeling (BIM) is bright, but the path to that future has a temporary dim - based on complaints from folks in the construction industry.

A recent survey of structural engineers reveals a sunny forecast - 74% of respondents think they will have to use BIM to meet their client needs in less than 12 months. Published articles espousing the bright and growing future of BIM are legion.

But not fast enough according to a recent ENR article that reports findings from an April eConstruction Industry Roundtable. The biggest gripe is lack of interoperability. Currently, software is imperfect and platforms are not compatible. A steel fabricator on the panel opines: "I keep hoping and looking for leadership in the general construction industry to promote a true interoperable solution where none of us is tied to a single software house."

The rate at which BIM is being adopted in the construction industry is accelerating, however, "significant impediments still remain in the path of broader implementation." This, according to an Associated Construction Publications article citing a recent Eighth Annual CMAA/FMI Survey of Owners. The biggest cloud in the sky? Lack of expertise and industry standards.

Some rays of light have emerged, with recent standards promulgated by the National Institute of Building Standards, the Associated General Contractors of America (AGC), and an upcoming ConsensusDOCS BIM Addendum. Time will tell "weather" the mix of these different standards will result in an atmosphere that is stormy or calm. (This entry posted by Ken Michael, a member of Womble Carlyle’s real estate development and construction law practice group.)

Elon University joins growing list of "greening" campuses

2008-05-30T10:36:00.003-04:00

On May 21, Elon University, located in Elon, North Carolina, broke ground on Lindner Hall, planned to be the "greenest" facility on campus. The 30,000-square-foot building will house administrative offices and various academic departments and include high-tech classrooms, a computer lab, faculty offices and space for student-faculty mentoring. As noted in an Elon University press release, "Environmental sustainability is a key component in both the construction and operation of the building. Seventy-five percent of construction waste will be recycled, much of the building will be made of steel and tile that contain recycled material, and photovoltaic solar power cells will help generate power on site, among other features. An estimated 8-10 percent of all power consumed by the building will be generated by those solar power cells and by solar energy used to heat water." (This entry posted by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice group.)

Source: Elon

Full Ninth Circuit Court of Appeals Affirms Lower Court's Holding in Garcia v. Brockway

2008-05-16T14:57:00.002-04:00

In a case that is being closely watched in the multi-family housing industry, the Ninth Circuit Court of Appeals this week released its opinion affirming the lower court's holding that the 2-year statute of limitations for a private civil action alleging violation of the Fair Housing Act's accessibility requirements for design and construction is triggered, i.e., the violation is complete, at the conclusion of the design and construction phase, which occurs on the date the last certificate of occupancy is issued.

The plaintiffs had asserted three theories to extend the limitations period: (1) that the violation was a continuing one that did not end until the defects were corrected; (2) that the statute did not begin to run until the aggrieved person encountered the design and construction defect; and (3) that the statute did not begin to run until the aggrieved person discovered the design and construction defect.

As to the first theory, the Court said that the plaintiffs (and HUD) confused a continuing violation with the continuing effects of a past violation, and that a failure to design and construct in accordance with the FHA accessibility requirements was not an indefinitely continuing practice but instead a discrete instance of discrimination that ended when design and construction were complete.

The Court treated the second and third theories as essentially the same, and failing for the same reason --- that the FHA's limitations period does not start when a particular person encounters, discovers, or even is injured by a housing practice, but rather the limitations period starts when there is an "occurrence or termination of a discriminatory housing practice," 42 U.S.C. 3613(a)(1)(A). (This entry published by Karen Estelle Carey, member of the Construction and Real Estate Development practice team.)

"What is a BIM?"

2008-05-14T09:39:00.008-04:00

This question is the first FAQ on the website of the Facility Information Council (FIC) describing the FIC's initiative to develop a National BIM Standard. I was intrigued because I usually hear the question asked as "What is BIM", not "What is a BIM?"

The FIC's definition of "a BIM" is elegant. It is simple and clear, and goes like this:

"Building Information Modeling (BIM) is a digital representation of physical and functional characteristics of a facility. A BIM is a shared knowledge resource for information about a facility forming a reliable basis for decisions during its life-cycle; defined as existing from earliest conception to demolition."

The concept of a "shared knowledge resource" is really the essence of BIM, it seems to me. But sometimes it is hard to describe clearly and simply what this means and why it is so important. Once again, the FIC does a good job:

"Digital representation means that computers can be used to 'build' the capital facility project virtually, view and test it, revise it as necessary, and then output various reports and views for purchasing, fabrication, assembly, and operations. In many cases paper output may be avoided altogether when the finalized digital designs are sent directly to procurement systems and/or digital fabrication equipment."

If indeed a facility can be "built" in this way, think of the errors, delays, costs and waste that can be avoided, not only in design and construction but just as important, throughout the life of the facility.

To read more about the development of a National BIM Standard, click here. (This entry published by Karen Estelle Carey, a member in the Real Estate and Construction practice area.)

Digging Up Bones: New Provisions in the AIA A201 Impose New Obligations on Contractors

2008-05-13T09:52:00.000-04:00

Recently, neighbors of mine decided to sell the family farm that has been in their family for almost 200 years. We know that the property has been in the family for this long based on the family cemetery plot located on the last bit of acreage that has not been subsumed by the surrounding neighborhoods that have swallowed what was originally about 100 acres of farmland.

As part of my neighbor's quest to sell their family property, they know that they will be responsible to pay the costs to move the family cemetery to a nearby memorial gardens. As the owner of the property, my neighbor's obligation to move this well marked family plot seems clear. Curiously, however, in the recent revisions to the AIA Contract Documents, and in particular, the AIA A201-2007, the drafters of the new 2007 edition of the AIA Contract Documents don't take as clear a position with respect to the responsibility for remains found on an owner's property during the course of construction.

In the revised A201-2007 General Conditions of the Contract for Construction, the drafters added a new Section 3.7.5 which reads in pertinent part, "[i]f, in the course of the Work, the Contractor encounters human remains or recognizes the existence of burial markers, archeological sites or wetlands not indicated in the Contract Documents, the Contractor shall immediately suspend any operations that would affect them and shall notify the Owner and Architect." [Emphasis added]. This seems to make some sense; if a contractor discovers remains, it will stop work and allow the owner to have the remains removed in accordance with applicable law.

What isn't as clear in the new language is: 1) the extent to which the contractor must stop the Work, and 2) whether the contractor will be given an extension of the Contract Time or additional costs that it might incur (e.g., extended general conditions, etc.) during such a stoppage of the Work. This uncertainty stems from the last two sentences of the new provision which read: "[t]he Contractor shall continue to suspend such operations until otherwise instructed by the Owner but shall continue with all other operations that do not affect those remains or features. Requests for adjustments in the Contract Sum and Contract Time arising from the existence of such remains or features may be made as provided in Article 15."

Thus, under the new Section 3.7.5, the burden is shifted to the Contractor to determine what operations "do not affect those remains or features". One can imagine that disputes will invariably result in the event of any miscommunication between an owner and contractor with respect to the precise scope of operations that the contractor is to undertake while such remediation efforts are under way. Disputes are also likely to result from the Contractor's inefficiency claims resulting from delays to the Contract Time caused by the contractor working around the owner's removal or abatement contractor.

In addition, instead of indicating that both the Contract Time and Contract Sum shall be extended due to such unforeseen conditions, the drafters instead placed the burden on the contractor to make a claim for such additional costs. While such claims may be perfunctory in most cases, one can imagine that disputes will likely result from contractors' claims arising out of such unforeseen site conditions. As a result, as parties begin to use the new A201, they should use caution in simply adopting the new Section 3.7.5 without modification and should instead examine this new provision in light of the facts and circumstances of the project in question. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

Campus Construction Not Hit by Sluggish Economy

2008-05-06T16:29:00.002-04:00

Despite a slow economy, one sector where construction is not being postponed is on college campuses. According to an article in The Chronicle of Higher Education, some universities are even trying to speed up projects to limit the damage done by rising construction costs. In its "Buildings and Grounds" Blog, The Chronicle had profiled (see here and here) the delay of at least one year on a $55 million science building at Lehigh University, located in Bethlehem, Pennsylvania , then quickly "cleared up" speculation of a lack of funding and donations as the cause of the delay.

Through "Buildings and Grounds" Blog, The Chronicle tracks new campus building, sometimes including multimedia presentations of both new and updated construction at institutions of higher education. (This entry published by Liz Riley, a member of Womble Carlyle's construction law practice group.)

NC Supreme Court Questions Lien Law Heirarchy

2008-04-30T12:10:00.001-04:00

In Carolina Building Services' Windows & Doors, Inc. v. Boardwalk, LLC, ___ N.C. ___, ___ S.E.2d ___ (April 11, 2008), the Supreme Court of North Carolina threw into question "the lien law hierarchy" created by North Carolina General Statutes 44A-7 through 24 and held that a default judgment in favor of an owner of real property against its general contractor cannot form the basis for extinguishing a subcontractor's lien on such real property.

Boardwalk, LLC ("Owner") entered into a contract with Miller Building Corporation ("Contractor") for the construction of a condominium project. Before completion, Contractor removed its personnel and equipment from the project site and failed to pay its subcontractors, including the plaintiff Carolina Building Services' Windows and Doors, Inc. ("Subcontractor").

Subcontractor properly gave notice of its claim of lien on funds, filed a subrogation lien, and filed suit against Owner and Contractor to perfect its lien. The Contractor failed to answer or appear, and the trial court entered a default judgment. Two years later, Owner filed a crossclaim against Contractor and obtained a default. Owner then sought entry of a default judgment, and Subcontractor objected; these actions were consolidated with each party's motion for summary judgment.

The trial court granted Owner summary judgment on its request for entry of default judgment, holding that Subcontractor lacked standing to contest the entry of default judgment. It then granted summary judgment to Owner on Subcontractor's lien claims based on such entry of default judgment. (Presumably, this judgment is because Owner established it owed no money to Contractor and Contractor had no claim of lien against the property so it follows that Subcontractor could not have a claim of lien on the property.) The Court of Appeals upheld the trial court's decision.

The Supreme Court of North Carolina reversed. It noted that, pursuant to N.C.G.S. 44A-23, "upon filing of a notice and claim of lien and the commencement of an action, no action of the contractor shall be effective to prejudice the rights of the subcontractor without his written consent." It then reasoned that Contractor's failure to answer or appear constituted an "action" by defining it broadly as "a thing done." It concluded that Contractor's action had the effect of prejudicing Subcontractor in contravention of the law, and, therefore, Subcontractor should have a right to present evidence concerning the merits of recovery under its claim of lien.

The dissent notes that this ruling has several implications. First, by permitting the Subcontractor to present evidence, the Court must have necessarily concluded that the default judgment against Contractor, which established that Owner owed no money to Contractor and Contractor had no claim of lien, had no effect. This brings into question the soundness of default judgments. Second, the Court also brings into question the lien law hierarchy (i.e., the idea that if Contractor has no claim of lien against the real property, then the subcontractor has no such claim of lien). Finally, the Court may have upset the risk-shifting mechanism of the statute. The statute is designed to distribute risk to the party best able to protect its interest. In this case, the subcontractor could have protected its interest by filing a claim of lien on funds sooner.

Professional Liability Insurance for BIM

2008-04-24T08:47:00.003-04:00

In working on an architectural services agreement recently, I struggled with how to address professional liability for the use of Building Information Modeling (BIM). Its anticipated use on the project is by the Architect and its consultants, with potential input from a construction manager. While this use is fairly narrow, it nevertheless seemed to me important that the issue of professional liability for the use of BIM needed to be expressly addressed, so that the Architect could obtain coverage (via a BIM endorsement or otherwise) under its professional liability insurance.

What I came up with goes something like this: "If Building Information Modeling (BIM) is used by the Architect, the Architect's consultants, a Construction Manager or any contractors or subcontractors in the preparation of the Drawings, Specifications and other Construction Documents, the Architect shall take responsibility for whatever information is ultimately adopted from the BIM process into the final Drawings, Specifications and other Construction Documents. The Architect agrees to manage the BIM process and the BIM model, granting and restricting (as appropriate to the purpose for which the model is used) rights to access the model and to make changes to the model. The Architect also shall procure and maintain a BIM endorsement to its professional liability insurance, which endorsement shall provide coverage to the Architect in its role as BIM manager and for technical consulting and errors and omissions (including technology-related errors and omissions) arising out of the use of BIM."

It will be interesting to see how contract language evolves as the use of BIM becomes more widespread and is used not only by design professionals and construction managers, but also trade contractors, suppliers and others involved in the construction process. (This entry published by Karen Estelle Carey, a member in the Real Estate Development and Construction practice group at Womble Carlyle).

Fair Housing Act Accessibility: Examples of Covered Multi-Family Dwellings

2008-04-17T12:06:00.000-04:00

As litigation over Fair Housing Act (FHA) design and construction accessibility requirements continues to increase around the country, we are getting more and more questions about what kinds of multi-family housing are, in fact, subject to these requirements.

To start with, the accessibility design and construction requirements apply to all buildings built for first occupancy after March 13, 1991, that fall under the definition of "covered multifamily dwellings (CMFDs)". CMFDs are:

all dwelling units inside buildings that have one or more elevators if there are at least four dwelling units in the building, and
all ground floor dwelling units in buildings without an elevator that have at least four dwelling units.

If a dwelling unit falls into one of the above two categories, it is a CMFD. This is true regardless of whether it is an apartment, condominium, townhouse, vacation timeshare unit or college dormitory.

Continuing care retirement facilities (CCRCs) (a fast-growing sector in our aging society) are covered even if they include health care facilities, providing that the CCRC has at least one building with four or more dwelling units ---- but there is a nuance here. To be a "dwelling" under the FHA, the unit must be intended to be used as a residence for more than a brief period of time. It is possible, therefore, for some units in a CCRC to be deemed CMFDs while others are not. While this nuance might be useful to a CCRC encountering an accessibility challenge, certainly the safest approach would be to design and construct each unit about which there could be a question as if it were a CMFD. (This entry posted by Karen Estelle Carey, a member of the Real Estate and Construction practice.)

Getting More Green by Going Green: New Study Finds Strong Economic Case for Developing Green Buildings

2008-04-09T12:41:00.002-04:00

In recent weeks, there have been a number of news articles published on the growing trend among owners, developers and contractors in the area of "green" building and "sustainable development". Until recently, most buildings that obtained LEED certification were mostly found in the areas of higher education and government according to the U.S. Green Building Council ("USGBC"). That trend is changing in part due to the results of new studies being conducted to examine the business case for "going green".

In a recent study published by the CoStar Group ("CoStar"), LEED buildings actually outperformed their non-LEED peers in "key areas such as occupancy, sale price and rental rates, sometimes by wide margins." According to the CoStar study, "LEED buildings command rent premiums of $11.33 per square foot over their non-LEED peers and have 4.1 percent percent higher occupancy. Rental rates in Energy Star buildings represent a $2.40 per square foot premium over comparable non-Energy Star buildings and have 3.6 percent higher occupancy." One factor in the increased return on green investment dollars is the high demand for green buildings across market sectors according to the CoStar study. Nationally, the supply has simply not been able to keep up with demand.

In North Carolina, the supply of LEED certified buildings has seen a dramatic increase as many real estate investors are also lauding the financial benefits of going green. According to a recent article in The Charlotte Observer, "In search of investors, builders going green", "[w]ithin five years, buildings that aren't constructed to environmental sustainability standards likely will have difficulty finding investors, experts predict." According to a recent article in the Triangle Business Journal, "Eco-friendly groups rise in shadow of LEED ratings agency", there are some 26 LEED certified buildings in North Carolina. Of these, over half are located in the Triangle according to the TBJ. There are also some 54 projects in the Triangle that are currently being considered for LEED certification according to the USGBC. Based on these numbers, which reflect a 100% increase in the total number of North Carolina LEED certified projects, just in the Triangle, it appears that the business case for going green is being realized here in the Triangle and across North Carolina and that owners, developers and contractors are likely to see more green by going green in the future. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

Choosing an Insurer for Builder's Risk

2008-04-06T09:32:00.000-04:00

In assisting a client evaluate alternative proposals for providing builder's risk coverage recently, I prepared a sort of "checklist" of issues to be considered when comparing the policy forms of two different insurers (builder's risk policy forms are not standard, thus each insurer's policy form needs to be reviewed and evaluated). Here are ten items from the checklist:

Is the policy "all-risk"? If so, be sure to review carefully the exclusions to coverage to determine what may need to be added back by endorsement.
Is the policy written on a "completed value" form or a "reporting form" (reporting forms impose significant penalties for late or under-reporting the increasing value of the project).
What, exactly, is the description of "Covered Property"? It should be something like "all property that is used in, or incidental to the construction project" as opposed to "property that will ultimately become part of the completed structure". The former provides more expansive coverage.
Is there flood damage coverage? If so, is there a sublimit to the coverage? Is there a separate deducible applied to this, and if so, how is the deductible figured --- on percentage of loss (better) or percentage of value?
Is there wind/hurricane damage coverage? If so, what is the sublimit and deductible and how is it figured? Is there different coverage/deductible for a "named storm"?
Is there an exclusion for losses covered by a guarantee, warranty or other obligation? If so, make sure that this exclusion does not apply to a contractor's warranty.
Is there an exclusion for loss arising out of professional services? If so, get the exclusion deleted or add coverage back by endorsement.
What are the policy provisions on owner occupancy? Are there any restrictions? Be sure to understand if/when partial occupancy will cause the coverage to terminate.
Federal law mandates that insurers provide terrorism coverage, confirm that this applies to domestic as well as international terrorism.
Does the policy give you the right to make pre-loss waivers of subrogation rights? Many standard form construction contracts (including AIA forms) include this pre-loss waiver, and you need to confirm that the policy allows for this if you have already entered into a construction contract.

These are only some of the items that need to be reviewed and evaluated before deciding on a builder's risk insurer. It is worth taking some time to review with your insurance agent or broker how these and other important items are handled under different builder's risk policies. (This entry posted by Karen Estelle Carey, member of the Construction and Real Estate Group at Womble Carlyle).

Full Ninth Circuit Court of Appeals to Hear Fair Housing Accessibility Case on March 25, 2008

2008-04-04T11:10:00.000-04:00

Some time ago, we reported on the Garcia v. Brockway case (503 F.3d 1092 (9th Cir.2007), an important fair housing accessibility lawsuit. At issue is when the two-year statute of limitations for actions alleging defective design and/or construction under the Fair Housing Act begins to run --- when construction is completed, or when the alleged violation is discovered. The plaintiffs appealed a decision from a panel of the Ninth Circuit affirming two lower court rulings that the statute begins to run when construction is completed (when the last certificate of occupancy is issued).

The plaintiffs argued the "continuing violation" theory, that there is no statute of limitations on these claims as long as a unit is allegedly out of compliance with the accessibility requirements of the Fair Housing Act. On January 7, 2008, the court ordered a full 15-judge panel to rehear the case. The "en banc" rehearing is set for March 25, 2008.

The National Multi-Family Housing Council and the National Apartment Association filed a friend of the court brief, arguing that application of the continuing violation theory would render the statute of limitations contained in the Act meaningless. To read NMHC/NAA's amicus brief, go to http://www.blogger.com/www.nmhc.org/goto/4499.

National Green Building Standard Almost Ready

2008-03-25T11:09:00.002-04:00

In a previous posting we discussed the new green building standard being developed jointly by the National Association of Home Builders (NAHB), the International Code Council (ICC) and the NAHB Research Center. The new standard is intended to be seamlessly incorporated into existing building codes, thereby providing a code-based standard for jurisdictions considering mandatory green building requirements. In contrast to currently existing green building rating systems (e.g., LEED), the proposed standard specifically addresses multi-family development and construction.

The NAHB, ICC and NAHB Research Center have developed the National Green Building Standard with the goal of obtaining ANSI approval, so that the standard would be available for adoption by local building departments. The ANSI public comment period on the proposed draft closed on February 8, 2008, and the standard is currently anticipated to be released later this spring.

For more information on the National Green Building Standard, and a copy of the current draft, go to http://www.nahbrc.org/technical/standards/greenbuilding.aspx. (This entry published by Karen Carey, a member of Womble Carlyle's real estate development and construction law practice group.)

"Free lancing" procurement for campus construction projects may lead to criminal investigation in Maryland

2008-03-05T12:41:00.000-05:00

State legislators in Maryland have been grilling Morgan State University officials after an audit brought the university's method of construction spending into question. As reported in the Baltimore Sun and in The Chronicle of Higher Education, the legislative audit revealed that Morgan State, which is not part of the University of Maryland system but receives state funding, "had padded a $4.3-million contract with the Whiting Turner Construction Company with a $3.1-million cushion and now cannot account for part of that money. The audit also found that Whiting Turner had been overpaid $825,250 in duplicate billings, and that two university employees had been simultaneously paid as both regular and contractual workers, resulting in overpayments of $121,400 that were not discovered for months." The university’s director of design and construction management resigned last month after auditors uncovered questionable deals made with contractors on behalf of the university. (This entry published by Liz Riley, a member of Womble Carlyle's real estate development and construction law practice groups.)

Homebuilders Association’s New Green Building Program: Blue Skies Ahead?

2008-02-28T12:45:00.001-05:00

In a February 20, 2008, article, Engineering News-Record reports that the National Association of Home Builders (NAHB) is working with the American National Standards Institute (ANSI) to introduce a new voluntary and flexible green building program that will apply to both new home construction and remodeling projects. According to a home builder in Austin, Texas, "houses will be scored on a point system using a ‘Turbo Tax’ approach after being inspected by third-party verifiers trained by the NAHB Research Center."

NAHB plans to publish the new ANSI green-building standard in April or May 2008. Click here to see the latest draft.

The year-long development process has included government officials, builders and associations. The professional certification program will be open to architects, planners, lenders, suppliers and realtors.

The development of the new green standard was unveiled at the latest International Builders Show, amidst presentations pointing to a precipitous decline in housing starts over the past two years. Seeing a break in the dark clouds, homebuilders report that green-building practices sell homes. In addition to assisting new home sales, NAHB’s new green building standard will also help the industry meet a challenge by the U.S. Department of Energy for builders to produce at least 220,000 green homes by 2012. (This entry published by Ken Michael, a member of Womble Carlyle's construction law practice group).

Sources: ENR, NAHBRC

ABA Forum Meets in New York to Discuss New 2007 AIA Contract Documents

2008-02-19T09:45:00.002-05:00

On January 31, 2008, the American Bar Association Forum on the Construction Industry (the "Forum") met in New York City to discuss the new 2007 American Institute of Architects ("AIA") Contract Documents. In a widely attended program with close to 1000 attendees present to enjoy the Forum's Midwinter Meeting entitled "The 2007 AIA Documents: New Forms, New Issues, New Strategies", members of the Forum spent the day parsing and dissecting the the 2007 changes to the AIA Contract Documents published by the AIA in November, 2007.

Throughout the day, presenters outlined the changes to the new Contract Documents and even engaged in an entertaining "Point-Counter-Point" debate style presentation regarding the changes made to the A201 General Conditions. After enduring a long, but very substantive, Forum presentation, the take away for this particular attendee was, for the most part, that while the drafters of the new 2007 documents have attempted to address some of the issues that caused concern for design and construction professionals during the period between the 1997 version and the most recent 2007 version of the Contract Documents, many of the problems and vagaries present in the 1997 AIA Contract Documents will endure for at at least another ten years until the 2014 version of the Contract Documents, the next opportunity for the AIA to revise the Contract Documents.

Of all of the changes discussed at the Forum, however, the discussion surrounding the changes to the Consequential Damages provision of the A201 General Conditions struck this attendee as particularly interesting. For starters, other than its new location in Section 15.1.6 of the A201, there was really only one substantive change to this section in 2007; the deletion of the word "direct" from the phrase "liquidated direct damages" in relation to the disclaimer that the mutual waiver of consequential damages does not preclude an award of liquidated [direct] damages under the mutual waiver of consequential damages provision. What I found to be, frankly, hard to believe, was the assertion made by the presenters of this topic that in the ten (10) years from 1997 to 2007 in which the A201 has contained a mutual waiver of consequential damages (there was no such waiver in the previous 1987 version of the A201) there have only been two (2) reported cases to deal with the application of the Consequential Damages provisions contained in the A201 General Conditions. What's more, the cases themselves, Commonwealth v. Cornerstone, Case No. 046-10-101 2006 WL 2567916 (Del. Super. Aug. 31, 2006), and Congress Construction Co., Inc. v. Geer Woods, Inc., Case No. 3:05cv1665, 2005 WL 3657933 (D.Conn. Dec. 29, 2005) really didn't even address or discuss the application of consequential damages in any great detail. In light of the "hot button" status of consequential damages, it is amazing that litigants have, for the last ten years, apparently been able to largely avoid judicial review of this issue.

While the author of this blog has not endeavored to verify the dearth of case law on this subject, I thought this to be one of the most interesting points to come out of the Forum Meeting in light of the amount of time and attention this provision commands in most contract negotiations. While experience suggests that most parties usually agree to include a mutual waiver of consequential damages provision in their construction contracts, the agreement to include the waiver is typically preceded by both sides outlining the doomsday catastrophic results that will occur in the event that the mutual waiver is deleted from the contract. With apparently so few reported cases on this subject it is hard to know whether these predictions hold precedential water. One must also wonder, however, whether and to what extent there have been significant awards of consequential damages during this period that were settled in order to avoid judicial review. Unfortunately, our presenters were not tasked to answer any of these questions.

Another explanation posited in the paper published in connection with the presentation (cited below) is that the drafters of the 1997 A201 achieved their stated objective in drafting the mutual waiver provision; to provide "a clear and unambiguous statement defining consequential damages ... [which] is at once both exact and comprehensive, precise and far-reaching, distinct and inclusive." See Mark J. Heley and Shannon J. Briglia, "Lessons Learned: How 1997 Revisions to A201 Have Fared After 10 Years. Litigation Experience and negotiation tips" at 12 (ABA Forum on the Construction Industry/TIPS Fidelity & Surety Law Committee's Joint Midwinter Meeting - January 2008). While there was no consensus reached at the Forum Meeting as to the reason why so few cases have analyzed the Consequential Damages provision contained in the A201 General Conditions, at least in theory, its inclusion in Section 4.3.10 of the 1997 A201 and the very minimal changes made in new Section 15.1.6 of the 2007 A201, might suggest that some consensus has been reached among design and construction professionals and that this provision is here to stay -- of course, only time will tell. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

Collaborative Project Delivery

2008-02-10T09:50:00.000-05:00

One of the new ConsensusDOCS contract forms is entitled "Standard Form of Tri-Party Agreement for Collaborative Project Delivery" (ConsensusDOCS 300). The tri-party, as one would expect, consists of the Owner, the Designer, and the Constructor. The contract form incorporates many concepts that are foreign, and probably antithetical, to traditional project delivery methods.

What, really, is Collaborative Project Delivery (CPD)? To understand the concept (at least from the perspective of the drafters of Form 300), a good place to start is to examine the "Collaborative Principles" set out in Article 3 of the contract form. Section 3.2 describes a number of attributes of CPD, many of which seem truly revolutionary when compared with the attributes of traditional project delivery.

Section 3.2 declares, for example, that CPD recognizes that "each Party's success is tied directly to the success of all other members of the CPD team and encourages and requires the Parties to organize and integrate their respective roles, responsibilities and expertise, to identify and align their respective expectations and objectives, to commit to open communications, transparent decision-making, proactive and non-adversarial interaction, problem-solving, the sharing of ideas, to continuously seek to improve the Project planning, design, and construction processes, and to share both the risks and rewards associated with achieving the Project objectives."

And what are the "shared Project objectives"? According to the Collaborative Principles, the Project objectives (Section 3.1) are to "design and construct the facilities called for in the Owner's Program, within the Project Target Cost Estimate and the Schedule developed under the Agreement."

Reading each phrase of Section 3.2 carefully and reflecting on the meaning of each, I think most experienced construction professionals and their advisors would agree that many controversial concepts were expressed in just these two sections; the audaciousness of the drafters of this document is truly amazing.

More about the ConsensusDOCS tri-party agreement in future blogs. (This entry published by Karen Estelle Carey, a member of the Real Estate Development group.)

For Sale: Reclaimed Wastewater

2008-02-06T18:48:00.000-05:00

It is not a news flash that there has been a drought in North Carolina and many other regions in the country. Construction companies use a great deal of water, so the drought conditions and water restrictions have been a challenge to many contractors working in drought areas. According to an ENR Digital Wire report on February 3, 2008, Union County outside of Charlotte, NC is offering relief at $1.82 per 1,000 gallons of water as long as you don’t drink it.

The Monroe Water Resources Department will be selling treated wastewater, also called reclaimed wastewater. It is not for drinking or consumption, but it will not make you sick from skin contact. The reclaimed wastewater is fine for construction and pavement washers. It is also fine for landscape irrigation of golf courses, ball fields, and industrial cooling and processing.

According to the article, there are a few other North Carolina cities and counties using limited reclaimed water: Anson County, Charlotte, Goldsboro, Raleigh and Cary.

Before you drive your vehicle to the bulk water station, you will have to undergo training to obtain a certificate to transport water. Training is free.

Suffering a drought reminds us all that every little bit counts. It is inherently wasteful to use valuable drinking water good enough for human consumption for construction or irrigation purposes. Kudos to Union County for their innovative plan. (This entry published by Ken Michael, a member of Womble Carlyle's construction law practice group).

Source: ENR

Landmark Supreme Court Decision Could Expose Businesses To N.C. Consumer Class Actions And More

2008-02-04T16:06:00.000-05:00

In a landmark decision by a divided court, the Supreme Court of North Carolina declared an arbitration clause in a consumer loan agreement unconscionable. The case, Tillman et al v. Commercial Credit Loans, Inc. et al, is important to all businesses contracting with N.C. consumers. Those who do not consider and react to its implications may find themselves, among other things, the targets of class action law suits they thought they had contracted away.

Typically, unconscionability arises where there is such inequality in the bargain that it shocks the judgment of a person of common sense. Historically, that has proven to be a high standard but the facts upon which the principal and concurring opinions in Tillman are based are not as extreme as one might expect. Thus, Tillman could mark a sea change in the way that trial and appellate courts assess and enforce contractual arbitration provisions.

Continued...

Architecture and the University: Inventing Something Bold and Reinventing the Old

2008-01-29T16:59:00.000-05:00

Separate items reported on January 28 in The Chronicle of Higher Education reflect the range of architectural and construction opportunities on today's college campus. At a recent Yale University symposium entitled “Building the Future: the University as Architectural Patron,” speakers promoted innovation and advocated that a campus should consider its physical place in the broader community with “lively, informed discourse about architecture and its role.” See here.

The presentations, of course, included the MIT professor "who is partly responsible for two of the most striking and controversial buildings of the past 10 years — Steven Holl’s Simmons Hall and Frank Gehry’s Stata Center, both at MIT." Speakers suggested that institutions of higher education have a social responsibility to "build well."

By contrast, The Chronicle also noted that eight floors of Chicago's landmark skyscraper, the Pittsfield Building, finished in 1927, will be renovated as dormitory space for students from several nearby Chicago institutions of higher education. The landmark skyscraper "was built for the heirs of the department-store magnate Marshall Field." See here.

Can a Letter of Credit Substitute for a Performance and Payment Bond?

2008-01-16T10:18:00.000-05:00

An owner was confronted recently with a circumstance in which a contractor that the owner really wanted to use was unable to obtain a bond for the project. The contractor was a small company, but had successfully built other projects for the owner. This project, however, would be the largest ever undertaken by the contractor, and was beyond the contractor's bonding capacity. What to do?

The dilemma was resolved by the contractor by establishing a clean irrevocable standby letter of credit ("LOC") in favor of the owner. While not in the total amount of the contract, the LOC was large enough to give the owner the assurance it needed that if the contractor became stretched too thin and was unable to complete the project in a timely fashion, the owner would have prompt and easy access to funds to complete the project.

If using this device, it is important to make clear in the contract that the LOC will not only be irrevocable but also will be a "clean" LOC, so that the beneficiary (in this case the owner) needs to do nothing more to draw down the LOC than to sign a statement that the other party (in this case, the contractor) is in default under the contract and that pursuant to the contract the owner is entitled to draw down the LOC. (This entry published by Karen Estelle Carey, a member of the Real Estate Development group).

Window Washer Defies Laws – Of Gravity and Nature

2008-01-14T09:42:00.000-05:00

In case you haven’t heard around the water cooler, a window washer fell off a 47 story New York skyscraper and lived. Sure he was hurt – some injuries to his brain, spinal column, ribs, abdomen and multiple broken bones in his arm and both legs, but doctors report a miraculous recovery. According to the New York Post, he is talking, watching TV, can move all his limbs, has no paralysis and is expected to walk again.

Since this is a construction industry blog from a law firm, first lets discuss his breach of the law of gravity. According to ABC News, the window washer "fell so far that the force of gravity maxed out and air friction even played a slight role in softening the blow." A physics professor in the article explains that "At a certain point you just don’t go any faster. You hit terminal velocity [124mph]." According to the New York Post article, the window washer was able to hold onto the window washing platform that he was on which likely provided enough air resistance to slow his descent. Newsweek described the scaffolding platform as 16 feet long and weighing 1,250 pounds. A physics professor in the Newsweek article also hypothesized that the window washer’s platform may have hit the side of the building a few times, slowing momentum. Another contributing hypothesis is possible assistance by a wind current updraft flowing through New York’s forest of buildings. He landed on a pile of twisted cables which is a better cushion than flat concrete.

Next, the window washer’s breach of the law of nature. According to the New York Post article, doctors say a fatality will occur in 50 percent of the falls from three or four stories and a fall from over 10 stories is almost always fatal. A doctor at the window washer’s hospital reports the highest he previously heard of anyone surviving is 19 stories. According to a Slate article, that young man was fortunate to hit a tree on the way down which may have slowed down his fall. So how did this window washer survive? According to Slate Magazine, the number one body part to avoid landing on is your head; and secondly your pelvic area. Somehow, the window washer accomplished this feat.

Inquiring readers of this blog may want to know if anyone has ever survived a fall greater than 47 stories which is nearly 500 feet. According to a Guardian Unlimited article, in 1972, a flight attendant holds the world record for surviving a fall, dropping 6.3 miles inside part of a jetliner destroyed in a mid-air bomb attack. A skydiver fell 2.8 miles and only broke his ankle after his main chute got tangled and his reserve chute failed. Clearly, going down with an object – a part of a jet or unopened chute, or hitting a tree on the way down, will slow down velocity. So if you ever find yourself falling a great distance, the Slate article provides a useful tip: "If you're unlucky enough to fall a long distance without anything—like a parachute—to slow you down, it's best to lie flat to increase your surface area in contact with the wind, but be sure to orient yourself feet first before landing." (This entry published by Ken Michael, a member of Womble Carlyle's construction law practice group).

North Carolina General Assembly Strives for Efficiency in 2007

2007-12-21T09:39:00.000-05:00

As we reflect on the legislation enacted by the North Carolina General Assembly that impacts the construction industry in 2007, the goal of the General Assembly for 2007 can be summarized in a single word: efficiency. The need for energy efficient buildings, efficient cost practices, and efficient review of construction plans that will allow outdated buildings to be renovated and many needed new public buildings to be built more rapidly appears to be the primary objective for 2007. The following is a brief summary of the laws that demonstrate the apparent need identified by the General Assembly for legislation that will promote a more efficient construction process in North Carolina:

S.L. 2007-397 (SB 3) - Promote Renewable Energy/Baseload Generation: N.C. Gen. Stat. §62-110.1 was rewritten to address the necessity for an analysis of the future needs for expansion of generating facilities and specified that a certificate would only be granted for a coal or nuclear facility if it meets, among other requirements, the energy efficiency standards adopted by the legislature.
S.L. 2007-446 (SB 73) - Improve State Construction Process: N.C. Gen. Stat. §143‑135.26(2) was revised in an effort to “expedite the plan review, approval and permit process” through the development of a “memorandum of understanding” that would state the dates for meetings and plan reviews as well as an estimated plan review time for the reviewing agency. N.C. Gen. Stat. §143‑341(3) was amended to include the requirement of a meeting of the “stakeholders for each State capital improvement project” to review the responsibilities of the project.
S.L. 2007-303 (SB 735) - Construction Plan Review: As of October 1, 2007, N.C. Gen. Stat. §58‑31‑40(b) requires that any plan for a building consisting of 20,000 square feet be submitted to and approved by the Commissioner for review of the safety of the building.
S.L. 2007-365 (SB 1245) - Retainage Payments/Construction Contracts: As discussed in greater detail in a previous blog, N.C. Gen. Stat. §143-134.1 was rewritten to provide specific requirements for a more efficient release of retainage payments to subcontractors in state construction contracts.

(This entry was published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

AIA Study: Green Wave

2007-12-13T16:12:00.000-05:00

According to an article recently published in AIArchitect for the week of December 7, 2007, the American Institute of Architects recently completed a study of current green building laws and the effectiveness of green building programs in American cities with a population of more than 50,000.

The numbers in the study evidence the green wave that has been flowing over our country. Nearly 15 percent, or 1 in 7 surveyed cities, currently have green building programs. When considering projections based on green programs currently in the advanced stage of development, the percentage increases to 20 percent. Because of urban density living patterns, 39 percent of US citizens or approximately 42 million Americans live in cities with green building programs. Since 2003, the number of cities with green building programs has increased by a factor of four.

Although the green building movement is still fairly new, it is taking root and flourishing. For those readers who prefer keeping their heads buried in the sand, watch out for the wave. (This entry published by Ken Michael, a member of Womble Carlyle's construction law practice group.)

Changes to the AIA Owner-Architect Agreement

2007-12-11T10:59:00.000-05:00

In November of 2007, the American Institute of Architects ("AIA") released significant revisions to many of its standard form design and construction agreements. The AIA’s Standard Form of Agreement between Owner and Architect (AIA’s B101-2007) varies greatly from its 1997 predecessors (AIA B141 and B151). While everything about it demands scrutiny before it is used, a few of its more notable changes (and non-changes) are discussed below.

Back by popular (architect) demand...

Mutual waiver of consequential damages leads the list of significant non-changes. This so-called “mutual waiver” was added for the first time in the 1997. Owners have, however, criticized its practical effect as being anything but “mutual” – claiming that the typical burden of consequential damages falls far more heavily on owners than it does on architects. While acknowledging this controversy, the clause is popular among architects; and so the AIA elected to keep it in the 2007 forms.

Changes

One contract form. For reasons that baffled many observers, the AIA, in 1997, split its standard form Owner-Architect Agreement into two documents, the first featuring project-specific information and the second containing a description of services common to most projects. In 2007, the two parts were recombined – and a standard form exhibit was added in which to supply much of the project-specific information.

Insurance. For more than 100 years, the AIA standard form did not impose an obligation on architects to provide professional liability insurance. That changed with B101-2007, which also requires that the parties specify the amount of coverage for general liability, workers compensation, and automobile liability.

Dispute resolution. In previous generations of AIA documents, the architect was given initial decision-making authority in most disputes, and was integrally – if not decisively – involved in resolving them. Doubts were raised, in many cases, as to the architect’s objectivity, especially when the dispute at-hand involved the conduct of the architect. B101-2007 provides the parties with the opportunity to formally appoint an independent “Initial Decision Maker” (“IDM”) – although, if the parties fail to do so, the AIA form designates architect as IDM by default.

Litigation v. arbitration. The 1997 Owner-Architect Agreement contained a mandatory arbitration clause. B101-2007, in contrast, allows the parties to designate whether disputes that are not resolved by mediation will be resolved by litigation or arbitration. [Note, however, that the AIA software pre-designates arbitration as the means of binding dispute resolution – but that pre-designation can be overridden.]

Standard of Care. Previous generations of AIA Owner-Architect Agreements did not expressly indicate a standard of care. That changes with B101-2007, which states that “[t]he Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances....” This new language suggests, if not imposes, a locality-based standard of care. How this will mesh existing judicially-established and recognized standards of care remains to be seen. Parties may also find this new standard of care challenging to apply or prove, depending on the project and the location.

The 2007 AIA Owner-Architect Agreement is peppered with many other changes and departures from the 1997 form. Close attention must be given to each before the form is employed on a particular project. (This entry published by David Roberts, a member of Womble Carlyle's construction and real estate development practice groups.)

Furman University's "Center for Sustainability" - a "green" house stylish enough for Southern Living

2007-12-05T09:54:00.000-05:00

Growing interest in sustainable housing and energy-conscious construction is reflected on the campus of Furman University, which is in the midst of building Cliffs Cottage, to be featured in Southern Living magazine next year. As reported in the Buildings & Grounds blog of The Chronicle of Higher Education

"The house will be a showcase green design and construction methods, and it will be certified under the Leadership in Energy and Environmental Design (LEED) program. Ed Marshall, director of special projects at Furman, says the house will feature geothermal heat pumps, water cisterns, tankless water heating, spray-foam insulation, nontoxic building materials, and an array of solar panels from different manufacturers. The house will be used to test some new building technologies."

The project is a partnership between Furman, located in Greenville, South Carolina, and Duke Energy. According to a press release from Furman, Duke Energy has contributed $1.5 million over five years "to highlight the company’s energy efficiency, Utility of the Future and sustainability initiatives. The immediate area around the Cliffs Cottage will be known as Duke Energy Village." (This entry published by Liz Riley, a member of Womble Carlyle's real estate development and construction practice groups.)

2007 AIA A201 General Conditions of the Contract for Construction: Proceed with Caution

2007-12-04T14:36:00.000-05:00

On November 8, 2007, The American Institute of Architects ("AIA"), released its decennial revisions of the AIA family of documents. For those who may be thinking they will simply insert these brand new documents in future contract negotiations, you may do so at your peril. While many of the changes reflect changes parties have been making for years to the standard form A201, others require a cautionary approach in determining how these changes will impact your organization and the way that it administers its Contract Documents.

For example, the new A201 begins by adding additional detail to the Architect's copyrights or Instruments of Service, which are now defined. Instruments of Service are now defined in new Section 1.1.8 as:

representations, in any medium of expression now known or later developed, of
the tangible creative work performed by the Architect and the Architect's
consultants under their respective professional services agreements.
Instruments of Service may include, without limitation, studies, surveys,
models, sketches, drawings, specifications, and other similar materials.

With respect to the Architect and the Architect's consultant's, the new 2007 A201 also further defines the rights afforded to each of the Architect and its consultant's in Section 1.5.1 and prohibits "[t]he Contractor, Subcontractors, Sub-subcontractors, and material or equipment suppliers" from using the Instruments of Service "on other projects or for additions to this Project outside the scope of Work without the specific written consent of the Owner, Architect and the Architect's consultants."

In the Commentary to the 2007 A201 changes, the drafters indicate that the new language serves to protect "the interests of the owner, architect and architect's consultants, and also serves to protect the public from harm that may result from their misapplication." While no additional insight is provided as to the reasoning for the change, or how specifically the owner, for example, stands to benefit from the prohibition, the new language appears to beg more questions than it answers. While the public policy and safety arguments afford the drafters a convenient explanation, as a practical matter, the new language will likely cause more problems for owners and contractors than it will resolve. For institutional owners who seek to construct an addition on to their existing structure, for example, what happens if the original architect of record or its consultants cannot be located years after an original structure was designed? Does a new owner of the building step into the shoes of the Owner under the Contract who constructed the building such that the new owner may seek and obtain permission to use the drawings? What royalties will an owner or contractor have to pay as part of the Contract Sum to use the Instruments of Service? Can the Owner use the drawings to coordinate with the drawings of a new architect in the design of an addition?

These are but a few of the questions that emerge when reviewing just these few Sections of the new 2007 A201. The lesson in all of this? As parties begin to move towards implementation of the new Contract Documents, they should invest time upfront to understand how the changes made to the 2007 AIA Contract Documents will impact how they enter into and administer the Contract Documents on future projects. Many of the new changes will have to be further revised (or deleted) and companies' internal policies will also have to be changed to be sure that the new changes to the AIA Contract Documents reflect each company's daily contract administration practices.

We will continue to discuss the changes in the AIA documents in future blogs. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

Green Building is killing birds at Emory University

2007-12-03T10:05:00.000-05:00

Reflective glass on the Mathematics and Science building at Emory University is so attractive that dozens of birds confuse the view, smashing into the panes during migratory season. The problem is not unique to Emory, however. "Turns out, environmentally friendly buildings are often bird killers. Ornithologist Daniel Klem, a professor at Muhlenberg College in Pennsylvania who has studied the problem for decades, said between 100 million and 1 billion birds die in the United States each year in collisions with glass," as reported in the Atlanta Journal-Constitution. The story describes various efforts by Emory (which drapes the windows with netting during migratory season) and other colleges to help the birds out, noting that construction and glass companies may need to be involved in considering ways to address the problem. (This entry published by Liz Riley, a member of Womble Carlyle's construction and real estate devleopment group.)

Too much celebrating?

2007-11-14T10:44:00.000-05:00

Alleging serious design and construction defects in its Stata Center, The Massachusetts Institute of Technology just sued two heavyweights: Frank Gehry's firm, Gehry Partners, based in L.A., and Skanska. The Stata Center opened to much acclaim in 2004, when Mr. Gehry observed that "it looks like a party of drunken robots got together to celebrate." Three years later, there's a lot of finger pointing going on. Not surprisingly, Gehry claims that "the issues are fairly minor" and that MIT's value engineering is to blame, while Skanska alleges that Gehry rejected recommendations that would have mitigated against poor drainage. Meanwhile, apparently keeping his head well below the skirmish, one robotics professor who works in the building commented that it "is a joy to work" there. He went on, "We asked Frank to give us a building that fostered communication, and he delivered." Everybody's talking now. See the New York Times for the complete story. (This entry published by Laura Luger, a member of Womble Carlyle's real estate and construction law practice group.)

The Ray and Maria Stata Center. Photo by bypnyc.

SOL Countdown

2007-11-12T13:53:00.000-05:00

Statute of Limitations ("SOL") cases can be complicated, and my mission in this space is to keep this simple. The case is Baum v. John R. Poore Builder, Inc., 643 S.E.2d 607 (N.C. App. 2007). Climb aboard and I’ll share the story. North Carolina Homeowners sued a Builder, Tile Subcontractor and Engineer for construction problems with their deck. In North Carolina, the SOL for filing suit is three years for contract and negligence actions. That part is easy. The hard part is establishing the date the SOL accrues or starts. Under North Carolina law, for "physical damage to claimant's property, the cause of action ... shall not accrue until ... physical damage to his property becomes apparent or ought reasonably to have become apparent to the claimant, whichever event first occurs."

At T-Minus seven years before suit, a report identified flaws in the deck; however, construction was ongoing and related issues in the report were settled in an agreement six years before suit.
At T-Minus four years before suit, the Homeowners noticed deck tile cracks and complained to the Builder, who instructed the Homeowners to call the Tile Subcontractor, who assured the Homeowner that there were no structural problems that caused the cracked tiles.

The Builder, Tile Subcontractor and Engineer tried to get the case dismissed on summary judgment. At issue was whether there are genuine issues of material fact as to when the Homeowners knew or reasonably should have known about the damage to their deck, and whether that date was more than three years from the date they filed suit. If the SOL accrued due to either of the just-mentioned T-Minus seven year or T-Minus four year events, the Builder, Tile Subcontractor and Engineer would be dismissed from the case. But there is more.

At T-Minus two years before suit, a painter told the Homeowners they should have the tile inspected possible moisture problems behind the tile. Homeowners contacted the Tile Subcontractor who promised but failed to come out. At T-minus one year before suit, a construction inspector advised the Homeowners "that the tile problems were the product of serious structural defects [in the design and construction of the deck]."

The North Carolina Court of Appeals ruled in favor of the Homeowners allowing the case to be decided by a jury, since the Tile Contractor assured the Homeowner that there were no structural problems that caused the cracked tiles at T-Minus four years before suit, which the Court deemed as evidence sufficient to support an inference that the Homeowners did not really know about the structural problems until T-Minus one year before suit.

Lesson one: SOL cases are very fact intensive. Lesson two: When filing a motion for summary judgment based on SOL, if the Statutes of Repose may also serve as grounds for dismissal, don’t forget to raise it in the motion for summary judgment. In this case, the defendants did plead the Statute of Repose as a defense in their answers to the complaint, but failed to mention it in their motions for summary judgment - and the Court failed to consider it even though the deck was completed a little over T-Minus six years from suit. What is the applicable Statute of Repose in North Carolina? Six years. Ouch. (This entry posted by Ken Michael, a member of Womble Carlyle’s real estate development and construction law practice group).

Source: Baum v. John R. Poore Builder, Inc.

AIA Launches New Contract Documents

2007-11-08T12:02:00.000-05:00

On November 7, the AIA formally introduced 40 revised, new or renumbered contract documents and commentaries. The AIA touts its contract documents as the most widely used standard form agreements in the construction industry, a claim that is supported by an article appearing in the November 5 issue of Engineering News-Record entitled "AIA Forms Running Far Ahead of Rivals" (subscription required).

Many of the AIA Owner/Contractor agreement forms incorporate AIA Document A201, the General Conditions of Construction (which is also incorporated by reference into several of the AIA Owner/Architect agreement forms). The 2007 edition of A201 contains several major departures from the previous 1997 edition, including:

providing an option for the Owner and Contractor to engage an "Initial Decision Maker" to initially decide claims, instead of initially submitting claims to the Architect
making arbitration optional
allowing arbitrations to be consolidated
deferring to state law to govern the statute of limitations for filing a demand for arbitration

For more information about the changes in the AIA documents, go to http://www.aiacontractdocuments.org/. (This entry posted by Karen Carey, a member of Womble Carlyle's real estate development and construction law practice group.)

Florida Court of Appeals: A201 Arbitration Requirement Survives Termination of the Contract

2007-11-01T11:32:00.000-04:00

I recently noted in the September 2007 edition of the Construction Litigation Reporter an interesting case dealing with the timing of a party's decision to terminate a contract and that party's subsequent ability to invoke the arbitration provisions contained in the AIA A201-1997.

In Auchter Co. v. Zaloul, 949 So.2d 1189 (Fla. App. 2007), the parties entered into an AIA A111-1997 "Standard Form of Agreement Between Owner and Contractor" and A201-1997 "General Conditions of the Contract for Construction" (the "Contract"), for the construction of a home construction project. Two months after the project received its certificate of occupancy, the owner notified the contractor that it was terminating the Contract because of certain construction defects. The owner then sued the contractor for damages. The contractor then moved to dismiss or in the alternative compel mediation/arbitration under Section 4.4 of the A201. The Owner responded by arguing that because the Contract had been terminated, the mediation and arbitration provisions did not survive termination and argued that its claims were properly brought before the court. The trial court agreed with the owner's argument and denied the contractor's motion to compel mediation and/or arbitration.

On appeal, The Auchter Court disagreed. The Auchter Court held that "the dispute resolution provisions of the contract are intended to survive purported termination of the contract by a party." In so finding, the Court reversed the trial court and held that the contractor's motion to compel arbitration should be granted.

Interestingly, the Court went to great lengths to distinguish the results reached in Aberdeen Golf & Country Club v. Bliss Construction, Inc., 932 So.2d 235 (Fla. 4th DCA 2005), which reached the opposite conclusion and held that the arbitration provisions contained in the standard AIA contract do not survive termination because there is no survival provision to keep this provision alive after termination. In rejecting what the Auchter Court found to be "dicta", the Court appeared to focus on the equity or "fairness" of the results in each case. In Aberdeen, the owner terminated the contract and then when the contractor sued for damages, the owner sought to enforce the arbitration provisions of the same contract that he had repudiated by virtue of his termination of the contract. By contrast, in Auchter, the owner terminated and sued for damages and it was the contractor who sought to enforce the arbitration provisions.

The author of the Comment section of the article notes, appropriately, the equity issue presented in the two cases and notes "[i]n Aberdeen, the owner terminated the contract prior to completion, then invoked the contract's arbitration provision when it was sued by the contractor. Thus, the owner improperly sought to pick and choose which contract provisions it wished to ignore and which to enforce."

As anyone who has been involved in the construction industry can attest, the decision to terminate and "move on" or seek to enforce the terms of the Contract is never an easy decision to make. The Court's reasoning in Auchter, should, however, certainly give a party considering whether to terminate or enforce a contract pause to consider whether they prefer arbitration or litigation before any action is taken as the failure to make this early calculation may result in the court imposing a forum for dispute resolution the party may not want. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)

BIM FORUM Drafting an Addendum to ConsensusDOCS

2007-10-27T12:30:00.000-04:00

hThe BIM Forum meeting in Boston (see my prior post on the Forum here) was preceded by last month’s initial release of ConsensusDOCS, the standard form contract software series created through the collaboration of Associated General Contractors of America (“AGC”) along with a host of other owner, surety, contractor, and subcontractor-related trade groups. (The American Institute of Architects, which is releasing the 2007 version of its own standard form contract documents within the next few weeks, elected not to participate in the drafting of the ConsensusDOCS.) While the impact of ConcensusDOCS on the design and construction marketplace is, of course, yet to be determined, given the range of interests represented in their drafting, they are likely to be influential.

The BIM Forum’s legal subforum met during the Boston conference to continue its work in drafting an addendum to the ConsensusDOCS that will address BIM-specific concerns. In those meetings, experienced contractors and architects set out with construction and surety lawyers to draft an addendum that is balanced for all parties concerned and which employs best practices – as opposed to those which might favor one group of project participants over others. The group is dealing with such things as the legal definitions of various forms of models, risk allocation, the control and security of the models used, and the proprietary and intellectual property issues related to use of BIM. The committee’s work is ongoing.

The next working meeting of the BIM Forum is in March of 2008, in Phoenix, Arizona. (This entry published by David Roberts, a member of Womble Carlyle's real estate development and construction practice group.)

Leading Construction Lawyer Identifies Ten “Industry Transformational Trends”

2007-10-26T13:54:00.000-04:00

Patrick J. O’Connor, Esquire, the outgoing editor of Under Construction, the newsletter of the ABA Forum on the Construction Industry, wrote an interesting article in the August 2007 issue of Under Construction. In Mr. O’Connor’s view, the next ten years will be the most exciting time to practice construction law in a generation, because the industry will be undergoing transformational change.

Mr. O’Connor sets out ten trends that he believes are likely to transform the industry:

Sustainability
Integrated Project Delivery
Building Information Modeling
Modularization
Globalization
Work Force Constraints
Organic Dispute Resolution
Lean Construction Techniques
Alliance Arrangements
Rational Risk Allocation

To obtain Mr. O’Connor’s article, contact the American Bar Association Forum on the Construction Industry, 321 N. Clark Street, Chicago, IL 60610, Attn: Editor, Patrick J. O’Connor, Jr. (This entry published by Karen Carey, a member of Womble Carlyle's real estate development and construction practice group.)

BIM Forum Discusses Implementation Strategies

2007-10-22T10:17:00.000-04:00

The BIM Forum, a remarkable group of construction industry professionals, convened October 11 -12 in Boston to discuss delivery of design and construction services in the digital age – and, in particular, the role of building information modeling (“BIM”) in that process.

Several speakers described their firms’ specific approaches to implementation of BIM and lessons learned in their efforts. While space here prevents a complete description of the individual presentations (which were uniformly excellent and thoughtful), notable among topics raised, or the points made, by the speakers were the following:

A phased approach to “Full BIM” is the prevalent BIM implementation strategy among design and construction firms – many of which begin their first BIM projects by establishing goals specific and limited for that project, then elevating and expanding those goals with each subsequent BIM application.
Several participants indicated that the anticipated “learning curve” was real – but somewhat overstated, with the costs and inefficiencies attributable to inexperience being sharply reduced with each subsequent use of BIM.
Although 100% BIM usage in project delivery is rare, it appears that the ramp up to BIM is typically more rapid than expected. One company reported that it first “discussed” its possible use of BIM in 2005 – but by 2007, it was using varying forms of BIM on no fewer than 22 projects, with a combined construction value approaching $1.4 billion. Ultimately, with governmental agencies like GSA and the Army Corps of Engineers mandating the use of BIM models, the question has become “when” architects and contractors will fully implement BIM – not “if” they will.
Design and construction firms reported varying degrees of success when incorporating data from their historic cost and scheduling programs into BIM applications. Once incorporated, however, it was common for those firms to use integrated forms of that information in their future BIM applications – as opposed to their maintaining separately applied cost and scheduling databases independent of BIM applications.
Among the benefits of BIM reported by speakers are: (a) readily accessible estimating quantities; (b) earlier and more accurate visualization of the planned structures or projects (by team members and by building owners and customers); and (c) enhanced ability to handle design and specification changes during the pricing and construction process. Some firms also report distributing color printed versions of the models in the field. The additional information conveyed by color is apparently useful to the delivery team on-site.
Many “lessons learned” were also presented. For example, firms recommended against allowing individual project participants to manually override data inserted into, or supplied by, BIM software. Others strongly encouraged involving of both architects and structural engineers from the outset of each project – discouraging their staggered entry into the BIM process.
One universally accepted principle important to successful implementation of BIM is the involvement of experienced, field-seasoned, constructors in the BIM process. Teams that effectively involve people with decades of field experience side-by-side with technically savvy (typically younger) BIM software experts are more likely produce digital models that are more useful to constructors. This principle applies to all aspects of design and construction delivery.
Fundamentally, BIM should be viewed as a “process” and not as simply a software solution.

This entry published by David Roberts, a member of Womble Carlyle's real estate development and construction practice group.

Architects: Business Conditions Strong, But Slowing

2007-10-15T10:13:00.000-04:00

A recently published survey of business conditions by the American Institute of Architects (AIA) concludes that business conditions remain relatively healthy in most regions in the country. Geographically, strongest business conditions were reported in the Western Mountain, Texas and Middle Atlantic regions. Weaknesses were reported in Michigan and in the Florida/Caribbean and Ohio Valley regions.

The survey also reported on market sectors. A fairly large decline in business conditions was reported in the residential sector, with the exception of the Middle Atlantic region. Commercial, industrial and institutional sectors reportedly remain generally solid.

The demand for architects remains generally steady. The survey reports that the highest demand is for experienced architects with 8-10 years of experience. The demand for architects is successively weaker for architects with 3-6 years experience, managers/senior managers, and intern architects.

To see the summary report of this survey in AIA Architect This Week, Volume 14, October 12, 2007, click here. This entry is published by Ken Michael, a member of Womble Carlyle’s real estate development and construction practice group.

LEED for Neighborhood Development

2007-10-01T16:42:00.000-04:00

The U.S. Green Building Council recently announced that 238 development projects throughout the nation will participate in its pilot program for LEED for Neighborhood Development. The Neighborhood Development Rating System "integrates the principles of smart growth, urbanism, and green building into the first national standard for neighborhood design."

Commercial Real Estate Week notes that the one-of-a-kind standard has a flexible definition of "neighborhood," allowing for project sizes to vary widely, from small, mixed-use infill projects to entire urban communities. The Neighborhood Design Rating System considers a variety of issues, including land use, environmental impact, public health and transportation patterns, and is intended to focus on the incorporation of buildings into a neighborhood.

The pilot program participants are not guaranteed LEED certification. Projects will be evaluated by the USGBC as it does under its other rating systems. But being a program participant is beneficial: it opens up a dialogue between developers and the USGBC, provides developers with a significant amount of feedback, and introduces them to new technology and design principles.

There are over a dozen pilot participants located in the Washington, DC metro area, including The Yards, a mixed-used development in Southeast D.C. located near the site of the new baseball stadium, the Solea in Columbia Heights, the old convention center site, and NoMa (short for North of Massachusetts), a neighborhood in Northwest and Northeast D.C that straddles North Capitol Street.

The pilot program is expected to conclude in 2008. It will be followed by a public comment period to gather feedback, and the LEED for Neighborhood Development Rating System will be launched in 2009.

Sources: Commercial Real Estate Week; USGBC

International Code Council and U.S. Green Building Council Form Strategic Alliance

2007-10-01T09:21:00.000-04:00

The ICC and the USGBC recently entered into a memorandum of understand (MOU) memorializing their agreement to work together on public policy issues on which the interests of both organizations are aligned. The MOU acknowledges the ICC’s leading role in fostering safety for the built environment and the USGBC’s leading role in advocating sustainability in the building marketplace. Within these separate areas of expertise, the organizations have pledged to identify areas of mutual interest, to work together to leverage that interest, and thereby to maximize the efficient use of each organization’s resources.

The organizations have agreed to explore and implement business opportunities that could benefit both organizations, for example, joint training activities, certification programs for inspection personnel, and marketing efforts. Specifically, they intend to explore the joint development of “code compliance packages” to address designs and materials which present ongoing code approval problems in plan review or inspection.

The first initiative coming out of the MOU is an agreement to co-author and publish an introductory work on the subject of building codes and sustainability. The publication goal is December 2007. The entire MOU can be found here. (This entry published by Karen Carey, a member of Womble Carlyle's real estate development and construction practice group.)

Substantial Similarity Test: Altered by Reality?

2007-09-17T16:29:00.000-04:00

In a recent case in the United States Court of Appeals for the Sixth Circuit, two architectural firms sought the Court's guidance with respect to whether one of the firms had infringed the copyright of the other firms design and site plans. In Tiseo Architects, Inc. v. B&B Pools Service and Supply Co., ---F.3d ---, 2007 WL 2141375 (6th Cir. 2007), the Plaintiff, Tiseo Architects, were engaged by B&B Pools to design a site plan for an expansion project. Prior to Tiseo being hired, however, Gary Olson, another architect, was consulted and received a sketch of the proposed building plane. Mr. Olson indicated that due to time constraints in his schedule, he would be unable to work on the project.

Thereafter, Tiseo also used the sketch and other input from B&B's President to design the site plan which was used by B&B to gain approval from the city zoning board. After it completed the site plan design, B&B paid Tiseo in full, but did not use Tiseo to prepare the construction documents. Instead, B&B retained the original architect, Gary Olson. After the building addition was completed, Tiseo promptly filed its drawings with the Copyright Office and brought suit against B&B, its CEO and its architect, Mr. Olson.

The Sixth Circuit recently heard Tiseo's appeal of the lower court's rejection of its argument that B&B, through its architect, infringed its copyrighted drawings. The Court upheld the lower court's ruling relying finding that while the drawings were in fact similar, due to the reality of the zoning restrictions under which B&B had to operate in the construction of its new addition and the construction reality mandated by the presence of a "load-bearing wall", the Court found that there really weren't many other ways to design the addition. In so holding, the Court overlooked Olson's admitted access to Tiseo's drawings and the "substantial similarity" between the two drawings in upholding the lower court's finding that B&B's floor plans, as designed by Olson, did not infringe Tiseo's copyright.

What is significant about this case is the fact that the Court found against a copyright holder even in the face of the alleged infringer's 1) admitted access to the copyrighted drawings, and 2) the admitted (by the lower court) substantial similarity between the drawings. The reason this is significant is because, in most copyright cases, the two-pronged access and substantial similarity test is used to determine whether a work has infringed the copyright of another work. As a result, architects (especially those located in the jurisdiction of the 6th Circuit) whose designs are dictated in part by the circumstances of the project may not be able to completely rely on copyright protection as a complete solution to the protection of their work. (This blog posted by Culley Carson, a member of Womble Carlyle's construction and real estate development practice group.)

Even without contractually-required change order, contractor recovers additional HVAC costs against owner on summary judgment

2007-09-07T10:31:00.000-04:00

The North Carolina Court of Appeals recently upheld a summary judgment decision in favor of Inland Construction Company, a general commercial contractor, for additional HVAC costs on a job where no change order was issued or executed. The Court agreed with the trial judge, Hon. Howard E. Manning, Jr., that despite an e-mail from Inland’s project manager to the defendant/property owner stating that “[t]he cost for these revisions will be resolved between [Inland/plaintiff] and [the architect.] The owner will have no cost associated with this change in the mechanical system,” the contractor’s claim was enforceable as a matter of law. Inland Construction Company v. Cameron Park II, Ltd, LLC., 640 S.E. 2d 415, 417 (N. C. App. 2007.)

The defendant/owner had refused to pay based upon the e-mail, alleging equitable estoppel, among other affirmative defenses. The Court rejected the owner’s assertion that the e-mail created an obligation not to charge for the additional work on the part of Inland Construction because there was no consideration. Furthermore, both parties had tendered evidence by way of affidavit, indicating that the owner had actually initiated the additional HVAC work. There was no dispute that the “project was organized in a traditional method of project delivery wherein Defendant contracted separately with an architect for design services and with Plaintiff for construction services.” Id. at 419. Finally, the owner had “failed to demonstrate any prejudicial change in position as a result” of the e-mail,” and was ordered to pay the additional cost to general contractor. Id. The full opinion may be accessed here. (This blog entry was published by Liz Riley, a member of Womble Carlyle's construction and real estate development practice group.)

Did Georgia Unintentionally Codify its Broad Form Indemnification Loophole?

2007-09-04T16:29:00.000-04:00

On May 18, Georgia Governor Sonny Perdue signed H.B. 136, a bill that was intended to expand the state's prohibition against broad form indemnification to include those situations in which the indemnitor was required to obtain liability insurance, effectively closing a loophole created by the Georgia Court of Appeals decision in McAbee Const. Co. v. Georgia Kraft Co., 178 Ga. App. 496, 343 S.E.2d 513 (1986). Instead, it appears that Georgia codified the loophole.

Under the previous iteration of Georgia Code Section 13-8-2(b), broad form indemnity agreements were void as against public policy. A broad form indemnity agreement is one that requires complete indemnification of the indemnitee for all obligations of the indemnitee, and generally covers joint negligence and the sole negligence of the indemnitee. However, in McAbee Construction, the Georgia Court of Appeals created an exception to the general prohibition if the indemnity provision was coupled with a corresponding obligation of the imdemnitor to obtain insurance coverage. The court reasoned that Ga. Code. 13 -8-2(b) was inapplicable because the insurance requirement shifted the risk of loss from the indemnitor (fix typo in previous word) to the insurance company regardless of who was at fault.

The new law, effective July 1, 2007, was intended to close this loophole. It reads, in pertinent part:

A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable. This subsection shall not affect any obligation under workers' compensation or coverage or insurance specifically relating to workers' compensation, nor shall this subsection apply to any requirement that one party to the contract purchase a project specific insurance policy, including an owner's or contractor's protective insurance, builder's risk insurance, installation coverage, project management protective liability insurance, an owner controlled insurance policy, or a contractor controlled insurance policy.

However, it appears that the italicized language has the unintended effect of codifying the holding of McAbee Construction. During final negotiation of the bill between the House and Senate, the following language--which was inserted before the italicized text above--was deleted: "Any provision in an insurance contract issued pursuant to any such covenant, promise, agreement, or understanding to insure against any such liability or claims is, to that extent, against public policy and void and unenforceable." This language would have made it clear that a party can no longer avoid the prohibition against blanket indemnification by requiring liability insurance from the indemnitor. By removing that language from the enacted bill, the section appears to have the opposite effect: it permits an indemnitee to side step the prohibition against broad form indemnification by requiring insurance coverage from its indemnitor.

Changes to Georgia Contractor License

2007-08-24T12:21:00.000-04:00

As Georgia’s implementation of its new residential and general contractor licensing statute progresses, this year’s General Assembly made several changes – among the most significant being:

The statute’s final implementation date was extended by six months – to July 1, 2008. Beginning that date, licenses are required to obtain building permits on virtually all Georgia building construction projects, including residential and commercial construction.

Demolition work was removed from scope contained in the statute’s definition of “contractor.”

The requirement that qualifying agents be engaged by their businesses on a “full-time basis” was removed; and language was added to allow a person to serve as qualifying agent for more than one business concurrently, if that person meets the statute’s other qualifying agent requirements.

Language was added to permit “inactive status” for licensees.

Language was added making it clear that the statute is not meant to apply to “construction or installation of manufactured homes as defined in OCGA § 8-2-131.”

Every year since passage, the General Assembly has modified this statute. The 40-day 2008 session will begin in January and end before the statute’s current July 1, 2008 implementation date, so more changes are possible (and likely). (This entry was published by David Roberts of Womble Carlyle's real estate and construction practice group.)

Sources: SB 115

Shifting Tides of New Contractor Retainage Legislation - North Carolina Public Projects

2007-08-22T17:12:00.000-04:00

On June 12, 2007, my colleague Culley Carson posted a blog entry entitled "Public Owners Beware: Legislation in North Carolina General Assembly Will Cap Retainage in Public Construction Projects." A variation of this legislation was recently ratified and signed into law by the Governor on August 17, 2007. To see the new legislation, click here. Bottom line, the original very pro-subcontractor legislation has been watered down by influence from owner and design professional interest groups.

In summary, the legislation, which takes effect on public projects with contracts entered into after January 1, 2008, revised § 143-134.1 of the NC. General Statutes as follows:

§ 143-134.1(b1) – No retainage on public projects which cost less than $100,000 (diluted: original draft was $300,000).
§ 143-134.1(b1)(1) – For public construction projects over $100,000, retainage is capped at 5%.
§ 143-134.1(b1)(2) – If contractor performs satisfactorily, no more retainage may be withheld after the project reaches 50% completion.
§ 143-134.1(b1)(4) – Full retainage less 2.5 times (diluted: original draft was 1.5 times) the value of work to be completed or corrected due to contractor within 60 days (diluted: original draft was 45 days) of substantial completion or when "owner receives beneficial occupancy or use of the project" (diluted: original draft included when certificate of occupancy issued).
§ 143-134.1(b2) – Early finishing trades (i.e., structural steel, piling, caisson, demolition, etc.) that satisfactorily complete 100% of their work by 50% completion of the job get line item release of full retainage less (the following are new dilution terms) 0.5% of the subcontract amount contingent on architect/engineer approval of acceptability of subcontractor’s work.

For public owners that are accustomed to retaining 10% until final completion, this sea change takes away much of their leverage. But thanks to lobbying efforts by the American Institute of Architects, the following caveat provision was added at the end of the revised § 143-134.1:

(e) Nothing in this section shall prevent the owner from withholding payment to the contractor in addition to the amounts authorized by this section for unsatisfactory job progress, defective construction not remedied, disputed work, or third-party claims filed against the owner or reasonable evidence that a third-party claim will be filed.

This caveat provision inserted into the legislation at the last minute allows owners to stem the tide and maintain leverage on public projects. (This entry published by Ken Michael, a member of Womble Carlyle’s real estate and construction law practice group.)

Florida Researchers to Huff, Puff, and Blow Houses Down

2007-08-18T14:38:00.000-04:00

The Wall Street Journal reports that Florida International University and a reinsurer (providers of insurance for insurance companies) are finding ways to help buildings survive hurricane season. They have developed a tool, dubbed the Wall of Wind, to test the effects of hurricane force winds and rain on full-scale, low-rise residential buildings. The Wall of Wind is nothing more than six gigantic fans, each 8 feet tall, set in a two by three array. When powered they can create wind gusts in excess of 130 mph (equal to a category three storm). Florida International intends to eventually expand the Wall of Wind to an array of 18 fans with high-speed cameras and monitoring equipment, and install it in a structure similar to an airplane hanger.

The project is part of an effort to change the public's perception of building safety during hurricanes, and to find the least expensive way to shore up older homes and commercial structures (those built before the advent of stricter building codes) against the effects of hurricanes. Specifically, researchers are looking at the performance of roofing materials, roof uplift pressures, wind load on roof top equipment (e.g. air conditioner), and roof to wall connections.

Researchers liken the Wall of Wind to shake table testing, which revolutionized performance-based earthquake engineering, and believe these tests will lead to developments that will cut the number of deaths associated with hurricanes and reduce property damage (about $35.5 billion over the last five years).

Sources: WSJ, International Hurricane Research Center @ Florida International University, Air Currents

Builder’s Dream Home a Bit of a Nightmare

2007-07-25T10:24:00.000-04:00

A Lake Norman, North Carolina homeowner gave a builder "consent" to use plans copyrighted by an architect as long as he built 30 miles away, because "[she] felt with all we had paid, we owned the plans at that time." All was fine until the builder’s subcontractor asked the architect for clarification on how to build the windows in the French-country style house. Well, the homeowner did not own the copyright, the architect sued in federal district court and was awarded $20,000 from the builder for unauthorized use of the copyrighted plans. Not satisfied, the architect appealed, wanting additional damages and an injunction prohibiting sale of the house. See Christopher Phelps & Associates, LLC v. Galloway, --- F.3d ---, 2007 WL 1933594 (4th Cir. 2007); North Carolina Lawyers Weekly, July 16, 2007.

The 4th Circuit Court of Appeals agreed with the lower court’s discretionary ruling that the architect had been adequately compensated with the $20,000 award, and that taking away the builder’s right to lease or sell the house would be a "draconian burden." In addition, the injunction would be overbroad since it would encumber a great deal of property unrelated to infringement.

However, the Court of Appeals disagreed with the lower court’s discretionary ruling that the builder did not have to return or destroy the infringing plans, since the builder did not need the plans to complete the house since it was substantially constructed except for interior finish work.

What is the lesson learned? While the decision is filled with detailed legal analysis of copyright law, the lesson is simple -- if plans include on each page the words "© 2000 Copyright – Christopher Phelps & Assoc., L.L.C. these plans are protected under the federal copyright laws. The original purchaser of this plan is authorized to construct one and only one home using this plan. Modifications or reuse of this plan is prohibited.", then you will need consent from the architect, not the homeowner who "felt with all we had paid, we owned the plans at that time." (This entry published by Ken Michael, a member of Womble Carlyle's construction and real estate development group.)

Source: North Carolina Lawyers Weekly

EPA Touts Increased Construction of Energy Star Complaint Homes

2007-07-19T15:14:00.000-04:00

A JULY 12, 2007 PRESS RELEASE FROM THE EPA NEWSROOM READS:

In 2006, the percentage of newly constructed single family homes earning the government's Energy Star for superior energy efficiency exceeded 12 percent in 15 states. The 15 leading states are: Alaska, Arizona, California, Connecticut, Delaware, Hawaii, Iowa, Nevada, New Hampshire, New Jersey, New York, Ohio, Texas, Utah and Vermont."
Consumers don't have to limit their smart energy choices to energy efficient cars and appliances," said Bob Meyers, EPA's principal deputy assistant administrator for Air & Radiation. "EPA is pleased to see builders in so many states leading the effort to offer their customers high-efficiency, low-emission choices in new homes."
Nearly 200,000 new homes nationwide earned the Energy Star in 2006, bringing the total number of Energy Star qualified homes across the nation to almost 750,000. To date, these homes have locked in annual savings of more than $180
million for homeowners by saving over 1 billion kWh of electricity and 100 million therms of natural gas.
Homes that earn the Energy Star offer homeowners all the features they want in a new home, plus energy-efficiency improvements that deliver better performance, greater comfort, and lower utility bills, all while helping to protect the environment.
To earn the Energy Star, homes must be independently verified as meeting EPA's strict guidelines for energy efficiency. These homes are [at] least 15 percent more energy efficient than homes built to the 2004 International Residential Code, and include additional energy-saving features that typically make them 20 to 30 percent more efficient than standard homes.
Home energy use accounts for nearly 17 percent of the total U.S. greenhouse gas emissions and 21 percent of energy consumption nationwide. For more than a decade, EPA has been working with the housing industry, utilities, states, and independent energy efficiency home ratings professionals to bring increased energy efficiency to the homebuilding industry. Today, more than 3,500 builders are committed to building Energy Star qualified homes. And there are Energy Star qualified homes in every state across the country.
EPA started the Energy Star program in 1992 as a market based approach to reducing greenhouse gas emissions through energy efficiency. In 2006, Americans, with the help of Energy Star, saved $14 billion and prevented greenhouse gas emissions equivalent to those from 25 million vehicles.

Two observations: (1) Of the 15 states mentioned in this press release, none of them are in the South. That is disappointing because the South leads all other regions in construction of new, single-family homes . (2) 12% is a very low number given the nominal increase in up front costs to build an Energy Star complaint home (not to mention savings on the back end for homeowners). That means 88% of new single family homes built in the U.S. are not Energy Star complaint.

Sources: EPA, U.S. Census Bureau

"Single Contractor" and "CM-at-Risk" proved to be popular contracting methods, as UNC System bond construction program winds down

2007-07-05T09:01:00.000-04:00

With about 75% of projects completed over five years, the sweeping, system-wide construction program for the University of North Carolina constituent institutions is nearing the end of its $2.5 billion cycle. There were projects undertaken at each of the 16 campuses, some of which changed so much that alumni might not even recognize some of their old haunts. As reported by the News & Observer, "the construction program was driven by historic growth. In the past six years, about 32,000 more students have enrolled in UNC system schools, for a total of about 202,000 statewide ." Rob Nelson, Vice President of Finance for the UNC system, noted that a key to successful implementation of the building program was due to the Higher Education Bond Oversight Committee, which received regular reports and helped keep projects moving forward. The single contractor (as opposed to the previously used multiple prime contractors) and "Construction-Manager-At Risk" were new, popular approaches used in the program, and are likely to continue after institutions return to more regular construction budgets and cycles. Though the present program is winding down, state universities will continue to build more and more, as the UNC System projects almost 100,000 additional students may be in the system by 2017. (This entry published by Liz Riley, a member of Womble Carlyle's construction and real estate development group.)

Source: The News & Observer

Please Don't Tip The Parking Attendant

2007-06-26T16:24:00.000-04:00

Riddle me this: How can you fit 67 cars into a basement with room for only 24 parking spaces? Answer: Build an automatic parking garage.

Automatic parking garages have been popular in Europe for years, where land is expensive and scarce. These garages are now attracting interest from domestic developers because American cities are faced with the same land issues, closing the gap between the construction cost of traditional spaces ($14-18,000) and automatic garage spaces (about $20,000).

How does it work? A driver pulls the car into a room roughly the size of a one-car garage. The car is driven onto a pallet, a large tray with grooves for the tires. Once the driver has left the car and picked up a ticket from a nearby machine, the pallet descends into the floor to be stored into an oversized warehouse. To retrieve the car, the driver swipes the ticket and the car appears on the pallet, pointing towards the exit. The retrieval process takes about 90 seconds.

There are numerous advantages to an automatic parking garage. For the driver, the car remains untouched, protected against theft, scratches and dings. Most important, the automatic garage won’t take a joyride in your mint condition 1961 Ferrari 250 GT California.

For the developer, the garage maximizes profits and offers a cost savings in construction and operation. Over two times as many spaces can be crammed into an automatic parking garage because ramps are removed and clearance in the storage units is smaller than a traditional garage. Labor costs are reduced because the garage is largely run by a computer. Insurance costs are also lower because the human element is removed.

The garage also has environmental implications. The garage eliminates traffic congestion, exhaust fumes, and car noise because cars remain off while in the garage.

So when will we see these in the U.S.? One opened this February at 123 Baxter Street in New York, and another has been in operation for several years at the Camden Grand Parc in Washington, DC.

Sources: New York Times, Washington Post, Slate, USA Today, Boston Globe

House and Senate Bills Will Allow Attorneys Fees on Public Construction Projects

2007-06-15T16:51:00.000-04:00

Several days ago I wrote an entry on HB 1121 and SB 1245, which if passed will have a significant impact on state construction projects. In addition to the impact on an project owner's right to withhold retainage, both bills include a "prevailing party" provision under which the prevailing party in a lawsuit under N.C. Gen. Stat. 143-134.1 would be permitted to recover its reasonable attorneys fees. "Prevailing Party" is defined as the party that is awarded 50% or more of its claim (for a plaintiff) or is made to pay less than fifty percent (50%) (for a defendant) of the original amount sought.

One can only imagine the likely result with the institution of prevailing party language in state construction projects. In a hotly contested court battle over millions of dollars in claims for extra work performed by a subcontractor and a counterclaim for defective work by an owner or general contractor, if either party receives one dollar ($1) over fifty percent (50%) of the amount of its claim and prevails by a margin of 51% to 49%, it also receives a possible windfall by receiving its attorneys fees. Note, however, that North Carolina Courts have a history of interpreting “reasonable attorneys fees” as not exceeding 15 percent of the amount in dispute. (This entry published by Culley Carson, a member of Womble Carlyle's Construction Law Group.)

Public Owners Beware: Legislation in North Carolina General Assembly Will Cap Retainage in Public Construction Projects

2007-06-12T17:03:00.000-04:00

Two Bills moving through the North Carolina General Assembly will, if enacted, have a significant impact on the way state construction projects are administered in the State of North Carolina. House Bill 1121, sponsored by Representatives Goforth, Brubaker, West and Gibson and Senate Bill 1245 sponsored by Senators Jenkins, Atwater, Bingham, Hoyle, Jones and Malone each seek to amend N.C. Gen. Stat. 143-134.1 titled "Interest on final payments due to prime contractors; payments to subcontractors." As one might suspect, however, there are a number of significant differences between the two Bills which could impact how owners, contractors and subcontractors on state construction projects do business. Below are some of the similarities and differences between the two Bills and some thoughts on each Bill.

As an initial matter, both House Bill 1121 and its Senate counterpart would eliminate all retainage on public construction projects with a total project cost of less than three hundred thousand dollars ($300,000). For public construction projects over three hundred thousand dollars ($300,000), both Bills provide a list of restrictions on the amount and use of retainage. In particular, both Bills provide the following noteworthy limitations on the use of retainage:

an owner may not retain more than five percent (5%) of any periodic payment due a contractor;
when the project is fifty percent (50%) complete, the owner shall not retain any further retainage from periodic payments if the contractor continues to perform satisfactorily. The owner may reinstate retainage if the contractor's performance is or becomes unsatisfactory;
for subcontracts, retainage is allowed, however, the amount of a subcontractor's retainage is not allowed to exceed the amount retained by the owner to the prime contractor (the 5% noted above) and if a contractor retains more than the amount held by the owner, it must pay the subcontractor interest at a rate of one percent (1%) in the Senate Bill and one and a half (1.5%) in the House Bill;
also, under both Bills, the owner must release retainage held within 45 days of any of the following: (i) the owner's receipt of a certificate of substantial completion, (ii) a certificate of occupancy being issued, or (iii) the owner's receipt of beneficial occupancy of the project as defined in the contract documents. Interestingly, a building department could issue a certificate of occupancy if code and life safety issues are addressed, while a mile-long punch list of aesthetic items can remain. Without retainage, how is an owner to be protected? The House Bill also includes: (iv) a separate usable phase of the project is available for use (whatever that means);
both Bills also provide that the existence of outstanding claims or change orders "shall not be a basis for delaying the release of any retainage on payments"; and
both Bills also allow for full payment for subcontractors who reach one-hundred percent (100%) completion of their contract by or before the time the project is fifty percent (50%) complete, thereby allowing early stage subcontractors (e.g. site work, structural steel, piling, caisson, demolition, rough grading and utility first-tier subcontractors) to be paid and not made to wait until the entire project reaches substantial completion. Noteworthy, however, is the fact that early payment of these subcontractors does not change the date for warranties to commence from the typical time of substantial completion or beneficial use by the owner as applicable.

The House Bill also adds two (2) additional provisions to its Bill: 1) to allow the owner to release one-half (1/2) of the retainage held once the contractor satisfactorily reaches fifty percent (50%) completion, and 2) to require that all retainage held by the owner or the contractor be deposited in an interest bearing escrow account.

As general contractors and owners on public construction projects consider and weigh in on these two pieces of legislation, a number of issues and questions should be raised in connection with the balance of power on state construction projects. For example, is a cap of five percent (5%) enough retainage to provide an owner or general contractor with the leverage necessary to push the contractor to complete the project on time and per the plans and specifications? Also, who receives the interest earned in the escrow account(s) in which the retainage is required to be deposited? Do both the owner and the contractor each have to open an account or is only one account required? Also, who pays the costs to open and maintain the account? These and many other questions remain unanswered in the Bills as currently written and should be addressed in order to avoid arguments and litigation over these issues after the Bills become law.

If an owner of contractor cannot use the retainage to offset exisitng claims or change orders at the end of a project, there will likely be a number of instances in which a contractor or subcontractor will be permitted to receive all of its retainage notwithstanding the fact that there are a number of claims or outstanding deductive change orders to be processed, thus increasing the contractor or subcontractor's relative leverage in the close out process and leaving the owner or general contractor in the position of either settling for pennies on the dollar or releasing the remaining retainage and then filing suit to recover against the often marginally capitalized subcontractor.

House Bill 1121 has passed its First Reading and is currently being considered by the House Committee on Commerce, Small Business and Entrepreneurship. Senate Bill 1245 passed its Third Reading on May 3, 2007. While the House Bill is silent as to an effective date, the Senate Bill is to become effective October 1, 2007 if enacted. (This entry published by Culley Carson, a member of Womble Carlyle's Construction Law Group.)

Workplace Accidents and the Additional Insured Clause (Part 2)

2007-05-31T17:16:00.000-04:00

A few weeks ago, I posted a blog about the danger of owners and contractors thinking that additonal insured status on a subcontractor's liability policy protected them from being entangled in lawsuits for workplace accidents. Based on the article referenced below, I recommended that the subcontractor be required to obtain an additional insured endorsement for the owner and contractor that does not exclude coverage where the owner's or contractor's negligence, but not the subcontractor's, is alleged. However, sometimes that is simply not something the subcontractor can do.

In that circumstance, owners and contractors have to fall back on a carefully worded indemnification provision in the subcontractor's contract --- and of course, the subcontractor's liability policy must be required to cover contractually assumed liabilities (of which the indemnification obligation is one). David S. White, who provided the resource material for the last blog and for this one, recommends that the indemnification provision be substantially similar to the following (minor editorial changes were made by this writer):

"Subcontractor (S) agrees to indemnify and hold harmless the Owner and
Contractor (O and C) for, from and against all liabilities, claims, penalties,
fines, forfeitures, suits and the costs and expenses incident thereto (including
costs of defense and attorneys' fees), which O or C hereafter may incur or pay
as a result of death or bodily injury to any person, or destruction or damage to
any property, arising out of the construction site or S's operations under this
Contract EVEN IF O OR C IS NEGLIGENT IN WHOLE OR IN PART."

It is important to note that, under some case law (at least in Texas), the last phrase needs to be in capital letters in order for the provision to be enforceable.

As before, thanks to David S. White, Senior Counsel with Thompson & Knight, LLP in Dallas who provided the resource material for this blog in his article on this subject in the January 2007 issue of The Practical Real Estate Lawyer. To purchase the online version of this article, go to www.ali-aba-org and click on "online". (This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development group.)

School System Saves Sales Tax through Interlocal Agreement with County

2007-05-29T11:30:00.000-04:00

Under a deal approved by the Wake County (N.C.) Board of Education in March, 2007, the school system may save millions in sales tax from construction projects. By transferring title to property to be constructed or renovated to Wake County, the school system will be able to take advantage of the sales tax rebate enjoyed by county governments. The deal could save the school board an estimated $11 million to $13 million in sales tax from its current $1.056 billion construction program. The county would return the title to the school system within 60 days of closing out projects.

A draft agreement between the County Commissioners and Board of Education may be accessed at http://www.wakegov.com/agendas/2007/march12/08/01agreement.htm. (This entry posted by Liz Riley of Womble Carlyle's construction and real estate practice group.)

New Urbanism Yields Public/Private Teamwork

2007-05-15T15:52:00.000-04:00

The Durham, North Carolina City Council approved in principle a $6.1 million incentive package in connection with a major downtown redevelopment project proposed by local developer, Andy Rothschild. The Council's 6-1 vote was taken after hearing complaints from others in the community who had been unsuccessful in seeking such an incentives package. The package approved would include investments in streetscape and property tax rebates. The development is located in a historically African-American neighborhood near North Carolina Central University, whose administration supported the incentives award. If successful, the project will bring a vibrant mixed-use (office, retail, commercial) environment and stimulate business and private investment. The developer still needs additional funds to proceed, and may look to Durham County as another source.

For additional information about this interesting project, see The Herald-Sun, May 7, 2007. (This post published by Laura Luger of Womble Carlyle's real estate development and construction practice group.)

Materials Suppliers Beware: Economic Loss Rule May Not Bar Owners' Negligence Claims

2007-05-11T14:27:00.001-04:00

In an opinion that clarified the application of the "economic loss" rule in North Carolina, the North Carolina Court of Appeals affirmed a jury award against the supplier of defective roof trusses where the homeowners who brought the negligence claim had no direct contract with the truss supplier. See North Carolina Lawyers Weekly, 20 NCLW 0145 et seq. and Lord v. Customized Consulting Specialty, Inc., 643 S.E.2d 28 (N.C. App. 2007).

Judge James A Wynn, Jr., writing the opinion for the court explained: "Because the economic loss rule does not operate to bar a negligence claim in the absence of a contract between the parties, we affirm the trial courts' judgment in favor of the plaintiffs." A similar rationale was determinative in Ellis-Don Constr., Inc. v. HKS, Inc., 353 F.Supp. 2d 603 (M.D.N.C. 2004). These decisions help owners who might otherwise direct their affirmative claims for defective construction to the contractor with whom they are in direct contract, while ignoring the potential liability of the suppliers. Often suppliers are brought into lawsuits on claims for indemnity by the contractor, but these cases make clear that good pleading may require the owners to sue the defective material suppliers directly from the outset. Statutes of limitation and repose should be monitored closely, although in the Lord case, the supplier's limitation defense proved to be unsuccessful.

For further discussion on the current state of the "economic loss" rule in North Carolina, see the April 23, 2007 edition of N.C. Lawyers Weekly and materials cited therein. (This entry was published by Laura Luger of Womble Carlyle's construction and real estate development practice group.)

Errant Mail Carrier Delivers News of Missing Rebar

2007-05-08T10:51:00.000-04:00

A mail carrier test driving a car in a parking lot crashed into a Matthews, North Carolina elementary school. As a result, school officials discovered over 80 percent of the block walls did not have necessary steel reinforcing bars. The school was completed in 1993, the car vs. wall mishap occurred in 2001, and the school filed suit in October 2004, eleven years after the school was built. Since North Carolina has a six year statute of repose barring stale claims, the school can’t sue the contractor, right? Depends. In Charlotte-Mecklenburg Board of Education v. R.L. Casey, Inc. et al., Mecklenburg County Superior Court No. 04 CVS 18745, the tribunal had to determine whether the contractor committed fraud or willful or wanton negligence – exceptions to the statute of repose.

An AIA contract governed the underlying dispute, so the case was compelled to arbitration. Ultimately, the arbitrator reduced the school’s award 25 percent from $2.1 million to $1.6 million because the school’s architect and engineer agents had at least constructive notice of the deficiencies and had opportunities to do more inspections. The contractor’s superintendent assured the engineer that the steel rebar was in place, so the arbitrator charged the contractor with willful and wanton negligence, for wrongfully concealing evidence and affirmatively representing that the rebar was in place. Hence, no statute of repose limitation.

In February 2007, Mecklenburg County Superior Court entered the arbitration award and both sides appealed. Two weeks ago, the parties settled working out terms for the contractor to pay the school over $1.6 million.

Lessons learned? If you are a contractor who knowingly fails to install rebar in walls and lies about it, don’t expect the courts to let you off the hook after six years. And the lesson for the mail carrier, wear seat belts and find a larger parking lot.

For further information, see the April 30, 2007 edition of NC Lawyer's Weekly. (This entry posted by Ken Michael of Womble Carlyle’s construction and real estate practice group).

Workplace Accidents and the Additional Insured Clause

2007-05-02T12:45:00.000-04:00

Owners and contractors depend on being protected for subcontractor employees' workplace accidents by requiring that subcontractors include the owner and contractor as additional insureds on their commercial general liability (cgl) policies. When a subcontractor's employee is injured on the job site and sues the owner and contractor for negligence (since worker's compensation laws normally prevent the employee from suing the subcontractor, its employer), the owner and contractor assume they can tender the defense of the lawsuit to the subcontractor's insurer since the owner and contractor are, after all, additional insureds under the subcontractor's cgl policy.

Insurers were not happy about this arrangement, however, because they ended up incurring defense costs that were out of line with the premiums charged to the subcontractor. The "fix" to this (for endorsements issued after 2004) was to change the additional insured endorsement to exclude coverage where the owner's or contractor's negligence is alleged --- but no claim is made against the subcontractor.

So what should owners and contractors do to protect themselves? Certainly, they should require each subcontractor to provide a copy of the additional insured endorsement on its cgl policy so that the owner and contractor can determine whether the endorsement excludes coverage where the owner's or contractor's negligence, but not the subcontractor's, is alleged. If it does, the owner and contractor can require the subcontractor to obtain an additional insured endorsement that does not exclude this coverage. If that is not possible, or economically not feasible, the owner and contractor may have to rely on a carefully drafted indemnification provision --- which will be the subject of this writer's next blog entry.

Thanks to David S. White, Senior Counsel with Thompson & Knight, LLP in Dallas who provided the resource material for this blog in his article on this subject in the January 2007 issue of The Practical Real Estate Lawyer. To purchase the online version of this article, go to http://www.ali-aba-org/ and click on "online". (This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development group.)

Recap: AGC BIM Conference in Atlanta

2007-04-24T09:53:00.000-04:00

According to Mayan astrological calendars, the world will end in December of 2012. [Or is it 2016? I can’t remember.] But one thing seems certain: if so, by the time it does, use of BIM (building information modeling) will be commonplace in the delivery of construction projects.

That was the consensus (or at least the non-Mayan part was) at last Friday’s well-attended BIM conference in Atlanta, sponsored by the Georgia Chapter of the Associated General Contractors of America (“AGC”). It seemed obvious to those attending that the BIM debate has now moved past the question of “if BIM will be used for most projects.” It is now focused on the date on which that will happen. By a show of hands, the great majority of the audience seemed certain that that would occur within three to ten years.

Three excellent speakers cut through what could have been a fog of acronyms and software industry jargon to provide a program that was both practical and “inspirational.” Read more...

Let's Not Forget Low-Tech in a High Tech World

2007-04-23T13:46:00.000-04:00

The Special Projects Office of the United Nations (UN), Fergus Gleeson, has reported in the Irish Engineers Journal, vol. 58:01 January/February 2004, that for countries whose infrastructure has been damaged by war, "labour-based technology is appropriate." The concept finds expression in Afghanistan under the National Emergency Employment Programme. Through this program, construction technologies are "those founded on indigenous knowledge, skills and materials, thereby allowing a maximum of the project fund to be retained within the project area." This policy of labour based appropriate technology (LBAT) is coupled with "social targeting," a process that allows a society's most vulnerable groups located in the project's area to benefit from the work. In Afghanistan, those target populations include disabled, female heads of households, women in poverty, nomadic people who have suffered catastrophic losses, ex-combatants and elderly. These constituencies are typically excluded from such construction projects, which has the effect of enhancing their vulnerability. LBAT can reverse that trend where "design of the actual work methods as well as the infrastructure [allows] these people [to] participate in the works in a manner that is socially acceptable."

An example noted in the article is stone, an abundant resource in Afghanistan. Stone masonry is a well developed skill among the people. So, under a social targeting LBAT model, project design will incorporate stone paved roads to make use of indigenous materials and local expertise. The article highlights the substantial economic benefits that can be realized on a local and regional level, and counters claims that LBAT results in lower quality work: "Simple yet highly effective quality control methods and site control and instruction can be used to ensure that the infrastructure is constructed in accordance with detailed engineering specifications and designs." For more about this interesting approach to construction in countries rebuilding war-torn infrastructure, see here.

This public policy is not profound, but it would seem to have profound impact. It also drives home the simple fact - recognized in the "New Deal" programs - that even a high tech world calls for low tech approaches, especially where social conditions need to be addressed. (This blog entry published by Laura Luger of Womble Carlyle's construction and real estate practice group.)

Is this better than BIM; or, is it BIM Redux?

2007-04-19T08:22:00.000-04:00

Newly noted on April 18,2007 at Innovations Report is an article entitled "Software invention could save construction industry a fortune" in which it is noted that researchers at the University of Teesside are spearheading a revolution which could save the construction industry millions. The effort involves developing their own software tools which harness the power of computer games technology to give planners and builders the ability to rehearse different phases of a major construction project over and over again on a PC screen before building work begins. This can range from putting in the foundations to installing pipework and electrical equipment. The Teesside Professor worked closely with the international project management and construction consultancy, F+G, formerly Faithful and Gould, on the Hull gas receiving project and estimates that about 5-7% could be saved off the £100m-plus project by rehearsing the project using the University’s 4D planning tool (3D + real time). Now he is perfecting the computerised Virtual Construction (VIRCON) site instrument with the help of academic colleagues and F+G’s Stockton-based national planning manger, Ian Mackenzie.

Professor Nashwan Dawood, Director of the University’s Centre for Construction Innovation and Research (CCIR), said: “The software tool can help everyone involved in a major project to go into minute detail of construction activities and look for the most efficient way of tackling a contract. This is particularly important when lots of different trades are working on a multi-million pound project in a tight location and where delays can cost big money.”

It is further noted "[t]he next step is to see if the technology can be used to help cash-flow forecasts and to make the software more interactive and user-friendly."

Ian MacKenzie, at F+G which employs over 2,000 worldwide, said: “We like to be at the leading edge of new developments helping the construction industry to become more efficient. This is a very important tool to help our clients improve on project delivery and save costs."

I am curious who is leading whom in this fascinating area? And, whether coordination of efforts may not be the better part of valor here. (This entry is posted by John Springer of Womble Caryle's construction and real estate development practice group.)

Why don't more people build green?

2007-04-13T10:31:00.000-04:00

Several weeks ago one of our readers commented that some in the public and private sector remain skeptical about building green, and asked about their concerns. There are a variety of concerns about building green (more than I can address in a single blog entry), but here are a few of the more common ones:

1. Building green is expense. This includes everything from materials and education to regulatory compliance. While these problems do exist to varying degrees, evidence suggests that these capital costs should be offset by significant operating cost savings over the life of the building. Some in the green building community claim that with proper planning a green building can be built for the same price (or less) than a traditional building.

2. Green buildings take longer to build. This concern may have more to due with the permitting process than actual construction. At the ACI conference, several builders noted that the process of getting green technologies approved was time consuming because building inspection departments were unfamiliar with them. This is due in part to a lack of information about products and systems in the marketplace.

3. There is no financial incentive for developers to build green. The cost benefits of a green building (operating costs, productivity, health) accrue over time to the final owner and tenants of the building, not to the developer. Additional up front costs are born by the developer and cannot be easily passed on to the owner.

4. There is no market for a green building. This goes along with "the public doesn't care" argument. As I noted in my previous entry, builders in the southeast are not seeing a rent premium on green building because of a lack of education (among tenants) about the value of occupying a green space, but this should change in the future. In more progressive, urban areas, a market is starting to form, and owners (and tenants) are seeking green buildings.

5. There is an absence of research on the advantages of green building. This is a big concern. At the conference, an appraiser noted the absence of institutional market research for real estate lenders and investors to evaluate green buildings. There is also an absence of case studies on building performance, long-term studies on the environmental benefit of building green, studies of productivity and health benefits, and an examination of the capital and operating costs of green features.

6. There is confusion in the marketplace. Multiple standards do exist in the market and many are not comparable. This creates market confusion. I suspect this confusion will subside because it appears LEED is becoming the most popular standard.

For additional discussion on benefits and barriers to green building, see Evaluating the Diffusion of Green Building Practices, written by Benjamin Cryer, Jeffrey Felder Rebecca Matthews, Michael Pettigrew and Brian Okrent, MBA candidates at the UCLA Anderson School of Management; see also the Massachusetts Technology Collaborative website on Green Building.

County Says Lot Perks, Then Doesn’t, Then Gets Sued

2007-04-10T12:55:00.001-04:00

A buyer entered into an offer to purchase lake front property from a seller with a condition that the lot perk for a three bedroom house. Buyer purchased the lot after receiving and relying upon an improvement permit issued by the Montgomery County Health Department after the lot passed a perk test. The buyer also built a boat dock. All good so far.

But wait - a few years later before building the house, buyer decided to change the location of the driveway and applied for a new permit. The Health Department retested the lot, found it failed the perk test, acknowledged a mistake was made and revoked the permit – for the new plan and the old plan.

In Watts v. N.C. Department of Environmental and Natural Resources (Lawyers Weekly 07-07-0385), the Health Department argued that it could not be sued due to the public duty doctrine barring suits against government agencies. In a split decision, the North Carolina Court of Appeals majority ruled that the buyer fits into a “special duty” exception, whereby the government agency breached a duty owed to the buyer individually, rather than to the public at large.

Previously, North Carolina courts limited the “special duty” exception to situations where a government entity makes a promise of protection, fails to protect, and causes injury to an individual as a result. Considering the direct reliance the buyer had in the Health Department’s perk test and improvement permit, and the resulting detriment to the buyer as an individual, it appears the North Carolina Court of Appeals averted an injustice. So all is good again, right? Well, the Court excised a large chunk of the buyer’s damage award as speculative interest damages. And no attorney’s fees or costs. But the moral victory the buyer may keep – as a perk. (Today’s entry posted by Ken Michael of Womble Carlyle’s construction and real estate development practice group).

Green Building Insurance

2007-04-02T14:45:00.000-04:00

According to "The Green Behind the Green," an article in the Spring 2007 issue of NAIOP's magazine Development, Fireman's Fund recently launched a new insurance product for green commercial buildings and also non-green buildings whose owners would like to get the advantages of green.

A LEED-certified building is eligible for premium discounts (lower risk factors). If the building is covered by the company's Green Building Replacement program, the insurance will pay for rebuilding to a green certification standard, including rebuilding with sustainable building components. For buildings that are not green certified but are covered by the company's Green Upgrade coverage, the insurance will pay for rebuilding with upgrades that are green, and if the building has suffered a total loss, the insurance will cover a green certifiable rebuild. In addition, Fireman's Fund will pay the costs of applying for green certification by the U.S. Green Building Council and/or the Green Building Initative's Green Globes program.

For those of us who advise owners and developers of commercial real estate, this innovative insurance program seems well worth discussing with our clients.

To read more about the Fireman's Fund Green Building Replacement, Green Upgrade and Commissioning coverages, click here.(Today's entry posted by Karen Carey of Womble Carlyle's construction and real estate development group.)

Womble Construction Blog recognized by ENR.com

2007-03-27T12:54:00.000-04:00

Engineering News-Record, a well known construction industry publication, recently recognized Womble Carlyle's Construction Industry Blog as an invaluable online source of information for those interested in the legal aspects of the industry. See the complete story here.

What part of the contract do you not understand?

2007-03-26T19:26:00.001-04:00

Surely this must have been a question for the court in Casey Indus., Inc. v. Seaboard Surety Co., 2006 WL 2850652 (E.D. Va. Oct. 2, 2006) -- but in the review of the opinion it looks as if it may have been overlooked. It certainly was not answered. Here was a case where a concrete subcontractor filed an action upon a payment bond issued in favor of the general contractor. The surety raised as a defense the "pay when paid" clause in the concrete subcontract. It was found that the Surety could not rely on the "pay when paid" clause as a defense to the payment bond claim. It is one thing to require that the contract, to include its pre-requisites for payment, be clearly incorporated in the bond to set forth the conditions for payment under a payment bond, but should one have to expressly, separately and distinctly incorporate the "pay when paid" clause into the bond agreement or, for that matter, any other specific conditions precedent, or otherwise, for payment to be entitled to utilize them as a defense to payment under the bond? While one would think this generally not necessary, under this opinion unless the "pay when paid" provision is expressly incorporated into the bond agreement, the surety may not assert the "pay when paid" language in the subcontract as a defense to a claim against the bond. The defense was unavailable as a matter of law. Thus, until this matter is further reviewed, revisited and revised, utmost specificity should be considered.

See also this case's treatment at the Construction Channel. (This entry was published by John Springer of Womble Carlyle's construction and real estate development practice group.)

Argument That Party Enforcing Liquidated Damages Clause Must Present Evidence Of Actual Damages Is All Wet

2007-03-18T13:22:00.000-04:00

It is well established in North Carolina that liquidated damages clauses that are not a penalty and are reasonable in amount are enforceable. This is so even if no actual damages are suffered. What was not established in North Carolina is which party has the burden to prove such a clause is enforceable.

In a case of first impression, Seven Seventeen HB Charlotte Corporation v. Shrine Bowl of the Carolinas, Inc. (North Carolina Lawyers Weekly No. 07-07-0325) answers this question. In Seven Seventeen, hosts of an annual high school all-star football game entered into a contract with a Charlotte hotel to use the hotel five times between 2001-2005. The contract included a liquidated damages clause. The all star football game hosts cancelled the contract, moved the event to South Carolina, and got sued. In trial, neither party presented evidence of actual damages. The all star football game hosts got hosed in trial court, having to pay the Charlotte hotel over $118,000 in liquidated damages.

Defendant's brief, mislabeled as "Plaintiff-Appellant's Brief", set the stage for a soggy argument that just didn't float. The Court sided with the national majority of jurisdictions which hold that the party seeking to invalidate the stipulated damages provision has the burden since that party initially agreed to it. Said the Court: "'[P]lacing the burden on the party seeking to avoid a stipulated damages provision to prove that no damages were suffered or that there was no reasonable relationship between the actual or probable compensatory damages and those agreed upon', makes sense from a policy perspective."

Although not a construction case, Seven Seventeen means the obvious - an owner will not have to present evidence of its actual damages in order to prove the enforceability of the liquidated damages clause – which, after all, was drafted so that the owner wouldn’t have to present evidence of its actual damages. About the only thing surprising to this writer about the Seven Seventeen case is that the question was even asked – like whether the law of gravity applies in North Carolina Courts.

Right Now is Your Tomorrow

2007-03-15T12:36:00.000-04:00

I recently attended ACI's Conference on Developing and Investing in Green Buildings in New York City. The program addressed green building incentives, valuation of green buildings, LEED, and contracting for LEED. I came away with a couple of impressions.

First, green building is here. At least eighteen states and the District of Columbia now have some form of green building requirement for public buildings, as do some progressive cities. Some states (ex: MD, NY, OR) and cities (ex: Arlington, VA) also provide incentives for private development. These incentives include fast track permitting, density bonuses, and tax deductions/credits. We are also seeing a number of private companies build green in jurisdictions that without green requirements or incentives (ex: Bank of America in Charlotte).

Second, there is a premium to building green, but you should see long term savings. Developers at the conference are seeing a 2-7% increase ($3 to $5 per sq. ft.) in building costs, but that is tempered by yearly cost savings of roughly $1 per sq. ft., and projections of a 10 fold cost savings over the life cycle of the building due to reduced maintenance and operating costs (ex: roughly a 36% decrease in energy consumption). One developer also noted that choosing not to build green may result in a building that is obsolete (and thus demands lower rents) when green becomes the standard.

Third, anecdotal evidence suggests that, short term, developers in our footprint are not seeing a return through increased rents. Although a green building is a good marketing tool, there is not yet enough evidence to convince tenants that they will see a reduction in operating expenses or an increase in productivity. However, one developer that attended said it hoped to see a rent premium as leases come up for renewal because tenants will have experienced costs savings by that time.

Finally, developers should pay special attention to contract provisions when building green. LEED objectives and goals should be clearly expressed in the contract, responsibility for goals and objectives should be assigned to the proper parties, and consequences for failure to meet the objectives and goals should be expressed (including the possibly of penalties). Parties should also keep in mind that LEED certification comes after final completion of the project, after a contractor has typically been paid in full.

Bills before the Georgia General Assembly - Part Deux

2007-03-12T10:41:00.000-04:00

As promised last week, below is a summary of bills before the Georgia General Assembly addressing licensing and public works projects that may potentially impact the design and construction industry.

Protecting bidders on projects for local government. Under SB 146, for projects awarded by local government using competitive sealed bids, plans must be available on the first day of advertising for bids; and those plans must expressly indicate whether the contract will be awarded taking into consideration only the "base bid" – or the "base bid plus alternates." Local governments must disclose: (a) whether all state, federal, and local permits needed for the project have been obtained (or, if not, when permits are anticipated); and (b) whether all anticipated rights of way and easements required for the work have been obtained (and, if not, what is their status). Under SB 146, once a bidder is pre-qualified, that bidder cannot be later disqualified by the local government "without cause." Currently, local government can reject "any and all bids or proposals." Under SB 146, local governments will no longer be able to reject some – but not all – responsive bids.

Debarment of non-performing contractors. HB 202 allows the Georgia Department of Transportation ("GDOT") to disqualify contractors from bidding on either state public works construction contracts or construction or maintenance contracts for GDOT if that contractor is "25 percent behind in the performance of two or more of [those types of contracts]" – and is the cause of that delayed performance. Under the bill, GDOT is authorized to make that determination.

Contractor licensing law. SB 115, if passed into law, will postpone the date on which contractor licenses become mandatory in Georgia from January 1, 2008 to July 1, 2008. SB 115 changes the contractor licensing statute in other ways; for example: (a) it allows specialty contractors to perform work that is incidental to work in their specialty; (b) it clarifies that qualifying agents are responsible for oversight over their business’s contracting activities within the State of Georgia; (c) it extends the statute’s scope to cover installation of industrialized buildings – but carves out installation of manufactured homes; and (d) it provides for subcategories of general contractor licensing. A conflicting bill, SB 171, would entirely repeal the contractor licensing statute. If SB 171 should pass, it would be over a tidal wave of objection from the industry, which strongly supports licensing.

Reciprocal architectural licensing – education requirements. SB 237 requires foreign-state candidates for reciprocal architectural registration to show, in addition to an NCARB certificate in good standing: (a) a bachelor's degree in architecture, architectural engineering technology, or other bachelor's degree with a substantial concentration in architecture; and (b) at least four years of practical experience.

(This entry was published by David Roberts of Womble Carlyle's construction and real estate development practice group.)

Bills before the Georgia General Assembly

2007-03-06T15:27:00.000-05:00

This entry is the first in a two-part series summarzing current bills before the Georgia General Assembly that could potentially affect the design and construction industry. Next week I will address licensing and public works legislation.

Anti-indemnity statute. By Georgia statute, construction contracts that purport to indemnify a person from liability for damages due to bodily injury or property damage caused by that person's sole negligence are invalid and unenforceable. Currently, that statute allows an exception when the liability is covered by a policy of insurance or an insurance agreement. HB 136 eliminates those exceptions – except for liability covered by workers compensation insurance.

Owners’ right to withhold payment for lack of insurance. A bill stalled that would have eliminated that right. HB 138, if passed, would require that construction owners (before work on-site could begin) review and accept (or reject) certificates or policies of insurance submitted to them by contractors and their subcontractors (of all tiers). An owner's failure to reject a policy in writing, under HB 138, deprives the owner of the right to withhold payment for lack of insurance coverage. Observers indicate that support for the bill appears to have waned after legislators learned, from industry sources, of several practical problems with enforcement.

Mechanics' and materialmen's liens.

Single-family residential real estate. If enacted, SB 63 would eliminate mechanics' and materialmen's liens on "single-family residential real estate" – which is defined as all "owner occupied structure[s] for use as a dwelling for one family, including but not limited to houses, condominium units, or any combination of manufactured homes and lots." Another bill, SB 65, requires that a contractor (upon entering a contract) provide the property owner with a statutory notice of "certain parties’ lien rights[.]" SB 65 further requires that, before paying a contractor, the owner must obtain a sworn, written affidavit from the contractor stating that all of its subcontractors and materialmen have been paid. The bills states that "[f]ailure to meet [either requirement] shall invalidate any lien filed… against residential real estate" – inviting several obvious questions.
Dissolution of liens by admission of erroneous filing. SB 64 allows a claimant to dissolve a claim of lien by filing a sworn affidavit with the clerk of the superior court in the county where the real estate is located, stating that the lien was "filed in error."

(This entry published by David Roberts of Womble Carlyle's construction and real estate development practice group.)

What has happened to equitable subrogation?

2007-03-01T10:36:00.000-05:00

When one considers the recent case of RLI Ins. Co. v. John H. Hampshire, Inc., 461 F. Supp. 2d 364 (D. Md. 2006), one must ask has anyone even thought about the doctrine of equitable subrogation, which has long been established to assist the surety who is called upon to the benefit of its obligee, in this case the Owner. (See the Construction Channel's treatment here.) In this case, after a contractor abandoned its work, the owner determined that a significant number of exterior panels installed by the contractor had been installed improperly. The contractor’s surety agreed to remove and replace the improperly installed panels. The surety eventually sued the project architect, claiming the architect had a duty to inspect and supervise the work of the contractor and failed to do so. The Court said the architect was not liable to the surety because the architect owed no duty to the surety. But what about the architect's duty to the Owner, into who's shoes the surety is entitled to step under the doctrine of equitable subrogation.

By this case's treatment in the referenced site, it is suggested that in Maryland, when only economic loss is involved, there must be an “intimate nexus” between the parties. Where there is no contract between the parties, the “intimate nexus” requirement can be satisfied by showing an equivalent to contractual privity exists. Here, there was no “intimate nexus” between the surety and architect. The court declined to hold that the inspection and supervision requirements imposed upon the architect were as much for the protection of the surety as for the owner. Again, one must ask what has happened to equitable subrogation, which would arguably have yielded a different and more equitable result. (This entry published by John Springer of Womble Carlyle's construction and real estate development group.)