Construction Contracting

Federal agencies and contractors are working hard to address the realities of the COVID-19 pandemic. In some cases, work must stop. In others, the work will increase or change dramatically. While contractors should look to contracting officers for guidance with respect to specific contracts, agency-wide guidance documents are beginning to shed light on the government’s expectations. We will be using this blog entry to collect and share agency guidance on performance of government contracts during the Coronavirus pandemic.

Department of Defense—

Department of the Army—

  • Planning for Potential Novel Coronavirus Impacts (Mar. 12, 2020). Encourages increased communication, notes that contracting officers do not bear the responsibility to determine whether the excuse of COVID—19 applies, outlines causes for performance delays that are excusable and FAR provisions that excuse performance delays, and clarifies situations in which compensation is an option.


Continue Reading Federal agency guidance on the COVID-19 pandemic

The spread of COVID-19 (Coronavirus) remains unclear, but its impacts are already being felt. Supply chains are being disrupted and companies are implementing preventative measures to protect their employees. Many businesses have already suspended non-essential travel, encouraged remote working arrangements, and advised employees to follow the Centers for Disease Control risk-reduction strategies. Given these delays and disruptions, it’s logical to wonder:  Are delays or impacts related to the Coronavirus an excusable delay?

The answer is yes, if you can prove it. Below we outline the standard contract clauses dealing with delays from epidemics and discuss how courts have interpreted those clauses in the past when contractors claimed their delays should be excused due to an epidemic.
Continue Reading Is Coronavirus an excusable delay?

The Military Housing Privatization Initiative was intended to address the availability and adequacy of housing for military service members and their families. As a result of the MHPI, approximately 99 percent of military family housing in the United States is now operated and maintained by private developers. MHPI developers have recently been the target of litigation seeking to hold them responsible for mold and other environmental contamination. Plaintiffs are not only seeking damages for personal injury. They are seeking class certification. In one case they are seeking injunctive relief that would require changes to how the MHPI project is managed.

In this post, we provide some background on the MHPI program, the environmental contamination litigation filed so far, and some perspective on the legal issues presented in these cases. We explain why MHPI developers have a basis to assert derivative sovereign immunity and why the federal enclave doctrine presents an obstacle to some state law claims. We also point out why plaintiffs may face insurmountable hurdles in achieving certification to proceed in a class action.
Continue Reading How MHPI developers can defend against class actions for environmental contamination

Under the Christian Doctrine, prime contractors face the risk of having a court or a board of contract appeals read a clause into their contracts, even if it was omitted from the contract that they signed. In this entry we discuss whether the Christian Doctrine applies to subcontractors.

The Christian Doctrine is almost certainly inapplicable to subcontractors. For the reasons why, consider the decision in Energy Labs, Inc. v. Edwards Engineering, Inc., (N.D. Ill. June 2, 2015). A subcontractor contracted to manufacture and deliver HVAC systems for the Chicago Transit Authority. In its own contract, the prime contractor certified that the HVAC system would comply with the Buy America Act. But the prime contractor failed to flow the requirement down to the HVAC manufacturer, which planned to manufacture the units in Mexico. After learning that the plan to manufacture the units in Mexico would not meet the Buy America requirement, the prime contractor canceled the order and purchased the units from another manufacturer.

The original manufacturer sued for breach of contract. In its motion to dismiss, the prime contractor made two arguments. The subcontract was “illegal” because it omitted the Buy America requirement. Or it was legal only because the Christian Doctrine meant that the Buy America requirement was read into the subcontract by operation of law. The court rejected both arguments. There was nothing “illegal” about the prime’s failure to include a Buy America requirement in the subcontract. And there was no basis to read the requirement into the subcontract through the Christian Doctrine. “The Christian doctrine . . . was intended to apply to contracts between the federal government and government contractors, not to subcontracts.”

This result is consistent with our experience.
Continue Reading Does the Christian Doctrine apply to subcontractors?

Arbitration is often seen as a way of getting a more predictable result in complex construction disputes. The subject matter expertise available with experienced arbitrators and the finality of the arbitration process itself are certainly important considerations. But resolving disputes in arbitration can sometimes lead to surprising results, even ones that might be inconsistent with the underlying contract or with applicable state law.

The Eighth Circuit’s recent decision in Beumer Corp. v. ProEnergy Services, LLC, No. 17-2862 (8th Cir. Aug. 9, 2018), is an example of such a case. The arbitrator in this case awarded attorney’s fee of nearly a million dollars more than the liability cap in the contract. Despite the possibility that this result was inconsistent with state law, the Eighth Circuit let the award stand.


Continue Reading Why getting the wrong result in arbitration may be what you bought

The standard form construction contract documents published by the American Institute of Architects are used widely throughout the construction industry. With assistance from federal agencies, the AIA created specific construction contract documents, such as the B-108-2009, to address the unique nature of federally-funded and insured projects. This year the AIA issued its once-a-decade revisions

After nearly a decade of litigation, justice was finally meted out in an extreme case of Government over-reach against a government contractor. The Government had sought to recover over $1.6 million from a government contractor whose subcontractor had underpaid a handful of employees by $9,900.

When all was said and done, a federal appellate court finally rejected the Government’s legal theory as essentially frivolous and ordered it to pay the contractor’s attorney fees, estimated at roughly $500,000.  When the Government expressed concern that this would have a “chilling effect” on its efforts to vigorously enforce the False Claims Act, the court stated: “One should hope so.”  The case is called U.S. ex rel. Wall v. Circle C Constr., LLC, No. 16-6169, (6th Cir. Aug. 18, 2017).

The story starts when the prime contractor, Circle C Construction, won a contract to construct buildings at the Fort Campbell military base. Circle C hired a subcontractor, Phase Tech, to perform the electrical work. The prime contract required compliance with the Davis-Bacon Act, which is similar to the Service Contract Act but applies to construction work. Like the Service Contract Act, the Davis Bacon Act requires the prime contractor and all subcontractors to pay construction workers the prevailing wages and benefits set by the Department of Labor. The Davis-Bacon Act also requires that the contractor submit certified payrolls as a condition of contract payment.

While Circle C did not have a written contract with its subcontractor Phase Tech, it did provide Phase Tech with the Wage Determinations from its prime contract. But Circle C did not verify whether Phase Tech was in compliance with the Davis Bacon Act. Phase Tech did not submit payroll certifications for two years after the project commenced, and later contended it was not aware it had to do so.

Eventually, one of Phase Tech’s employees brought a qui tam False Claims Act action against both Phase Tech and Circle C based on the under-payment of wages. Phase Tech settled the case by agreeing to pay $15,000, leaving Circle C as the remaining defendant. The Government agreed to take over the case from the employee and pursued the claim against Circle C.

Initially, the case did not go well for Circle C. The federal trial court hearing the case granted plaintiff’s motion for summary judgment and damages of $555,000 (the entire cost of the electrical scope of work on the project), which was trebled to a total award of $1.66 million against Circle C.


Continue Reading Government ordered to pay contractor’s attorney’s fees in False Claims Act case

In Joe Tex’s song about unrequited love, the Southern Soul singer belts out, “I gotcha, never shoulda promised to me.” Joe Tex may have thought this approach is the right one for romantic disappointment, but parties to a contract have a different set of obligations.

A lawsuit by Washington State contractor Nova Contracting should serve as an alert to owners dealing with the assessment of a contractor’s performance. Nova’s lawsuit came about because of the owner’s termination of the contract. Nova claimed the owner was using a “gotcha” review process for its submittals that was designed to prevent performance. The trial court agreed with the owner.

Culvert_with_a_dropNova appealed and the court of appeals found sufficient questions of fact to send the dispute back to the trial court. The opinion offers insight into fair dealing and good faith in the performance of construction contracts. Nova Contracting, Inc. v. City of Olympia, No. 48644-0-II (Wash Ct. App. Apr. 18, 2017).
Continue Reading Good faith and fair dealing puts an end to the “gotcha” in submittal review

Claims for personal injuries that can be connected in some way to construction work often include allegations that the contractor was negligent. Even if the injured party sues only the property owner, the owner will often seek to pass this liability through to the contractor. In many states, such negligence claims are barred by the acceptance doctrine, which limits contractor liability to third parties for injuries that occur after the owner has accepted the work.

A recent decision by the Missouri Court of Appeals illustrates and applies this rule. In Wilson v Dura-Seal and Stripe, Inc., No. ED 104570 (Mo. Ct. App. Mar 21, 2017), the plaintiff alleged that she tripped in an area paved by Dura-Seal and Stripe, Inc. Dura-Seal paved a drive lane, but the paving did not extend all the way to the curb. The result was a gutter area and a resulting height differential. Ms. Wilson claimed she tripped on and because of the height differential.  Ms. Wilson sued the school district for which Dura-Seal did the work. The school district then sued Dura-Seal.

The trial court granted summary judgment for Dura-Seal because the work had been accepted. The court of appeals affirmed. Under Missouri law, a contractor is not liable for third party personal injuries after the owner accepts the work. The acceptance doctrine is founded on the assumption that the owner has made a reasonably careful inspection of the work of the contractor and the owner knows of the defects, if any. The owner then “accepts the defects and negligence that caused them as his own.”
Continue Reading How the acceptance doctrine protects Missouri contractors from personal injury liability

The Missouri Court of Appeals decision in Penzel Constr. Co. v. Jackson R-2 School District, No. ED103878 (Mo. Ct. App. Feb. 14, 2017), is an important development for public construction contracting in Missouri. The decision adopts the Spearin Doctrine and approves the use of the Modified Total Cost method for proving damages. While these concepts have been used widely in federal construction contracting, the Penzel decision is the first published decision recognizing them in Missouri.

The Penzel case involved additions to a public high school. The School District hired an architect. The architect retained an electrical engineering sub-consultant. When the project went to bid, the School District furnished bidders with the architect’s plans and specifications. Penzel Construction Company submitted a bid as the general contractor.

Penzel’s electrical subcontractor was Total Electric. Total’s bid was $1,040,444. Neither Penzel nor Total “noticed” any errors, omissions, or other problems with the plans and specifications during the bidding process.

Total encountered delays totaling 16 months, which Total attributed to “defects and inadequacies” in the electrical design. Under a liquidating agreement between Penzel and Total, Penzel sued the District. Penzel alleged that the District impliedly warranted the design. Penzel claimed the design was not adequate for completing the project.

In addition to proving liability, Penzel needed to prove the damages associated with its loss of productivity claim. To do so, Penzel sought to use the Modified Total Cost Method. The claimed damages were comprised of additional project management and supervision costs, wage escalation, unpaid change order work, and consultant’s fees.
Continue Reading The Spearin Doctrine and Modified Total Cost claims on Missouri public projects