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Contractor Stung By Liquidated Damages

by | 10 November 2017 | , , ,

The recent case of Abhe & Svboda Inc. v MDOT (Court of Appeals, August 2017), underscores the difficulty in challenging Liquidated Damages, particularly where a contractor does not comply with delay claim provisions.

This case arose from the late completion by Abhe & Svboda, Inc (ASI) of a contract with the Michigan Department of Transportation (MDOT) to clean and paint part of the Mackinac Bridge. The contract specified Liquidated Damages (LDs) of $3,000 a day for each day of late completion. The contract also gave ASI the right to seek a time extension for bad weather, provided that ASI asserted the request within the time period required by the contract. ASI did not timely complete the project and the State assessed LDs of about $1.9 million for being 644 days late.

ASI sued the State challenging the LDs assessment for a number of reasons. For instance, ASI argued that the LDs should not apply to 362 days of the planned winter shutdown during which it was impossible for MDOT to suffer any losses and that the LD clause was void for failing to be a good-faith effort to estimate losses. ASI also argued that MDOT’s dilatory behavior in approving ASI’s scaffolding plan caused 56 days of delay. ASI argued that 459 days of work were caused by environmental circumstances beyond its control. The trial court rejected all of ASI’s arguments and granted summary disposition to the State. ASI appealed.

Considerations for Billboard Lease Agreements

by | 10 November 2017 | , ,

Let’s face it, billboards are just about everywhere and it seems more and more are going up or converting to digital billboards with computer-controlled electronic displays every day. With the uptick in the economy and an expansion of urban areas, billboard companies are seeking to expand their footprint as well, largely along the major highways and roads.

If you are the owner of land along a highway or major road, you may be approached by a billboard company with an offer to lease a portion of your land. Billboard lease agreements come in various shapes, forms and lengths and are typically used by the billboard companies in many different states and jurisdictions. Each one should be carefully reviewed to make sure that the terms match your particular situation.

Changes to the 2017 AIA A201 General Conditions: Section 1.1.8 on Initial Decision Maker

by | 10 October 2017 | ,

This is part 1 of a 15-part series on the changes to the AIA A201 General Conditions. This part deals with section 1.1.8.

In the 2017 changes, particularly section 1.1.8, there are some fairly significant changes to the Initial Decision Maker clause. The changes are as follows:

First, in my humble opinion, the whole Initial Decision Maker process is a bad idea. It usually ends up, by default, being the Architect under section 15.2.1 because people generally do not change the language and select a third-party. So, you basically have the fox guarding the chicken coop. The Architect, as the Initial Decision Maker, has a lot of control over the outcome of the dispute.

This scenario was attempted to be worked out by the language that “the Initial Decision Maker shall not show partiality to the Owner or Contractor…” but that does not fix the problem. How do you deal with a breach of this provision?

Construction Contract Clauses, Part 7 – Indemnification and Insured Contract Coverage

by | 10 October 2017 | , , , ,

Indemnification provisions frequently appear in construction and commercial contracts. They operate to shift risk from the party being provided indemnification to the party providing indemnification. The principle behind such risk shifting is to shift potential risks onto the party or parties that are best able to prevent, mitigate, or insure those risks. In that respect, indemnity provisions do not necessarily need to be a source of disagreement during contract negotiation.

Consider, for example, indemnification provisions that require one party to indemnify and defend other parties from the risks relating to personal injury and property damage. At first blush, the party who is to provide such indemnity may feel that they should not assume those risks. However, agreeing to a well-drafted provision requiring indemnification for personal injury or property damage can be a benefit to all of the parties—including the party providing the indemnity. Here is how that can occur.

Do I Really Need to Create Corporate Minutes?

by | 6 September 2017 | , ,

From time to time I get asked this question from small business owners. My response is typically a question along these lines, “How attached are you to your boat?”

This might sound like a strange response, and it certainly does not apply in all circumstances, but the point is that the failure to follow corporate formalities could result in losing the corporate shield of liability – resulting in personal liability for a claim – and thus a sudden decrease in ownership of personal toys, or worse.

Generally speaking, shareholders are not liable for corporate obligations. MCL 450.1317(4). Over time the phrase “piercing the corporate veil” has evolved to mean that this corporate shield from liability can be erased.

Language You Need for an Enforceable Arbitration Clause

by | 14 August 2017 | ,

This is Part 2 in a 20-part series of articles dealing with issues of arbitration in the construction industry. 

Arbitration is voluntary
Absent a statute to the contrary, arbitration is a voluntary, contractual process. A court will not require parties to arbitrate complex construction disputes without an enforceable arbitration clause in their contract. If you do not have an enforceable arbitration clause, you will not be able to compel your adversary to arbitrate, nor can your adversary force you to arbitrate unless you jointly negotiate a separate post-contract arbitration agreement.

So how do you get to an enforceable arbitration clause? You need to include specific buzzwords in your contract.

Construction Disputes: Arbitration or Litigation?

by | 9 August 2017 | , , ,

This is Part 1 in a 20-part series of articles dealing with issues of arbitration in the construction industry.

The question of whether to arbitrate or litigate disputes comes up fairly frequently in the construction industry. From my humble perspective, with respect to construction disputes, there are very few circumstances where I would choose litigation over arbitration. Why?

Choice of Decision Maker
With arbitration, in general, you pick the decision maker(s) as opposed to being assigned a judge through a blind draw in the court system. That level of arbitrator selection may range from picking from a list under the American Arbitration Association Rules to hand picking a blue-ribbon panel of arbitrators or even a single arbitrator through private arbitration. If you are assigned a judge through the courts, you may end up with a judge who does criminal proceedings in the morning, divorce proceedings before lunch, and then handles your complex construction law dispute in the afternoon, in 15-minute increments, along with multiple other disputes in what looks to an outsider like a giant cattle call. Unless your contract provides otherwise, you may also be in the unlucky position to try your complex construction disputes to a jury.

Engineer Loses Claim for Coverage as an Additional Insured

by | 10 July 2017 | ,

Being an additional insured on someone else’s insurance policy does not guaranty protection. Such was the lesson learned by an engineering firm in Orchard Hiltz & McCliment Inc. v Phoenix Ins. Co. and Federated Mutual Ins. Co., (U.S. 6th Circuit Court of Appeals, Jan. 2017).

In Orchard Hiltz, the Village of Dexter hired the design firm, Orchard Hiltz & McCliment (OHM), to oversee upgrades to Dexter’s wastewater treatment plan. While contractors were removing a lid on a digester tank, sparks from a torch ignited methane gas causing an explosion. One worker was killed and another was injured. The injured worker and the family of the deceased worker sued OHM in state court, claiming that OHM breached the standard of care by failing to ensure that the contractors followed the plans and specifications and by failing to ensure that the contractors implemented safety measures. OHM’s professional liability insurance carrier, XL Specialty Ins., provided a defense to OHM in that state court case.

Construction Contract Clauses, Part 6 – Waiver of Claims for Insured Losses

by | 29 June 2017 | , , , ,

Many insurance sections of construction contracts contain language whereby the parties involved in the construction project waive all claims against all other parties involved in the project for insurable losses such as property damage and personal injuries.

Owner and Contractor waive all rights against each other and their respective officers, directors, members, partners, employees, agents, consultants and subcontractors of each and any of them for all losses and damages caused by, arising out of or resulting from any of the perils or causes of loss covered by such policies and any other property insurance applicable to the Work; and, in addition, waive all such rights against Subcontractors and Engineer, and all other individuals or entities identified in the Supplementary Conditions as loss payees (and the officers, directors, members, partners, employees, agents, consultants, and subcontractors of each and any of them) under such policies for losses and damages so caused.

Construction Contract Clauses, Part 5 – Conversion Clauses

by | 29 June 2017 | , , , ,

A conversion clause arises in the context of contract termination. There are generally two types of termination; termination for cause and for convenience. Each type of termination differs with respect to the basis for termination, as well as the limitations on payment rights the terminated party retains post-termination. A conversion clause operates to convert a wrongful termination into a termination for convenience. The following is an example of a conversion clause.

If it is determined, by litigation, arbitration or otherwise, that termination for default was unjustified for any reason, the termination shall be deemed a termination of convenience and Subcontractor’s remedies shall be limited to those provided for as a termination of convenience.