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Dealing With One Sided Public Contracts- Surviving The Death Star

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On April 10, Don held a seminar at the Kegler Brown offices on One-Sided Public contracts. This seminar provided knowledge on what contracts require, gave strategies for overcoming difficult or impossible-to-satisfy contract terms, and explained the rights contractors have outside the contract.

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Dealing With One Sided Public Contracts- Surviving The Death Star

  1. 1. z Presented by Don Gregory April 10, 2018 Dealing with One-Sided Public Contracts Surviving the Death Star
  2. 2. z Shortage of Skilled Labor and Sustained Competition for Stagnant Public Projects Greater Sophistication of Public Owners + Public Contracts No Ability of Bidder to Alter Terms Trend by the Courts to Literally Apply Contract Terms
  3. 3. z Little multiple prime contracting Trends after Construction Reform Trading off 5-10% mark-up on bid day for 1% cost of claims at end of job Subs 10 days further away from payment More subjective selection of CM, etc. Big contractors benefit, family, locally owned not so much “My way or the highway” approach of owners to disputes “Pay if paid” passes owner pain through to subs
  4. 4. z PROBLEM Construction is a
  5. 5. z Contractors are Fond of Tardy + Casual Notice Don’t want to “rock the boat” – see how it works out
  6. 6. z Actual notice was good enough in the old days Typically found in daily reports, meeting minutes and other routine jobsite documentation
  7. 7. z But that is RISKY now!
  8. 8. z THE GOAL: Survive the Death Star!
  9. 9. z Provide knowledge on what contract requires Better document impacts and recover extra time and money Provide strategies for overcoming impossible to satisfy contract terms Explain what rights contractors have outside the contract
  10. 10. z What tools are available to contractors? Document Change Orders Document Requests for Time + Money Thru Article 8 Argue Waiver Argue Unenforceability Under Fairness in Construction Contracting Act
  11. 11. z How to Get Paid for Change Orders
  12. 12. z Changes are common How to get paid for changes is another matter
  13. 13. z “We’ll work it out later: let’s just get the job done.”
  14. 14. z This leads to unresolved change orders You deliver the work And then talk about payment once you no longer have leverage No leverage = nasty one-sided negotiations “We’ll work it out later: let’s just get the job done.”
  15. 15. z Never leave extras on the table How to resolve change orders in your favor Know what the contract says about changes Follow it Make sure superintendents + PMs are trained
  16. 16. z Contracts are getting very specific about changes
  17. 17. z Proceeding Without a Change Order or Written Direction is Risky
  18. 18. z Ohio Courts have stressed the importance of following a contract’s notice requirements NOTICE Provisions
  19. 19. z If the contract says so, failing to timely provide notice of a change in the time required by contract may waive a contractor’s right to any claim for a time extension or mitigation of liquidated damages NOTICE Provisions
  20. 20. z Failing to Follow Notice Provisions is Risky
  21. 21. z So submit your changes claims timely! In the past, state contracts required a claim to be submitted prior to contract completion
  22. 22. z KEY POINTS from Several Recent Ohio Cases
  23. 23. z Follow contract’s notice provisions and request an extension of time
  24. 24. z Requests for additional compensation should be based on owner-caused delays
  25. 25. z A change order management program starts from your notice of award and proceeds through final payment Notice of Award
  26. 26. z Thoroughly review contract documents before signing
  27. 27. z Alert your project team to notice requirements
  28. 28. z GIVING NOTICE 4 Basic Methods RFIs Discussion in meetings Letters/Emails Conversations with owner’s reps or GC
  29. 29. z Unless you indicate otherwise, we will proceed with the additional work as we were directed in the progress meeting earlier today and this e-mail shall serve as continued notice of our intention to receive additional compensation for this change LANGUAGE To Protect Yourself
  30. 30. z The contract will govern the process of resolving change orders Changes Clause Notice Provisions
  31. 31. z Identify issue and establish file How to Get Paid for Change Orders Give contract-specified notice Define scope of change Notify your lower tiers Estimate costs + schedule for work Prepare a change order request Submit + negotiate a change order Do the work Get paid or enter dispute resolution
  32. 32. z Don’t get burned by signing a partial payment release or change order with broad waiver language
  33. 33. z Change orders should include costs for that respective change Be careful when signing change orders or partial payment releases Partial payment releases should be based on payment received Same applies to any updated schedules required to be signed
  34. 34. z Typical change order includes all costs associated
  35. 35. z When there are concerns a change order will not provide sufficient compensation LETTER We have only priced the direct costs, so Change Order Number ___ is returned to you as executed with one exception and deletion. We have deleted and initialed the portion of the change order that would waive claims for any delays, inefficiencies, disruption or suspension, extended overhead, acceleration, and the cumulative impact of this and other change orders issued to this date. Please return an executed and initialed copy to us. No additional time or costs are sought as of this date based upon what is reasonably foreseeable now; however, we are not waiving claims for additional time or costs should circumstances change.
  36. 36. z Broader and More Aggressive Language
  37. 37. z Broad and Aggressive Change Order Language Used on ProjectONE
  38. 38. z How Might You Revise Broad Language
  39. 39. z Be Careful When Signing Waivers for Partial Payment
  40. 40. z Schedule Acceptance
  41. 41. z With its signature, Contractor does not verify the accuracy of the schedule nor does it waive any claim with respect to additional costs it may incur as a result of: (a) changes to previous schedules; (b) additional costs for unresolved issues it has previously provided notice of; (c) additional costs if the work does not proceed in accordance with this schedule because of others; or (d) any other costs arising out of related to other matters beyond its control. LANGUAGE To Insert
  42. 42. z And if you don’t get paid… Follow the Dispute resolution process in the contracts
  43. 43. z How to Recover Time + Money on Requests for an Equitable Adjustment Under the Article 8 Process
  44. 44. z 3 Key Documents Needed to Stay in the Hunt
  45. 45. z Written Notice + Request For Extension of Time
  46. 46. z Certified Claim
  47. 47. z Appeal Letter
  48. 48. z 10 Day Requirement to Provide Written Notice Differing Site Condition determination receiving an RFI response rejection/reduction of a change order proposal or field work order 10 DAYS AFTER the “occurrence”
  49. 49. z Written Notice + Request for Extension of Time
  50. 50. z Sample Notice and Request For Extension of Time Letter Address it to everyone!
  51. 51. z Other Components of the Notice and Request for Extension of Time Letter
  52. 52. z In most cases, request an extension of time
  53. 53. z Acceleration will occur if extension is not granted
  54. 54. z Certified Claim Submission Notarized Certification Income Statement/Ledger 30 days from when notice was submitted Failure to Company = Waiver of Claim
  55. 55. z Starts the two-year countdown to resolve or claim is waived
  56. 56. z Certified Claim Example Certified Language + Notarized
  57. 57. z Direct Costs for Disputed Scope of Work Items Basic Components of a Claim Extended General Conditions Labor Productivity Home Office Overhead
  58. 58. z Jobsite resolution meeting scheduled within 30 days Written recommendation from either the architect or CM issued 14 days after jobsite resolution meeting After Submitting the Certified Claim
  59. 59. z Issuance of the Written Recommendation Triggers Prime Contractor’s Requirement to Appeal
  60. 60. z Another meeting scheduled with the public authority Final decision rendered regarding claim After Making the Appeal Concludes Article 8 process and next step is to file suit
  61. 61. z Graphic Timeline for Notice and Claim Submissions Occurrence of event for possible claim (for example revised schedule) 10 Days - submit Written Notice 30 Days- Submit Certified Claim 120 Days- Obtain Final Administrative Decision or Exhaust Jobsite Dispute Resolution Process 2 Years – File Suit or Waive It Free To File Suit 14 Days – AppealJobsite Resolution and Recommendation Issued Appeal Meeting and Final Decision
  62. 62. z Provide Notice Early And Often Be Sure To Request An Extension Of Time Keep Track Of Your Costs Preferably On A T&M Ticket Summary of Ways to DEAL WITH A DELAY CLAIM Don't Sign a "No Cost Time Extension Change Order“ Read Your Change Orders And Lien Waivers Carefully Be Careful About Signing Schedules When You Have A Delay Claim Pending Organize And Submit Your Claim As Soon As Possible Better To Give A "Range Of Costs" And Submit It Early Than It Is To Wait Consider Bringing In A Schedule Consultant Early
  63. 63. z Death Star Supplementary Conditions Owner recovers legal fees, contractor does not
  64. 64. z What About Bricker’s Modified General Conditions? SETTLEMENT OFFERS: If the Contractor initiates a Claim, the Owner may make one or more “Section 4.7.10 Settlement Offer” to settle the Claim at any time up to the date of the trial. Such settlement offer shall be subject to Rule 408 (Compromise and Offers of Compromise) of the Ohio Rules of Evidence. If at any stage of the litigation, including any appeals, the Contractor’s Claim is dismissed or found to be without merit, or if the damages awarded to the Contractor on its Claim do not exceed the Owner’s last 4.7.10 Settlement Offer, the Contractor shall be liable to the Owner and shall reimburse the Owner for all the Owner’s attorneys’ fees and expenses, including expenses and fees paid to consultants related to the Owner’s pursuit of the Claim, arising out of or related to such Claim.
  65. 65. z What About Bricker’s Modified AIA General Conditions? INDEMNITY: To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Construction Manager, Architect, and Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ and consultants’ fees and defense costs, arising of or resulting from performance of the Work and caused in whole or in part by the Contractor’s acts or omissions. The Contractor’s obligations under Section 3.18.1 are joint and several.
  66. 66. z Escape from the Death Star How do you survive if you don’t document perfectly?
  67. 67. z One-sided contract with extensive notice/claim provisions THE PROBLEM Owners successfully arguing for strict construction of these provisions
  68. 68. z Public owners are successfully arguing for STRICT enforcement of these notice provisions
  69. 69. z Cleveland Construction, Inc. v. Kent State University Issued: June 24, 2010 Providing notice within 10 days after the occurrence Important to comply with Article 8 provisions
  70. 70. z Stanley Miller v. OSFC Issued: December 28, 2010 Enforced Article 8 claim submission requirements
  71. 71. z Peterman Plumbing & Heating, Inc. v. Board of Education Pickerington Local School District Issued: December 30, 2010 Enforced contract’s 21-day requirement to provide notice
  72. 72. z It all started with Dugan & Meyers…
  73. 73. z At trial… Spearin doctrine: public owner warrants sufficiency of plans Change order satisfies? Discussion didn’t include cumulative impact Owner had actual notice Asking for an extension would have been a “vain act”
  74. 74. z Spearin does not apply to delay claims for insufficient plans. Actual notice does not constitute waiver of contract On Appeal at the Ohio Supreme Court
  75. 75. z If you don’t comply perfectly, should you give up?
  76. 76. z Dugan & Meyers Did not consider the effect of the fairness in construction contracting act Did not invalidate the Spearin doctrine Did not say that a contractor can never prove the owner waived strict compliance with the contract
  77. 77. z In LEGALESE “When the acts and conduct of a party are inconsistent with an intent to claim a right, and have therefore misled the other party to his prejudice and thereby estop the party having the right from insisting upon it.” What Is Waiver?
  78. 78. z In ENGLISH The owner isn’t following the contract, so you shouldn’t have to either. What Is Waiver?
  79. 79. z The Point of Dugan & Meyers Actual notice alone will not equal waiver “Something more than actual notice on the part of the state is required to excuse a contractor from complying with its obligations regarding change-order procedures in public works contracts” - Stanley Miller But, notice may still be evidence of waiver
  80. 80. z Craft v. City of Urbana NOTICE AS WAIVER Failure to submit claim within contractually allotted time “did not defeat the contractor’s claim since the city had independent knowledge of the condition complained of and had oral notice of the contractor’s complaint and the city was not prejudiced by lack of earlier notice.” Never overruled.
  81. 81. z If notice alone is not enough, what constitutes waiver? J&H v. OSFC, Ct. Cl. 2012 Extensive Notice… 12-14 Letters Over 4 Months No Action “Bovis ignored many of the letters, and in those instances where a response was made, J&H was informed that is requests were not in compliance with Article 6 of the contract” But, “72–hour Notices”
  82. 82. z If notice alone is not enough, what constitutes waiver? OSFC argued that J&H failed to strictly comply with the contract, and thus its claim was barred The Referee Disagreed ““the correspondence between and among Bovis employees, demonstrate a lack of good faith and fair dealing by Bovis and OSFC with respect to J&H. For example the statements ‘paint J&H as instigator’ and ‘watch fireworks’ were made in reference to the strategy of pitting other contractors against J&H”
  83. 83. z If notice alone is not enough, what constitutes waiver? Not only did the owner have notice, its conduct demonstrated a lack of good faith and unwillingness to resolve any claim, regardless of whether J&H strictly complied with the contract “OSFC’s insistence upon strict compliance with Contract notice requirements was nothing more than a strategy employed by OSFC and Bovis to prevent J&H from filing a claim…such conduct on the part of OSFC constitutes a waiver of strict compliance with notice requirements.”
  84. 84. z Keep sending notice to the owner, even if: The owner ignores you Then demands compliance with Article 6 Communicate your understanding that the owner is waiving strict compliance with the contract when it ignores your notices, requests for extensions, or claims Make it clear that you are not waiving your Article 8 rights by participating in any “informal” change order procedures
  85. 85. z Any other ways out? Romanoff v. ODAS; J&H v. OSFC Cleveland Constr. v. OPERS Cleveland Constr. v. Kent State
  86. 86. z Fairness in Construction Contracting Act – R.C. § 4113.62 Contractors Have a Friend in
  87. 87. z Fairness in Construction Contracting Act provides: Nothing in a contract or change order can waive responsibility for the “owner’s acts or failure to act”
  88. 88. z No Damage for Delay Clauses Waiver of Bond Rights Subject to Foreign State Law What Type of Contract Provisions are UNENFORCEABLE Forced to Arbitrate or Litigate Out of State Final Payment as Waiver If Prior Notice
  89. 89. z How to Use the Fairness in Construction Contracting Act to Trump Unfair Clauses Couch impacts in context and language of “delays” Focus on owner’s actions and inactions (including owner agents like A/E and CM)
  90. 90. z What Does CCI v. OPERS Provide? No need to ask for time extension when owner (action or inaction) causes delay Article 6 (“boilerplate notice”) of State’s general conditions unenforceable to some degree “Delay” also means acceleration
  91. 91. z Sole remedy for delay is a time extension Owners not responsible for failures of Other Prime Contractors Examples of Unenforceable State General Conditions 6.2.1.5 8.6
  92. 92. z Owner’s Failure to Properly Schedule May constitute a breach of contract and excuse the contractor’s performance
  93. 93. z Owner’s Failure to Disclose Superior Knowledge May render an exculpatory clause (like Article 8) ineffective
  94. 94. z Don Gregory Kegler Brown Hill + Ritter dgregory@keglerbrown.com keglerbrown.com/gregory 614-462-5416

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