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Ohio Construction Seminar- "Dealing with One-Sided Public Contracts: Surviving the Death Star"


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Many public owners are utilizing increasingly one-sided contract documents that restrict contractors' rights. Contractors bidding public work need to understand the legal and practical implications these pitfalls present for contractors working on public projects. The topics discussed will include, but are not limited to:
• Killer Clauses to Watch Out For
• Ways to Provide Notice & Preserve Rights
• The Fairness in Construction Contracting Act
• How to Protect Yourself Contractually
• Project Documentation Required

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Ohio Construction Seminar- "Dealing with One-Sided Public Contracts: Surviving the Death Star"

  1. 1. Dealing with One-Sided Public Contracts: Surviving the Death Star presented by Kegler Brown March 22, 2012
  2. 2. The Challenge• Shortage of Construction Work and Increased Competition• Greater Sophistication of Public Owners and Public Contracts• No Ability of Bidder to Alter Terms• Trend by the Courts to Literally Apply Contract Terms
  3. 3. The Goals of the Seminar• Provide knowledge on what contract requires• Better document impacts and recover extra time and money• Provide strategies for overcoming difficult or impossible to satisfy contract terms• Explain what rights contractors have outside the contract
  4. 4. What Tools are Available to Contractors?1. Document Change Orders2. Document Requests for Time and Money thru Article 83. Argue Waiver4. Argue Unenforceability under Fairness in Construction Contracting Act
  5. 5. How to Get Paid for Change Orders• Changes are common.• How to get paid for changes is another matter.
  6. 6. How to Get Paid for Change OrdersWe’ve all heard it:“We’ll work it out later: let’s just get the job done.”
  7. 7. “We’ll Work it Out Later”This leads to unresolved change orders.You deliver the work.…And then talk about payment once you no longer haveleverage.
  8. 8. How to Get Paid for Change OrdersNo leverage equals nasty one-sided negotiations.Or… “Simply grit your teeth and accept it.”
  9. 9. How to Get Paid for Change Orders• To resolve change orders in your favor: – NEVER leave extras on the table. – Know what the contract says about changes. – Follow it. – Make sure your superintendents and project managers are trained to document changes.
  10. 10. Contracts are getting very specific about changes.
  11. 11. Proceeding Without a Change Order or Written Direction is Risky
  12. 12. “Notice” Provisions• Ohio Courts have stressed the Importance of following a Contract’s Notice Requirements – Fatal To Contractor’s claim• 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 – Any claim for mitigation of Liquidated Damages
  13. 13. Failing to Follow Notice Provisions is Risky
  14. 14. So Submit Your Changes Claims Timely• In the past, State contracts required a claim to be submitted prior to contract completion. – OSFC now requires the claim to be submitted within 30 days of giving notice.
  15. 15. Public Owners Are Successfully Arguing For STRICT Enforcement of These Notice Provisions• Cleveland Construction, Inc. v. Kent State University – Issued June 24, 2010 – Enforced contract requirements regarding: • Providing notice within 10 days after the occurrence. • Important to comply with the Article 8 provisions rather than just claiming such provisions have been exhausted.• Stanley Miller v. OSFC – Issued December 28, 2010 – Enforced Article 8 Claim Submission Requirements• Peterman Plumbing and Heating, Inc. v. Board of Education Pickerington Local School District – Issued December 30, 2010 – Enforced contract‟s 21-day requirement to provide notice.
  16. 16. Key Points from Several Recent Ohio Cases• Follow Contract’s Notice provisions and request an Extension of Time.• Requests for additional compensation should be based on owner-caused delays.
  17. 17. How to Get Paid for Change Orders• A change order management program starts from your Notice of Award and Proceeds through Final Payment.• Thoroughly review the contract documents before signing them. Be prepared to address contract ambiguities and document notice provisions.• Alert your project team to notice requirements.
  18. 18. How to Get Paid for Change Orders• There are four basic methods of giving notice. Some are better than others.• The four ways are: 1. RFIs 2. Discussion in meetings. 3. Letters/E-mails. 4. Conversations with the owner’s reps or gc. (generally not going to suffice as notice unless confirmed in writing to the party with whom the conversation was had).
  19. 19. Language to Protect Yourself• 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.
  20. 20. How to Get Paid for Changes• The Contract will govern the process of resolving change orders.• Check the: – changes clause (which generally specifies the procedure for authorizing extra work); and – notice provisions (which generally specify how soon and in what form you must provide notice of a change.)
  21. 21. How to Get Paid for Change Orders1. Identify Issue and Establish File;2. Give Contract-Specified Notice;3. Define Scope of Change;4. Notify your lower tiers.5. Estimate Costs and Schedule for work;6. Prepare a Change Order Request.7. Submit and Negotiate a Change Order.8. Do the Work.9. A. Get Paid, or B. Enter dispute resolution mode.
  22. 22. Getting Paid: Don’t Get Burned By Signing a Partial Payment Release or Change Order with Broad Waiver Language• Be careful when signing change orders (or partial payment releases). – Change Orders should just include costs for that respective change rather than all possible extra costs through the date of the change order. – Partial Payment Releases should be based on the payment received rather than releasing all claims up to a certain period of time. – Same applies to any updated Schedules required to be signed.
  23. 23. Typical Change Order Includes All Costs Associated With That Change
  24. 24. When There Are Concerns A Change Order Will Not ProvideSufficient Compensation for Delays and Other Indirect Costs 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.
  25. 25. Broader and More Aggressive Language (All Cost and Time Impacts To This Point In Time)
  26. 26. Broad and Aggressive Change Order Language Used on ProjectONE
  27. 27. How Might You Revise Broad Language (All Costs Up To This Point In Time)
  28. 28. Be Careful When Signing Waivers for Partial Payment
  29. 29. Schedule Acceptance
  30. 30. Language to Insert• 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.
  31. 31. How to Get Paid for Change Orders• And if you don‟t get paid …• Follow the Dispute resolution process in the contracts.• In State Contracts, those provisions are currently found in Article 8 of the Contract.
  32. 32. How to Recover Time and Money on Requests for an Equitable Adjustment under the Article 8 Process• Three Key Documents Needed to Stay in the Hunt 1. Written Notice & Request For Extension of Time 2. Certified Claim 3. Appeal Letter
  33. 33. 10 Day Requirement to Provide Written Notice (and Request Extension of Time) 10 days after: the “occurrence” rejection/reduction of a change order proposal or field work order receiving an RFI response Differing Site Condition determination
  34. 34. Written Notice andRequest For Extension of Time
  35. 35. Sample Notice and Request For Extension of Time LetterAddress It To Everyone•School District/University•DAS/OSFC•CM•Architect
  36. 36. Other Components of the Noticeand Request for Extension of Time Letter
  37. 37. In Most Cases, Request an Extension of Time Acceleration Will Occur If Extension Is Not Granted Not Responsible for Liquidated Damages
  38. 38. Certified Claim Submission 30 Days From When Notice Was Submitted Income Statement/Ledger Notarized Certification Failure to Comply = Waiver of ClaimStarts The Two Year Clock To Resolve Or Claim Is Waived
  39. 39. Certified Claim Example Certified Language & Notarized
  40. 40. Basic Components of a Claim• Direct Costs for Disputed Scope of Work Items• Extended General Conditions• Labor Productivity• Home Office Overhead
  41. 41. After Submitting The Certified Claim – What Happens Next?• Jobsite Resolution Meeting is to be scheduled within 30 days.• Written Recommendation from either the Architect or CM issued 14 days after Jobsite Resolution Meeting.
  42. 42. Issuance of the Written Recommendation Triggers Prime Contractor’s Requirement To Appeal
  43. 43. After Making Appeal• Another Meeting Scheduled with the Public Authority (can opt out).• Final Decision Rendered Regarding Claim.• Concludes Article 8 Process and next step is to file suit.
  44. 44. Graphic Timeline for Notice and Claim Submissions 120 Days- Obtain Final 10 Days - 30 Days- Administrative Decision Free To submit Submit or Exhaust Jobsite File Suit Written Certified Dispute Resolution Notice Claim Process Jobsite Resolution 14 Days – Appeal and Recommendation Appeal Meeting Issued and Final DecisionOccurrence of event for 2 Years –possible claim (for example File Suit or Waive Itrevised schedule)
  45. 45. Summary of Ways to Deal with a Delay Claim• Provide notice early and often.• Be sure to request an extension of time.• Keep track of your costs preferably on a T&M ticket.• Dont 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.
  46. 46. 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.
  47. 47. 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.
  48. 48. Escape from the Death Star• How do you survive if you don‟t document perfectly?
  49. 49. The Problem:• One-sided contract with extensive notice/claim provisions.• Owners successfully arguing for strict construction of these provisions.
  50. 50. Public Owners Are Successfully Arguing For STRICT Enforcement of These Provisions• Cleveland Construction, Inc. v. Kent State University – Issued June 24, 2010 – Enforced contract requirements regarding: • Providing notice within 10 days after the occurrence. • Important to comply with the Article 8 provisions rather than just claiming such provisions have been exhausted.• Stanley Miller v. OSFC – Issued December 28, 2010 – Enforced Article 8 Claim Submission Requirements• Peterman Plumbing and Heating, Inc. v. Board of Education Pickerington Local School District – Issued December 30, 2010 – Enforced contract‟s 21-day requirement to provide notice.
  51. 51. It all started with Dugan & Meyers…
  52. 52. Dugan & Meyers v. ODAS• 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.”• On appeal to the Ohio Supreme Court: – Spearin does not apply to delay claims for insufficient plans. – Actual notice does not constitute waiver of contract.
  53. 53. If you don’t comply perfectly… …should you give up?• NO!• 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.
  54. 54. What is Waiver?• 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.”
  55. 55. What is Waiver• In English:The owner isn‟t following the contract, so you shouldn‟t have to either.
  56. 56. 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.
  57. 57. Notice as waiver Craft v. City of Urbana• 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.
  58. 58. 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.”
  59. 59. 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.”
  60. 60. 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.”
  61. 61. What’s the Point? Don’t Give Up.• 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.
  62. 62. Any Other Ways Out?• Superior knowledge: how can you claim what you don‟t know? – Romanoff v. ODAS; J&H v. OSFC• Fairness in Construction Contracting Act. – Cleveland Constr. v. OPERS• At the end of the day, the owner must prove YOU waived your claim. – Cleveland Constr. v. Kent State
  63. 63. Contractors Have a Friend in:Fairness in Construction Contracting Act – R.C. § 4113.62
  64. 64. Fairness in Construction Contracting Act provides:Nothing in a contract or change order can waiveresponsibility for the – “Owner‟s acts or failure to act”(and Contractor‟s acts or failure to act if you are asub)
  65. 65. What Type of Contract Provisions are Unenforceable?• No Damage for Delay Clauses• Waiver of Bond Rights• Subject to Foreign State Law• Forced to Arbitrate or Litigate Out of State• Final Payment as Waiver If Prior Notice
  66. 66. 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)
  67. 67. 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
  68. 68. Examples of Unenforceable State General Conditions6.2.1.5 Sole remedy for delay is a time extension8.6 Owners not responsible for failures of Other Prime Contractors
  69. 69. Owner’s Failure to Properly Schedule, etc.May constitute a breach of contract and excusethe contractor‟s performance.
  70. 70. Owner’s Failure to Disclose Superior KnowledgeMay render an exculpatory clause (like Article 8)ineffective.
  71. 71. What Do You Want to Talk About?QUESTIONS …… and ANSWERS?