Construction Law Presentation


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Presentation created by Elliot Fus to teach segment on Construction Law to engineering students at UNC-Charlotte

Construction Law Presentation

  1. 1. Construction Law Elliot Fus Kilpatrick Stockton LLP
  2. 2. Topic Range  Construction Contracting  Construction Regulation  Construction Disputes
  3. 3. Construction Contracting  AIA Forms commonly used  Can be used without change, except for project specific additions, or with selective modifications; topics changed most frequently are arbitration, indemnification, payment, and the responsibilities of the architect.  Changes must be done carefully. A change in one clause may create confusion.
  4. 4. Construction Contracting  Large-scale industrial construction, such as fertilizer plants or nuclear facilities, are not likely to use AIA documents.  The organizational systems used in those projects do not fit the fundamental assumptions of the AIA system.  Also, amounts at stake in such projects are sufficient to justify a tailor-made contract or form created by one of the contracting parties.
  5. 5. Construction Contracting  AIA documents most useful for small and middle-priced projects; large-scale residential or commercial projects in which design and construction are separated, and in which the architect plays a central administrative role.  Less likely to be used by public owners who face many more legal constraints than private owners.
  6. 6. Construction Regulations  Multiple Levels (State, local, etc.)  Numerous areas of government regulation (e.g., from codes providing building standards to regulations governing the practice of contracting)
  7. 7. Construction Disputes  Cast of characters can vary (contractor v. owner; subcontractor v. contractor; claims involving architects, suppliers, etc.)  May involve counterclaims /cross-claims  Forum may vary (liens, litigation, arbitration, mediation)  Claims typically contractual; sometimes tort (e.g., negligence)  Several typical scenarios; overview, then focus on experts
  8. 8. Change Orders/ Extra Work  Because it is virtually impossible for an owner, architect, engineer or contractor to foresee every design or construction problem that will encountered on a project, most construction contracts contain a “changes” clause.  The purpose of the “changes” clause is to account for changes in design, to correct errors in plans and specifications and to avail the parties of flexibility in adapting their contract so that it mirrors the conditions of the site, the events that transpire and the parties’ conduct.
  9. 9. Change Orders/ Extra Work  Was the original scope of work changed?  Was the person who changed the scope of the work authorized to order changes?  Was a written change order required?  Was a written notice of a claim for additional compensation required?
  10. 10. Constructive Change  A “constructive change” occurs when the contractor is required to perform work different from that prescribed by the original contract, which should have been covered by a change order.  A contractor becomes entitled to additional compensation for a “constructive change” just as if the work had been performed pursuant to a formal change order.
  11. 11. Constructive Change  Site conditions different from what reasonably expected  Owner dictates different method of performance  Impossibility
  12. 12. Warranties  Warranties are generally defined in the construction industry as promises, assurances or guarantees of the quality, quantity or duration of a product or of certain work performed.  Express warranties  Implied warranties • of plans and specifications • of workmanship • of livability
  13. 13. PERFORMANCE/ BREACH ISSUES  2 types of performance: substantial and complete • The “substantial performance doctrine” entitles a contractor who has substantially (but not fully) performed the work required under a contract to be paid for the work performed, less the cost to fully perform. • This rule of “substantial compliance” is only applied when a builder has undesignedly violated the strict terms of this contract, and the owner has received and retained the benefit of the builder’s labor and material, and the builder is ready to remedy. The defects must be trivial and slight…
  14. 14. PERFORMANCE/ BREACH ISSUES • This issue arises most commonly at the end of the job where the cost of correcting an item on the punchlist is greatly in excess of the value the owner will receive for the correction.
  15. 15. PERFORMANCE/ BREACH ISSUES  2 types of breach: material and immaterial • A material breach of a construction contract occurs when either the owner or the contractor fails to perform (1) a substantial part of the contract documents, (2) one or more of the essential terms or conditions of such, or (3) the breach substantially defeats the purpose of the contract. For example, if the owner’s failure to pay the contractor on time involves only a reasonable delay or involves a disputed amount, it will be deemed an immaterial breach.
  16. 16. PERFORMANCE/ BREACH ISSUES • In administering a construction contract, the distinction between a material and an immaterial breach of contract can be quite important. For example, courts generally require a material breach to justify suspension or termination of the contract by the non-breaching party. Not only must the party seeking to terminate a construction contract show that the other party materially breached the contract but also the terminating party must not (a) have breached the contract him or herself, or (b) waived the other party’s material breach.
  17. 17. DELAY/ DISRUPTION/ ACCELERATION  In general terms, a party to a contract who delays, hinders or wrongfully prevents performance by the other party is liable to the other party for the costs incurred as the result of a delay.  An excusable delay is a delay for which neither party (contractor or owner) is responsible. Excusable delays are generally (1) unforeseeable (2) involve outside forces over which neither the owner or the contractor have any control and (3) not due to the contractor’s fault of negligence, e.g. unusually severe weather.
  18. 18. DELAY/ DISRUPTION/ ACCELERATION  “Acceleration” or “escalation” is generally the result of a previous delay. Under certain circumstances a contractor is entitled to recover the additional costs associated with acceleration.
  19. 19. ACCEPTANCE  It is a well-recognized rule of contract law that strict performance may be waived by the party entitled to performance. In the context of construction contracts, this means that the owner may acquiesce in the contractor’s failure to perform according to the strict terms of the agreement if the owner accepts the contractor’s work.
  20. 20. CONTRACTS IMPLIED IN LAW  Quantum meruit /unjust enrichment
  21. 21. DAMAGES  When a person seeks to recover damages for breach of a contract, the applicable rule of law is that the non- breaching party should be put in the same position he or she would have been had the contract been performed according to its terms and conditions. As in non- construction cases, a contractor has the burden of proving that he or she has been injured and is entitled to damages as a result of the breaching party’s actions or inactions in violation of the construction contract. If the contractor has fully completed his work, he or she is entitled to recover the contract price. On the other hand, if the contractor has only “substantially completed” the work, he or she will be entitled to recover the contract price, less the amount of damages sustained by the other contracting party as a result of the contractor’s failure to fully perform.
  22. 22. DAMAGES  If the owner’s breach occurred prior to the contractor’s completion of the work and prevented the contractor from completing the work, the contractor will be entitled to recover from the owner that portion of the contract balance earned by the contractor plus the contractor’s lost or anticipated profits. Lost of anticipated profits are calculated by subtracting from the contract price the contractor’s costs of completion. The contractor must prove the lost profits by reasonable, factual evidence showing that lost profits were “anticipated” by the contractor both at the time of contracting and at the time the contractor was prevented from continuing performance. Otherwise, lost profits will not be recoverable.
  23. 23. DAMAGES  Where there is an implied rather than an express contract, the contractor’s recovery of damages against an owner is based on quantum meruit, i.e., the reasonable value of the services rendered. The measure of these damages is usually determined by such things as the type of work performed and the prevailing rate of pay for such work at the time and in the place performed.  Liquidated damages  Exemplary damages
  24. 24. EXPERTS IN CONSTRUCTION CASES  Details regarding quality of performance, reasons for delay, damages, etc. may be complicated and technical  Expert may be needed
  25. 25. Federal Rule Of Evidence 701  OPINION TESTIMONY BY LAY WITNESSES - If the witness is not testifying as an expert, the witness’ testimony in the form of opinions or inferences is limited to those opinions or inferences which are: • rationally based on the perception of the witness, • helpful to a clear understanding of the witness’ testimony or the determination of a fact in issue, and • not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.
  26. 26. FEDERAL RULE OF EVIDENCE 702  TESTIMONY BY EXPERTS – If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if: • the testimony is based upon sufficient facts or date, • the testimony is the product of reliable principles and methods, and • the witness has applied the principles and methods reliably to the facts of the case.
  27. 27. FEDERAL RULE OF EVIDENCE 703  BASES OF OPINION TESTIMONY BY EXPERTS – The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing.  If of a type reasonable relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence in order for the opinion or inference to be admitted.  Facts or data that are otherwise admissible shall not be disclosed to the jury by the proponent of the opinion or inference unless the court determines that their probative value in assisting the jury to evaluate the expert’s opinion substantially outweigh their prejudicial effect.
  28. 28. Stephen J. Peklenk Corporate Construction Services
  29. 29. The Effective Use of Experts in Construction Cases
  30. 30. For More Information…  NCBA North Carolina Construction Law Deskbook  Justin Sweet, Sweet on Construction Law  Smith, Currie & Hancock’s Common Sense Construction Law
  31. 31. Elliot Fus Kilpatrick Stockton LLP