P. Wesley Lambert | Brouse McDowell | August 25, 2016
[Note: This article is based upon talking points from a Webinar presentation given by P. Wesley Lambert on June 30, 2016. If you are interested in viewing the Webinar, please click the following link:https://drive.google.com/open?id=0ByL50atTp8rOZ05qc2xwaTMtajQ]
Construction projects, and by extension, construction disputes can be high stakes endeavors. At every step of the way, you have an opportunity to protect yourself, advance your case, or gain leverage over the other side. This is the case not only in litigation, but if you are in a dispute situation outside of court, or even if you are trying to negotiate a resolution to something in a situation that is not otherwise contentious.
If some basic concepts and rules are not attended to at the appropriate step along the way, your ability to win your dispute or negotiation can be compromised. The implications of not paying attention to these concepts and issues include:
• Exposure to additional damages or penalties
• Court-imposed sanctions
• The inability of your expert to testify
• Paying the other side’s attorney fees
• Losing your right to file a lien on the project
• Losing your right to file a bond claim
Below we discuss ten ways project owners and contractors can increase their odds of winning their dispute or negotiation.
1. USE A WELL-WRITTEN AND COMPREHENSIVE CONTRACT.
No matter what your role in the project is, a well-written and comprehensive agreement is essential. Your contract should address things such as scope of work, how changes to the project will be accomplished, notification provisions, and payment terms.
Identifying these things the right way on the front end can give you an advantage if a dispute arises, because the first place the parties, or the court, will look to resolve the issue is the written contract. If the written contract is drafted in your favor, or you are simply seeking to enforce terms you have complied with, you have the upper hand.
2. ESTABLISH A DOCUMENT RETENTION POLICY.
Frankly, this rule applies to all forms of litigation, not just the construction litigation context. The preservation of electronically stored information, or ESI, is more important than ever. Litigants of all sizes and revenue streams are expected to have the ability to preserve, collect and produce ESI. Some of the rules governing litigants are starting to reflect this. For example, Cuyahoga Local Rule 21.3 requires parties to meet and confer regarding the preservation and production of ESI soon after a case is filed. Similarly, recent amendments to Federal Civil Rule 37 implement a “good faith” element to preservation. If you retain documents in good faith, you may save yourself from harsher sanctions if a document goes missing and cannot be produced.
3. TRAIN YOUR EMPLOYEES TO INTERACT CORRECTLY WITH OTHERS.
Keep in mind that your employees, particularly those in a managerial role, are generally considered your agents, and what they say can bind you in certain circumstances. You want to make sure that they are well prepared to represent you in a manner that is not going to harm you in the future, such as committing to changes or deadlines that you cannot meet.
Just as importantly, train your employees on who has authority to speak for the other side. Someone without authority to do so may agree to a change or an alteration of the contract in the field that will not be enforceable if there ends up being a dispute.
4. DOCUMENT CHANGES IN YOUR PROJECT THE RIGHT WAY.
Failing to correctly document changes to the project is one of the most basic mistakes that frequently is made in the field, and it becomes impossible to unwind these mistakes in litigation. These include changes to the project scope, changes to the project timeline, or changes in price or payment terms. In almost all instances, the contract will require these changes to be in writing, and to be approved by the appropriate person – such as the project architect or construction manager. If they are not, and unless an exception applies, you are performing extra work for free, or operating under a mistaken assumption as to what your contractual rights are.
Also, on this point, you want to make sure that when you execute a change to your contract, the change covers everything. In Rabin v. Anthony Allega Cement Contractor, Inc., Franklin App. Nos. 00AP-1200 & 00AP-1241, 2001-Ohio-4057, the Tenth District Court of Appeals held: “Where the parties to a construction contract agree to a change order which they intend to provide complete compensation for a given change in the project, the party being compensated by the change order will be contractually foreclosed from seeking additional compensation related to that same project change.” The takeaway is that written change requirements must be strictly adhered to.
5. CHECK FOR APPLICABLE INSURANCE TO COVER CLAIMS MADE AGAINST YOU.
Particularly in cases where construction defects are alleged, you must remember to notify your insurer in a timely manner to preserve your rights to coverage. You should look both at your own policies, and those on which you might qualify as an “additional insured,” including policies obtained by your subcontractors. It is also important to note that your insurer’s duty to defend you against a claim is much broader than its duty to ultimately indemnify you against any damages awarded against you. This means that if a claim made against you is arguably or potentially covered by an insurance policy, you are entitled to a defense provided by the insurer, even if the insurer may not be ultimately responsible to pay for any damages awarded.
6. IF EXPERT TESTIMONY IS NEEDED, YOU NEED TO MAKE SURE THE EXPERT IS IN THE CORRECT FIELD.
Failing to hire the right expert is a mistake that is frequently made and can result in your expert’s testimony being limited by the court or precluded altogether. If the conduct of an engineer is called into question, hire a credentialed engineer to assess that conduct. If an architect’s conduct is at issue, retain an expert that is a licensed architect. Sometimes people think that these professions are close enough that experts can cross over. While you might be able to get away with it, you don’t want to run the risk that your expert’s testimony will not be accepted by the court or will be disregarded by the jury.
7. PRESERVE BOTH THE DOCUMENTARY AND PHYSICAL EVIDENCE OF YOUR CLAIM.
If you are claiming that a differing site condition requires a change to some aspect of the project, such as the scope of work, you need to give the other side an opportunity to observe that condition and document it before that condition is disturbed. Similarly, if you are claiming that a contractor has performed defective work on a project, you need to be careful about how you document the defect and preserve the other side’s opportunity to observe that defective work before you undertake any repairs.
8. PAY ATTENTION TO APPLICABLE PROMPT PAY STATUTES.
Under Ohio law, if you are a general contractor or higher-tier subcontractor, you have 10 days from the receipt of your payment from the owner or general contractor in which to pay your subcontractors. There are very limited exceptions to this rule. Failure to comply can result in harsh penalties to you that you may not have anticipated when you got into your dispute, including an 18% interest penalty on top of what you already owe, payment of the other side’s attorneys’ fees, and payment of court costs. Importantly, you cannot require a subcontractor to waive its prompt-payment rights in your contract with them.
9. PAY ATTENTION TO TIME LIMITS TO PRESERVE YOUR BOND CLAIMS.
If you are seeking payment for amounts owed to you by another contractor on a project, you will want to see whether that contractor was required to obtain a bond as part of their contract. However, contractors frequently fail to consider whether there are time limitations within which they must assert a claim on a bond.
For example, on federal projects covered by the Miller Act, you must generally wait 90 days after you last provided labor or materials to the project to file suit. However, your suit must be filed within one year after you last provided labor and materials. This one-year limitations period will be strictly enforced. For state projects, there are frequently limitations imposed by “Little Miller Act” statutes.
10. COMPLY WITH TIME LIMITATIONS IN THE APPLICABLE MECHANICS’ LIEN STATUTES.
Under Ohio law, you are required to provide a Notice of Furnishing within 21 days after you first provide labor or materials to a project. If you wait longer, you may lose your lien rights to labor or materials provided prior to you serving the notice.
Similarly, on most commercial projects, to protect your lien rights, you must file your lien within 75 days after your work is completed. You ordinarily cannot extend this time period by doing things like ministerial repair work. Failing to preserve your lien rights can critically impair your ability to receive a favorable resolution to a payment dispute.
Not preparing for a dispute in advance will hurt your ability to win. It is important to preserve your arguments and leverage points so you can use them when the opportunity arises.