NH Construction Law
  • Home
  • Blog
  • Links

#15:  Differing Site Conditions

8/24/2014

0 Comments

 
Like darts thrown in the dark, dealing with site conditions you cannot see or predict is risky business.  Poking holes in walls or in the earth to try and figure out what might be lurking under the surface is all well and good, but doesn’t always yield perfect information.  Hazardous or unsuitable materials, ledge, groundwater, dead bodies, you name it – if encountered, these surprises need to be dealt with in order to complete the project, and somebody needs to absorb the cost of doing so.

If the parties’ contract doesn’t address the issue, the contractor will end up bearing this risk.  In many contracts, the risk is shared between owner and contractor through a “Differing Site Conditions” clause.  The phrase immediately raises the question, “Different than what?”  The answers “Different than represented” and “Different than expected” correspond to the two types of differing site conditions for which an adjustment of the contract price may be available.  For example, AIA Document A201-2007 General Conditions of the Contract for Construction contains the following language in § 3.7.4:

“If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both.”

Federal Acquisition Regulations, 48 C.F.R. 36.502 and 52.236-2, have similar language.  It’s easy to see why the owner would benefit from such a clause, even if it means potentially paying more.  Without that opportunity for an upward adjustment in price, contractors will pad their bids to protect against the unknown, and the owner will definitely pay more.  And with unlimited access to the site, the owner is in a superior position to do subsurface and other investigations than are bidders with limited opportunity to inspect a site.

Even when boring logs, soils reports and other information are provided to bidders, however, most contracts contain disclaimers about relying on their accuracy, and caution the contractor to rely on his own investigation.  Such disclaimers are in tension with Type 1 differing site conditions clauses, and won’t overcome them when it would be unfair to the contractor.  That was the case in Frederick Snare Corp. v. Maine-New Hampshire Interstate Bridge Authority, 41 F.Supp. 638 (D.N.H. 1941), where the Court awarded a contractor extra compensation for excavations considerably in excess of what was shown on the plans despite a clause in the bid documents stating “Certain borings have been made by the Owner and the data therefrom available to the Engineers is shown on the plans. . . The Owner does not guarantee such data and will not be liable for and will not pay any claim made by the Contractor because the sub-surface conditions found during construction do not correspond with conditions as indicated by the data shown. Should the Contractor consider such data insufficient he shall make such investigations as he considers necessary and shall base his bid upon his own opinion of the conditions.”  Id. at 646.  The Court relied on the fact that there wasn’t sufficient time for bidders to investigate conditions themselves:  “[N]o accurate soundings could be made to determine the subsurface conditions in the four days allotted.”  Id.

While each case is different, it is fair to say that “requirements for pre-bid inspection by the contractor have been interpreted cautiously regarding conditions that are hard to identify accurately before work begins, so that ‘the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions or those beyond the limits of an inspection appropriate to the time available.’”  Metcalf Construction Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).


0 Comments

#14:  Lien Waiver Pitfalls

8/13/2014

0 Comments

 
To avoid the risk of mechanic’s liens, a project owner naturally wants to ensure that everyone involved in the project is paid out of each progress payment check he writes to the GC.  A contract requiring the GC to pay subs and suppliers out of that check is nice, but as we all know, contracts aren’t always honored.  For that reason, it is common for an owner to condition both interim and final payment to the GC on submission of lien waivers, not only from the GC itself but from virtually everyone down the line who furnished any labor or materials being paid for by the owner’s check.  Construction lenders want this as well, and typically require such waivers as a condition of any loan disbursement.

Lien waivers, whether interim or final, limit the signer’s right to assert a mechanic’s lien.  Over the years I’ve seen many different forms used to accomplish this (and sometimes to accomplish more than this – read on!), but they all fall into one of two formats: those conditioned on receipt of payment (“soft” lien waivers) and those acknowledging receipt of payment (“hard” lien waivers).  From the owner’s and lender’s perspective, “soft” lien waivers give no certainty that payment will flow downstream and liens will be avoided – the very thing that motivated the request for lien waivers in the first place!  For this reason many owners and lenders view “soft” lien waivers as close to useless, and insist on the unconditional “hard” lien waivers.  But subs and suppliers don’t like them.  Because the owner doesn’t write his own check until all the lien waivers are in hand, “hard” lien waivers are typically outright lies; unless the GC is fronting its own money (which rarely happens) there is no swapping of a signature for an immediate check.  The sub swears otherwise because that’s the only way he will get paid, and he is obliged to take the risk that the promised payment will not follow and yet his lien rights will be lost. 

How much of a risk is it?  If the signer of a “hard” lien waiver doesn’t get paid, he may well be held to the literal terms of the waiver despite nonpayment, and be unable to lien the project.  But if owner or lender is not disbursing in reliance on the truth of the waiver, and indeed knows it to be false, enforcement of the waiver may be difficult. (Chicago Bridge & Iron Co. v. Reliance Ins. Co., 46 Ill.2d 522, 264 N.E.2d 134 (1970), is worth a read on this subject.)

There are ways to strike a fair balance between both sides’ interests.  Some contracts require the GC to furnish its own “hard” lien waiver through the date of a current payment, but to furnish subcontractor and supplier “hard” lien waivers only through the date of the immediately prior progress payment.  This eliminates the need for the lie inherent in many “hard” lien waivers from subs and suppliers, without putting them at risk.

What the signer should never presume, however, is that a document titled “lien waiver” does no more than give up lien rights.  For example, interim lien waivers may specify either the date through which the furnishing of labor and materials will not give rise to a lien (generally the end date for the current requisition for payment), or the dollar amount of the labor and materials furnished that will not give rise to a lien, or both.  If retainage is being withheld, specifying the dollar amount is particularly important, since simply waiving lien rights through a given date could end up waiving the right to lien for the retainage that will eventually fall due on that work.

Lien waivers bear careful reading, since so many forms now in vogue go well beyond the mere waiver of lien rights – such as giving up any claim for payment, swearing that downstream sub-subs and suppliers have been paid, promising indemnity, and the like.  Spending five minutes thinking about what the language really means before picking up a pen will repay the time invested.


0 Comments

#13:  Contractor Delay Claims: An Uphill Battle

8/3/2014

0 Comments

 
The old saying “Time is money” has no more obvious application than in construction.  The sooner a contractor finishes a project (consistent with quality construction, of course), the less the cost of construction and the quicker he can focus on other projects.  The sooner an owner has a completed project, the quicker it is open for business (if a commercial project) or useable for living (if residential).  Both sides want to get the job done quickly.  And when either side delays the other beyond an agreed completion date, there can be financial consequences.

From the owner’s side, an unexcused contractor delay – generally, anything not occasioned by an owner-imposed change, a supply shortage, or unusually severe and unexpected weather – is most often handled with a “liquidated damages” clause in the contract, providing for a fixed amount to be paid by the contractor per day of delay.  From the contractor’s side, dealing with an owner-caused delay is rarely so simple.  If the delay results from a change requested by the owner, the compensation for the contractor’s extra time on the job will be built into the change order price.  But what if the owner delays the job due to financing woes, or difficulties in dealing with permitting, or simply slow decision-making?  An extension of time to complete is nice, but puts no money in the contractor’s pocket.  Cost escalations, idled labor and/or equipment, extended field office overhead, unabsorbed home office overhead, even additional materials storage costs can rear their ugly heads if the delay is lengthy.  Unless the parties’ contract specifies that an extension of time is the contractor’s sole remedy for owner-caused delays, a fight may be looming.

It is not an easy fight to win.  The contractor’s right to compensation for delays depends in the first instance on whether “time is of the essence” of the parties’ contract.  Otherwise a stated completion date will be deemed by the courts as a guideline rather than a deadline, and a delay of reasonable duration will be forgiven.  Normally, time is not of the essence unless it is expressly stated to be.  Guy v. Hanley, 111 N.H. 75, 75 (1971) (“The general rule is that unless specifically so stated, time is not to be considered as of the essence” and “[t]he mere fact that a date is stated in the instrument is not sufficient alone to alter this rule.”).

Even if time is of the essence, the owner’s promised performance must be identified before a breach of that performance will be found.  A contract which speaks in terms of completion of the contractor’s performance but mentions nothing about the owner’s duties (other than payment) presents a harder case for compensation than one which specifies and sets deadlines for the owner’s performance of particular items (getting permits, removing obstacles, turnaround time for making decisions, etc.).  Nevertheless, contracting parties have an implied obligation not to hinder each other’s performance.  That is sometimes enough to justify a finding of breach by an owner.

Assuming that an owner breach is present, delay damages are recoverable only if the breach actually causes the delay.  When there has been a concurrent delay -- if the contractor’s completion would have been delayed anyway due to causes not attributable to the owner -- that portion of the delay will not be compensable.  Moreover, “a party seeking damages occasioned by the fault of another must take all reasonable steps to lessen his or her resultant loss,” Grenier v. Barclay Square Commercial Condo. Owners' Assoc., 150 N.H. 111, 119 (2003).  To mitigate his damages, the contractor must find other available work to occupy his work force and absorb part of his overhead once he knows that a delay will befall him. 

Lastly, if the contractor clears all of the foregoing hurdles, he has one remaining: proof of the amount of damages with reasonable certainty.  I’ll talk more about the difficulties of proving delay damages in a future blog (particularly about the so-called Eichleay formula for proving unabsorbed overhead), but for present purposes, suffice it to say that a contractor who is delayed by an owner has a tough road to hoe in collecting compensation.


0 Comments

    Author

    Frank Spinella

    Archives

    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    January 2019
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014

    Categories

    All

    RSS Feed

Powered by Create your own unique website with customizable templates.