Hi folks!  As the kids would say, “it’s been a minute.”  But I’m back on the blogging beat and eager to share new construction law content with you in the weeks and months ahead.

While perusing the Fall 2018 newsletter issued by the North Carolina Licensing Board for General Contractors during my lunch break this afternoon, I was reminded of certain regulatory changes approved by the N.C. Rules Commission that affect North Carolina general contractors.  Ten rule changes were put into effect on April 1 (no joke!), and two additional changes took effect on September 1.  Check out the third page of the newsletter I’ve linked for a quick summary.

The changes, among other things, establish 70 as a passing grade for the licensing exam, require that a licensee be in good standing with the Secretary of State’s office before a license is renewed, and limit the number of entities for which a person may serve as qualifier to two.  There are two additional changes that I’d like to highlight here:

First, the rules now clarify that if a joint venture doesn’t hold a general contracting license of its own, each member of the JV must be properly licensed to practice general contracting.  Since the consequences of performing construction work in North Carolina without a license can be severe, contractors bidding and contracting for work in a joint venture setting are encouraged to comply strictly with this regulation.

Second, the rules now provide that all general contractors must include their license numbers “on all contracts, advertisements, and licensee websites.”  Construed broadly, this regulation arguably requires GCs to display their license numbers everywhere–proposal, bids, PowerPoint presentations, prime contracts, subcontracts, purchase agreements, bonds, websites, social media pages, email signature blocks, brochures and other marketing collateral, letterhead, project signage, equipment, vehicles, business cards–you name it.  To minimize the risk of disciplinary action against your general contracting license, you would be well served to begin displaying your license number ubiquitously, and immediately.

Last week, I blogged about the Southeast Caissons, LLC v. Choate Construction Company case, in which the North Carolina Court of Appeals held that a general contractor could not enforce a forum selection clause in a subcontract that was never signed.

And now, the rest of the story (with apologies to Paul Harvey).

Even if the subcontract HAD been signed, the forum selection clause would not have accomplished the general contractor’s goal of having all disputes resolved in the Wake County Superior Court.  You might find that ruling surprising after reading the following excerpt from the decision:

The subcontract also contained a clause in Article X, Section 3(b) entitled “Additional Dispute Resolution Provisions.”  This clause stated: “Venue for any arbitration, settlement meetings or any subsequent litigation whatsoever shall be in the city of Contractor’s office as shown on page 1 of the Subcontract.”  [The GC’s] office was shown on page 1 of the subcontract as being located in Raleigh, Wake County, North Carolina.

Huh?  A clause stating that disputes “shall” be resolved in a particular location is not sufficient to require dispute resolution in that locale?

That’s right, folks!  In order for one party to secure home field advantage in construction dispute resolution, North Carolina’s appellate courts consistently require that the applicable forum selection clause contain words like “exclusive,” “sole” or “only” to indicate that both parties intended to make jurisdiction exclusive in a certain place.   That means the GC in Southeast Caissons could only require its sub to litigate in Wake County if the forum selection clause had read something like this: “The parties agree that Wake County, North Carolina shall be the sole and exclusive venue for the resolution of any and all disputes arising out of or related in any way to this Subcontract.”  (And, of course, if the GC had secured its sub’s John Hancock on the subcontract’s signature page — per my previous blog post).

Bottom line?  If you use a form subcontract that includes a forum selection clause, you might want to review it and make sure it includes magic words like “exclusive,” “sole” or “only” in describing where venue is proper.  Better still, have your construction attorney review your forum selection clause and evaluate whether it’s likely to be enforced as you intend it to be.

In order for an agreement to constitute a valid contract that courts or arbitrators will enforce, both parties to the agreement must mutually assent to all of the terms of the deal.  The fancy Latin term for this mutuality requirement is “aggregatio mentium;” we Americans call it a “meeting of the minds.”  And as between general contractors and subcontractors in the construction industry, the signatures of the parties typically signify their mutual intent to be bound.

But what if the subcontract isn’t signed, and the parties proceed with performance of the underlying scope anyway?

That’s the conundrum the North Carolina Court of Appeals (“COA”) confronted in its April 19, 2016 decision in Southeast Caissons, LLC v. Choate Construction Company.

The general contractor and caisson subcontractor in that case went back and forth repeatedly on various drafts of a written subcontract.  The sub’s scope was commenced — and completed about three months later — without a final deal being reached on all terms.

When the subcontractor wasn’t paid, it sued for breach of contract (among other claims) in the Forsyth County Superior Court.  The unsigned subcontract called for dispute resolution in Wake County, prompting the general contractor to move for dismissal of the sub’s suit or, in the alternative, a change in venue.  The trial court determined that the subcontractor was not bound by the unsigned subcontract, and that venue was proper in Forsyth County.  The GC appealed.

In affirming the trial court’s Order, the COA relied on the rule that the absence of a signed, written instrument is evidence of the parties’ intentions not to be bound by the proposed contract.  On  the rights set of facts, that evidence could be outweighed by other evidence demonstrating that both parties accepted and acted upon the unsigned terms.  That wasn’t the case in Southeast Caissons, however — to the contrary, the COA concluded that virtually all of the evidence suggested that the parties never achieved a “meeting of the minds” on all of the subcontract’s terms.

Does that mean no deal existed between the GC and the sub?  Not necessarily.  The COA remanded the case back to the trial court for a determination of whether a contract “implied-in-fact” existed between the parties by virtue of their actions.  Even in the absence of a contract implied-in-fact, the subcontractor might still prevail on its payment claim under an equitable quantum meruit (i.e., unjust enrichment) claim for relief.

The takeaway?  Southeast Caissons makes it clear that general contractors seeking to utilize their standard subcontract forms should insist upon a signed agreement before permitting work to begin.  Allowing your subcontractor to proceed with its scope without first obtaining its “John Hancock” risks losing the benefits of those favorable subcontract terms your construction attorney spent so long drafting for you.

Wednesday’s Powerball drawing promises the winner a $1.3 $1.5 billion (yes, that’s “billion” with a “b”) jackpot.  Unfortunately, your odds of picking the winning numbers are about 1 in 292 million, or roughly the same odds as an architect acknowledging a deficiency in construction plans & specifications (I kid!).  Buying a few extra tickets might “improve” your chances, but they’ll remain infinitesimally small.

Fortunately, there are some steps you can take to improve the odds your commercial general contracting business will have a jackpot year in 2016.  These five tips spring to mind:

1.  Know who you’re doing business with.  One bad project can spoil the gains from ten successful ones.  Do your homework on the owners who want you to build their projects.  Avoid owners who insist on oppressive contract terms, have a history of problem jobs, and/or just don’t seem to know what they’re doing.  Sometimes the best contracts are the ones you don’t sign.
2. Buy out subcontracts thoughtfully.  Just as you need to be careful picking & choosing the jobs you bid, you should be equally careful about selecting your downstream dance partners.  First-tier subcontractors offering you a price advantage might not necessarily be reliable team players down-the-road.  Balance price with dependability. 
   
3. Cultivate a culture of jobsite safety.  Having a track record for operating safe jobsites makes your company more attractive to the best owners, keeps your workers’ compensation mod rate in-check, and decreases the chances you’ll be spending time & money this year defending against claims.  Safety first, every day.
4.  Secure your payment rights.  In North Carolina, that means filing a Notice to Lien Agent as your work begins, informing suppliers of the identity of the lien agent, guarding against double payment liability through the Notice of Contract procedure, and enforcing your lien rights timely, when necessary.  If you’re unaware of how any of these tools work, call your construction attorney immediately.  Speaking of construction lawyers…
5. Rely on your lawyer for more than just dispute resolution.  Construction attorneys do more than resolve claims.  We draft & review contracts (as well as construction forms) and provide counseling throughout the construction phase of a project and beyond.  Make an experienced construction attorney your partner in profitability all year long.

Good luck, both with Wednesday’s drawing and with the year ahead.  As always, comments welcome!

It’s an honor to be nominated for two prestigious construction industry blog awards this winter, and I humbly ask for your vote in each competition.

For the third year in a row, N.C. Construction Law, Policy & News has been nominated for Construction Marketing Ideas’ annual Best Construction Blog competition.  You can find the ballot here.  Once you open the ballot, you can vote for my blog in four easy steps: (1) scroll down and check the square radio button to the left of N.C. Construction Law, Policy & News; (2) click “Next Page: Comments/ verification;” (3) enter your first name, last name and email address; and (4) click Submit.  See?  Easy as 1-2-3 (and 4).  Voting closes on March 31, 2015.

And for the first time, the blog has been nominated for the 6th Annual JDR Industry Blogger Awards in the Construction Business category.  You can find the ballot here.  Once you open the ballot, scroll down to the “Construction Business” nominations; you’ll see my blog at the bottom of the list.  Click the round radio button to the left of N.C. Construction Law, Policy & News and then hit “Submit.”  Total breeze.  Voting closes on April 10, 2015.

The blogs nominated in both competitions are tremendous resources for AEC professionals in North Carolina, the United States and globally.  As pleased as I would be to earn your vote, it would thrill me even more to know that my readers are spending time in the blogosphere soaking up all of the rich construction risk management content my fellow bloggers have to offer.

So when you’re done voting, peruse the two lists of nominees and visit those blogs of interest to you.  You’re sure to be entertained and learn something helpful to your bottom line.

As always, thanks for your support of N.C. Construction Law, Policy & News.

Oh yeah, about the title of this post: my apologies to Rod Stewart.  And also to you, dear readers, for implanting that earworm into your noggins.  Might listening to the entire track, courtesy of YouTube’s Rhino channel, help?

It would be an honor to have your vote, Mr. Stewart.

Image by skeeze via pixabay.com

This is the third of a three-part series exploring the Texas Supreme Court’s decision in Zachry Construction Corp. v. Port of Houston Authority of Harris County.  A summary of the case can be found at Part 1 of the series.  Part 2 addressed the “no-damages-for-delay” aspects of the case and commented upon the current state of North Carolina jurisprudence on the enforcement of such contract clauses.  This post explores the decision’s holding with respect to lien waivers and highlights some key issues contractors should bear in mind before executing these often-overlooked instruments.  

What Zachry Says About Lien Waivers

By way of reminder, here’s the pertinent lien waiver language that gave rise to the dispute over whether Zachry waived its right to claim $2.36 million in liquidated damages (“LDs”) that had been withheld by the Port Authority:

[Zachry] hereby acknowledges and certifies that [the Port Authority] has made partial payment to [Zachry] on all sums owing on Payment Estimate Number [–––] and that it has no further claims against [the Port Authority] for the portion of the Work completed and listed on the Schedule of Costs in Payment Estimate Number [–––].

The Port Authority argued this language constituted a waiver of all claims for payment; Zachry argued it only applied to lien claims.  The trial court saw it Zachry’s way, and the Texas Court of Appeals reversed.

The Texas Supreme Court thought the jury got it right.

Looking to the express language of the lien waiver, the Court ruled that it “plainly refers only to claims for work completed, not for liquidated damages withheld for delays — work not completed.”  (Emphasis in decision).  The Court also noted that Zachry “actively disputed the Port’s right to withheld liquidated damages from the first time the Port did so, and that dispute was never resolved.”  Based on these considerations, the Texas Supreme Court ruled, as a matter of law, that the lien waiver language extended neither to Zachry’s claim for release of LDs nor to its claim for delay damages.

The Danger of Lien Waivers

To be honest, I found the Texas Supreme Court’s lien waiver analysis to be a little thin, and perhaps even outcome-determinative.  Why do I say that?  Three reasons.  One, the court doesn’t cite to any prior lien waiver case — from Texas or anywhere else — in reaching its decision.  Two, the Port Authority, by trampling on Zachry’s means and methods, was the “bad actor” in the case.  And three, Zachry complained about the withholding of liquidated damages from the start.  On the whole, then, I suspect the court, as a matter of “rough justice,” determined that it would have been unfair to withhold millions of dollars from Zachry’s contract balance simply because it signed an arguably overbroad lien waiver in order to keep the cash flowing.

Frankly, I find the express language of the lien waiver problematic for Zachry’s position.  Let’s remember that the Texas Court of Appeals did, too, and that Zachry only prevailed because the Texas Supreme Court stepped in and bailed it out.  The roller-coaster ride ended well, but I imagine Zachry got nauseous on the journey.

My point is this: it’s nigh impossible to predict how judges and juries might resolve thorny questions about what a lien waiver really means.  One court might see it one way, while another court might reach the opposite conclusion.  Bottom line, the difficulty our civil justice system is having interpreting lien waivers with any consistency heightens the risk for contractors in managing the monthly payment cycle.

I’ve said it before and I’ll say it again: lien waivers are among the most overlooked of construction project documents, and that’s a real problem.  If not executed in a mindful manner, they can expose contractors to significant risks, including inadvertent waiver of lien rights, waiver of contract time & price adjustments, and even allegations of fraud.  Contractors who think executing lien waivers is nothing more than a routine clerical task performed just before receiving a periodic payment are making a big mistake.

Being Mindful About Lien Waivers

Execution of lien waivers is typically a contract requirement, and the party imposing that requirement typically seeks maximum protection from the lien waiver.  Whether you’re a prime contractor signing the owner’s form lien waiver or a subcontractor signing a prime contractor’s form, vigilance is key.  Here are three things I recommend you look for and consider before signing your next lien waiver:

(1)  Is the Lien Waiver Conditional or Unconditional?

An unconditional lien waiver releases lien rights without imposing any conditions, such as actual receipt of the subject payment.  Signing an unconditional lien waiver before you actually receive the payment that is the subject of the waiver could expose you to the argument that you’ve waived your lien rights to the extent of that payment.  If the party above you in the contractual chain wants you to sign an unconditional lien waiver before this month’s check is in-hand, consider responding that you’ll execute a conditional lien waiver for the payment currently due, and an unconditional follow-up release next month, after payment has been made.

(2)  Does the Lien Waiver Carve Out Exceptions?

Retainage is almost certainly being withheld from your monthly payments.  Change orders might be pending.  And, like Zachry, you might have a claim for excusable or compensable delay caused by one or more parties above you in the contractual chain.  Make sure you’re excepting these items from the scope of the lien waiver.  If the lien waiver form you’re being asked to sign doesn’t provide space to carve out these exceptions, then drop an asterisk and list them at the bottom of the form.

(3)  Am I Telling the Truth?

Many lien waiver forms require you to represent that you have satisfied all debts owed to those immediately beneath you in the contractual chain.  Have you?  If the answer is “no,” you could face some unsavory consequences: (1) you may have committed a criminal misdemeanor punishable by jail time, fine and/or an action on your license (see, e.g. N.C. Gen. Stat. § 44A-24); (2) you could be accused of fraud, which in turn could give rise to a claim for an unfair and deceptive trade practice (and exposure to multiple damages and the other side’s attorney fees); and (3) you might be called upon to indemnify the party above you in the contractual chain if a lien and/or bond claim is filed by a party beneath you in the chain.

* * *

I strongly suggest that you work with the party above you in the contractual chain during the contract negotiation stage to craft a lien waiver form that is fair to both parties.  Each of the three key issues I’ve identified above can be addressed at this time, so that month-to-month, the payment process can run more smoothly and your rights & remedies can be best protected.  An experienced construction lawyer can help guide the way.

As I noted last November, there’s a growing concern among construction industry stakeholders and others that arbitration too often fails to serve its intended purpose as a speedy, less costly and more streamlined alternative to civil litigation.  This rising chorus has complained that pre-hearing discovery is too extensive and drawn out, the hearings themselves take too long, and at the end of the day, no meaningful cost savings are actually achieved.

The American Arbitration Association (“AAA”) is taking those concerns seriously.

Last June, it rolled out its shiny new Supplementary Rules for Fixed Time and Cost Construction Arbitration, intended “to provide an arbitration process that will be predictable in terms of total time and cost,” particularly for cases “with discrete issues that would benefit from limited document exchange and discovery.”

Here are five key features of the new rules:

1.  They only apply to two-party disputes, although this limitation does not extend to a surety represented by the same counsel as its principal and which is not asserting any independent claims against the principal in the arbitration.

2.  Demands for arbitration are limited to five (5) pages.  So, too, are answers to such demands — even if the answer contains a counterclaim.

3.  The AAA must schedule an administrative conference to discuss arbitrator selection and explore expediting the proceeding within three (3) days of the arbitration demand.  Fourteen (14) days later, the parties must meet and confer to finalize arbitrator selection, schedule the hearings, identify the total number of hearing days and agree upon the scope of pre-hearing discovery activities.  Should the parties fail to identify three (3) mutually agreeable arbitrator candidates, the AAA will appoint one within five (5) days of the “meet and confer” conference.  If the parties can’t agree on the logistics of the proceeding, the arbitrator will hold an administrative call to resolve the issues within seven (7) days of his/her appointment.

4.  The filing fees, duration of the proceeding, number of hearing days and rate of arbitrator compensation are all spelled out — and, more importantly, capped — in “Schedule 1” of the Supplementary Rules, which I have reproduced for educational purposes below (click the image to see a larger version):

5.  The arbitration award must be made within twenty (20) days from the close of the hearings.

Construction industry stakeholders can incorporate the new rules into their existing contract ADR provisions, but that’s not the sole method for utilizing them.  Even after a dispute arises, parties can submit their claims and defenses to the AAA for administration under the Supplementary Rules.  It’s an option I’ll be thinking about and exploring with my clients whenever limited-issue, two-party disputes come knocking on my door.

A tip of the cap to old friend and Boston construction attorney Chuck Cobb, whose recent tweet on the new rules provided the inspiration for this post:

Thanks, Chuck.  Good luck shoveling.

What Zachry Says About No-Damages-for-Delay Clauses

The Texas Supreme Court began its analysis by noting that as a general rule, a contractor can assume the risk of, and not seek damages for, construction delays by agreeing to a no-damages-for-delay clause (“NDFD clause”) in a construction contract.  The court, however, then went on to note five “generally recognized exceptions” to the enforcement of such clauses:

1. When the delay is not intended or contemplated by the parties to be within the purview of the NDFD clause;
2. When the delay results from fraud, misrepresentation, or other bad faith on the party seeking the benefit of the NDFD clause;
3. When the delay has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract;
4. When the delay is not within the specifically enumerated delays to which the clause applies; and
5. When the delay is based upon the active interference or other wrongful conduct of the party seeking the benefit of the NDFD clause, including arbitrary and capricious acts in willful disregard of the rights of other parties.

The jury in Zachry had found that the “bad faith” and “active interference” exceptions (i.e., the Port Authority’s interference with Zachry’s means and methods for performing changed work after initially accepting Zachry’s proposal and work plan) applied and awarded Zachry delay damages, despite the NDFD clause in its contract with the Port Authority.  The Texas Court of Appeals reversed, “[a]s harsh as this result seems,” because it believed the parties intended to include the kind of misconduct found by the jury within the ambit of the NDFD clause.

By reversing the Court of Appeals and reinstating the jury’s verdict in favor of Zachry, the Texas Supreme Court adopted the rule that pre-breach waivers of future liability for intentionally damaging the other contracting party violate both the law and principles of public policy.  As a result, the Court refused to enforce the NDFD clause.

The State of “No-Damages-for-Delay” in North Carolina

The Texas Supreme Court noted that at least 28 other American jurisdictions have determined that NDFD clauses cannot shield one party from deliberately and wrongfully interfering with another party’s work.  Unfortunately, North Carolina is not among those 28 jurisdictions.  Indeed, a review of the case law reveals that North Carolina appellate courts have yet to consider the “bad faith” and “active interference” exceptions to NDFD clause enforcement at all.  Here’s what we do know about the state of NDFD clause enforcement in North Carolina:

• In APAC-Carolina, Inc. v. Greensboro-Highpoint Airport Authority, 110 N.C. App. 664, 431 S.E.2d 508 (1993), the North Carolina Court of Appeals (“COA”) considered the “not within the contemplation of the parties” exception to NDFD clause enforcement, holding that because the prime contract called for unclassified excavation and since wet weather was predictable, the undercut and erosion control work performed by the contractor was within the contemplation of the parties.  The COA therefore rejected the exception and enforced the NDFD clause.  The North Carolina General Assembly, however, responded to the decision by enacting N.C. Gen. Stat. § 143-134.3, which bars enforcement of NDFD clauses in contracts between public owners and prime contractors.  Note, however, that the statute’s protection extends neither to prime contracts for private projects nor to subcontracts for private or public projects.

• In Watson Electrical Construction Co. v. City of Winston Salem, 109 N.C. App. 194, 426 S.E.2d 420 (1993), the COA avoided consideration of either the “not within the contemplation of the parties” or the “active interference” exceptions to NDFD clause enforcement by finding that the contractor was not seeking to apply an exception, but rather pursuing damages for the owner’s failure to approve a time extension required by the contract.  The COA concluded the contract was ambiguous as to what damages the contractor could recover as a result of the owner’s failure to approve the time extension, and remanded the case to the trial level for findings of fact on the issue.

• In Southern Seeding Service, Inc. v. W.C. English, Inc., 217 N.C. App. 300, 719 S.E.2d 211 (2011), the COA held that an equitable adjustment clause “trumped” the subcontract’s NDFD clause, so that the subcontractor in question could recover its increased material and labor costs arising from unforeseen circumstances.  I blogged about the Southern Seeding decision when it was issued, and you can find my analysis here.

It could be argued that both the Watson and Southern Seeding cases stand for the proposition that the North Carolina appellate courts do not favor NDFD clauses and might be open to applying all of the five “generally recognized exceptions” to NDFD clause enforcement, including the “bad faith” and “active interference” exceptions.  The absence of much case law authority on the subject, however, makes it difficult to predict how the COA might handle Zachry-type issues.

The Upshot for Contractors Building in the Tarheel State

So where does that leave construction contractors and subcontractors (and the lawyers who represent them)?  In a state of limbo, that’s where.  Until our appellate courts wrestle with the same issues the Texas courts addressed in Zachry, it’s not possible to predict with much accuracy the extent to which they might apply the “bad faith” and “active interference” exceptions to enforcement of NDFD clauses.  That, in turn, means a couple of things for you and your construction company:

• The safest course of action is to strike NDFD clauses during the contract drafting stage.  If the party above you in the contractual chain won’t consent to that change, consider proposing language that would include the five exceptions to NDFD clause enforcement within the NDFD provision.

• If you’re performing a contract containing an NDFD clause and are impacted by delays beyond your control, and for which one or more parties above you in the contractual chain might be responsible, document the facts and circumstances of the delay, as well as your damages, carefully.  Send notice letters, take pictures, keep impeccable logs and meeting minutes, segregate and track your delay costs, etc.  The better developed the factual record, the better the opportunity to successfully argue an exception to NDFD clause enforcement later on.

• Contact an experienced construction attorney to help you understand and manage the risk of NDFD clauses.

UPDATE 8:42 a.m. 1.15.2015.  My Twitter feed delivered this yesterday:

The linked article discusses a June 2014 decision of the Supreme Court of North Dakota refusing to enforce a no-damages-for-delay clause based on the active interference exception.  As in Zachry, the active interference in question was the owner’s meddling in the contractor’s means and methods.  Texas and North Dakota appear to be the 29th and 30th jurisdictions, respectively, to acknowledge the active interference exception to no-damages-for-delay enforceability.

That’s because a number of my fellow AEC twerps had risk management, including successful project management, on the brain this week, and I’d like to use the Friday Forum to share some of their unique insights.

So without further ado, let’s get things started…

…with this greeting from XL Insurance Group (@XL_Insurance):

I encourage you to give the blog post linked in the tweet a read.  It makes the case that effective risk management is all about making sound decisions — and, perhaps just as importantly, avoiding bad ones:

Why do people make poor decisions when it comes to risk?  Sometimes it’s because we have a tendency to be overly optimistic. We subconsciously minimize things that are unpleasant to confront.  “It’ll be OK,” “We’ll be good” and other rationalizations can fool us into thinking that if we say it enough, those thoughts will hold true.  At other times, people make poor decisions because we’re in a rush or elect not to analyze available data.  In between unbridled optimism and pure analytics is a healthy balance that can help us make better decisions.

The author goes on to argue that risk can only be managed when it’s properly understand, which makes thorough data gathering and analysis a vital precursor to effective action.

Moving on, fellow construction attorney and Duke ’94 alum Chris Hill (@constructionlaw) chirped these musings this week:

Chris’s tweet links to his March 15, 2010 blog post with valuable tips for running a construction project smoothly.  That post, in turn, links to a white paper authored jointly by the Associated General Contractors of America (@AGCofA), the American Subcontractors Association (@ASAUpdate) and the Associated Specialty Contractors entitled Guidelines for a Successful Construction Project.  If you’ve never seen this resource before, you should take a peek.  Its 80 pages are chock-full of advice on successful project execution, covering such topics as project relationships, effective project communications, best practices for change orders, proper scheduling, your rights and responsibilities in the payment cycle, and so much more.  Mandatory reading for project executives, managers and supers.

Next up is this tweet from a ConstructionChat (@ConstructChat), a U.K. organization that facilitates relationship-building between young professionals and construction organizations:

This tweet links to a PowerPoint presentation by PricewaterhouseCoopers (@PwC_LLP) entitled Project Risks and Controls — Slaying the Dragon.  It’s such a great introduction to thinking about and addressing project risks, I thought I’d make it easy for you to view it by posting it below:

Finally, there’s this bon mot from IRMI President & CEO (and self-professed “risk and insurance geek”) Jack Gibson (@UGAJack), who makes an elegantly simple (simply elegant?) risk management case:

What about you?  How do you intend to minimize risk and maximize profits in the year ahead?  Don’t be shy — share your wisdom by leaving a comment below.  That’s what the Friday Forum is for — and the microphone is all yours.

An unpublished decision from the North Carolina Court of Appeals yesterday demonstrates how important it is to not only read, but also to fully understand, legally binding documents before signing them.

In Pattison Outdoor Advertising, LP v. Elevator Channel, Inc., Defendant agreed to build and manage a network of digital advertising and other content for Plaintiff billboard company.  Under the parties’ Services Agreement, Plaintiff would provide all content for the network, while Defendant would install and manage the network and provide customer service.  The alternative dispute resolution (“ADR”) clause of the Services Agreement called for direct negotiations, then mediation, then arbitration in the event of a dispute.

The parties entered into Amendment 1 to the Services Agreement, by which Defendant agreed to deliver various intellectual property and software to Plaintiff in exchange for an advance payment of $154,500.  Plaintiff made the advance payment of $154,500.  However, for reasons not set forth in the decision, the parties subsequently decided to abandon the entire deal, executing a memorandum of understanding (“MOU”) which provided that the entire Services Agreement would be terminated and “both parties will be released of any and all responsibilities/obligations (financial, operational, or other),” with one exception:  Defendant would reimburse the advance payment of $154,500 to Plaintiff by a certain date, at which point Plaintiff would return to Defendant the intellectual property and software discussed in Amendment 1.

Plaintiff demanded return of the advance payment in accordance with the MOU, but for reasons not apparent in the decision, Defendant did not comply.  When Plaintiff sued for return of the advance payment, Defendant moved to dismiss, contending that Plaintiff could not sue until it had participated in the ADR activities recited in the Services Agreement.  Its motion was denied, however, with the trial court finding that the MOU constituted a release of the ADR obligations set forth in the Services Agreement.  The Court of Appeals agreed, finding that “there is no enforceable agreement between the [p]arties with respect to alternative dispute resolution.”

I have no reason to doubt that Defendant in Pattison honestly believed, and argued in good faith, that the ADR provision of the Services Agreement survived the MOU.  Unfortunately for Defendant, that’s not what the MOU said.  Instead, the MOU clearly indicated that all obligations, except for one, were released; its plain language evidenced an intention by both parties to release the contractual obligation to engage in ADR in the event of a dispute.

That’s the key lesson here.  Courts will look to the plain language of parties’ agreements in divining their intentions and construing their rights and responsibilities in the event of conflict.  That obviously places a premium on making sure that the plain language of whatever contract or other instrument you might be asked to sign is consistent with your intentions.

While Pattison is not a construction case, its lesson is certainly applicable to the commercial construction industry.  There are dozens of situations where your reading must be mindful in order to mitigate risk on a construction project.  Here are just a few examples:

• If you sign that subcontract as-is, are you going to have difficulty recovering damages for delay?  Are you agreeing to indemnify the prime contractor against non-insurable risks?  And are you consenting to bear the risk of owner non-payment?
• If you sign that change order calling for additional compensation but no additional time, will you have the ability to later obtain additional time to perform the changed work?
• If you sign that lien waiver, are you relinquishing your right to seek additional compensation and/or additional time for changed or delayed work encountered during this or prior pay periods?

Contracts and other construction documents can be tricky.  If you have any questions about the potential legal consequences of signing a construction document, an experienced construction attorney undoubtedly would be willing to guide you through the minefield.