From the time that I was in elementary school through my years in law school, my grandfather always stressed the importance of getting off to a good start each new academic year. The importance of a good start is just as critical in business as it is in academics (or in sports). Several judicial decisions from the last two months of 2016 can help you get off to a good start in 2017.
THE OWNER IS RESPONSIBLE FOR DEFECTS IN ITS DESIGN
A New York Court in November of 2016 upheld the long held principal that a contractor is not liable to the owner for alleged defects in the result of the contractor’s work when the work is performed pursuant to the owner’s design specifications. CGM Constr., Inc. v. Sydor, 2016 N.Y. App. Div. Lexis 7744. A contractual design specification contrasts with a contractual performance specification in that a performance specification provides a contractor or subcontractor with the freedom to choose the materials and methods employed to achieve a specified result while a design specification requires a contractor to use the materials, methods, and design dictated by the owner, and therefore, does not bear any responsibility if the owner’s design proves to be inadequate to achieve the desired results. Consequently, when there is a design specification contract, and a contractor follows the architectural plans and specifications provided by an owner, the contractor will not only not be held responsible for the consequences of defects in such plans and specifications, but it will also be entitled to recover contractually agreed upon payments for work performed in compliance with the defective design specifications. Other items that will be taken into consideration include the nature and degree of the contractor’s involvement in the specification process, the degree to which the contractor is allowed to utilize its own discretion in carrying out its performance, the architect’s involvement in job site decisions, alterations, and inspections.
In order to maximize your profits in 2017, you should be dedicated to getting paid even though your work may fail due to the fault of the owner or its design team. Prior to starting work you need to fully understand if your work will be constructed pursuant to a design specification or a performance specification. Furthermore, in the case of a design-build contract, as a contractor or subcontractor, you need to negotiate your contract very carefully so that you are only responsible for construction errors caused by the components of the design that you exclusively prepared and not the portions of the design or program that were created by others.
STATE COURTS CONTINUE TO SHORT ENFORCE NOTICE CLAUSES, ESPECIALLY THOSE THAT PROTECT GOVERNMENT ENTITIES
In El Paso County v. Sunlight Enters. Co., 2016 Tex. App. Lexis 13129, a Texas Court in December of 2016, ruled on whether a seven (7) day notice provision for contractor claims for additional compensation and extensions of time was enforceable. The Court held that such a provision was enforceable despite the existence of a Texas state statute that prohibits clauses that require notice of a claim to be provided in 90 days or less from being enforced. The Court concluded that a clause requiring a contractor to provide initial notice of the happening of some event that may or may not lead to an actual claim to be enforceable. The Court reasoned that a notice that only represents an initial step on the way to a possible cause of action for breach of contract does not constitute a “notice of claim for damages.” The Court further took notice of the extremely common nature of contractual provisions requiring notice for adjustments in time and price are standard in the form construction contracts prepared by various construction industry entities such as the American Institute of Architects. The Court also stressed the freedom of parties to contractually agree to a notice provision with the understanding that a failure to comply with it would result in a waiver of a claim.
Please make negotiating a reasonable amount of time to provide a notice of claim or requested extension of time one of your primary resolutions for the new year. Notice clauses ranging from 24 hours to 3 calendar days are becoming increasingly common in the industry. In my experience, anything less than 3 business days will be an insufficient amount of time for a subcontractor to observe such a situation in the field and then transmit a claim from the field to its home office and then to its client.
THOUGHTS ON WHAT WE ACCOMPLISHED IN 2016 AND WHAT LIES AHEAD IN 2017
I hope that all of my loyal readers enjoyed reading these Legal Tips columns in 2016 as much as I enjoyed writing these articles. Most of the topics that I cover are suggested to me by ADSC members. This column is written as a service for ADSC members and for the benefit of ADSC members. Please let me know if there is a topic that you would like for me to cover in this space in 2017 or in a live presentation to your ADSC Chapter.
