Sargeant Marine Pleads Guilty to FCPA Charges and Agrees to Pay $16.6M

“The Justice Department announced a guilty plea to FCPA charges by Sargeant Marine, Inc., a privately-owned company, based in Boca Raton, Florida. Sargeant Marine, an asphalt company, plead guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA and agreed to pay a fine of $16.6 million for bribery schemes in Brazil, Venezuela and Ecuador,” writes Michael Volkov in Volkov’s Blog.

“Between 2010 and 2018, Sargeant Marine paid millions of dollars in bribes to foreign officials in Brazil, Venezuela and Ecuador to secure contracts to purchase or sell asphalt to state-owned and state-controlled oil companies.”

Read the article.




Southern California Edison Settles 2017 Wildfire, 2018 Mudslide Claims for $1.1B

“Southern California Edison will pay over $1 billion to settle litigation over the 2017 Thomas and Koenigstein fires and subsequent mudslides that followed in the community of Montecito, the utility giant announced Wednesday,” reports Nathan Solis in Courthouse News Service.

“SCE did not acknowledge liability in the settlement, although its equipment sparked the massive wildfire.”

“The Thomas Fire burned nearly 282,000 acres across multiple counties in late 2017, killing two people and destroying over 1,000 structures. Heavy rain the following year on the fire scar led to a mudslide above the community of Montecito in Ventura County that killed 21 people when debris flowed over homes.”

Read the article.




A.G. Healey Gets $380K Settlement with Company that Failed to Hire Minority and Woman Subcontractors

“Attorney General Maura Healey has reached a $380,000 settlement with a Canton-based building contractor accused of falsely claiming they had hired minority- and women-owned subcontractors as required on a $15 million dollar state project,” reports Paul Singer and Chris Burrell in WGBH’s local news.

“The company, ENE Systems, Inc. — a systems engineering firm that has worked on major building projects across the region — denies any wrongdoing, and said it tried to meet the hiring goals, but it agreed to pay $300,000, give up another $81,000 remaining on the contract and conduct an annual review of its own compliance with state requirements for hiring minorities and women. The settlement is the seventh “false claims” case brought by the AG’s office over the past decade against companies accused of failing to meet minority hiring commitments, and is the second largest. Six of these cases have been brought by a new false claims division created by Healey in 2015.”

“Earlier this year, an investigation by WGBH’s New England Center for Investigative Reporting showed that minority-owned businesses — black owned businesses in particular — receive only a tiny fraction of the billions of dollars state agencies spend each year on contractors, and their share of state contracts and discretionary agency spending has declined over the past 20 years.”

Read the article.




Substantial Completion Defined

“Every contractor has heard the term and many have had to figure out exactly what it means.  Substantial completion is a legal term found in construction contracts to define that stage of a contractor’s work which is sufficiently complete in accordance with the applicable construction agreement. And when used in relation to a project as a whole, substantial completion is that point where what was constructed is fit for occupancy and ready to be used for its intended purpose,” explains Patrick Barthet in The Lien Zone’s Contracts.

“It is a critical term in the life of any construction project as any construction lawyer would advise. It signifies the time the owner versus the contractor becomes responsible, when the contractor’s work is done so that the owner can begin to use the contracted work for its planned function,  or in the case of a building, occupy it. That said, it is not necessarily tied to the issuance of a certificate of occupancy.”

Read the article.




Use Precise Draftsmanship to Avoid or Obtain a Brokerage Commission Payment

A “plaintiff entered into an exclusive listing agreement with the defendant, Deal Lake Village Gardens, LLC to broker a sale of the defendant’s apartment complex. The agreement included the following provision: “If a sale or exchange is consummated after the termination of this agreement to or on behalf of a party who was introduced to the property by [plaintiff], [plaintiff] will also be entitled to a full commission.” writes Gary M. Albrecht in Cole Schotz’ Real Esate & Construction Law.

“The property was sold, but not until after the term of the plaintiff’s exclusive listing expired. At the trial court level, the plaintiff argued that even though the property was sold after the exclusive listing agreement expired and the defendant had hired a new broker, it had earned a commission because it had introduced a principal of the purchaser to the property while its exclusive listing agreement was in effect. The trial court rejected the plaintiff’s claim, but its reasoning came under the Appellate Division’s scrutiny.”

“When negotiating exclusive listing agreements or other forms of commission agreements, whether on the side of a property owner or broker, any right to a commission after a broker’s agency has expired must be discussed and memorialized in a contract to avoid a similar fate to the parties of this case, which in the case of the defendant, may include the payment of two full commissions (in addition to legal fees) depending upon the disposition of the remanded case at the trial court.”

Read the article.




Why Change Orders Matter

“Most construction contracts, and sometimes even estimates or purchase orders, require that changes to the original scope of work be approved in writing. Despite the requirement, there are many instances where the parties do not follow this and do not properly document changes. As a result, costly disputes often arise.” write Rhiannon K. Baker and Philip S. Bubb in Fredrikson & Byron’s News & Media.

“Changes are often needed in the course of a construction project. And those changes typically include work that is either added or removed from the original scope of work. While that might sound like a unilateral request or decision, in practice, it is not.”

“In fact, a change order is a contract amendment. ”

The article provides a list of what should be included in a change order.

Read the article.




The Case of the Missing Apostrophe in the Contract

The outcome of a suit involving a contract between a general contractor and a subcontractor hinged on an apparently missing apostrophe in the agreement, writes Keith Paul Bishop in the Allen Matkins California Corporate & Securities Law blog.

The provision reads: “Ten percent (10%) of Subcontractor’s contract amount shall be withheld and will be released 35 days after completion of subcontractors work.”

The subcontractor abandoned the job, but later argued that the reference to “subcontractors” (no apostrophe) must mean any subcontractor, not just itself.  Thus, it was entitled to payment of the retention when the replacement subcontractor finished the job, the original sub argued.

Read the article.

 

 




Stormy Skies Ahead? Important News Regarding a Hard Construction Insurance Market

ConstructionWord out of the construction insurance brokerage community is that the construction insurance industry has entered a hard market, seemingly overnight, warns Jason Adams, senior counsel at Gibbs Giden.

In a LinkedIn post, he writes that property (i.e. builder’s risk), liability and wrap-up markets are all reacting unfavorably, resulting in higher premiums and decreased availability of coverage options.

He offers five key takeaways, such as the advice to lock in insurance quotes in now, before the underwriters are forced to increase the rates/restrict coverage, or pull the quotes entirely.

Read the article.

 

 




ISO Modifies Wrap-Up Exclusion

By Jeffrey J. Vita
Saxe Doernberger & Vita, P.C.

For those contractors and other parties enrolled in wrap-up insurance programs, one nagging issue frustrating risk transfer has been the Designated Operations Wrap-Up Exclusion found on many contractors’ programs. See, for example, ISO CG 21 54 01 96, which provides in relevant parts as follows:

“This insurance does not apply to ‘bodily injury’ or ‘property damage’ arising out of either your ongoing operations or operations included within the ‘products-completed operations hazard’ at the location described in the Schedule of this endorsement,as a consolidated (wrap-up) insurance program has been provided by the prime contractor/project manager or owner of the construction project in which you are involved.”

This exclusionary language creates an obstacle to the parties’ intended risk transfer in situations involving unenrolled trades or offsite exposures. For example, where an unenrolled trade causes a loss and the general contractor, construction manager and/or project owner are sued, the intent of the parties is for the upstream party(ies) to transfer the risk to the unenrolled party via the unenrolled party’s additional insured coverage. The existence of the wrap-up exclusion cited above, or any of the manuscript versions currently in use, however, frustrates this intent as certain courts interpreting the language have held the exclusion applies to the additional insured claim despite the fact that the downstream trade causing the loss is not enrolled in the wrap-up program.

As a result, upstream parties have attempted to remedy this problem by requiring the unenrolled trades to endorse their programs either to modify the wrap-up exclusion such that it does not apply to instances where the named insured (downstream party) is not enrolled in the wrap-up program or to include an exception to the exclusion for a specific project. Alternatively, the downstream party has tried to modify the wrap-up exclusion such that it does not apply to additional insured claims. Finally, upstream parties may be forced to enroll parties in the wrap-up program that they did not initially intend to enroll, in order to avoid any gap in coverage.

ISO has now solved this dilemma by issuing endorsement CG 21 54 12 19 which states that the wrap-up exclusion applies only if you (i.e. downstream party) “are enrolled in a ‘controlled (wrap-up) insurance program’ with respect to the ‘bodily injury’ or ‘property damage’ described…above at such location.” This new language closes a major loophole in the risk transfer scheme utilized in wrap-up insurance programs when dealing with unenrolled trades or offsite exposures.

Any owner in an OCIP or contractor in a CCIP should request that all unenrolled trades and enrolled trades providing offsite coverage utilize this new endorsement on their corporate programs to remedy this potential gap in coverage and reflect the parties’ intended risk transfer.

 

 




Five Must-Haves for Avoiding Risky Disasters – Insurance Procurement Clauses

A Brouse McDowell Insurance Blog post discusses the drafting of insurance requirements in a contract to ensure that, in the event of a loss arising out of the work performed, parties will have assets available for that loss.

“If you are the general contractor, or you are hiring subcontractors or vendors, there are several things you need to know,” writes Stacy RC Berliner.

Topics discussed include: specify the right policies and limits to be procured, get endorsed as an additional insured, make sure the other’s policy is primary and non-contributory, specify maximum deductibles and self-insured retentions, and verification.

Read the article.

 

 




N.J. Appellate Court Confirms that AIA Construction Contract Bars Insurer’s Subrogation Claim

Reprinted from Saxe Doernberger & Vita, P.C.

On April 4, 2019, the Appellate Division of the New Jersey Superior Court confirmed that the waiver of subrogation provision in a commonly used form construction contract, American Institute of Architects (AIA) form A201 — 2007 General Conditions of the Contract for Construction, precluded an insurer’s claims against a subcontractor.

In Ace American Ins. Co. v. American Medical Plumbing, Inc., the court considered Ace American Insurance Company’s (Ace) subrogation claim against a plumbing subcontractor who was allegedly responsible for a water main leak that caused approximately $1.2 million in damages to Ace’s insured, Equinox Development Corporation (Equinox).

In March 2012, Equinox entered into a contract with Grace Construction Management Company, LLC (Grace) to build the “core and shell” of a new health club. Equinox and Grace used AIA form A201 for their contract. Grace then hired American Medical Plumbing, Inc. (American) as a plumbing subcontractor for the project. In April 2013, the water main failed, flooding the health club.

Ace, Equinox’s first-party property insurer, paid Equinox for the damages and sued American to recover these damages. American sought summary judgment, arguing that the waiver of subrogation provision in the contract between Grace and Equinox precluded Ace’s claim.

The relevant contract provision states that:

“The Owner and Contractor waive all rights against … each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other … for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to this Section 11.3 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary.”

The trial court granted summary judgment in favor of American, finding that the waiver of subrogation in the contract applied to Ace’s claim. Ace appealed.

On appeal, Ace argued that the waiver only applied to claims for damage to the construction work itself and did not apply after the competition of construction. In this case, the damage was to not to the construction work itself – i.e., the “core and shell” of the health club. Instead, the majority of the damage was to the health club’s internal construction and furnishings.Additionally, the water main failed after the completion of construction.

The appellate court affirmed the trial court’s ruling, finding that “Ace misconstrue[d] the basic structure of the contract’s waiver provision.” The court found that the waiver applied to all damages covered by the property insurance regardless of whether the damage occurred after the completion of construction or included damage to work besides the contractor’s work.

The court also rejected Ace’s argument that this broad application of the waiver was inconsistent with AIA form A201’s requirement that the contractor carry liability insurance. The court found that “the subrogation waiver takes precedence over the contractor’s insurance obligation.” The court found that the contractor’s liability insurance served other important functions such as providing an extra layer of coverage beyond the owner’s property insurance and providing protection against injured third parties.

The New Jersey appellate court’s ruling follows the majority position on the scope of the waiver of subrogation in the standard AIA contract. However, a minority of jurisdictions do not recognize a waiver.

________________________________________________________________
1. No. A-5395-16T4 (N.J. App. Div. April 4, 2019)




Limiting Liability: Three Clauses to Consider in Construction Contracts

Tara Lynch, writing for Gordon & Rees LLP’s Construction Law Blog, offers three clauses to consider when writing construction contracts, with an eye to limiting liability and maximizing profits.

One of the clauses covers waiver of consequential damages. “Prudent design professionals and contractors will strike this exception so as not to render the clause meaningless. A well-drafted waiver clause will be mutual, will define which damages are consequential versus direct, and will not contain exceptions,” she writes.

She also discusses clauses covering limitations of liability, and a percentage clause involving change orders.

Read the article.

 

 




Are Contracting Parties Treated the Same When it Comes to Notice Obligations?

Two separate decisions in the United States Court of Federal Claims contain lessons that are generally helpful in all projects involving notice of contract changes, reports G. Scott Walters for Smith, Currie & Hancock.

“Prudent construction professionals, particularly those doing business with the government, should understand and comply with all notice provisions in their contract. Even if strict notice may not be required, it should be given early and often. Moreover, when notice is received, the prudent contractor must endeavor to understand what it means,” Walters writes.

“The court’s decisions on the notice issues may, at first, appear to contradict each other or to favor one party over the other,” he explains. “A closer look at these two decisions reveals that notice requirements, in the context of federal government construction contracts, can come in multiple forms and notice is not a ‘one size fits all’ proposition.”

Read the article.

 

 




Indemnification Agreements and Insured Contracts

A web post by Glen A. Murphy for Spilman Thomas & Battle addresses potential issues and concerns that may arise between general contractors, subcontractors and their insurers when claims by outside parties (also known as third-parties) may arise.

Murphy explains:

When a General engages a Sub to perform work on projects, the parties should always reduce their expectations and agreements to a written document in which both sides agree and acknowledge the terms. These documents may go by many names, but they are contracts that bind the parties to the terms. It is a common component of these agreements for the businesses or organizations to take on the liability of another entity, which they might normally not otherwise have. This form of agreement, where one party takes on or assumes the liability of another party by contract, is commonly called a “hold harmless” or an “indemnity” agreement.

Read the article.

 

 




What Should be in Every Construction Agreement

ConstructionParties to a construction project can have a better agreement by addressing six topics described in a post in The Lien Zone blog.

Alex Barthet, author of the post, advises contract drafters to define the scope of the work that will be provided, list all the exclusions, explain the change order process, verify the schedule, refine the dispute resolution procedure, and make sure the winner gets legal fees.

Read the article.

 

 




What Not to Do: Construction Contractor Charged With Lying to OSHA

A post in the Seyfarth Shaw Workplace Safety and Environmental Law Alert Blog discusses the case of a construction contractor facing a perjury charge after he allegedly testified that he did not twice order employees to work on a roof. They fell through the roof both times.

During the investigation, OSHA discovered text messages indicating that the contractor had indeed issued the orders.

The case provides two important lessons, according to the authors of the post: Don’t lie under oath, especially when there exists discoverable evidence to the contrary, and be properly prepared and familiar with all relevant facts before providing testimony or statements during an investigation.

The contractor faces a potential penalty of five years in a prison and a $250,000 fine, if convicted.

Read the article.

 

 




12 Things to Consider When Negotiating a Construction Demolition Contract

A client alert from Neal, Gerber & Eisenberg offers some advice on negotiating a demolition contract. Such contracts can arise when a big box retailer or a shopping center needs to be demolished to make room for a building more suited to a new use.

The article’s advice covers 12 topics, including the selection of the demolition contractor, dates of commencement and completion of the work, contract documents, the contract sum, payments, dispute resolution, insurance and bonds, indemnification, termination rights, the contractor’s warranty, safety compliance, and disposal of debris.

Read the article.

 

 




Teaming Up? Avoid Unenforceable Agreements to Agree

ConstructionThere is a growing trend in the construction industry wherein contractors, subcontractors and designers are working together to pursue large construction projects, according to a JD Supra post by Snell & Wilmer.

“The terms of these collaborations are typically referred to as ‘teaming agreements’ which are intended to define the relationships, rights and responsibility of all parties involved during both the pursuit of the work and, if ultimately successful, the performance of the project including the financial remuneration,” the post explains.

It continues: Your goal in drafting these agreements is to define the relationship, the rights and responsibility of all parties involved on the “team” during both the pursuit of the contract and, if the contract is awarded, the performance of the project.”

Read the article.

 

 




Texas Court Construes Breach of Contract Exclusion Narrowly in Duty-to-Defend Case

In a victory for policyholders, a recent decision from the Western District of Texas narrowly construed a common breach-of-contract exclusion and held that the insurer had a duty to defend its insured against an underlying lawsuit over construction defects, according to the Hunton Insurance Recovery Blog.

“The allegations potentially supported a covered claim, as the conduct of the insured’s subcontractor could have been an independent, ‘but for cause of the property damage at issue, thereby triggering the insurer’s duty to defend’,” explain Lorelie S. Masters and Tae Andrews.

“Many CGL policies have similar or identical breach-of-contract exclusions,” they write. “Longstanding principles of law regarding the duty-to-defend analysis hold that exclusions should be narrowly construed against the insurer and in the insured’s favor, and that when making a duty-to-defend analysis, any doubts or ambiguities should be resolved in the insured’s favor.”

Read the article.

 

 




AIA Changes – It’s Time to Convert Before It’s Too Late

Jeffrey M. Reichard of Nexsen Pruet offers a reminder that the American Institute of Architects (AIA) will discontinue support of older versions of its most popular standard form contracts after Oct. 31, 2018.

“This means you will no longer be able to create, edit or even finalize a 2007 AIA document after that date,” he warns. “If you haven’t already done so, now is the time to convert your standard form contracts to the 2017 versions.”

He writes that one important change is the creation of a new insurance exhibit which changes and expands the terms related to insurance coverage previously included in the body of the A201.

Read the article.