Resolving construction disputes through arbitration may be preferable under certain circumstances. I won’t go into the pros and cons of arbitration versus litigation, but one of the negatives of arbitrating a dispute is that the parties have to pay for the arbitrator(s) time. For larger construction disputes, the cost for the arbitrators is relatively small compared to the amount in dispute. And frequently, the extra cost to have arbitrators with significant construction experience is worth it for larger disputes. But for smaller disputes, the extra cost can be hard to justify and may discourage claimants from prosecuting their claim. In those situations, it may be smart to strike out any provision in a contract requiring the arbitration of disputes between the parties.
If you are a construction contractor on a federal government project that is default terminated, do not forget that you only have, at most, one year to appeal the termination.
Under the Federal Acquisition Regulations, the federal government, through its contracting officer, may terminate a construction contract for default. Frequently, the terminated contractor does not agree with the CO’s decision to terminate the contract, and the contractor will want to appeal the CO’s decision.
One common request that I get from my contractor clients is to determine whether a client has a legitimate claim for additional time and money due to impacts arising out of a project. While each situation is unique, there are typically four steps a contractor should take to evaluate a potential claim or dispute:
Pay-if-paid clauses make a prime contractor’s payment to a subcontractor contingent on the prime contractor receiving payment from the project owner. A recent federal court case illustrates how the failure to include a pay-if-paid clause can end up with a prime contractor paying one of its subcontractors out of pocket.
In Phillips and Jordan, Inc. v. McCarthy Improvement Co., a prime contractor was awarded a design-build contract for the construction of a $31 million roadway project for the South Carolina Department of Transportation. The prime contractor, in turn, entered into a unit-price subcontract with a dirt-work contractor to excavate and place soil at the project.
In United States ex rel. Aarow/IET LLC v. Hartford Fire Insurance Company, an electrical subcontractor sued a general contractor and the payment bond surety for $2.9 million in additional labor costs incurred on a federal government project. The subcontractor alleged that the general contractor mismanaged the project and disrupted the subcontractor’s work. The general contractor filed a motion to dismiss, which the trial court granted because, among other reasons, the trial court believed that a no-damages-for-delay clause in the parties’ contract barred the subcontractor’s claim.
Contractors and subcontractors that incur increased costs to complete their work due to delay or other impacts on a project sometimes have difficulty proving their damages. There are various ways to calculate those damages, but the surest way to have a claim rejected is by asserting a total cost claim.
After a general contractor on a federal government project allegedly terminated a subcontractor’s contract for convenience, the subcontractor sued the payment bond surety for the amounts owed to the subcontractor. In Maguire-O’Hara Construction, Inc. v. Cool Roofing Systems, Inc., the subcontractor claimed the surety was liable for the unpaid remaining balance on the subcontract of nearly $2.6 million, even though the subcontractor was only owed about $360,000 for completed work. The surety filed a motion for judgment on the pleadings seeking dismissal of the subcontractor’s $2.6 million claim, which asked the court to determine whether the subcontractor could assert a claim against the surety for unperformed work. The court’s answer? No way.
This is the third post in a five-part series about the most common reasons for winning GAO bid protests. The third most common reason for winning a bid protest is when an agency fails to follow the evaluation criteria stated in a solicitation for proposals.
As an example, in McGoldrick Construction Services Corporation, B- 409252.2 (Comp.Gen Mar. 28, 2014), the U.S. Army Corps of Engineers issued a solicitation for construction and maintenance services. The proposal was structured as a two-phase evaluation. In the first phase, the bidders would be whittled down to a few qualified bidders that would compete for the award in the second phase.
The Florida Fourth District Court of Appeal recently held that a trial court properly apportioned a public owner’s damages among a program manager, engineering firm, and contractor. See Broward County, Fla. v. CH2M Hill, Inc., No. 4D18-3401 (Fla. 4th DCA July 22, 2020). In CH2M, a contractor agreed to construct an airport taxiway project for Broward County. After being used for about eight months, the taxiway started showing indentations in the surface. Ultimately, the County, the engineering firm that designed the project, the program manager that oversaw construction of the project, and the contractor that built the project went to trial over who was responsible for the defective taxiway.
Many construction projects are getting larger and more complex. This is especially true for public-works projects. Joint ventures allow one or more contractors to make a combined effort to obtain and complete projects.
There can be many benefits to forming a joint venture to bid on a project. A joint venture can allow one or more contractors to spread the financial risk of a project. Joint ventures can also allow two contractors with different specialties to join forces to bid on a project that requires the experience of both contractors. Finally, a joint venture can increase the bonding capacity of contractors to allow them to bid on larger projects that may otherwise be out of reach.