Inside This Issue:
- Prompt Payment Act Not Triggered Until Architect Issues Payment Certificate
- Written Notice of Deviations from Specifications is Required with Shop Drawing Submittals
- Subcontractor Not Bound by its Bid
- Owner Not Liable for Site Safety
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ARTICLE #1
Prompt Payment Act Not Triggered Until
Architect Issues Payment Certificate
Owner had no duty to make prompt payment to its construction contractor even though the architect’s refusal to certify final payment was based on an incorrect understanding of the specifications of the construction contract. The “topsoil” specification required the contractor to provide at least four inches of fill. The architect enforced that section instead of the specification in the addendum that stated, “The ball fields can be lowered as required to avoid bringing in any fill dirt.” The trial court found the owner in breach of contract, and awarded the contractor its costs plus prejudgment interest pursuant to the Missouri prompt payment act. On appeal, the appellate court reversed the judgment with regard to the prejudgment interest. The court explained that despite the incorrect decision by the architect, a public owner does not become liable under the prompt payment act unless it fails to make prompt payment after receiving a final payment certificate from the architect. In this case, the owner acted reasonably in not making payment since its architect had decided not to issue the certificate.
Another interesting aspect of this case is that the court dismissed the owner’s liquidated damages counterclaim against the contractor since oral assurances had been given to the contractor during project performance by the owner’s superintendent, the architect and the architect’s representative that there would be no assessment of liquidated damages. Textor Construction, Inc. v. Forsyth R-III School District, 2001 Mo. App. LEXIS 1840.
Risk Management Note: The essence of the court’s reasoning is that the public owner did not act in bad faith since it relied upon it’s architect’s decision. The contractor seemed to find favor with the court, however, by escaping liquidated damages on the basis of oral statements by the owner despite the lack of written waiver of the liquidated damages. As a general matter, oral changes to a contract are not recognized, and it is advisable for a contractor to obtain changes in writing. But contractors sometime conclude that there may be a risk in insisting on a written confirmation. In a similar way, a design consultant may hesitate to insist on a written memorandum from the project owner waiving the owner’s right to recover extra costs paid to the contractor as a result of changes potentially attributable to design acts, errors or omissions. The consultant may deem it safer to just let the “sleeping dog” lie, assuming that the owner will honor the oral decisions made during project construction.
The issue of liquidated damages probably would never have come up in this matter except for the fact that the contractor filed suit against the owner for other reasons. Once a suit is filed, it must be anticipated that counsel for the owner will carefully review the contract and seek to enforce its every detail, including the requirement that changes and waivers are not binding unless recorded in writing. This particular case provides us with some good food for thought.
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ARTICLE #2
Written Notice of Deviations from Specifications Is Required
With Shop Drawing Submittals
The Owner’s approval of a shop drawing submittal that deviates from specification requirements does not relieve the contractor where the contractor failed to notify the owner in writing of the variations from the specifications and obtain approval from the owner. The U.S. Navy issued specifications for the construction of a facility in Greece. One of the requirements specified details for the anchor bolts for the light pole foundations. The contractor gave an exterior lighting submittal to the Navy with an anchor bolt that did not conform to the specifications. The Navy approved the submittal and the contractor proceeded to construct the foundations for the light poles. It was only after this work was complete that the Navy discovered that the anchor bolts deviated from the specifications in diameter and were not galvanized.
The Navy notified the contractor that it must remove the foundations and install them per the specifications. In arguing that it would be entitled to a change order for time and costs to complete the replacement work, the contractor asserted that by approving the lighting submittal, the Navy had approved and accepted the anchor bolt design that was part of that submittal. In addition, it presented evidence that the pole manufacturer’s data showed that the anchor bolts submitted and installed by the contractor were satisfactory for the selected poles.
In rejecting the contractor’s arguments, the Armed Services Board of Contract Appeals ruled that a contractor is not relieved from the specifications by virtue of the government’s approval of the non-conforming submitted items, in the absence of a written notice by the contractor with the submittal, describing the specific variations from the specifications. Pursuant to the contract, there were specific requirements to be followed by a contractor seeking to obtain review and approval of any deviation or variation from the contract design specifications. Since it had given no written notice of the deviations, the contractor was not relieved from contract compliance, and the Navy was entitled, therefore, to require the contractor to tear out the work and re-perform it at no cost to the government. Elter S.A., ASBCA 52327 (2001).
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ARTICLE #3
Subcontractor Not Bound By Its Bid
A masonry subcontractor was not bound by its bid to the general contractor, despite the general contractor’s reliance upon it, since the subcontractor reasonably objected to terms and conditions of the written subcontract which it refused to sign. What was objectionable to the subcontractor was a time-of-the essence clause requiring it to meet a strict time schedule. After completing the work with a replacement subcontractor at greater cost, the general contractor sued the original subcontract bidder to recover the excess costs. In ruling for the defendant, bidder, the court acknowledged that the general rule is that a subcontractor is bound by its bid if the general contractor relied upon it in its own successful bid for the prime contract. It held, however, that a subcontractor is not required to honor its bid if the general contractor subsequently proposes an unreasonable contract.
In this case, there was testimony on behalf of the defendant by a masonry subcontractor with 25 years experience. He testified that time-of-the essence clauses in subcontracts are routinely negotiated between the general contractor and its subcontractor to reach a mutually agreed upon schedule, but that if the general contractor imposes an unreasonable schedule, a subcontractor will typically decline to execute the subcontract. Based on evidence that the schedule imposed by the general contractor was unreasonable, the court held that the bidder was not bound by its subcontract bid. Lichtenberg Construction v. Paul W. Wilson, Inc., 2001 Ohio App. LEXIS 4372.
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ARTICLE #4
Owner Not Liable for Site Safety
By: J. Kent Holland, Jr., Esq.
A painter that suffered serious injury on a U.S. Navy construction project was not entitled to recover against the government for alleged failure to supervise the work of an independent contractor, where the government fulfilled any duty it might have had to supervise work involving peculiar risk by contractually requiring its contractor to develop an approved safety plan, and where any control retained by the Navy to monitor and suspend the contractor’s work did not go beyond its general right and thus did not raise a legal issue as to whether it failed to reasonably exercise retained control over the work.
The plaintiff, Pamela Wood, a painter, was seriously injured when the manlift in which she was riding up the scaffolding system broke away from the building and fell about 70 feet. OSHA conducted an investigation of the accident and cited Abhe & Svoboda, the contractor that employed Wood, with numerous safety violations. Violations included a failure to have a competent person inspect suspended work platforms and failure to train employees in the proper use and load capacities of scaffolds. OSHA also cited the contractor for willful violations based on its construction of the scaffolding. Wood filed suit against the government, arguing that the Navy’s Resident Officer in Charge of Construction (“ROICC”) was responsible for inspecting the contractor’s operations and assuring that the work was performed safely.
According to the court, at least one official from the ROICC acknowledged that he knew prior to the accident that the Contractor was not in one hundred percent compliance with the safety plan. But, the court said there was no evidence that anyone from the ROICC was aware in advance of the particular safety violations contributing to this accident. Moreover, the court found “none of the evidence suggests that anyone from ROICC failed to report any known safety violation to [Contractor] prior to [the accident].” The plaintiff argued that the government, as landowner, was under a duty to use reasonable care to prevent risks arising from known and obvious conditions on the land that could reasonably be anticipated to cause harm to others, and that the government was required to prevent risks arising from the obviously improper construction and use of scaffolding by the Contractor in violation of the safety plan.
To get around the general rule of law that “the employer of an independent contractor is not liable for the physical harm caused to another by an act or omission of the contractor or his servants,” the plaintiff argued that the risk in this case was a “peculiar risk” that created such danger that it constituted a legal exception to the general rule. The court rejected both theories of recovery. With regard to the Navy’s exercise of reasonable care, the court said that since the contract between the Navy and Contractor provided for the Contractor “to take the necessary special precautions by requiring an approved safety plan,” the Navy fulfilled its duties. With regard to the “peculiar risk” theory, the plaintiff would have to prove that the Navy retained a degree of control over the independent contractor’s work, and that the Navy failed to reasonably exercise its retained control to monitor and to suspend work.
In granting the government’s motion to dismiss the causes of action based on the alleged failure of the Navy to exercise retained control and failure to make appropriate decisions to maintain a safe job site, the court held that the government had not waived its sovereign immunity to allow suits alleging violation of discretionary duties such as those involved here. Under the Federal Tort Claims Act (“FTCA”), a plaintiff is limited in the matters it can bring against the federal government. The court concluded that both the monitoring and the right to suspend work were discretionary functions of the government, and that no statute, regulation or policy explicitly mandated the circumstances under which the Navy was to suspend work or the frequency or method of monitoring the Contractor’s safety. Under the FTCA, “a function is non-discretionary only when a federal statute, regulation, or policy specifically prescribes a course of action for an employee to follow.”
Interestingly, the court found that by reading the contract and the Navy’s letter delegating responsibilities to the Contractor together, it could be said that the Navy has some nondiscretionary duties related to the Contractor. “First, to the extent ROICC Cutler was aware of a safety violation, it had a nondiscretionary duty to inform the Contractor of the safety violation…. For example, if ROICC Cutler personnel conducting an inspection observed that a [Contractor] employee was not using his or her safety harness, ROICC Cutler was required to bring that to the attention of the Contractor. Similarly, it could be said that ROICC Cutler had a nondiscretionary duty to ensure that [Contractor’s] safety plan met the requirements laid out in the Contract. Thus, it could not choose to approve a safety plan that fell short of the Contract’s requirements.” But as pointed out by the court, the plaintiff in this case didn’t argue that the conduct that caused the harm in this case stemmed from the Navy’s approval of an inadequate safety plan or from the Navy’s failure to notify the Contractor of known safety violations.” “Rather, Plaintiffs rely on ROICC Cutler’s failure to ensure contractor compliance with the safety plans.”
The court concluded that this argument must fail because it was within the Navy’s discretion to decide how to best monitor safety compliance. And the Navy in turn delegated its discretion to the ROICC “which was in a better position to monitor the Contractor because of its on-site location. Whether ROICC Cutler chose to conduct monthly, weekly or daily inspections or simply to rely on the Contractor’s daily logs, their monitoring remained discretionary.” In its final analysis, the court found that the “inspections conducted by ROICC Cutler are not distinguishable from the OSHA inspections … found to fall within the discretionary function exception” to the government’s waiver of sovereign immunity. The discretionary function exception thus “protects these policy judgments from review by this court.”
In addition, the court found that “no reasonable jury could find that the Navy was supervising the day-to-day operations of [Contractor].” Consequently, claims that the Navy was liable for the apparent negligence of the Contractor were barred by the independent contractor exception which holds that claims against the United States are barred unless the independent contractor’s day-to-day operations are supervised by the Federal Government. For these reasons, the court dismissed the Plaintiff’s case for lack of subject matter jurisdiction. Wood v. U.S., 148 F.Supp. 2d. 68 (D.C.,D.Maine, 2001).
Risk Management Note: This case is included in this newsletter because of the several lessons to be learned from it. First, actions such as failure to enforce a safety plan or to suspend work for safety violations is deemed to be discretionary decisions of the government that are protected by sovereign immunity. Second, by avoiding day-to-day monitoring of the contractor’s work, the government was again protected by sovereign immunity pursuant to the “independent contractor exception” to the waiver of sovereign immunity. These principles may have similar applicability in suits against states or local governments that have preserved their sovereign immunity with regard to similar matters. Finally, it is possible that even private owners may find some comfort in this court’s conclusions that the owner’s responsibility for an independent contractor is limited, and that an owner’s failure to enforce a contractor’s safety plan or suspend work may not establish owner liability. Perhaps this demonstrates the wisdom of including language in the contracts clearly stating that the contractor or consultant is “an independent contractor.”
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This newsletter Report is published and edited by J. Kent Holland, Jr., J.D., a construction lawyer and risk management consultant for environmental and design professional liability. The Report is independent of any insurance company, law firm, or other entity, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law. Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.
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