Inside this Issue

A1 - Inspection of Contractor’s Allegedly Defective Work Subjects Architect to Personal Injury Action
A2 - Indemnification Obligation of Contractor to Architect for Subcontractor Employee Injury
A3 - Prime Contractor Duty to Timely Submit Subcontractor Change Orders to Project Owner (Government)
A4 - Ambiguous Specifications Interpreted in Favor of Government Contractor

Article 1

Inspection of Contractor’s Allegedly Defective Work Subjects Architect to Personal Injury Action

Employee of a medical center filed a personal injury suit against the building owner and also against the project architect that issued project performance specifications and reviewed contractor shop drawings of component parts proposed by the contractor for cleanout ports on a manifold cover. An angle iron dislodged from the manifold and caused the personal injury. The question on summary judgment was whether the records presented an issue of fact as to whether the architect was negligent in failing to detect problems with the contractor’s work during bi-weekly site inspections. Architect had notified the owner that the makeshift cleanout ports didn’t satisfy the specifications and must be replaced, but the owner and contractor failed to replace them. Architect argued that even if its inspection was negligent, that negligence couldn’t be the proximate cause of injury because the contractor’s unauthorized installation of angle irons constituted a superseding cause of the injury. Court held the matter must go to trail on the issue of whether there were superseding causes. Demetro v. Dormitory Authority of the State of New York, 170 A.D. 3d 437 (NY 2019).

When, during a site visit, the architect discovered that the contractor was installing ports or covers for the manifold that were not proper for the intended purpose, it reported this to its client, the project owner. It never approved the angle iron bracing, which apparently rattled apart from the cleanout port and fell onto the plaintiff’s head. In fact, when it discovered that the makeshift cleanout port covers were not in accordance with the specifications, and must be replaced, it notified both the building owner and contractor. That was done eight months before the accident, but no action was taken by the owner or its contractor to correct the problem before the accident.

In reviewing the proximate cause defense, the appellate court stated, “When a question of proximate cause involves an intervening act, ‘liability turns upon whether the intervening act is a normal or foreseeable consequence of the situation created by the defendant’s negligence.’” In this instance, the court concluded that “a jury could reasonably conclude that the effort to reinforce the cleanout port covers with angle irons was a normal and foreseeable consequence of the alleged inadequacy of the covers, which [Architect] either approved or failed to detect….” Thus, the court held there was a triable issue of fact as to whether the contractor’s use of the iron bracing, and the failure of the owner and contractor to replace the covers despite notice by the architect, constituted superseding causes of the plaintiff’s injuries.

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 21, No. 8 (Sep 2019).

Article 2

Indemnification Obligation of Contractor to Architect for Subcontractor Employee Injury

When an employee of a landscape subcontractor was injured in a crane accident he sued the project’s roofing contractor (“KJC”) and the architect, Skidmore, Owings and Merrill (“SOM”). Architect was entitled to summary judgment to enforce the indemnity clause in the prime contractor’s contract with the owner that required the contractor to indemnify the owner’s “representative” against claims arising out of the contractor’s work. Comment: This case demonstrates why it is important when reviewing indemnification clauses to carefully consider who is included in terms such as “agent, servant and representative.” It is not likely that the contractor thought the architect would be considered a “representative” of the owner that would have to be indemnified. Valdez v. Turner Construction Co, 171 A.D. 3d. 836 (NY 2019)

This was a personal injury action by a landscape subcontractor employee that was performing landscaping on a building roof. While detaching a bag of soil from a crane, the crane suddenly jerked up and this caused the bag straps to catch his hand. The individual sued the roofing contractor, and also Turner Construction who was the construction manager, and SOM who was the project architect.

The court decision addresses several issues arising under New York labor law, but the main issue we will discuss in this case note concerns a motion for summary judgment to determine indemnification responsibility. The court determined that SOM should have been granted summary judgment to enforce the roofing contractor’s indemnification obligation because SOM was the owner’s “representative” within the meaning of the indemnification clause.

The court explained that, “[Contractor’s] contract with [owner] obligated [contractor] to indemnify, inter alia, the owner’s representative, construction manager, and servants.” According to deposition testimony cited by the court, SOM’s had “broad responsibility for architectural, engineering, and construction management services….” “Even though Skidmore contracted with Turner to perform construction management services, Skidmore retained the responsibility of overseeing contractor’s compliance with the design drawings and specifications and quality control on behalf of DASNY. Turner and Skidmore, therefore established that Skidmore was the owner’s representative with the meaning of [the] contract.”

The court concluded, “This evidence, along with the evidence that the plaintiff's injuries arose out of KJC’s work and that Skidmore was free from negligence, demonstrated Skidmore’s prima facie entitlement to contractual indemnification under KJC’s contract.”

Article 3

Prime Contractor Duty to Timely Submit Subcontractor Change Orders to Project Owner (Government)

A prime contractor failed to timely submit subcontractor change orders to the project owner, thereby depriving subcontractor of compensation for additional work. This constituted a bad faith breach of the prime contractor’s duty to the subcontractor. This entitled the subcontractor to recover directly from the prime contractor for the additional costs it might have recovered if the claim had been timely presented to the government agency. It also entitled recovery for penalties under the prompt payment act. Alonso v. Westcoast Corp., 920 F.3d 878 (5^th Cir. 2019).

The prime contractor was found by the jury to have committed a bad-faith breach of contract – apparently because Westcoast failed to submit change orders promptly, which prevented [the subcontractor] from being compensated for additional work it had performed on the project. The jury also found that Westcoast failed to make prompt payments to the subcontractor under the change orders it did submit.” Testimony for the subcontractor was that the prime breached the contract by: “not obtaining change orders, not providing workable plans and specifications, and not providing access to the [U.S. Army Corps of Engineers].”

There was also testimony that “Wescoast falsely informed [subcontractor] in writing that the change orders were approved and told RCS to resume work on the project when the Corps had not yet approved the change orders.”

The court explains that several interruptions slowed completion of the subcontractor's work and increased the cost of the project. At some point the subcontractor stopped its work without completing its final “punch list.”

In defending against the subcontractor claim, the prime argued that the subcontractor breached the subcontract by not completing its work and by claiming delay damages not allowable under the contract. The court rejected those arguments for both procedural and substantive reasons and found that the prime contractor’s breaches were substantial. In contrast, it found there had been no substantial breach by the subcontractor since the prime’s breaches caused the subcontractor’s refusal to complete the final duties under the contract.

With regard to the transmittal of the subcontractor claims to the government, the decision notes that the prime contractor asserts that there was uncontroverted evidence at trial that any claims from the subcontractor were promptly transmitted to the government for consideration. Apparently, the jury rejected that evidence, and the court didn’t explain this further other than to say that there was sufficient evidence from which the jury could reasonably conclude that Westcoast breached the contract in bad faith.

Comment: This case demonstrates the importance of fulfilling a prime contractor’s obligation to timely submit subcontractor change order requests to the project owner. Failure to do so can result in forfeiture of the right to have the owner (the government in this case) consider the merits of the change order requests. If that happens, and the subcontractor claim against the government or owner is essentially forfeited, the subcontractor’s only remaining recourse is against the prime contractor who failed to honor its contractual obligation to timely submit the subcontractor changes orders or claims.

Article 4

Ambiguous Specifications Interpreted in Favor of Government Contractor

The U.S. Army Corps of Engineers (USACE) incorrectly interpreted and applied contract specifications to require a contractor to do high grade drywall finishing in the plenum above walls and in the plenum below floors – areas that would never be seen by the public. A government inspector imposed this requirement only after the contractor was almost completed with its large contract. This was also after the government had throughout the work, inspected and accepted the drywall finishing. The normal trade practice was to only do high grade finishes for the occupied visible walls, and just do basic taping and one coat of drywall mud in non occupied spaces. At tremendous cost, the contractor redid the work under protest. The government contracting officer denied the contractors change order request, Request for Equitable Adjustment, and “claim” for the extra costs. The contractor naturally appealed this unfortunate and ill advised denial to the Armed Services Board of Contract Appeals. In an excellently reasoned decision, the Board held in favor of the contractor – finding that the contract language was ambiguous and under the principle of Contra proferentem, the contract must be interpreted in favor of the contractor. Appeal of KiewitPhelps, 19-1 BCA P 37319, 2019 WL 2052448 (2019).

Joint venture partners Kiewit and Hensel Phelps (“KiewitPhelps” or “KP”) were contracted to construct a five-level, one million square foot facility to replace the U.S. Strategic Command complex at Offutt Air Force Base. KP’s drywall subcontractor understood the bidding documents to only require what is called Level 4 drywall finishes for exposed walls. During the appeal, it was determined through discovery that all other bidders had the same understanding and bid in the same manner for the drywall. An expert witness testified that the industry standard practice is to apply Level 1 (fire-taping) finish above ceilings and below floors and to apply Level 4 or 5 only where decoration is to be applied.

The government apparently understood the contract specification in the same manner during performance of much of the work because the contractor was a year and one-half into the project – with the government inspector having accepted the Level 1 finishes. But then a new inspector came onto the scene and read the specification differently and insisted that Level 4 finishes were required on all surfaces regardless of the fact they were many feet above the ceilings where no one could see them – or a foot or two below the floors where the surfaces couldn’t be seen.

For some reason, the contracting officer went along with this unfortunate interpretation, and the contractor was required to take apart ceilings and floors and go to great expense to access the unfinished wall surfaces and apply Level 4 finishes. This was made particularly difficult by the fact that much of the mechanical/electrical equipment had been installed above the ceilings and the floors and was in the way of re-doing the drywall finishes.

Before embarking on the expensive remedial action, the contractor warned the government that it would be at tremendous cost (perhaps up to $5 million) and that the contractor would be making a claim for payment of the same because it deemed this to be a change to the contract requirements.

In reviewing the facts of the case, the Board reviewed testimony and found that the government didn’t dispute the fact that the contractor entered into the contract with a different understanding of the contract requirements than what the government now maintains was intended.

The government didn’t help clarify any ambiguity when it easily could have done so through a pre-bid inquiry that asked about the drywall levels. Instead of clearly responding the following inquiry, “Please identify where each finish level is to be applied,” the government answered with information about how the drywall was to be “painted” instead of how it was to be “finished.”

The Board concluded that the record is “replete with evidence that [contractor’s] interpretation is well within the zone of reasonableness….” The Board states, “As we have determined that the fire-taping required by paragraph 3.11.6 is a Level 1 finish, USACE’s argument that only Levels 4 and 5 finishes are allowed by the contract is incorrect. This supports [contractor’s] interpretation.”

The Board also found that Trade Practice may be useful in interpreting the contract and that comments by the government at a pre-bid meeting where it was “agreed that fire-taping was all that was required above ceilings and floors” was important. Plus, said the Board, the course of dealing can be used to interpret contracts, and both parties here interpreted the contract the same way for over a year and half before the government suddenly requiring something different.

Another strong argument by the contractor was that there had been three contract modifications prior to the government changing its contract interpretation. These modifications lowered the ceiling heights in several areas. For each of those, the USACE requested and received cost reductions for the reduction in the higher level finishing and painting that was saved by lowering the ceilings.

If Level 4 was required for all surfaces regardless of the height of the exposed wall then such a cost reduction change order would not have been appropriate. The Board stated, “These modifications evidence ASACE’s initial understanding that Level 4 finish was not required above ceilings and below floors.”

The Board goes on to state that the government’s interpretation of the specifications was also within the zone of reasonableness. But that didn’t get the government off the hook here. This is because where both the government interpretation and the contractor interpretation are reasonable, this just proves the specification was ambiguous. As a matter of law, the Board determined that the ambiguity was “latent” and not “patent.” And, “If the ambiguity is not patent, but latent, we construe it against the drafter under the rule of contra proferentem." The ambiguous specification must therefore be interpreted and applied against USACE.

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