Construction Contracts, Risks, & Insurance
Connecting the Course of Construction to the Control of Claims & Litigation
Presented by The Seminar Group
Introduction
On June 8th, 2017 from 8:30-5:00, Pete Fowler Construction Services participated in an event sponsored by The Seminar Group in Portland, Oregon titled "Construction Contracts, Risks, & Insurance - Connecting the Course of Construction to the Control of Claims & Litigation." PFCS and a variety of Portland-based construction professionals presented a lively program about construction management and risks. To save us from the deadly-boring "standing still at a podium and reading a pre-written speech" presentation style, this program is composed of four acts where, similar to a play, the presenters performed different scenes as simplified case studies.
Program Outline
Introductions 8:30-8:45
Act 1: Negotiating Prime and Subcontracts for Construction 8:45-10:15
Act 2: Buying Insurance and Managing Risks 10:30-12:00
Act 3: An Insurance Claim for Damage During Construction 1:15-2:45
Act 4: Construction Defect Litigation 3:00-5:00
Who Should Care
Construction Contracts, Risks & Insurance is for anyone involved in construction, financing, owning, improving, maintaining, or managing property. The objective of this program is to help people and professionals in the industry to avoid the most common shortcomings in construction.
Faculty
Program Details
Our fictional project is a 50,000 square foot apartment with ground floor retail. The contract is a guaranteed maximum price (GMP) of $12,500,000. The structure is 3 story post-tensioned (P/T) concrete with a glass curtain wall system. 3 years after completion, the project was sold to new owners and converted to condos and sold to individual unit owners. The condo conversion entailed HVAC system upgrades, new floors, cabinets, and finishes, but no structural work.
The learning objective of the program is to deliver a complete perspective on the entire lifecycle of Construction Contracts, Risks, Insurance, Claims and Litigation, and to introduce the construction folks to the claims and litigation folks, because for many professionals on one side of the fence or the other, our paths rarely cross. The program is designed to help you avoid the most common pitfalls that cause project shortcomings, defects, delays, cost overruns, legal disputes and headaches in general.
There will be no deadly-boring standing at a podium at this seminar! In each segment, two or more "actors" will play out a scene (a simplified, 101-level case study) with numerous key points to consider from the perspective of the key players. At the conclusion of each scene, a diverse panel will dig into the details and debate time-honored principles and case law, hot topics and new case law, and make recommendations for best practices that the audience can take away to aid in managing the risks inherent in the building business.
Cast of Characters
Owen / Olivia the Owner / Developer
Bob / Barbara the Builder
Ian / Irene the Insurance Professional
Carl / Carla the Insurance Claim Professional
Paul / Paula the Plaintiff Lawyer
Larry / Lisa the Builder's Lawyer
Stan / Sue the Subcontractor
Pete the Construction Consultant / Expert Witness
Mark / Melinda the Mediator
Act 1: Signing a Prime Contract for Construction
Summary: On one side of the stage, the project developer and builder (general contractor) will act out a contract negotiation for the prime contract for construction of our fictional case study, haggling about key contract provisions. The Owner is a thinly capitalized developer who hires a big, experienced GC to build. The Owner is adamant that building will not be converted to condos. The problem is that there is no condo conversion language in the contract. On the opposite side of the stage, the same contract provisions will be negotiated by a representative from the builder and the exterior curtain wall trade (sub) contractor. At the conclusion of these negotiations, our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include protecting the parties with condo conversion language in the contract and to include the insurance professionals in contract formation.
Faculty
Owen the Owner / Developer - Dean E. Aldrich
Bob the Builder (General Contractor) - Emily S. Miller
Sue the Subcontractor - Rima Ghandour
Panelist 1 (Basics / Time-Honored / Tried & True) - Andrew Gibson
When reviewing any contract provision, ask the question: What is fair and equitable in this instance?
Example 1: Consequential Damages Waiver
Example 2: Limitation of Liability Clause
Example 3: Payment Clauses & Retention
Ensuring Continuity of Contracts to Manage Risk
Incorporation Clauses
Flow-Down Provisions
Insurance Requirements
Condominium Conversion Language
When To Use Language
What Language To Use
Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Shon DeVries
Take time during project planning phase to think through major project risks and planning the project insurance intent before contracts are developed.
Try a collaborative negotiating approach instead of combative – the way you start the project will impact the way claims are negotiated.
Allocate risks fairly and transparently among parties with the acknowledgement of parties “owning” risks.
If planning to use a Wrap (multi-family residential, mixed use or large scale projects), start early and make sure contract drafts reflect the insurance intent.
Who will sponsor?
Who will administer?
How will bid credits be managed (if at all)?
What other insurance is needed?
Consider mixing and matching who provides insurance to achieve the best fit, lowest cost program.
Panelist 3 (Recommendations / Deep Thoughts / Do's & Don'ts) - Dean E. Aldrich
Recommendations
Contract negotiations are about team-building and expressing concerns honestly
Areas of importance: payment provisions, warranty, liability limitations, insurance, indemnity, subrogation, claims procedures, attorneys fee recovery, dispute resolution
Deep Thoughts
Don't have too many -- just get the contract done and don't bleed all over it
Do's and Don'ts
Do use red-lines, understand your important provisions, understand Oregon law, explain risks to client in writing
Don't use unfair/one-sided provisions, or blow up the deal/make a scene over unimportant provisions
Contents
Scope of Work
Budget / Costs
Progress Schedule / Project Completion
Schedule of Values
Payment Schedule
Retention
Insurance Requirements
Dispute Resolution
Indemnity
Damages
Resources
Basics / Time-Honored / Tried & Tru
Oregon Law: Construction Contract Payments
Oregon Law: Retainage
Oregon Law: Warranties
Oregon Law: Commercial Structure Warranty
Oregon Law: Action for Damages... ORS 12.135
Oregon Law: Definitions ORS 701.005
2017 AIA Contract Documents: Every 10 years, the core set of AIA Contract Documents are reviewed and updated based on industry trends and important court decisions. The April release includes 11 revised AIA forms and contracts. An additional 18 forms and agreements will be released in the fall of 2017. Once the 2017 documents are released, the 2007 editions of the documents can continue to be used for up to 18 months. This page contains a summary of major changes to the Owner/Architect and Owner/Contractor agreements.
A101- 2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum
A102–2017, Standard Form of Agreement Between Owner and Contractor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price (This is the contract form we are using for our case study)
A201–2017, General Conditions of the Contract for Construction
General Conditions to a Prime Construction Contract a blog post by Pete Fowler Construction Services, Inc.
Hot Topics / New Developments / Interesting Stuff
Hot Topics & Interesting Stuff by Shon DeVries, Propel Insurance
AIA vs. ConsensusDocs: Compiled by James Duffy O’Connor, Maslon Edelman Borman & Brand, LLP Minneapolis, MN and Buckner Hinkle, Jr. Stites & Harbison, PLLC, Lexington, KY
Managing Construction Quality a whitepaper by Pete Fowler Construction Services, Inc.
Terminating a Construction Project Before Completion: Do's, Don'ts, Claims & Litigation
Recommendations / Deep Thoughts / Dos & Don'ts
Avoid Bad Contractors: Basic Due Diligence in Hiring a blog post by Pete Fowler Construction Services, Inc.
Who Would You Prefer As Your Contractor? a blog post by Pete Fowler Construction Services, Inc.
Act 2: Buying Insurance & Managing Risks
Summary: The builder and trade contractor will work with their respective insurance professionals to identify key risks, purchase insurance that meets the minimum requirements of the project, and balance the costs and protections available to the business. The parties decide on a CCIP with no condo conversion buy-back option. Laterals are discussed but GC does not explain that public utility will contract for the work outside of the wrap policy. Design-build window system was not discussed. CCIP does not cover gas line contractor because they are not part of GC scope. CCIP does not cover products liability for glass system. At the conclusion of these meetings our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should discuss scopes that are outside of GC contract and address design-build system components.
Faculty
Bob / Barbara the Builder (General Contractor) - James M. Daigle
Ian / Irene the Insurance Professional for the General Contractor - Shon DeVries
Stan / Sue the Subcontractor - David Heemann
Ian / Irene the Insurance Professional for the Subcontractor - Jim Oliver
Panelist 1 (Basics / Time Honored / Tried & True) - Shon DeVries
Roles of insurance agent/brokers and negotiating position
Basic Coverage that Every Project has in place
General Liability/Excess Liability
Worker’s Compensation
Auto Liability
Builders Risk
Other Coverage that may be needed
Pollution Liability
Professional Liability
Contractual Risk Transfer and Additional Insured forms
Certificates of Insurance Best Practices
When (and why) does Traditional Insurance model break down?
Why (and when) is Wrap a better solution?
Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Andrew Gibson
CCIPs and OCIPs
Wraps affecting contract term negotiations
Little precedent, so confirm coverage specifics in writing, emails, etc.
Be aware of project-specific risks
Starting an Insurance Compliance Program
Attach an Insurance Rider to the Contract
Certificates of Insurance vs. Policy Copies and Endorsements
Using an Insurance Tracking Log
Developments in Oregon Insurance Law
Bad Faith? Not yet. But check ORS 742.061
Beware of Anti-Assignment Provisions
Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - Jim Oliver
Contents
Risk Management Basics
Design-Bid-Build vs. Design-Build
Types of Insurance
Insurance Costs
Insurance for Owners
Insurance for Designers
Insurance for General Contractors
Insurance for Trade Contractors
Key Insurance Provisions
Exclusions
Additional Insured Endorsements
Resources
Basics / Time Honored / Tried & True
Insurance Basics by Shon DeVries, Propel Insurance
Hot Topics / New Developments / Interesting Stuff
Residential Exclusion: Example policy language
Condo Exclusion: Example policy language
Condo Conversion Exclusion: Example policy language
Recommendations / Deep Thoughts / Dos & Don'ts
Act 3: An Insurance Claim for Damage During Construction
Summary: An accident on-site during construction causes property damage to the construction site as well as to adjacent properties. There was a gas line explosion caused by a gas line trade contractor that was not enrolled in CCIP, working for the gas company. There is $5,000,000 damage to the project and another $3,500,000 damage to adjacent buildings. The trade contractor has low (inadequate) limits. The gas company is not responsible. The gas line trade contractor's limits do not cover the extent of damage to 3rd parties. The CCIP excludes the work since the sub was not enrolled. So who pays? At the conclusion of these negotiations our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should enroll the utility contracts in the CCIP and make sure the contract structure is clearly defined so insurance can be structured properly.
Faculty
Paul / Paula the Plaintiff Lawyer - Emily S. Miller
Larry / Lisa the Developer's Lawyer - Andrew Gibson
Ian / Irene the Insurance Professional for the Builder - Shon DeVries
Carl / Carla the Insurance Claim Professional for the Sub - Steven L. Norseth
Panelist 1 (Basics / Time Honored / Tried & True) - David Heemann
The Coverage Parts
Everybody for themselves
Piece together the needed coverage
Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Rima Ghandour
Response Plan
OHSA
Media
Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - David Heemann
Do – Understand the Project’s and Client’s needs
Do – Understand the difference of CCIP v OCIP
Don’t – Have Gaps in Coverage
Do - Understand and Manage the Risks
Contents
Prepare for the Worst
Notice
Who's on the Cat-Team?
Securing the Scene
Collecting Evidence
Witnesses
Forensic Documentation
Coordination and Correspondence
Allocation of Responsibility
Resources
Basics / Time Honored / Tried & True
Common Construction Defects - by Pete Fowler. Published by The Journal of Light Construction in 1998.
Common Construction Defects: A seminar by Pete Fowler Construction Services, Inc.
Analyzing Construction Defects: A seminar by Pete Fowler Construction Services, Inc.
Hot Topics / New Developments / Interesting Stuff
Recommendations / Deep Thoughts / Dos & Don'ts
Act 4: Construction Defect Litigation
Summary: Long after construction is complete, many parties are brought back to the table. The mediator tries to sort things out. The apartments had been sold to a new owner who then converted them to condos. There was a new wrap (OCIP) for the conversion that only insures the conversion work (not the original work). The window system leaks, damaging unit owners property and the window system needs to be replaced. The CCIP insurer has a condo conversion exclusion. The conversion work did not change the glass system so the OCIP excludes coverage. Who pays? At the conclusion of these negotiations our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should include a condo conversion option in original wrap and set up the contract to protect the parties in the event of conversion.
More details about our case:
Association Management
Opt-In unit owners ORS 100.490
Common v. Unit defect/damage
Analyze Unit Sales Agreements (“as-is”, condition assessment, release and waiver, timing), Declaration, Bylaws
Interpreting/Amending Bylaws
Determining timing
Unit Sales Agreement
Breach of Contract ORS 12.080(3), Rice v. Rabb 354 Or 721 (2014)
Negligence ORS 12.110(1), Goodwin v. Kingsmen 359 Or 694 (2016)
Condo related claims ORS 12.110(1), Riverview Condos v. Cypress Ventures 266 Or App 574 (2014)
Hourly vs. Contingent fee
Conversion Developer Claims
Condo Act violations ORS 100.175, 100.655(1)(h), (4); 100.770; 100.775
Breach of Fiduciary Duty (actions while on board of directors/real estate manager)
Breach of Contract/Warranty/Unit Sales Agreement
Negligence
UTPA ORS 646.608
Misrepresentation
Applicability of waiver clause in Unit Sales Agreement ORS 100.780
Conversion Builder and Sub Claims
Negligence
Contract/warranty
Applicability of waiver clause in Unit Sales Agreement, Bagley v. Mt. Batchelor, 356 Or 543 (2014)
Original Builder Claims
Negligence
SOR issues ORS 12.135
Applicability of waiver clause in Unit Sale Agreement, Bagley
Original Curtain Wall Design-Build Sub
Negligence
Professional negligence
SOR issues ORS 12.135
Applicability of waiver clause in Unit Sale Agreement, Bagley
Original Curtain Wall Manufacturer
Products liability ORS 30.900
Warranty
Applicability of waiver clause in Unit Sale Agreement, Bagley
Damages
Repair costs $7.5M (whisper number is $4.5M obtained in mediation from expert)
Loss of Use $TBD
Atty Fee recovery under Condo Act and UTPA
Coverage issues
OCIP
CCIP
CGLs
Professional liability
Condo policy
Piercing
Faculty
Pete the Construction Consultant / Expert Witness - Pete Fowler
Paul the Plaintiff Lawyer - Dean E. Aldrich
Carla the Conversion Developer - Emily S. Miller
Larry the Builder's Lawyer - James M. Daigle
Stan / Sue the Subcontractor - Rima Ghandour
Mark the Mediator - Jim Oliver
Carl / Carla the Insurance Claim Professional - Steven L. Norseth
Panelist 1 (Basics / Time-Honored / Tried & True) - James M. Daigle
Less than 1 in 1000 cases are tried to a jury.
There is a 99% chance you case will be resolved through mediation.
Develop a mediation strategy.
Ensure that all decision makers are engaged and agree on the plan.
Identify one spokesperson for your team.
Educate the decision makers.
Evaluate external influences on settlement decision.
Preparation for mediation
File dispositive motions well before your mediation.
Know your coverage issues.
Communicate your position early.
Have a credible scope and cost of repair.
Get the answers you need to questions that might delay resolution.
Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Emily S. Miller
Brownstone: Impact on documenting stipulated judgment settlements.
Fountaincourt/Hunters Ridge: Impact on determining indemnity coverage after an underlying trial.
West Hills Development: Impact on Additional Insured coverage.
Hunters Ridge: Impact on coverage for insured’s exposure to attorney fee award.
Probuilders: Enforcement of Special Contractors Conditions endorsements.
Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - Steven L. Norseth
Notice
The Policy
Investigation
Allegations
Scope of Repair
Application of Coverage
Valuation
Settlement
Contents
Activities in CD Litigation
Insurance Coverage
Investigation & Documentation
Property Damage
Early Evaluation
Litigation Costs & Fees
Expert Witnesses
Scope of Repair
Cost Estimating
Allocation of Responsibility
Settlement
Trial
Resources
Basics / Time-Honored / Tried & True
What To Do When You Have A Building Leak: a blog post by Pete Fowler Construction Services, Inc.
Evaluating Water Leakage of Buildings: a seminar by Pete Fowler Construction Services, Inc.
Property Condition Assessments Using ASTM E2018: a seminar by Pete Fowler Construction Services, Inc.
Construction Defect Litigation from the Plaintiff Perspective. A Pete Fowler Construction Services, Inc. presentation.
Construction Defects from the Cross-Defendant/Third-Party Perspective. A Pete Fowler Construction Services, Inc. presentation.
Hot Topics / New Developments / Interesting Stuff
Brownstone: Impact on documenting stipulated judgment settlements. A case summary by Emily S. Miller.
Fountaincourt/Hunters Ridge: Impact on determining indemnity coverage after an underlying trial. A case summary by Emily S. Miller.
West Hills Development: Impact on Additional Insured coverage. A case summary by Emily S. Miller.
Hunters Ridge: Impact on coverage for insured’s exposure to attorney fee award. A case summary by Emily S. Miller.
Probuilders: Enforcement of Special Contractors Conditions endorsements. A case summary by Emily S. Miller.
Recommendations / Deep Thoughts / Dos & Don'ts
Claims Handling Perspective for Construction Defects by Steven L. Norseth
Case Study: Builder's "Right to Repair" and Elevator Claims Solved Before Litigation
Case Study: Leak Investigation Involving Solar Panel Installation
Seminar Details
When: June 8th, 2017, 8:30am - 5:00pm
Where: World Trade Center, Downtown Portland, Oregon
Cost:
Attorney - $529
Government / Nonprofit - $429
Other Professionals - $399