Construction regulation tends to get complicated. With all of the levels of government playing a role in it, legal issues can arise in a number of ways. Common construction-related legal disputes include workplace injuries and accidents, construction defects, contract issues, and problems with obtaining the proper planning or building permits. Construction law involves any legal issue related to the construction of a building or other structure. Legal issues related to construction activities can arise under federal, state, or local laws. Federal statutes, such as workplace safety regulations and employment laws, can impose requirements on worksites and hiring practices. States may impose additional regulations on top of federal ones, which can range from safety and employment to environmental rules. City and county ordinances may impose additional restrictions on zoning and construction noise.
The person “in charge” of the overall project is usually termed the “Owner” and is often the only nonprofessional in the entire project. It is critical for each Owner, until he or she has built numerous projects, to understand that they are operating under a significant handicap. Not only must they contend with professionals who do these types of projects (and create form contracts) for a living, but the various builders and suppliers have finite tasks while the Owner must assume financial responsibility for the success of the entire project.
Owner duties and responsibilities that have arisen in typical disputes include:
- Providing financing for the project.
- Providing site surveys.
- Securing and paying for easements.
- Warranting the plans and specifications.
- Warranting owner furnished materials.
- Disclosing superior knowledge.
- Acting on clarifications and changes.
- Interpreting the documents.
- Cooperating with the contractor.
- Selecting all professionals on the project.
- Interacting with various governmental bodies.
- Interacting with real estate professionals to sell the finished project.
- Interacting with title companies to facilitate the sales.
In general terms, a contractor is responsible for planning, leading, executing, supervising and inspecting a building construction project. The responsibility extends from the beginning to the end of the project, regardless of its scope. In construction law, both the owner and the contractor are required by law to act in good faith in the performance of their contractual obligations. Courts have held that the construction contractor owes the owner a duty to perform services in an appropriate workmanlike manner. This duty requires the contractor to warn the owner if the design or construction specifications may have damaging results.
In the world of construction, the role of the architect has assumed a remarkably powerful position yet that role often results in the architect being the focus of disputes and resentment as he or she tries to balance the conflicting needs of the builders, the engineers and the “client,” that is, the owner of the building. The architect is quite often the ultimate decision maker on a project, the person who is supposed to coordinate the aesthetic and practical needs of the owner with the practicalities and design criteria of the engineer, the builders and the local authorities. All within budget and all delivered on time. Yet, legally, the role of the architect is not only more mundane, but is actually restricted to being the agent of the owner, acting to initiate and facilitate the project from initial planning to completion. As the owner’s agent, the architect is typically responsible for the technical design, as defined in the contract with the owner. Indeed, in some jurisdictions, it is legally required to have a written contract between the architect and the owners.
Subcontractor rights are governed by the contract. The general contractor and employer are bound by the terms of the agreement they sign. The subcontractor takes responsibility for seeing that his portion of the contract is completed according to the agreement. If a subcontractor feels that the contractor or employer has violated the contract, he is entitled to sue for damages. The subcontractor can file a mechanic’s lien against the property for unpaid wages and expenses. He also has the right to work in a safe and healthy environment. The subcontractor and the general contractor should draw up an agreement that outlines the rights, obligations and duties of both parties. It should include timelines, fees, workmen’s compensation and an indemnity clause. The indemnity clause should specify that the subcontractor is not liable for any breach of contract that the general contractor commits. The subcontractor is only liable for his own actions. The date work is to begin and end also needs to be listed on the agreement.
A surety bond is a three-party agreement assuring the project owner (obligee) that the contractor (principal) will perform a contract in accordance with the contract documents. When a contractor requires its subcontractors to obtain bonds, the contractor is the obligee and the subcontractor is the principal. Most surety companies are subsidiaries or divisions of insurance companies, and both surety bonds and traditional insurance policies are risk-transfer mechanisms regulated by state insurance departments. Surety is designed to prevent a loss. The surety prequalifies the contractor based on financial strength and construction expertise. Because the bond is underwritten with little expectation of loss, the premium is primarily a fee for prequalification services.
If you own a construction business, you know the value of a well written contract. The contract is what defines each party’s role in a project and it sets the expectations of how disagreements will be handled if they arise. The scope of work is a detailed outline of the work to be performed during a construction project by individual parties. When drafting or reviewing a scope of work, it is your lawyer’s job to ensure that the contract includes a concise and accurate framework of the expectations of all contractors, sub-contractors, and property owners. Anything that falls outside of the scope of work and not included within the signed contract should be followed with a change order and addendum, when additional costs are associated with the change. Construction contracts often include a dispute resolution clause that outlines how contractual disputes will be handled. There are two primary forms of alternative dispute resolution, mediation and arbitration. Often, mediation will be the first attempt at reaching a resolution between parties, but if a mutual agreement cannot be achieved, parties can often move forward with formal litigation.
Types of disputes
A construction defect can arise from a variety of factors, such as poor workmanship or the use of inferior materials. Some defects are obvious and are called “patent”. Other defects are hidden or do not become apparent until years after the home was built. These defects are called “latent”. A successful construction defect litigation claim relies on the testimony of experts who specialize in specific areas of construction. The experts investigate the defect, evaluate the cause and make recommendations for how to remedy the defects. There may be several responsible parties, but generally the responsibility will lay with the general contractors, developers, and the builders of residential structures even if the work was performed by subcontractors or if the defective materials used in construction were manufactured by others. Architects, designers and other involved parties may also be defendants in litigation.
The economic loss doctrine is a judicially created doctrine that initially arose out of products liability claims. The essential holding of the economic loss doctrine is that a plaintiff cannot recover in a tort action (i.e., a negligence claim) if the damages claimed are purely economic loss. For example, if you purchased a refrigerator and the ice maker was defective, you could not recover the cost to repair the ice maker in a negligence claim. Instead, the proper claim would be for a breach of contract or breach of warranty. The rationale behind the doctrine is that product imperfection, absent any injury or damage to other property, concerns customer expectations, and these expectations are better dealt with through a breach of contract or breach of warranty claim. In other words, the contract between the parties should deal with the parties’ expectations, and therefore adequately address the parties’ risks. On the other hand, if the defective refrigerator ruined all of the food stored within it, burned down the house, or caused some personal injury, such claims could be brought as a tort or negligence claim.
Much of the time of a construction lawyer is spent assisting clients in finding solutions to the many problems that befall the typical construction project. These problems range from simple contract preparation and negotiation to the more fact-intensive work of constructive defect litigation, surety claims, liens, and payment issues. Each construction project, no matter how complex or simple, involves the same basic issues:
- What is the scope of work that the parties agreed to?
- What documents or plans define the scope of work?
- How is the contractor to be paid for his work?
- How can the owner be assured that the contractor is doing the work properly?
- What is to be done when there are issues or problems with respect to any of the above?
At Shiryak, Bowman, Anderson, Gill & Kadochnikov LLP, we help chart a course through this minefield and ideally resolve issues without judicial intervention. A construction dispute can arise from a few various factors and vary in size. When a conflict does materialize, it could have a serious impact on the entire project. Seeking a solution to the problem is imperative to the success of the entire project. Having the assistance of a smart attorney is the key to smoothing it all over. Our team understands the importance of a quick but effective solution, and work hard to get it.