CONstruction law - damages
mwade3
11.pptChap 16
Proving costs and damages
- How do you calculate damages??
- Inability to prove with certainty may prevent full recovery
- Need to determine true cost to evaluate the benefit of litigation
Basic premises on theory of damages
- On breach of contract, the Court will generally attempt to put the claimant in the same position as if all parties performed the contract as intended
- On a tort case, the Court will generally put the injured party in the same position as if the tort had not been committed
- Tort damage is harder to define so Courts have limited to injury or damage and not economic loss so most suits are breach
Categories of damages
- Direct or general damages – immediate impact of breach and are recoverable when proven
- Consequential or special damages- indirect source of loss – to recover these must have been contemplated in contract and these are harder to prove
- Punitive – awarded for fraud , bad conduct and negligence but rare in construction- intended to punish to prevent similar action in the future
Direct damages
- Contractor
- idle labor and equip
- labor or mat’l escalations
- extended general conditions
- Owner
- cost to correct work
- delay costs
Consequential damages
- Contractor
- loss of another project and profits
- higher interest rates
- Owner
- loss of use of building
- labor if employees cannot work
Recovery for consequential damages requires
- Proof that the consequence was foreseeable in the normal course of events
- Proof that the loss would not have occurred but for the breach
- Proof that the amount of loss can be reasonably ascertained
- Much higher burden of proof – except with express language
Issues related to recovery
- Causation- prove the damages flow from the breach
- Proper cost accounting records to document loss
- Mitigation of damages- recovery is limited to the loss that was unavoidable
- Betterment- cannot expect recovery for more than loss – can’t get “better” building than plans/specs
Methods of pricing claims
- Total cost method
- Segregated Cost Method
- Modified total cost method
- Quantum merit claims
Total cost method
- Seeks to convert a fixed price contract to a fully reimbursed deal
- Due to overly generous approach it is not frequently accepted by the Courts- does not account for any errors by the Contractor
- All expenses are total and fee and overhead are added
Total cost method
Requirements
- Other methods are impractical or impossible
- Recorded costs are reasonable
- Contractors bid must have been reasonable
- Actions of the plaintiff-Contractor or sub – must not have caused any of the cost overrun
Segregated cost method
- More difficult than total cost but more accurate and persuasive
- All costs with the claim are segregated or separated- can be actual or estimation
- Can be difficult to separate without detailed cost records
- Good idea to separate costs as items come up- use cost codes
Modified total cost method
- Combination of total and segregated
- Modifies the calculation to show the cause and effect relationship with the costs and the cause of the claim
- Must adjust the Contractor’s bid for any error to establish fair basis for claim
- Focus on just the scope of work that impacts the claim
- More favored by theCourts
Quantum merit
- As much as deserved
- Reasonable value approach
- Measures damages under an implied contract based on theory that no one should unfairly benefit
- Unjust enrichment- TV studio HVAC example
- Often used when for subs with an owner where there is no contract
Contractor damages
- Change in quality or quantity of the work
- Changes in the method or sequence which includes delays, disruption and acceleration- floor changes example
- Inefficiency is hard to prove actual costs- overtime, restricted access, trade stacking
- Extended general conditions
Contractor damages
- Breach before starting/ stopped job- lost profits, mobilization costs, estimating
- Must be reasonable and use standard cost factors – unit prices, cost plus Fee/GC
- Extra costs to track changes and home office support
Owner direct damages
- Fail to start or fail to complete
- Poor quality or defective work
- Owner is due the difference between the contract and the cost to finish or correct
- For substantially complete work use the cost and value rule –cost to complete or repair and value of actual work done
- Fail to finish on time- delay costs- continue to rent in old location
Owner – consequential damages
- Loss of use of the facility- profits
- Cost of employees that are not productive
- Increased interest rates or refinancing
Owner- liquidated damages
- Agreed upon sum put in the contract
- Established as actual damages cannot be determined
- Must be reasonable estimation
- Cannot be punitive
- Courts will not uphold if Owner has a part in the delay or after substantial completion or final payment
Chap 17
Environmental and safety concerns
- Many laws related environmental and safety issues
- Have to have plan to address these in your projects
- May involve permitting or licensing which is before you start work
- Need to get the contract and insurance with correct language
Laws, Regulations , Agencies
- Comprehensive Environmental Response, Compensation and Liability Act of 1990 CERCLA or “superfund” - mostly deals with clean –up
- Resource Conservation Act of 1976 RCRA – deals with current handling
- Clean Water Act
- Clean Air Act
- OSHA –Occupational Safety and Health Agency
- EPA –Environmental Protection Agency
CERCLA -responsibilities
- Current owner and operator
- Owner and operator at the time the hazardous substance was dumped
- Any party that arranged for the disposal of the hazardous substance owned by them or another party
- Any person that accepted any hazardous substance for transport or disposal that results in a release
Superfund site liability
- Very broad liability
- One contractor held liable for just cut and fill on contaminated site even though they did not know and was years earlier
- Any firm that sent waste there or if you bought a firm that did- Chicago hospital
- Joint and several liability- liable as a whole not separable so if you contributed 20% then you are also liable for 100%
Other potential risks
- Storm water run-off – applies to storm water run-off from constr. Sites > 1 acre- must get a permit and control run-off
- File proper notices or penalties- $25k per day- civil and $25k per day plus 1 year in jail- criminal
Other potential risks
- Air quality- dust from site or concrete dust from crushing for LEEDS
- Asbestos- from demolition or hauling
- Lead from paint
- Mold exposure
- PEL – Permissible exposure level- parts per million
- Worker and public exposure risks
Asbestos abatement
Bag and tag
Asbestos abatement of floor tile-VAT- vinyl asbestos tile
Lead paint abatement
Minimizing risks
- Prebid steps – review documents, site investigation, document asking the question or for reports
- Test materials in question
- AIA 201 has provision that addresses unanticipated hazardous substances that indemnify the contractor if no negligence
- Stop work and notify the owner in writing
- Obtain insurance or sub out if known
Toxic mold
- Mold is common in nature and buildings but can be risky in some cases- confined spaces
- No PEL so vague on exposure and damages
- Some insurance has exclusions- “pollution exclusion” - check??
Mold loves drywall
Mold!!
Who is responsible for project safety?
- The contractor and subs
- Best to prevent accidents:
- reduces exposure to fines
-reduces premiums for workers comp and liability insurance
-reduces risk for accidents not covered by insurance
- Send everyone home alive
Steps you can take
- Safety manager
- Written procedures
- Training – before work and on the job
- Work plans – before starting work
- Preconstruction meetings
- Risk assessments and mitigation plans before you start
- Insurance
- Emergency response plans
- Legal reviews of contracts before you sign
