Construction Disputes: Arbitration or Litigation?

Posted by: Hilger Hammond On: 9th August 2017 | no responses.

By Stephen A. Hilger

This is Part 1 in a 20-part series of articles dealing with issues of arbitration in the construction industry.

The question of whether to arbitrate or litigate disputes comes up fairly frequently in the construction industry. From my humble perspective, with respect to construction disputes, there are very few circumstances where I would choose litigation over arbitration. Why?

Choice of Decision Maker

With arbitration, in general, you pick the decision maker(s) as opposed to being assigned a judge through a blind draw in the court system. That level of arbitrator selection may range from picking from a list under the American Arbitration Association Rules to hand picking a blue-ribbon panel of arbitrators or even a single arbitrator through private arbitration. If you are assigned a judge through the courts, you may end up with a judge who does criminal proceedings in the morning, divorce proceedings before lunch, and then handles your complex construction law dispute in the afternoon, in 15-minute increments, along with multiple other disputes in what looks to an outsider like a giant cattle call. Unless your contract provides otherwise, you may also be in the unlucky position to try your complex construction disputes to a jury.

Control of Schedule

If you choose litigation over arbitration, you have very little control over your schedule. The judge may impose a schedule which you are bound to follow regardless of the circumstances of either the case or your personal life. You may also be unlucky enough to end up on a rocket docket where the court accelerates your proceeding through the court system. By contrast, in arbitration, you generally pick the date of the hearing, within reason. Absent any obvious delay tactics, an arbitrator is much more likely to work with your schedule.

Location of Hearing

To some extent, you control where the hearing will take place.

Control of Proceeding

To some extent, you control the proceedings.

Timing of Decision

The decision of which approach to use is generally made at the contract negotiation level, while the parties still love each other and before they become embroiled in a nasty disagreement.

Fast Resolution

In arbitration, there is generally no appeal. While a party can attempt to vacate the award, that process is very seldom granted. Accordingly, there is a quicker end to the dispute.

Less Expense

Arbitration can be quicker and less expensive unless the arbitrator allows the process to get out of hand. While you have to pay arbitrators, and you do not pay judges, in the balance, you will likely still be better off in arbitration.

Decision Maker with Experience in Construction

No one can expect a trial judge to be an expert in construction law. A seasoned arbitrator-attorney, who has practiced construction law for many years, is much more likely to understand the subtle nuances of the many aspects of construction law. The likelihood is that a seasoned arbitrator will give a better, more correct decision. As a result, arbitration affords better control over the process and the outcome.

All of these factors need to be taken into consideration when deciding whether to arbitrate or litigate a dispute.

Attorney Stephen Hilger is engaged in complex commercial litigation with an emphasis on construction law, has tried many cases in multiple state courts, and has appeared in several state courts of appeal, the Michigan Supreme Court, United States District Courts, United States District Courts of Appeal, the United States Supreme Court on cert, and multiple arbitration tribunals across the country.

AIA 2017 – What’s New About The Old?

Posted by: Hilger Hammond On: 21st June 2017 | no responses.

By Aileen Leipprandt

In April 2017, the American Institute of Architects (AIA) released the 2017 editions of its flagship agreements, including the Owner-Contractor Agreement (A101), Owner-Contractor Agreement, Cost Plus a GMP (A-102), the General Conditions of Contract (A201) and the Contractor-Subcontractor Agreement (A401).  Significantly, AIA also created a new comprehensive insurance and bonds Exhibit (Exhibit A) to be used with these agreements.

Some interesting changes to note:

  • Liquidated Damages. Liquidated Damages are now expressly identified with a new provision.  In prior revisions, LDs were merely suggested in a “prompt” as an insertion. Furthermore, the Owner is not required to file a Claim to impose liquidated damages.  Prior AIA versions were silent on whether Owner was required to file a formal claim; courts addressing the question reached differing results.
  • Captive Insurance Costs.  Contractor must obtain Owner’s prior approval of Contractor’s costs for insurance provided through a captive insurer owned or controlled by Contractor.
  • Allocation of GMP.  Adopting a revision commonly made by the parties, if a GMP is given, allocation of the GMP does not constitute a separate GMP for each individual line item on the Schedule of Values.
  • Termination Fee.  Where the Owner terminates the agreement for convenience, Contractor may be entitled to a termination fee.  Prior AIA versions were silent as to such fee.
  • BIM Reliance. Use or reliance upon a BIM model without establishing protocols for such use is not at the relying party’s sole risk, without liability to others.
  • Communication Protocol.  Communication protocol is loosened so that the Owner and Contractor can communicate directly, so long as the Architect is included in communications that relate to the Architect’s services.  In prior revisions, Owner and Contractor were forced to communicate only through the Architect.
  • Weather Delays.  Delays caused by weather, so long as properly documented, are now expressly included in the “force majeure” provision as a basis for extension of Contract Time.
  • Overhaul of Insurance.  The bulk of insurance provisions have been stripped from A201 General Conditions and now appear in the new 2017 Exhibit A – Insurance and Bonds. And, the insurance requirements are much more detailed, specifying particular coverages that are required (e.g., professional and pollution liability and UAV liability) and expressly forbidding certain common restrictions on contractor’s coverages.

What didn’t change?  Indemnification, warranty and waiver of consequential damages provisions remain largely intact.

Want to learn more about the new AIA-2017 documents?  Attend the West Michigan Construction Industry Forum on October 19, 2017.

An ADC Construction Classic – The Timeless Gingerbread House

Posted by: Hilger Hammond On: 9th January 2017 | one response.

You never know what might spark a student’s interest in construction. Such was the case on December 21, 2016, when 10th grade students in the Academy of Design and Construction (ADC) at Grand Rapids Public Schools’ Innovation Central High School enthusiastically embraced their studies in the classic holiday short course favorite – gingerbread house construction. Aileen Leipprandt, an ADC mentor, offers the following account of the students’ successful project.

After spending approximately two minutes in a design charrette guided by Ashley Dunneback (Tower Pinkster), the team broke ground. The first order of business was assembly and installation of the pre-fabricated wall panels (graham crackers). Field fabrication of the panels (snapping the crackers into proper dimensions) proceeded without incident largely due to the pre-scored panels. Attempts to customize panel size by sawing with hand tools (plastic knives) was only marginally successful due to breakage and quickly abandoned. Consistency of the principal fastener (icing) played a crucial role in affixing the panels to the structure (ok, we admit that a shoe box provided well-needed structural support).

Next came the roof. Very tricky. Installation of the gables and roof decking was skillfully accomplished through use of gable wall studs and lateral bracing (pretzel sticks), precisely measured and cut with central incisors (front teeth). The ridge vent (colorful gumdrops) was a key aesthetic component. Because of the short construction duration (<50 minutes), to maintain the critical path of the project a portion of the crew worked concurrently on the curtain wall system. Using trowels (more plastic knives), the laborers quickly screeded the mortar (yes, more icing) on the exterior in anticipation of installation of the salty and sweet architectural components (pretzel stick muntins, Cheez-It® siding and M&M® headers).

With Substantial Completion achieved two minutes before the bell ringing, the ADC students and their mentors delivered the project ahead of schedule with only minimal loss in materials consumed by the labor force during the construction process, with M&Ms experiencing a more significant loss ratio than other components. Legal counsel for the contractor (Aileen, Hilger Hammond) confirms that aside from excessive icing coating the fingers and the clothing of the laborers, there were no OSHA recordable injuries on the project site.

Well done ADC students!

Students in the Academy of Design & Construction at GRPS Innovation Central represent the future construction labor force in West Michigan. Perhaps you will consider donating your time or resources as a benefactor or mentor to the ADC program and students? The rewards are priceless…

Crossing a Finish Line Can Be Tough

Posted by: Hilger Hammond On: 16th September 2015 | no responses.

The following article was originally published in Builder’s Exchange Quarterly. Summer 2015 edition.

track-finish-1442273By Aileen Leipprandt

It was reported that elite runner, Hyvon Ngetich, literally crawled the last two tenths of a mile to cross the finish line in the Austin Marathon on February 15, 2015. After leading most of the race, her body simply gave out. Instead of calling it quits, she crawled on her hands and knees to the end, taking third place with a time of 3:04:02.

Closing out a construction project is not that dramatic, nor should it be. As legal advisors to the construction industry, however, we often see relationships disintegrate at the final stages of the Project. What can you do to finish strong?

First, start well to finish well. Even before groundbreaking, prepare for close out by clearly defining responsibilities and deliverables in your contract. It’s easier to negotiate terms at the beginning of a project when relations are cordial, rather than the end when parties get sidetracked by unresolved claims. Clearly define Substantial and Final Completion and the relationship of those dates to warranty obligations, insurance requirements, liquidated damages and the statute of limitations. Specify when the Owner’s obligation for operation, maintenance, security, insurance and utilities begins to avoid gaps in insurance coverage. Evaluate whether warranty and as-built requirements are commercially reasonable. Confirm the punch list procedure has sufficient controls so that the process does not get bogged down by endless additions. And, to minimize subcontractor claims, negotiate a reduction in
retention as milestones are met.

Second, timely address claims to the extent you can. Deferred claims merely fester, derail close out and ultimately spawn calls to the legal team. Strive to neutralize claim language to avoid igniting emotion during the project.

Third, establish clear and efficient financial controls. You don’t want to chase missing lien waivers nor do you want to absorb trailing invoices that are too stale to present to upstream parties.

Fourth, don’t overlook the importance of comprehensive owner training on capital equipment. Proper handover of sophisticated systems can reduce callback and prevent damage to systems, thereby reducing warranty claims or contractor/design professional blame for operational challenges.

Fifth, carefully document all policies of insurance that apply to the project while the policy numbers, carriers, coverage limits and additional insureds are easily identifiable.

Finally, think creatively about solutions to end a difficult project on a high note. Diminish arm wrestling over whether work is truly defective by providing a warranty bond or extending the warranty. Do not overlook the reputational value gained through a smooth close out process. It’s not just first impressions that matter. Especially on construction projects, last impressions have a bigger and lingering impact. Just as Hyvon Ngetich’s heroic effort to cross the finish line in Austin, Texas left a lasting image of courage and perseverance, much can be gained when construction stakeholders focus not only on “when” a project should be completed, but also on “how.”



Hilger Hammond Supports the Construction Alliance Rally, May 7, 2015

Posted by: Hilger Hammond On: 30th March 2015 | no responses.

construction-alliance-rally-98Hilger Hammond is pleased to be a sponsor of the Construction Alliance Rally coming Thursday, May 7, 2015, to be held at the GRCC M-TEC Center to rally the construction industry to attract the next generation of construction industry professionals.

The first annual Construction Alliance Rally will be a gathering of commercial and residential construction industry professionals to celebrate the industry’s comeback and raise funds to inspire and attract young people to the industry. Construction has experienced dramatic growth throughout the last several years creating great opportunities for young people to consider construction careers.

Find out more about this event, hosted by the Construction Workforce Development Alliance.

Contractor’s Common Law Indemnity Claim Against Architect and Engineer Fails

Posted by: Hilger Hammond On: 16th October 2014 | no responses.

wood constructionBy Aileen Leipprandt

A general contractor’s common law indemnification claim against the project architect and structural engineer was dismissed where the general contractor could not establish that it was liable for the wrongdoings of either the architect or structural engineer. Sachse Construction & Development Co, LLC v AZD Associates, et al (Mich Ct. Appeals 2014). 

In this case, Sachse Construction & Development was the general contractor for a condominium project located in Royal Oak. The condominium association sued Sachse claiming numerous construction defects. Sachse, in turn, sued the project architect and the structural engineer asserting a variety of theories including (1) common-law indemnification; (2) third-party beneficiary; (3) unjust enrichment; and (4) negligence.

As to its common law indemnity claim, Sachse argued that the damages sought by the condo association were the result of the malpractice of the architect and engineer, not Sachse. The trial court disagreed with Sachse, ruling that the evidence presented did not establish any claim by the condominium association for damages caused by the architect or engineer. Instead, the association had sued Sachse for construction defects solely related to Sachse’s work. The trial court dismissed Sachse’s indemnity claim and Sachse appealed.

The Court of Appeals upheld the trial court’s ruling, affirming the longstanding principle that in order to prevail on a claim for common law indemnification, the party seeking indemnity must show: (1) that it has been held liable for the acts of another, and (2) that it is “free from fault in the underlying wrongful act that gave rise to the liability at issue.”

Construction of 2014 FIFA World Cup Stadiums

Posted by: Hilger Hammond On: 13th October 2014 | no responses.

By: Casady Pickar
Stadium ImageThe FIFA World Cup is the biggest single-event sporting competition in the world. Whether you are a soccer. . . I mean fútbol fan or not, it is hard not to catch FIFA fever when the whole world is obsessing over the sport.

As host of the 2014 FIFA World Cup, Brazil made sure not to disappoint in building some of the world’s most breathtaking and costly soccer venues. The games were played in 12 new and revamped stadiums. The latest estimate shows construction costs totaling around $3.6 billion.

As with any construction project, especially one with such hype to live up to, it is all but expected that obstacles and setbacks take place during the process. Construction of the stadiums resulted in construction delays, price hikes, the death of construction workers, and “contracts that normally would be required to undergo public tenders handed out without bids under emergency regulations.” Corruption to Blame for Some Brazil World Cup Cost Rises (Bloomberg Business Week).

While hosting a World Cup clearly comes with a price it is hard not to be in awe of the design work and architecture that goes into building these stadiums. Pictured above is the Mane Garrincha stadium in Brasilia. With an original estimate around $600 million, the facility ended up costing $900 million, putting it in second place on the list of most expensive soccer stadiums.

With the close of the games, the attention now turns to Russia as they begin preparation and construction on stadiums for FIFA 2018. Let’s hope Russia is ready to dig deep into their pockets as the costs for projects of such caliber tend to not have a price limit. If the 2014 Winter Olympics held in Russia are any indication, we are in for more spectacular and costly construction.