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.

Construction Contract Clauses, Part 3 – Site Investigation Clauses

Posted by: Hilger Hammond On: 13th June 2017 | no responses.

By: Mark A. Rysberg

A site investigation clause is a provision in a construction contract that indicates that one of the parties has made an inspection of the property, project, or location where certain services, labor, or material will be provided, and that the party making the inspection is satisfied that performance will be possible given the circumstances. The following is an example of a site investigation clause:

Each contractor shall examine the construction site and area and compare its findings with the Drawing and Specification and shall inform and satisfy itself as to all matters necessary for carrying out the work; including but not limited to, general working conditions, labor and equipment requirements, accessibility, condition of the premises, obstructions, drainage conditions, actual levels, excavating, filling, etc. The Contractor shall investigate all conditions as to character of the site and character of existing structures at or adjacent to the site, and the character and extent of the Owner’s and other Contractors’ operations in the area, and in connection with the project, and shall take all such matters into account in submitting its bid. No allowance or extra payment will be subsequently made because of any such items or conditions occasioned by the Contractor’s failure to make such comparison and examination or on account of interferences from the Owner’s, Construction Manager’s and other Contractors’ activities, or by reason of any error or oversight on the Contractor’s part.

The purpose of a site investigation clause is to prevent claims for unforeseen site conditions. However, there are many limitations on site investigation clauses.

However, issues may arise when conditions that were not, or could not have been, revealed based on the information available. For example, there are circumstances where an owner would be contracting with a general contractor for performance of various services which would include excavation to build a foundation of a structure. Typically, an owner would provide some sub-surface soil data, but either the data or the contract would carry with it a disclaimer that the general contractor, then as a bidder, would be obligated to make its own investigation as to what the underground site conditions were. But, the extent that a bidder can make such investigations is limited to a review of the subsurface data provided by the owner as a bidder will typically not be permitted to perform additional subsurface testing. In that and similar situations, a bidder’s risk based on a site conditions clause will likely be limited to the physical observations available at the site and the data contained in any documents provided by the owner.

In other words, these clauses do not require a bidder to perform an exhaustive investigation into the site conditions. Rather, bidders should consider visiting the site, review all site condition data provided in the bidding documents, and consult with their counsel to evaluate whether a site conditions clause may be negotiated to more fairly define the scope of the representations contained therein.

If you enjoyed reading this article, you might also like “Construction Contract Clauses Part 2  – Flow-Through Provisions.”

Court Enforces Subcontractor’s Obligation to Indemnify Contractor

Posted by: Hilger Hammond On: 3rd February 2017 | no responses.

By Aileen Leipprandt

The Michigan Court of Appeals recently affirmed a contractor’s right to defense and indemnity from its subcontractor under the plain language of the parties’ subcontract. Provenzino v Macomb County Department of Roads, et al (January 2017).

In this case, Mr. Provenzino alleged that he was injured when he fell from his motorcycle after encountering a disparity in height between adjacent milled and unmilled lanes of traffic in a construction zone. Provenzino sued multiple parties including Florence Cement Company, the general contractor, and Lois Kay Contracting Company (LKCC), the subcontractor who milled the roadway surfaces. Florence filed a cross claim against LKCC seeking indemnity based upon the indemnification provision in the parties’ subcontract. That provision stated:

Subcontractor agrees, and shall bind all sub-subcontractors to agree to indemnify Contractor, Owner and all other parties the Contractor is obligated to indemnify pursuant to the Prime Contract (hereinafter “Indemnitees”), and to defend and hold Indemnitees forever harmless from and against all suits, actions, legal and administrative proceedings, claims, demands, damages, interest, attorney fees, costs and expenses of whatsoever kind or nature whether arising before or after completion of Subcontractor’s work and in any manner directly or indirectly caused or claimed to be caused by any action or negligence of Subcontractor or Sub-subcontractor, and regardless whether directly or indirectly caused or claimed to be caused in part by a party indemnified hereunder or by anyone acting under their direction, control or on their behalf, until such time as a judgement [sic] is entered against Contractor by a court of law. …[emphasis added].

The trial court dismissed Florence’s claim for indemnity ruling that LKCC’s work did not cause the plaintiff’s injuries and that there was no evidence to suggest LKCC was negligent. The Court of Appeals reversed, ruling that the plain language of the indemnity provision required LKCC to defend and indemnify Florence. The appellate court explained that in determining whether a duty to indemnify exists, the issue is not whether LKCC was actually negligent; rather, the issue is whether Mr. Provenzino’s allegations arose in “any way” from LKCC’s work. Since Mr. Provenzino broadly alleged that LKCC and Florence’s actions created an unreasonably dangerous condition, under the plain language of the subcontract, the indemnification clause was triggered.

Lesson Learned :  Each party to a construction contract (whether giving or receiving indemnity) should carefully assess (and negotiate) the indemnity provision to properly manage risk transfer.

New Overtime Rule – Legal Implications for Employers

Posted by: Hilger Hammond On: 11th October 2016 | no responses.

time-1196952-640x480By Elizabeth Welch Lykins
Welch Law

In May 2016, the Department of Labor (DOL) released its long-anticipated new overtime rule for Executive, Administrative, and Professional employees. These employees are generally your managers and white-collar professionals. If these employees perform certain “duties” (as defined by DOL regulations) and are paid a salary, then you do not need to pay them overtime. They are referred to as “salaried exempt” (ie, exempt from overtime laws).

As of December 1 of this year, these Executive/Administrative/Professional employees will need to be making at least $47,476 annually (or $913 per week) in order to qualify as “exempt” from overtime. Right now, the required salary threshold is only $23,660 (or $455 per week). Under the new rule, up to 10 percent of the salary can include nondiscretionary bonuses, incentive payments, and commissions.

Thus, if you have a current employee classified under one of the Executive/Administrative/Professional exemptions, that employee MUST BE PAID the new salary minimum. If he/she does not make the minimum, then the employee must be converted to an hourly employee and be paid overtime for hours worked in excess of 40 in a week. Alternatively, the employee can receive a salary to cover a set number of hours (but the employee still must be paid overtime for hours worked over 40 in a work week).

There is a grace period until December 1 to update the status/salaries of your employees. Employees who do not meet the new salary minimum will now have to keep time records. These employees will need to record start/stop times, breaks, lunch, and time worked in the evening. This is vital as the employer has the burden of proving “hours worked.” Even if an employer decides to just limit “hours worked” to only 40 in a work week, hours still must be tracked to show that is in fact the case. Furthermore, these employees will now be subject to all your hourly employee policies regarding sick time, vacation/PTO etc. It will be a huge adjustment for them since their pay will be tied to hours worked—they will no longer just make the same amount each week regardless of hours worked.

The legal implications of this change are large. If an employer fails to make the salary change (or convert employees to non-exempt/overtime eligible), the employer could be sued for past-due overtime for any hours worked in excess of 40 (and face the possibility of treble damages with a 3-year lookback as well as payment of the employee’s attorney’s fees). It is critical that you examine every salaried position in your company and make sure you are compliant with this new rule.

The new minimum for “highly compensated employees” (another exemption some employers utilize) is now $134,004 (raised from$100,000).

The new rule raises the salary minimum every three years. Thus, the DOL estimates that as of January 1, 2020, the estimated minimum will rise to $51,168. The “highly compensated employee” exemption will likewise be adjusted every three years.

One final note: MANY employers have employees mis-classified as “exempt” from overtime just because they pay a salary to an employee. Salaried status alone is not enough. The employee must also meet one of the approved exemption categories. Each category has its own duties checklist. This new rule presents an opportunity to make sure everyone in your work place is in fact properly classified. My fellow management-side employment law attorneys and I have been very busy the last few years handling wage/hour matters resulting largely from mis-classifications (ie, treating an employee as salaried-exempt when in fact they are not and should have been receiving overtime).

Once salary/hourly wage adjustments are made, you will need to examine your policies for this new group of potentially non-exempt employees. Your handbook policies and benefits packages will need to be examined with an eye towards the impact on this group who previously was not subject to the “hourly” policies.

Elizabeth Welch Lykins practices exclusively in the area of labor and employment law. Her work includes assisting management with issues related to hiring and firing, wage and hour compliance, union negotiations, as well as all aspects of employment law on the local, state and federal levels. She has extensive experience practicing in front of the National Labor Relations Board, the Equal Employment Opportunity Commission, the Michigan Department of Civil Rights, and the state/federal Departments of Labor. Elizabeth is also a trained mediator.

 

Supplier Who Does Everything Right Wins Big on Payment Bond Claim

Posted by: Hilger Hammond On: 13th May 2016 | no responses.

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By Aileen Leipprandt

On May 3, 2016, in the case of Wyandotte Electric Supply Company v Electrical Technology Systems, Inc., the Michigan Supreme Court issued an important opinion regarding “notice” requirements under the Michigan Public Works Act (PWA). The case involved renovation of the Detroit Public Library. KEO & Associates was the general contractor and Westfield Insurance Company supplied KEO with a $1.3 million payment bond as required under PWA. KEO subcontracted with Electrical Technology Systems (ETS) who in turn subcontracted with Wyandotte Electrical Supply for material and supplies.

ETS and Wyandotte had agreed to an open account arrangement, pursuant to which ETS would be liable for attorney fees and time-price differential charges of 1.5% on past due amounts. A time-price differential charge is “the difference between the current cash price of an item and the cost of purchasing the item with credit. A payment made with cash is immediate; a payment made with credit is not. Thus, when a payment is made with credit, the seller [such as Wyandotte] is burdened by a cash-flow interruption. A time-price differential compensates for the increased cost to a seller for credit. It reflects the difference between the credit price and the cash price.”

When Wyandotte began working, Wyandotte sent letters to KEO and Westfield asking for a copy of the payment bond for the project. In accordance with the Public Works Act, Wyandotte then sent a timely 30-day “Notice of Furnishing” via certified mail to KEO, Westfield, ETS and the Library. All but KEO received the notice. The United Postal Service tracking indicated KEO’s certified letter was at the post office, however, the notice never reached its destination. Again, in accordance with the PWA, Wyandotte sent a timely 90-day furnishing after it completed its work.

ETS failed to pay Wyandotte so Wyandotte eventually sued KEO, Westfield and ETS. Apparently, by this time, ETS had gone out of business and the president of ETS had declared personal bankruptcy. KEO challenged Wyandotte’s bond claim, arguing that the claim was invalid because KEO did not receive the 30-day notice of furnishing. In essence, defendants asked the court to read an actual notice requirement into the Public Works Act. The trial court refused, and ruled the bond claim was valid. KEO also argued that Wyandotte could not recover the time-price differential charges and attorney fees. The trial court disagreed and awarded Wyandotte the balance claimed, plus time price differential charges, plus attorney fees, plus post judgment interest. The Court of Appeals affirmed.

KEO and Westfield appealed to the Supreme Court. The Supreme Court affirmed the lower courts’ rulings in nearly all respects. Importantly, the Supreme Court held that the Public Works Act did not contain an “actual” notice requirement. Instead, the Act only required that the claimant serve a copy of its bond claim in the manner required by the Act. In this case, there was no dispute that Wyandotte sent notice via certified mail, thus Wyandotte complied with the PWA, regardless of whether KEO actually received the notice. Furthermore, because Wyandotte’s contract with ETS allowed Wyandotte to recover attorney fees and time-price differential charges, those charges were “justly due” under the Public Works Act and recoverable against the Payment Bond.

Lessons learned – Timely and properly filing and serving bond claims is crucial to recovering under a Public Works payment bond. Equally important, fees incurred to enforce payment on past due accounts will be enforceable against the payment bond, provided the underlying contract contains such provisions.

Michigan Prevailing Wage Act – Where Things Stand

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

writing-1238365By: Mark A. Rysberg

When the Michigan Senate voted to approve bills repealing Michigan’s prevailing wage laws, the future of those bills became uncertain in the face of a likely veto by the governor. Advocates of repealing wage then turned to a provision of the Michigan Constitution which allows laws to be enacted without being subject to the governor’s veto power. Under that provision, a proposed law may be submitted to the Michigan Legislature by obtaining enough signatures on a petition which proposes enacting a specific law.

One such petition was recently submitted to repeal Michigan’s prevailing wage laws. That petition is currently being reviewed by the Michigan Secretary of State. If the Secretary of State verifies that the petition contains enough signatures, the proposed law will be submitted to the Michigan Legislature. The Legislature then has 40 session days to enact the law by simple majority. If the proposed law is not enacted, it will be placed on the ballot for decision in the next general election.

In sum, a proposal to repeal prevailing wage laws in Michigan will likely be submitted to the Legislature. There is no issue of potential veto. Rather, whether Michigan’s prevailing wage laws are repealed will likely depend on whether a simple majority of the Legislature votes to repeal them. While the ultimate resolution of this issue may not occur for some time, there will likely be further develop of this issue before the end of the year.

Prevailing Wage Repeal and Withdrawal Liability

Posted by: Hilger Hammond On: 2nd June 2015 | no responses.

brickBy: Mark A. Rysberg
There has been no shortage of discussion regarding the possible repeal of Michigan’s prevailing wage act. However, one topic that has not been part of the conversation is the possible interplay between repealing prevailing wage and complete or partial withdrawal liability that may result for employers participating in underfunded multi-employer defined benefit pension plans. In general, decreasing or discontinuing contributions to such plans can trigger employer withdrawal liability as set out in ERISA (the Employee Retirement Income Security Act).

Both sides of the prevailing wage debate appear to agree that if the act is repealed the benefits and rates of labor on public construction projects will decrease. Presumably, that would impact the contributions to union based multi-employer defined benefit pension plans, which would make it more difficult, if not impossible, for currently underfunded plans to improve their present financial situation. In turn, employers whom participate in currently underfunded plans could be responsible for large withdrawal liability that they did not anticipate or prepare for.

Managers of construction companies that participate in these plans should be discussing the extent and possibility of withdrawal liability in the ordinary course of management operations. However, the possibility that Michigan’s prevailing wage act will be repealed adds another layer of complexity which requires strategic planning. Proactive management directed at avoiding and monitoring such exposure is important. Employing professionals knowledgeable in how to navigate those management issues can be a significant resource for successfully avoiding and mitigating potential liability.

Attorney Suzanne Sutherland Presents “How to Build a Rewarding Network” at Wayne State University Law School

Posted by: Hilger Hammond On: 6th March 2015 | no responses.

SuzanneSutherlandLeftAttorney Suzanne Sutherland will present “Getting to Know People: How to Build a Rewarding Network” at Wayne State University Law School. The presentation will begin at 12:15 p.m., Tuesday, March 10, 2015, at the Law School, 471 West Palmer, Detroit, Michigan.

Suzanne received her J.D. degree from Wayne State University Law School.  Much of Suzanne’s law practice concerns commercial litigation serving clients in the construction industry, including owners, developers, design professionals, general contractors, subcontractors, and suppliers. Suzanne routinely counsels clients on business law matters, as well as commercial and residential real estate transactions. The remainder of Suzanne’s practice involves environmental law, with an emphasis on compliance with regulatory agencies.

The Words Matter: Insurance Carrier has Duty to Defend Upstream Contractor

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

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By Suzanne Sutherland

Last month, a federal court ruled that a second tier subcontractor’s insurance carrier had a duty to defend and indemnify a general contractor under an additional insured (AI) endorsement. The court reached this conclusion even though the second tier subcontractor was not a party to the lawsuit. The court also looked beyond the complaint to determine whether actions of the second tier subcontractor as named insured could result in liability for the general contractor and first tier subcontractor. The court broadly interpreted the AI endorsement in determining that coverage was not limited to the additional insured’s vicarious liability for actions of the named insured.

In First Mercury Insurance Company v. Shawmut Woodworking & Supply, Inc. , three iron workers were injured and a fourth was killed during installation of a steel web structure at Yale University. All four were employed by Fast Trek Steel, the second tier subcontractor and named insured. The general contractor, Shawmut Woodworking & Supply, subcontracted steel fabrication to the Shepard Steel Company (the first tier subcontractor). Shawmut and Shepard sued Fast Trek’s insurance carrier, First Mercury, alleging that First Mercury had a duty to defend and indemnify both Shawmut and Shepard under the AI endorsement.

Using ISO form language, the AI endorsement required that each additional insured “agreed in writing in a contract” to be covered as an additional insured. The court reasoned that multiple writings satisfied this requirement. The court determined that reading in a single writing requirement would improperly narrow the scope of the coverage. Taking both the Shawmut-Shepard and Shepard-Fast Trek contracts together constituted the necessary agreement that Shawmut was an additional insured. The court stated that if First Mercury intended that the “in writing in a contract” language required a single contract, or contractual privity, between the named and additional insureds, the endorsement must use words like “direct” or “between” in reference to the contract.

The endorsement stated that coverage would be provided if an additional insured was held liable for the acts or omissions of the named insured. Because the underlying complaint alleged facts establishing that the injury arose out of the named insured’s operations performed for the general contractor, the court held that the named insured need not be a party to the lawsuit. The allegations in the complaint created potential for finding a situation where the injuries were caused, at least in part, by the acts or omissions of the named insured. Therefore, investigative reports and other documents beyond the complaint itself could properly be considered. Finally, the ISO form language used in the AI endorsement did not limit coverage to vicarious liability of the named insured. The court focused on the requirement that liability be “caused in whole or in part” by the named insured. Because it is impossible to be partially vicariously liable, the endorsement’s use of the phrase “in part” mandated broader coverage. The court suggested that First Mercury could have included different language had they intended to limit coverage to vicarious liability.

In conclusion, the exact wording of the Additional Insured Endorsement is critical to whether the insurance carrier will have a duty to defend and indemnify an upstream contractor. This recent case suggests that at least some courts favor a broader interpretation of the AI Endorsement.

1 First Mercury Ins. Co. v. Shawmut Woodworking & Supply, Inc., No. 3:12CV1096, ___ F. Supp. 3d ___ (D. Conn. Sept. 23, 2014).

 

Summer Intern Casady Pickar

Posted by: Hilger Hammond On: 27th October 2014 | no responses.

ND4_7420This summer, Hilger Hammond had the pleasure of working with Casady Pickar as a summer intern. Casady joined the firm as a first year law student from Oklahoma City University School of Law. An Oklahoma native, Casady completed her undergraduate studies at Oral Roberts University where she majored in Government with a minor in Business and Humanities. While at ORU, Casady was a member of the women’s cross-country and track and field team. In her free time, Casady enjoys watching her husband play baseball, exercising, and attempting to play golf.

Q. What brings you to Grand Rapids from Oklahoma?
My husband plays baseball for the West Michigan Whitecaps. After the semester finished up I moved up here to be with him for the summer. It has been quite the adventure, but such an awesome experience to be able to travel around and watch him play baseball.

Q. What are you hoping to take away from your time in Michigan and at Hilger Hammond?
My overall goal is to take away as much as I can from both Michigan and Hilger Hammond. Grand Rapids was never at the top of my bucket list of places I’d like to travel, but every day I have fallen in love with it a little more. As a foodie, I would love to be able to take all my favorite restaurants here in Grand Rapids back to Oklahoma with me.

Hilger Hammond exceeded all expectations in what I was hoping to take away. As a summer intern my ultimate goal was to learn about the law and put to use what knowledge I have coming off of my first year of law school. So far I have been able to do both. The biggest take away is that Hilger Hammond put into perspective what type of firm I would eventually like to work for. After seeing the tight bond Hilger Hammond has, I know I would love to work for a firm with a likewise structure.

Q. Having completed your first year of law school, what advice would you give students entering their first year of law school?
Try and relax (not all the time, but when everything is crazy). The first year you are under a lot of pressure. During those times the best thing for me was to take a step back and look at the big picture. Ultimately, law school does not determine your self-worth so don’t let it. The first year of law school will be many different things for everyone but, no matter who decides to embark on the journey, don’t forget to take a deep breath and enjoy all its goodness; many people would love to have the opportunity to go to law school.