The AIA General Conditions call for designation of an “initial decision maker”—usually the project architect—to respond to disputes. The process leads to nonbinding mediation and binding arbitration, if necessary. But, can the initial decision become final and binding, a damage assessment to be confirmed in court, much like an arbitration award?

A Texas court recently rejected this argument. The decision, issued by the project architect, adopted a repair contractor’s pricing spreadsheet that was unsupported by documentation or expert opinion. It was not credible evidence. The contractor, regardless of the initial decision, had not lost the right to contest the owner’s damage claim.

The other case in this issue involved a state “insurance bad faith” statute that imposed punitive damages on insurers that demonstrated a lack of good faith in processing claims. The Pennsylvania Supreme Court was asked if the statute also applied to a construction contract payment bond surety that had refused to compensate an unpaid subcontractor.

The initial decision of a project architect was not, under the AIA General Conditions, final and binding with regard to the cost of corrective work required on a project. The contractor could challenge the decision in court, and a trial court should not have turned that amount into a judgment against the contractor and its performance surety.

A payment bond on a construction contract was not an insurance policy. The state insurance bad faith statute did not apply to the surety’s conduct. However, the surety was responsible for an arbitration award in favor of an unpaid subcontractor.

Bids on public construction contracts are typically completed in the final minutes before bid submittal. Price quotations from trade subcontractors are not received until then, leaving no time to negotiate a subcontract agreement. The bidder on the prime contract relies on the subcontractor quote and, if awarded the prime contract, expects the sub to perform at that price.

An electrical subcontractor in Washington State tried to back out of its price quotation after bid opening. The sub’s proposal had stated that written acceptance was required within seven days of receipt. The bidder had not accepted in writing but had incorporated the price into its successful bid. The subcontractor argued that any reliance by the bidder had not been reasonable in light of the lack of acceptance.

The second case in this issue involves qualification to provide expert opinion regarding an architect’s professional standard of care. The South Carolina Supreme Court ruled that under state law, a professional engineer’s testimony would be acceptable. The engineer had chosen, however, to offer only an opinion regarding construction contract administration, not an architect’s professional design responsibilities.

The third case addresses commercial general liability (CGL) insurance coverage for subcontracted work. Under the terms of a contractor’s CGL policy, there was coverage only if the subcontract was in writing and the subcontractor had proof of its own CGL coverage.

Although a subcontractor price quotation stated it was conditioned on written acceptance within seven days of receipt by the bidder on a public contract, the price became binding on the sub despite the bidder’s lack of written acceptance.

A state statute required an affidavit from a qualified expert in order to proceed with a professional negligence action. The statute did not require the expert to possess the same professional license as the defendant.

A Commercial General Liability insurance policy was not ambiguous. An endorsement made coverage for subcontractor acts contingent upon a written subcontract agreement and certain subcontractor insurance requirements.

Contractor recovery of unabsorbed home office overhead, incurred during a period of suspended work, is a creature of federal construction contracts and the federal court system. The use of the Eichleay formula to calculate these damages is mandatory. The issue of unabsorbed overhead has gradually seeped into non-federal construction contracting and has been addressed by state courts. Some state courts, but by no means most, have expressly endorsed the use of the Eichleay formula.

A Louisiana appeals court was recently confronted with this issue. Eichleay had been occasionally discussed by that state’s courts but never expressly endorsed or disallowed. The appeals court allowed contractor recovery of unabsorbed home office overhead to stand. Award of these damages was within the proper discretion of the trial court.

The other case in this issue involves a wrongfully terminated subcontractor’s right to payment for the value of its work from the project owner. The sub could not recover in quantum meruit because it had worked under an express agreement with the prime contractor. The project owner was a third-party beneficiary of that agreement.

State law did not mandate contractor recovery of unabsorbed home office overhead calculated according to the Eichleay formula. But, award of those damages was within the discretion of the trial court.

An unpaid subcontractor, having failed to perfect its mechanic’s lien, could not recover for the value of its work from the project owner. “Quantum meruit” was not available because the work had been subject to an express contract with the prime contractor.