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Volume: 22, Issue: 13 - 07/15/2024

 

Mechanic’s liens are created by state statute and are enforced through foreclosure by a court of law, but only a “valid” lien that complies with the statutory requirements can be enforced. Considering the statutory/judicial foundation of the remedy, one might think that only a court can rule on the validity of a mechanic’s lien. What happens, however, when the parties to a construction contract agreed to have all disputes related to the contract decided by arbitrators?

 

An Illinois court recently ruled that the validity and enforcement of a mechanic’s lien are two distinct matters. While courts have exclusive jurisdiction to enforce a valid lien, parties may contract to have arbitrators decide the validity of a lien claim. The AIA contract documents have conferred such authority on the arbitrators.

 

The second case in this issue involves a contractor seeking relief from a firm-fixed-price federal construction contract. Neither an unexpected pandemic nor a government declaration of a public health emergency vitiated the fixed price. The risk of cost escalation rested squarely with the contractor.

 

The third case addresses the job site safety ramifications of a prime contractor’s contractual right to order a work stoppage. Does the broad right to stop work create a safety obligation to every worker at the site, including employees of subcontractors? Or, is control over the activities of those workers required before the contractor owes a duty to the workers?


 

The validity and enforcement of a mechanic’s lien are two distinct matters. While only a court of law can enforce a lien through foreclosure, the parties to a construction contract can confer upon arbitrators the authority to determine lien validity. The broad language of the arbitration clause in the AIA documents has conferred such authority.


 

The Federal Acquisition Regulation makes it clear that the contractor on a fixed-price construction contract has sole responsibility for escalation in the market cost of completing the work. This was not altered or superseded by a pandemic and the resulting declaration of a public health emergency.


 

A contractor’s right to order a work stoppage, established in the prime contract with the project owner, does not in itself give the contractor the right to control a subcontractor’s daily activities or the responsibility for the sub’s safety practices.


Volume: 22, Issue: 12 - 06/28/2024

 

Statutes of limitation—the mechanism for establishing a deadline for asserting one’s rights—usually stipulate an adequate period of time. Five years from discovery of the problem is common. Questions arise, however. Can parties to a contract reduce the amount of time allowed for a claims assertion? What are the public policy concerns when a provider of services contractually circumscribes the other party’s claim period?

 

The Georgia Supreme Court recently addressed a situation in which a private contract called for a one-year limitation period on claims, substantially reducing the statutory five-year period. An aggrieved plaintiff argued this abridgment of its rights violated public policy. The defendant, who drafted the agreement, said a contract is a contract.

 

The other case in this issue involved a federal solicitation for construction services using a “best value” negotiated procurement process. The government increased the construction performance period by 50% midway through the procurement. The low-price offeror argued this had been prejudicial to its proposed shorter, fast-track construction schedule.


 

A contract clause reduced a statutory claim limitation period from five years to one. Citing a “freedom to contract,” the Georgia Supreme Court ruled that this did not violate public policy. A concurring opinion questioned how much the claim limitation period could be reduced without becoming a de facto disclaimer of liability.


 

The government increased a contract’s construction performance period by 50% after issuance of the solicitation. This was justified by the government’s desire to maintain competition when there were only two offerors.


Volume: 22, Issue: 11 - 06/14/2024

 

Value engineering as a procurement tool was pioneered by the federal government and has spread to other public works contracting. The idea is that a contractor in the field may conceive changes in the contract design that will save the government money in constructing the project and then submit a value engineering change proposal (VECP). If the government accepts the proposal, the government shares the resulting cost savings with the contractor.

 

The federal VECP clause requires detailed information regarding changes in the contract documents, resulting cost savings and extra-contractual cost impacts. Because the government wants to encourage these cost-saving proposals, the requirements are liberally construed in favor of the contractor. In the first case, a contractor that never submitted a comprehensive, compliant VECP could meet the requirements piecemeal through a series of submittals and communications.

 

The second case involves expert testimony regarding an architect’s standard of care during the administration of a construction contract. A court allowed a licensed professional engineer to offer such testimony. In the area of contract administration, there is considerable overlap between the two professions.

 

The third case addresses a performance bond surety’s recovery of its attorney fees from the project owner. While the owner’s demand against the bond proved unfounded, the surety could not recover its fees because it had never stepped into the contractor’s shoes in a take-over capacity.


 

While no single submittal met the requirements for a value engineering change proposal, a valid proposal was presented piecemeal through multiple submittals. The government accepted this proposal when it issued a unilateral contract modification incorporating the proposed change, entitling the contractor to a share of the cost savings.


 

A licensed professional engineer could offer expert opinion on an architect’s administration of a construction contract but wisely refrained from opining on the architect’s other standards of care.


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