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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 5, No. 6, July 03
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Inside
This Issue:
*
Architect’s Decision Final where Contractor Failed to Satisfy
Arbitration Filing Requirements
*
Testing Your Ethical Barometer
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ARTICLE
# 1
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Architect’s
Decision Final where Contractor Failed to Satisfy Arbitration Filing
Requirements
.
By:
Kent Holland
.
Where a
contractor failed to comply with arbitration notice and filing
requirements, the architect’s decision became final and binding, and
the contractor had no further recourse to arbitrate or litigate its
dispute with a homeowner.
The AIA
form contract that was at issue in the case of Martel v. Bulotti, 65 P.3d 192 (2003), provided in relevant that in
the event of a dispute, the parties were to submit the dispute to the
architect for decision; either party could demand arbitration after the
architect submitted a written decision; written notice was required to
be filed by the party seeking arbitration with the other party to the
Agreement, the American Arbitration Association [AAA], and the
architect. The contract
stated that failure to demand arbitration within thirty days would
render the “Architect’s decision ... final and binding.”
In this
case, a dispute arose concerning the contractor’s performance.
The parties submitted the dispute to the architect for decision,
and the architect issued a written decision in favor of the homeowner
against the contractor. The
decision stated that it was final but subject to arbitration.
The contractor submitted a notice and demand for arbitration to
the architect in the time permitted by the contract but failed to file
it with the homeowner and the AAA as required by the contract.
The homeowner then took the architect’s award to court and
applied for confirmation of that award and moved for summary judgment.
In response, the contractor argued that he had substantially
complied with the requirements for demanding arbitration and that the
architect’s decision was , therefore not final and binding.
The court
found that the contractor failed to substantially comply with the terms
of the contract because “substantial compliance” means that one
party receives the important and essential benefits of the
contract clause in question despite the deviation or omission by
the other party. In
this case, the court found that notice to the architect, (or even to the
architect and the homeowner) would not trigger the arbitration process
since it was not filed with the AAA.
This denied the homeowner of an essential benefit of the
contract, that being that disputes would be settled expeditiously and
efficiently through arbitration with the AAA.
This caused the architect’s decision to become final and
binding.
Risk
Management Note: This
case demonstrates the seriousness with which parties to a construction
contract must take the terms and conditions addressing notice and filing
requirements. In this
particular case the contractor lost its right to contest an
architect’s decision because it failed to mail copies of the
arbitration request to the homeowner and AAA when it faxed it to the
architect. Numerous other
decisions have been reported by courts in which a contractor is denied a
change order because it failed to submit its request for a change within
the period of time (e.g. 10 days) that is specified by the contract.
Other cases have denied relief to contractors that submitted
change order requests to individual other than the individual that was
specifically named in the contract as having authority to grant change
orders. And this has been
true even where there was no evidence that the project owner was harmed
by the contractor’s notice to the wrong individual.
There are
also numerous cases holding that where a contractor proceeds to do
changed work resulting from a differing site condition without giving
prior notice to the architect (or in some cases the owner) as required
by the contract, the contractor waives its right to recover its
additional costs related to the changed work.
Even where the parties have gotten into the habit, during the
course of construction, of ignoring the niceties of notice and filing
requirements, once a dispute ends up in court and attorneys get
involved, the course of fair dealing and reasonableness between the
parties often comes to a quick end as the attorneys read the contract
documents and seek to strictly apply them to win their client’s case.
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ARTICLE
# 2
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Testing
Your Ethical Barometer
By:
Michael Loulakis
The
barrage of corporate misdeeds reported over the past year makes one
wonder how things could have possibly gotten so out-of-hand.
How could Enron’s management get away with “cooking the
books” and reporting phantom revenue so easily for so long?
Why didn’t someone at Arthur Andersen look at the big picture
and figure out that bad things (like going out of business!) would
happen if they caved into the pressures of satisfying a big client?
Many
of us in the design-build community look at these events and shrug them
off as shenanigans played by “the big boys” on Wall Street, where
the term “business ethics” is an oxymoron.
After all, design-build has gained market share over the past
decade because of what it sells – professionalism, honesty and
teamwork. But is it fair to
say that design-builders possess only the purest of business ethics?
Probably not.
Consider
how design-build is marketed. It
is easy to sell an owner about the concept of single point
responsibility – if something goes wrong, the design-builder will take
care of it. But is this
really what the design-builder means?
Are contractor-led design-builders really willing to offer the
owner more protection than what the contractor can get from their design
teammates or insurance? Will
design-led design-builders agree to warrant that their design will
achieve performance guarantees in the contract?
Will they pick up responsibility to the owner if the contractor
fails to perform?
What
about the process of selecting the design-builder and its team?
The Design-Build Institute of America (DBIA) and design-builders
extol the virtues of qualifications-based selection (QBS) for
design-build services. Yet
how many design-builders practice what they preach and select
subcontractors and professional consultants on the basis of QBS?
The reality is that the design-builder’s team is often selected
through the same low price / bid shopping mentality that has led to so
many problems under other delivery systems.
Is this in the best interests of the project?
Consider
project execution. Design-builders
often follow the same pattern as low bid general contractors in
preparing and updating project schedules.
The design-builder may keep three different schedules on a
project – one for the owner, one for the subcontractors, and the
“real” schedule. Schedule
graphics can be easily manipulated to hide logic ties and show
activities as “critical” when they are not.
How many design-builders are willing to provide owners with
copies of their electronic schedules and allow the owner to see the true
picture of the job?
What
happens if the owner is a tough negotiator?
Is it wrong to add a little bit extra here and there in a change
order request to give some bargaining room?
And if you know that you are going to have a dispute, do you
create a few claims so that you can horse-trade later?
Is this fair, open and honest?
It
is likely that the management teams of Enron viewed their conduct as
being within the rules of the game.
I suspect that some design-builders operating in today’s
environment feel the same way. Those
working in the public arena may not have heard about statutes like the
Truth in Negotiations Act and the False Claims Act.
Violations of these statutes carry heft fines and potential
debarment. Do
design-builders working in the private sector every think about the
prospect of being sued for fraud or under
a state deceptive trade practices statute? Do they ever think
that what happened to Arthur Andersen in terms of loss of reputation and
confidence can happen to them?
It
may be impossible to test an industry’s ethical barometer.
My own experience tells me that most in the design-build
community go out of their way to ensure that they are being fair, open
and honest with their counterparts.
What does your ethical barometer tell your colleagues about you?
_________________
About
the Author: Michael
Loulakis is President of Wickwire Gavin, P.C., and a shareholder in
its
Virginia
office, located at
8100 Boone Blvd.
,
Vienna
,
VA
22182
. He devotes his legal
practice to representing parties in the construction industry, including
owners/developers, sureties, contractors, and design professionals.
He can be reached at 703-790-8750 or by e-mail at mloulakis@wickwire.com.
This article is reprinted from the February 2003 issue of
Design-Build DATELINE (Design-Build Institute of America).
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ON-LINE
RISK MANAGEMENT COURSES BY KENT HOLLAND
Currently available risk management courses written by Kent Holland for
RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195)
include the following: Risk Management for the Design Professional;
Contract Guide for the Design Professional, Design Build Professional
Liability Risk Management and Insurance; Site Safety Risk and Liability;
Managing Communication, Documentation and Reports; Insurance for
Design-Build and Complex Projects; Construction Contract Law; Contract
Claims against Design Professionals; Insurance Coverage Disputes; and
Environmental Claims.
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ABOUT
THIS NEWSLETTER & A DISCLAIMER
This
newsletter Report is published and edited by J. Kent Holland, Jr.,
J.D., a construction lawyer and risk management consultant for
environmental and design professional liability. The Report is
independent of any insurance company, law firm, or other entity, and is
distributed with the understanding that ConstructionRisk.com, LLC, and
the editor and writers, are not hereby engaged in rendering legal
services or the practice of law. Further, the content and comments
in this newsletter are provided for educational purposes and for general
distribution only, and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com, LLC, and its writers and editors, expressly
disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
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Copyright
2003, ConstructionRisk.com, LLC
Publisher
& Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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