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In This Issue:

  • · Architect Has No Warranty Obligation to Condo Association
    · Contractor Not Liable for Emotional Distress

    · How Jargon Complicates Construction

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Welcome to the First Issue of 2000

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Architect Had no Warranty Obligation to Condo Association

When certain flooring features of a condominium project failed, the condominium homeowners association sued the project developer and the general contractor who were responsible for construction. The parties settled on a remedy for the deteriorating concrete subfloor, which involved the application of a material called Ardex K-15 over the surface of the concrete to remedy the situation. Architect did not make any representation concerning the suitability of the remedy but agreed to pay $15,000 towards the cost of the remedy in exchange for a release of all claims against them arising out of the design, installation and maintenance of the concrete.

The remedy failed to solve the problem, and the general contractor apparently corrected the problem at its cost and then filed suit against the architect to recover its costs. The contractor alleged that the architect breached its duty of professional care, and breached express and implied warranties concerning the materials selected for the repair. It also raised various other tort claims on both its behalf and on behalf of the Overlake Condominium Homeowners Association (OCHA).

Architect responded to the complaint by arguing that there was no contract between the architect and the Homeowner association, or between the architect and contractor, upon which a breach of warranty could be based. The lower court found that the facts did not indicate there was any misrepresentation by architects to Homeowners, any express warranty, or any basis for finding an implied warranty, because implied warranties are applicable only to the business of selling and not to the business of manufacture. Further, “there was no contractual basis for finding a breach of warranty because it was undisputed that there was no contractual relationship between architects and OCHA.”

On appeal, the court found the lower court’s decision to be correct with regard to rejecting the breach of warranty claim. As argued by the architect, there could be no implied warranties between architects and OCHA because implied warranties “arise from the business of selling rather than the business of manufacture.” As stated by the court, “plaintiffs relied on the UCC statutory provisions [for their argument in the lower court]. These provisions are limited in their application to the sale of goods by contract, and thus the trial court correctly ruled that these statutory sections would not apply to the provision of architectural design services.” The court also cited a case stating the “Implied warranties to not apply to architects because they provide services rather than goods. ”

On the issue whether the release that was executed by the parties barred the current claim against the architect for breach of a duty of professional care or for misrepresentation, determined that the release was somewhat ambiguous concerning its intent and did not clearly release the architect from all liability. What the plaintiffs argued was the trial court erred in concluding that the release barrier any claims based on the failure of the Ardex K-15 remedy. The release provided as follows:

“For and in consideration of the payment to Investment Properties, Inc. of $5,000 by Lyttle and Keefe Architects, Inc. and $10,000 by General Accident Insurance Company, Inc., Investment Properties, Inc. hereby releases and forever discharges Lyttle and Keefe Architects, Inc. and General Accident Insurance Company, Inc. of and from any and all claims, demands, damages, actions or causes of action related to the design, installation and maintenance of a lightweight concrete underlayment for carpeting in the Overlake Condominium project in Burlington, Vermont. It is understood and agree that this is a full and final release of all claims of every nature and kind whatsoever, and release claims that are known and unknown, suspected and unsuspected regarding the deterioration of said lightweight concrete as an underlayment for carpeting. ”

Plaintiffs assert that the effect of the release is limited to “design, installation and maintenance” and that the Ardex K-15 remedy does not fall within this limited scope. They also argue that the provision of a suitable remedy for the problem was part of the consideration for the release and, because the remedy failed, consideration for the release failed as well. They also argued that they were induced to sign the release by the architects representation that the Ardex remedy would solve the problem. In contrast, the architects point to the fact that the release applies to “any and all claims” related to the concrete problem. In this case, the court concluded that the language of the release along does not clearly reveal the precise scope of the release. Consequently, the scope of the release and whether it barred the complaint, would properly have to be decided by a jury after hearing all the evidence, rather than by a judge on a motion for summary judgment.

Investment Properties, Inc. James B. Foster, and Pizzagalli Construction Company v. Lyttle & Keefe Architects, inc. (No. 98-050 Sup. Ct. Vermont) (1999 Vt. Lexis 234).

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Contractor Not Liable for Emotional Distress

As a result of poor construction, a jury awarded judgment against a contractor in favor homeowners for recovery of the full cost of necessary repair to the home plus damages for emotional distress caused by the contractor’s negligent performance. $50,000 was awarded to each spouse for emotional distress. This was a highly unusual result since courts almost always require that there be actual physical injury to a person before that individual can recover for non-physical damages such as emotional distress.

The judgment was appealed and the appellate court reversed the judgment as to emotional distress, holding that where there is a commercial contract, that contract is to set forth the remedies available to the parties and that separate actions in tort (negligence) are not permissible. According to the court, the available damages for defective construction are limited to the cost of repairing the home, including lost use or relocation expenses, or the diminution in value.

Probably what led the lower courts to allow the initial judgment was the factual situation of the case. According to the testimony, “The house leaked from every conceivable location. Walls were saturated in an upstairs bedroom, two bedrooms downstairs, and the pool room. Nearly every widow in the house leaked. The living room filled with three inches of standing water. In several locations water ‘poured in streams’ from the ceilings and walls. The ceiling in the garage became so saturated . . . . the plaster liquefied and fell in chunks to the floor.” The contractors attempts at repair failed to resolve the problems. Repair efforts included window caulking which melted and ran down the windows and walls, the use of jackhammers and sledgehammers to cut holes in exterior walls and ceilings, and various other procedures.

Inspection by another contractor determined that in addition to defects in the roof, exterior stucco, windows and waterproofing, there were serious structural problems. The foundation for the main structural beam of the house, for example, could carry a load of only 2,000 pounds instead of the 12,000 pounds that was required. During the entire repair process the homeowners continued to live in the house, while work was done around them. It is said that bad facts make bad law and it appears that these facts certainly influenced the jury and the lower appeal court to permit remedies for the homeowner that are typically unallowable.

In discussing the facts of this case, the appellate court explained several basic contract law principles that are important in analyzing the damages claimed in any case. As explained by the court, contract damages are generally limited to those that are within the contemplation of the parties. The reason for this is that it furthers contractual relations by enabling parties to estimate their financial risks in advance. Enforcement of the intentions of the parties is the key to the remedies for breach of contract. Tort law for negligence actions, on the other hand, is intended to vindicate social policy.

In this case, the issue then was whether a negligent breach of contract should give rise to both a breach of contract case and a tort case, since negligence was the basis for the breach of contract. More specifically, the court considered whether a negligent breach of contract would support an award of damages for emotional distress — either as tort damages for negligence or as consequential or special damages for breach of contract.

The court stated: “Our previous decisions detail the reasons for denying tort recovery in contract breach cases; the different objectives underlying tort and contract breach; the importance of predictability in assuring commercial stability in contractual dealings; [and] the potential for converting every contract breach into a tort, with accompanying punitive damage recovery.” Where there is a contract, the court stated that a party cannot recover for tort damages unless the act that breached the contract was also a tortious act such as negligence that breached a duty that the defendant had under law even in the absence of the contract.

In the final analysis, on the breach of contract cause of action, the court held that emotional distress damages in connection with property damages are not compensable since there was not also physical personal injury. And on the tort action the court stated that damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract.

On a personal note, having gone through the process of building a home, the author of this newsletter article particularly appreciates the wisdom shared by the court concerning what expectations such a homeowner should have. As so well put by the court: “[The homeowners] may have hoped to build their dream home and live happily ever after, but there is reason that tag line belongs only in fairly tales. Building a home may turn out to be a stress-free project; it is much more likely to be the stuff of urban legends — the cause of bankruptcy, marital dissolution, hypertension and fleeting fantasies ranging from homicide to suicide.”

Barry Erlich v. John Menezes; Ron Rebalo, et al., 21 Cal. 4th 543; 981 P.2d 978 (1999).

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How Jargon Complicates Construction:

The same Processes are Often Described Differently

By Michael Kenig, Vice Chairman, Holder Construction Company

Put yourself in the shoes of a facilities manager who is responsible for constructing a facility for the first time. You call people you trust to determine how you should go about it, and ask each of them to put it in terms you can understand. As each of your trusted counselors gives you advice about the process you should use to construct your project, they seem to be describing the same basic things with different terminology. And they all have a strong opinion about the best way to do the job.

It all begins to run together. So you let the process run its natural course, or you pass the responsibility for making the decision about which delivery process to use to a consultant who speaks the language. You wash your hands of the whole thing and hope you’ve made the most cost-effective decision.

There are various terms that describe and construction services – hard bid, lump-sum contracting, team approach, bridging, negotiated, fast track, CM, CM at-risk, partnering, design-build, design-bid build – and many variations on these. But there are really only two delivery methods – traditional bid and team approach.

So why are there so many ways to say the same thing?

No matter which delivery method is applied – the traditional bid or the team approach – the basic elements are the same regardless of the size or type of project. Every project goes through need determination, planning, design, construction and occupancy. Whether you are building a new building or renovating an existing structure, you must still determine how much space you need; plan how you will configure the space; have someone design the space; build the space; and then occupy the space.

In the traditional bid approach, there is a clear separation between design and construction phases, typically known as the bid phase. Using this method, cost is usually the predominant factor for selecting who will be delivering your construction services.

In a team approach, most team members are on board at the outset and were selected because of their qualifications and their ability to make the process value– and quality-driven.

When you take the terms mentioned above and analyze how each of these presumably different delivery methods works, you find that every one of them belongs in one of the categories:

Traditional bid: Hard bid, hard money, lump-sum contracting or design-bid build

Team approach: Negotiated, CM at-risk and construction management

Several terms can belong in either of the two categories of delivery methods. Examples include design-build and bridging, which both address different ways of assigning the design and construction responsibilities. The design-build process can be competitively bid (traditional bid) or negotiated (team approach). The same is true for the bridging concept. Where one architect establishes the design concept and a second architect produces the working drawings.

Another term that can be placed under either heading is fast track. In a fast-track project, the phases of the process overlap to accelerate the schedule. In some cases, you will fast track by breaking out elements of the construction documents and hard bid and award each element to separate contractors. On the other hand, the team approach, by nature, facilitates a fast-track process. You are able to take advantage of having all your consultants involved during the design phase of the project and the ability to phase construction early, such as site work, foundation and structure. One team member, usually the contractor, eventually takes the risk.

So, if there are really only two delivery methods –- traditional bid and team approach – who benefits from clarifying how we label our processes and methods, and who benefits from putting everyone on the same page of our industry dictionary?

Simply put, everyone involved benefits.

Defining the type and scope of the relationship early in a project, and ensuring that everyone understands which method is being used, allows all players to spend their time communicating, meeting your needs, and delivering the best possible product. And that benefits the entire industry.

From service purchasers to the engineers, suppliers and vendors, the entire design and construction industry will do a better job if we clarify communications. Consider how quickly we could turn efforts to more important arenas and get about the business of improving awareness of the quality and value commitment we make if communications were clarified. When moving forward with a project, step one should be deciding whether to use a traditional bid or team approach. Step two is how to assign responsibilities and risks within the team, and step three is to prepare contracts consistent with the decisions made in step two.

The contract between the school and the consultant describes and defines the relationship between the two parties. Rather than picking a consultant and forcing relationships to work with the contract, the relationship and responsibilities should be determined first. A contract then should be prepared to match the desired relationship.

In deciding which delivery method to use, facilities managers often work backwards by picking a contract type and assigning the responsibilities too quickly. They realize too late that they have made the step one decision (traditional bid or team approach) without knowing they were making it. Why should you care? It matters because the success of a project is often directly correlated to the delivery method used on the project. As a facilities manager, you make the decision at the very beginning of the project which of these two delivery systems you will have on your project.

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About the Author: Michael Kenig is Vice Chairman of Holder Construction in Atlanta. He specializes in assisting Owners during the planning stage of their projects, helping them set their projects up to be successful. Michael has also written several articles on successful project delivery. He holds a degree in Construction Engineering and Management from Purdue University.

Holder Construction Corporation
3333 Riverwood Pkwy., Ste. 400
Atlanta, Ga. 30339;
Phone: 770-988-3260; Fax: 770-988-3215

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