September 2011 – Construction Law

Appellate Court Upholds Contract Requirement For Arbitration of Disputes

Sep 25 2011

Gemstone Builders, Inc. v. Stutz, 261 P.3d 64 (Or. Ct. App. 2011)

Contractor sued homeowners, who had hired contractor to build a home for them. Contractor sued for breach of contract, unjust enrichment and fraud. The parties disagreed regarding the interpretation of their contract as it pertained to arbitration. The contractor argued that the terms were irreconcilably contradictory, making the arbitration provisions unenforceable. The homeowner sought to compel arbitration. Addressing the issue, the trial court denied defendants’ petition to compel arbitration and defendants appealed.

Recent Third Circuit Decision Provides Insight into Pennsylvania’s Approach to CGL Coverage for Faulty Construction Claims

Sep 23 2011

By: Richard F. Paciaroni & Amy Ream, K&L Gates, Pittsburgh

Despite substantial uniformity in language among commercial general liability (“CGL”) policies, the extent of coverage can vary depending upon which state’s law applies. One contested issue among the states is whether CGL policies should extend coverage for property damage caused by faulty construction, and what the extent of any such coverage should be. This article discusses a recent opinion reflecting the current status of Pennsylvania law with respect to CGL coverage for faulty construction claims, and briefly touches on the policy behind Pennsylvania’s existing approach.

A recent Third Circuit decision applying Pennsylvania law, Specialty Surfaces International, Inc. v. Continental Casualty Co., addressed the scope of an insurer’s duty to defend and indemnify a contractor for faulty workmanship claims under a CGL policy. In Specialty Surfaces, the source of the defective construction allegations stemmed from a project to install synthetic turf fields and drainage systems for four schools in the Shasta Union High School District (“Shasta”). Empire and Associates, Inc. (“Empire”) was hired as a subcontractor to provide and install synthetic turf fields manufactured by Specialty Surfaces, Inc., (“Specialty Surfaces”) as well as to install drainage systems. Empire and Specialty Surfaces, working together as “Sprinturf,” provided an eight-year warranty for each of the fields.

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Integrated Project Delivery: A Teamwork Approach to Design and Construction

Sep 16 2011

By Gregory R. Andre, K&L Gates, Chicago

What is Integrated Project Delivery?

Integrated Project Delivery (“IPD”) is an evolving, bold innovation in construction delivery. It generally contemplates the owner, the architect or engineer and the contractor all entering into one contract and functioning as a cooperative and collaborative team to design and construct the project with shared risks and rewards in the ultimate cost, schedule and quality of the overall project.

In simple terms, IPD is like a joint venture approach to design and construction. IPD represents a radical departure from traditional delivery methods that isolate responsibilities, liabilities, communication, risks and rewards with contracts that often lack incentives to cooperate and work toward the common goal of a successful project overall for everyone. Parties to an IPD team have incentives to do what is best for the project, rather than what is best for themselves. To motivate the design and construction team and get the best performance out of them, IPD generally favors a “carrot” approach; whereas, traditional delivery methods generally use a “stick” approach.

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Kuwait and see

Sep 15 2011

As investors target Saudi and Qatar, it is still possible that Kuwait may turn to a hybrid PPP model involving outsourcing and privatisation, write Paul de Cordova and Patricia Tiller at K&L Gates.

While western economies blow hot and cold over the merits of PPPs, many Middle East countries are embracing this alternative to conventional government procurement. Kuwait is prominent among the first movers in this emerging sector. Kuwait introduced its own PPP law in 2008, with guidelines administered by the Partnerships Technical Bureau (PTB) and developed in consultation with the World Bank. Kuwait is taking a professional approach to bringing projects to market. Unlike some of its neighbours who have announced PPP schemes with little advance planning, Kuwait is endeavoring to approach projects in a methodical manner. Every project must undergo a feasibility study stage and be approved by a ministerial higher committee under the chairmanship of the Ministry of Finance before entering the procurement stage. Furthermore, the PTB is required to engage professional advisers to ensure, as far as possible, that projects are structured to attract the international investment community.

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This article originally appeared in PPP Bulletin International on September 14, 2011.

GAO Report Finds Flaws in Davis-Bacon Act Prevailing Wage Determinations

Sep 02 2011

By: Lawrence M. Prosen & Andrew R. McFall, K&L Gates, Washington DC

Over the past several years, the current business conditions have had an impact on all areas and aspects of the economy. Recent reports indicate that no industry has been harder hit than that of construction, an industry possessing one of the highest national levels of unemployment. Unemployment in the construction industry has spiked from 7.1 percent in 2000 to around 20 percent in early 2011. Tied to this issue is the fact that the commercial and private construction and real estate markets substantially dried up as a result of the economy and underlying bank crises. This, in effect, resulted in government construction and real estate projects being the predominant area in which work was available; forcing contractors to enter the federal market, often for the first time, and ‘‘learn on the fly.’’

The current economic problems have also resulted in Congress increasing or maintaining spending levels for a number of years on construction and related projects to try and bolster the economy. These expenditures and stimulus efforts have led to an increased curiosity and concern for how government monies are being spent. Coupled with the inauguration of President Obama in 2009, there has been a significant uptick in the amount of government regulation and oversight regarding government contracting and the construction industry. As part of that effort, the United States Government Accountability Office and other governmental organizations have conducted investigations and released reports dealing with government expenditures and budgeting. This article discusses one such report.

On March 22, 2011, GAO released a report (the ‘‘Report’’) raising several issues and concerns with the U.S. Department of Labor’s (‘‘DOL’’) methodology for making Davis-Bacon Act wage determinations. The Report is noteworthy, in that the Davis-Bacon Act plays a significant role in federal and federally funded construction projects throughout the United States. This article provides a brief background on the Davis-Bacon Act, a description of the Report and its recommendations, a discussion of the potential implications of the Report on the Service Contract Act, and a list of practical tips that construction contractors should consider in light of the Report.

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Archive:September 2011