In many differing circumstances and on an equally varied spectrum of projects, new issues have been encountered resulting in changed approaches toward design and construction. In some instances, the interpretation of the issues that arose on a given project which led to disputes and/or claims have resulted in changes to the law. The idea behind modification of approach or behavior was to avoid repeating the consequences that occurred following the incident, circumstance or claim.
Sometimes our behavior is modified only when an unfortunate outcome has already been experienced. Consider the example discussed in the last issue of Building and Bonding addressing the recent modification by the AIA of the A312 payment bond form that had been in existence and had been utilized since 1984 without modification. Under that bond form, the surety was afforded 45 days in which to respond to a given claim made by entities seeking payment for reasons identified in the notice of claim against the bond. Unfortunately, beginning in Maryland and then extending to Florida and other jurisdictions, the surety’s failure to respond adequately within that 45-day window gave rise to an assertion by the claimant that the surety’s failure to respond constituted a waiver of any defenses to the underlying claim, and an acceptance of that assertion by the courts in those jurisdictions.
The surety industry reacted almost incredulously initially, not believing the first and then subsequent and repeated outcomes from the courts stating that they had indeed waived their defenses by failing to respond in the 45-day window. Only after having been taught the lesson the hard way did the surety industry react to these decisions and begin the process of evaluating how best to address the clearly unfortunate precedent that was now becoming established law.
The AIA reacted as well, providing its own assistance by modifying the provision in question in significant respects to eliminate concerns over the waiver of defenses language, but at the same time allowing for recovery of attorney’s fees and costs in the event that the claim is disputed and ultimately the surety is ordered to pay on the claim. Whether this modification will be adequate to fully address a surety’s true concerns here remains to be seen. It also remains to be seen whether this will be the only modification made to the 1984 A312 bond forms or whether the industry will begin to look to other forms such as ConsensusDOCS to supply the base surety requirements in the performance and/or payment bond context.
Another example where the construction industry is being forced to react regards those developers, owners, lenders, title companies, contractors and subcontractors in the Commonwealth of Pennsylvania dealing with recent amendments to that state’s mechanic’s lien law. While Pennsylvania is not the only jurisdiction that has recently modified its mechanic’s lien laws, it was some significant changes in the ability to procure up-front waivers of lien (a lien waiver that is obtained prior to any performance or payments on the project) that has sent the industry in this commonwealth into a series of evaluation, strategy and risk management sessions seeking to find the best method to operate under the new statutory construct.
For example, without the ability to obtain up-front waivers of lien on most projects in Pennsylvania, many title companies are faced with issues that were never really confronted on projects of any significance in this state. With up-front waivers of liens largely banished to the pages of history, title companies may now face additional exposure to the titles of these various projects when and if contractors, subcontractors (and now even some sub-subcontractors) insist that they have not been adequately compensated for the work and materials provided to the project.
Even under these amendments, there will be methods under which and by which these title companies as well as owners, contractors and subcontractors will be able to assure that they are not unduly or multiply exposed on these projects when payments are being made or where payments are being withheld. In short, under these amendments, those parties with these plans in place are likely to experience less uncertainty from the statute’s changes.
A final and also still nascent change that is occurring in the industry and which will likely have a tremendous impact on contractual risk and responsibility allocation stems from the expansion of green building. As has occurred many times in the past, the law tends to follow technology and developments in the industry, reacting to these sometimes radically new technological challenges. Consider as brief examples, electronic design transmissions and even BIM (Building Information Modeling) have necessitated and resulted in the development of specific, tailored contract language that seeks to reduce the uncertainty in adopting these technological features on a project. With green building becoming such a focus in the design and construction of new facilities, and with a building allowance, tax incentive and other programs offering expedited permitting in exchange for achievement of certain levels of green performance standards, all project participants should now begin the process of evaluating their existing contractual relationships to determine whether these new technological concepts of green will be enforceable or without consequence in the event of failure to achieve the desired standard of performance. What is becoming apparent is that many project participants on all levels are reacting negatively to broad and sweeping language of warranty and guaranty of achievement of relevant green standards.
Indeed, the insurance industry is already voicing dissatisfaction or outright denial of coverage for projects in which these warranties or guaranties are being sought from and provided by the design and/or construction teams. Instead, the industry as a whole now must face how it is best able to place into the respective participants’ camps the risks and responsibilities of achieving the desired green result.
These are just a few examples of how the entire industry should remain vigilant in the face of these changes in laws, environment of performance and technologies. Only with this advanced forethought, planning and adjustment will the participants in this process be able to avoid learning their lessons the hard way in pursuing their projects and will continue to be able to build and bond for a better tomorrow!