Many agreements contain a long definitions section or numerous defined terms scattered throughout the agreement.  This is especially true of contracts in the construction industry. 

Definitions are used to help make an agreement more readable.  Who wants to read, “all applicable federal, state, and local laws, statutes, regulations, and codes that govern the project, including, but not limited to blah, blah, blah……” over and over again when it can just be defined as “Applicable Laws.”

But definitions can also expand liability or, in some cases, limit liability unintentionally.

Look at indemnity provisions for instance.

There is usually a laundry list of parties defined as “Indemnitees.”   All of the “Indemnities” are entitled to be indemnified and defended for claims covered by the indemnity, and they usually are named as additional insureds on certain insurance policies.

One situation where this can create a problem is when the architect is included in the definition of “Indemnitees.”

A broadly drafted indemnity provision can potentially result in the contractor being required to indemnify the architect for certain claims that are prohibited by Chapter 130 of the Texas Civil Practice and Remedies Code.

Even though the statute would make that type of indemnity void and unenforceable, time and resources would have to be spent having the provision declared void and unenforceable.

Another type of agreement where definitions are often used and are very important is a settlement agreement.

Let me share a real life example with you of a case my firm got involved in after definitions in a settlement agreement caused a problem.

“Parent Company” was sued over a debt, and as the case progressed the plaintiff also sued some officers and affiliates of the Parent Company.

The case settled and the settlement terms required the Parent Company to pay a certain amount over a period of time with the plaintiff agreeing to dismiss the lawsuit against all of the defendants.

The original version of the settlement agreement included a definitions section that had a separate definition for each of the defendants along the lines of  “Parent Company,” “Affiliate 1,” “Affiliate 2,” “Officer 1,” “Officer 2,” and “Officer 3,”

The payment provision, however, only required the Parent Company to make settlement payments.

Throughout the settlement agreement each time the defendants were referenced, all of the defined names were listed, which made the agreement longer and a bit cumbersome at times.

When the settlement agreement was almost finalized, the plaintiff’s attorney redefined the Parent Company to include all of the defined terms for the officers and affiliates to shorten and simplify the agreement.  The other provisions of the settlement agreement remained unchanged.

The defendants and their attorney agreed to the revision and the settlement agreement was signed.  After approximately half of the settlement payments were made, the Parent Company experienced financial problems and stopped making the settlement payments.

The plaintiff filed suit against the individual officers and the affiliates to recover the remaining settlement payments.

Even though the officers and affiliates had never intended to be responsible for the settlement payments, they ended up being responsible because the “Parent Company” was responsible for the payments under the agreement and each of the officers and affiliates had been incorporated into the definition of the Parent Company.

The lesson:

Don’t just skim over the definitions in any of your agreements.  Read them carefully and ask yourself if each of the people or entities listed really need to be included in light of the obligations or liabilities that are associated with the defined terms.

The same is true of definitions related to applicable laws, indemnified claims, and many other issues that are sometimes grouped together and defined.

Using definitions can be convenient, but unless they are carefully reviewed, they can also lead to future unintended consequences.

I have been fascinated by robots ever since hearing “danger Will Robinson” over and over on Lost in Space.  What kid hasn’t at some point wished for a robot like Rosie on the Jetsons who would clean your room for you and produce food on demand?

 

Due to developments in robotics, robots are being used more frequently in our world, including the construction industry.

Take “SAM” for example.  SAM is a Semi-Automated Mason being used by a Colorado masonry contractor.  SAM puts mortar on bricks and places them in a wall.  SAM can place around 300-400 bricks an hour, which is about 5 times more than a human.

 

 

There is still a human factor to SAM’s work.  Workers still have to load bricks and mortar, and follow behind SAM to remove excess mortar.  Most importantly, someone has to program SAM for the work on the project.   Without the correct programming, then SAM doesn’t know what work to perform.

Robots in construction are not just be limited to masonry work.   In the next few years you should expect to see robots that can handle more and more tasks on a construction project, especially tasks involving a repetitive process.

So what if something goes wrong?

In SAM”s case, what if the brick wall is improperly constructed?  Would the fact that the work was performed by a robot matter?

From a big picture perspective, probably not.  The owner would still hold the general contractor responsible under the owner/contractor agreement, and the general contractor would still hold the subcontractor responsible.

What may matter though is how you go about establishing that the work was negligently performed, including whether the problem was caused by a human error or a robot malfunction.

A negligence claim requires breach of a legal duty by failing to comply with a standard of care.  In the case of defective work performed by a robot, how would you establish the standard of care and then demonstrate a breach?

This may require evidence addressing the training for individuals programming the robot, the maintenance of the robot, and protocols for updating its software or operating system.

And if the robot was properly programmed, then evidence will be required to show a malfunction of the robot, which may prove difficult months after a project is complete.   Whether the negligently performed work involves human error or a malfunction of the robot, a robotics expert may be necessary to establish the standard of care.

If you are an owner or general contractor and a subcontractor plans to use a robot like SAM or maybe a driverless bobcat for excavation (yes – they exist) then, at a minimum, your contracts should:

  • address protocols for how programming data will be preserved;
  • require daily reports on the operation of the robot; and
  • require reports on the maintenance of the robot throughout the course of the project.

As the use of robots increases in the construction industry, there will be new questions and new issues to address.  Will negligent work by a robot be covered by a commercial general liability policy?   What happens if someone hacks into the robot and intentionally harms the work?

Perhaps we’ll try to tackle those questions sometime in the future.  For now, even though it sounds like something that belongs in a science fiction movie, SAM may be coming a  project near you.

On a traditional design-bid-build project, the design professionals prepare the plans, the owner gives them to the contractor, and the contractor builds the project.  So what happens when the plans are wrong?

[Disclaimer – this video contains profanity.  Just giving you a heads up.]

The answer to that questions depends on where the project is located.

If the project is almost anywhere but Texas, then when the owner gives the plans to the contractor, there is an implied warranty by the owner that the plans are accurate and sufficient for construction of the project.

In Texas though, there is no implied warranty on behalf of the owner that the plans are accurate and sufficient when the plans are given to the contractor.  Unless there is specific language in the contract saying that the owner warrants the accuracy of the plans, then the contractor must proceed at its own risk.

If the plans given to the contractor turn out to be incorrect, the contractor can submit Requests for Information seeking clarification.  This may lead to delays, changes to the plans, and requests for change orders that the contractor did not anticipate at the time it submitted its bid or entered into the contract.

In this situation, a contractor may find itself facing schedule delays, and whether the contractor is entitled to an extension of time will be determined by the other provisions of the contract.  In addition, the contractor may end up incurring significant additional costs that may or may not be recoverable based on the language of the contract.

So how can a contractor avoid a situation where incorrect plans have caused delays and damages that may or may not be recovered?   I’m glad you asked.

The situation is avoided by addressing it in the contract and negotiating a resolution with the owner.  This requires carefully reading the contract.  There are a issues that are frequently seen in construction contracts that can impact the contractor’s rights with respect to incorrect plans.

Pay attention to contract provisions that address:

  • Whether the owner warrants the drawings and specifications;
  • The contractor’s responsibility for reviewing the plans and specifications for errors;
  • Whether the contractor is allowed to rely on the accuracy of information provided by the owner;
  • Whether the contractor is responsible for reviewing the site and satisfying itself as to whether the work can be constructed per the drawings and specifications; and
  • Whether the contractor is entitled to additional time or costs incurred due to incorrect plans.

Most likely, the contractor will discover that most (if not all) of the risk for errors in the plans have been shifted to the contractor.

If this is the case, then during the contract negotiation process the contractor can propose revisions to minimize this risk, including proposing language specifically stating that the owner warrants the accuracy of the plans and specifications.  The owner may not accept the contractor’s proposed revisions, but it should at least provide an opportunity for both parties to discuss the risks associated with incorrect plans and find some resolution that both parties can live with.

 

 

 

 

Consider the following scenario.  In a dispute between an owner and contractor, neither party can locate a copy of the signed construction contract in their files.

Without a signed contract, can the contractor still compel arbitration?  As it turns out, in certain circumstances, yes.

In Ladymon v. Lewis, the court of appeals addressed this scenario.   Some homeowners sued their builder, but no one could locate a signed version of the construction contract.

The builder filed a motion to compel arbitration.  The first step, however, in compelling arbitration is to establish the existence of a valid arbitration agreement and show that the agreement covers the claims that have been asserted.

So how can you establish the existence of a valid arbitration agreement if you don’t have a copy of the signed contract?  Well, like most things in a lawsuit, you make the best argument you can with what you have.  So that’s what the builder did.

The builder submitted an affidavit that basically said: (i) we can’t find the signed version of the contract but here is an unsigned form contract; (ii) I remember signing this form contract when we built this home; and (iii) I remember getting a copy back from the homeowners with their signature.

Not the strongest evidence you would like supporting a motion to compel arbitration.  Not surprisingly, the homeowners did not think the evidence was sufficient and filed their own affidavit saying that they did not remember signing any documents with the builder prior to construction except for financing documents.

The trial court denied the builder’s motion to compel arbitration and the builder appealed.   On appeal, the builder argued that its affidavit established that there was a valid, enforceable arbitration agreement between the parties.

[T]he absence of a party’s signature does not necessarily destroy an otherwise valid contract. . .

And the court of appeals agreed.  The court said:

[T]he absence of a party’s signature does not necessarily destroy an otherwise valid contract and is not dispositive of the question of whether the parties intended to be bound by the terms of a contract. If a contract is not signed by a party, then other evidence may be used to establish the nonsignatory’s unconditional assent to be bound by the contract, including any arbitration provision.

The court of appeals said that the builder had sufficiently established the existence of a valid contract between the parties that contained an arbitration provision.

And what about the homeowners’ testimony that they did not recall signing the contract?  The court of appeals basically said that saying you do not recall doing something is really no evidence at all.

So if you find yourself in a situation where you cannot locate a signed copy of a contract, all hope is not lost.  Use what you have and make your best arguments.  There’s a still a chance you can enforce an unsigned contract.

 

When I was (much) younger, I recall hearing a preacher in church one Sunday say (multiple times), “The road to hell is paved with folks with good intentions.”

I had no idea what he meant, but I was pretty sure it was bad.  I want to borrow his words to describe something I’ve noticed about construction projects:  The road to project hell is often paved with folks with good intentions.

In other words, the seeds of many construction disputes and unprofitable projects often begin with good intentions by the people involved.

At the beginning of the project, everyone has good intentions.  I have never represented a client who started a project hoping there would be conflict.

I think most people want to trust the people they do business with (why would you do business with them if you didn’t trust them, right?).  As a result, as a project moves along, participants discuss scope change, payment, pricing, and ordering materials, among other things.

Instructions are given and agreements are made.  However, sometimes the parties do not diligently document the discussion and agreement.

This results in disagreements about what was discussed and agreed to once someone gets around to preparing a document, or worse, it leads to a surprise (some would call it ambush) claim at the end of the project.

Next comes payments being withheld, liens being filed, litigation or arbitration, people having to talk to their lawyer way more than they want to, and you find yourself in project hell.

You’ve probably heard the old saying, “trust but verify.”  When it comes to a construction project, however, you should adopt the approach of:

Trust but Document.

Any time there is a discussion about any type of change or any kind of agreement is made, the main points should be documented immediately.  Technology makes this more achievable than ever before.

Use Smartphones and Tablets

When a discussion takes place onsite, it can be documented quickly and easily with a smartphone or tablet.

  • Smartphones.  Put the terms of a discussion and agreement in an email, which can be copied to all parties participating in the discussion so that they have a chance to speak up immediately if they disagree with any information in the email.  If you don’t have time to type out an email (which should be rare), then use your smartphone to make a quick video or audio recording to record everyone agreeing on what was discussed and what actions will be taken.  It would be very difficult for someone to later deny they agreed to something if you have them on video agreeing with the terms.
  • Tablets. Not only can you use a tablet to prepare a note or email, but certain tablets allow you to write with a stylus.  This allows parties to quickly put the terms of their discussion or agreement in a document (even a prepared form stored on the tablet or in the cloud), and then sign it using it the stylus.

Once you have documented the main points of a discussion, the information can later be included in a change order proposal or change order.  The suggestions above are not the only ways to use technology, but the point is that you should make technology work for you and decrease the number of potential disputes.  TRUST BUT DOCUMENT.  Because remember, the road to project hell is often paved with folks with good intentions.