I once had a teacher who called the word “please” a magic word.  For instance, if you asked to go to the restroom, the response was usually, “what’s the magic word?”   Then you said “please” and got to go the restroom.

This exchange repeated itself numerous times a day as students made various requests.  The word “please” usually worked.  Of course, there were other times when even if you used the word “please,” your request was still denied, which sort of muddied the water as to what was so magic about it to start with.

As it turns out, in construction law, there are also some magic words.  In fact, the recent case of Nu-Build & Associates, Inc. v. Sooners Group, L.P. illustrates this point because in that case, failing to use the magic word “reasonable” caused $3.6 million in damages to disappear.

You read that correctly.  One minute there was an award of $3.6 million in damages, and the next minute – “poof” – the damages were gone.

Here’s what happened.  Nu-Build was the general contractor for a project owned by Sooners Group.  Sooners Group terminated Nu-Build before the project was complete and hired a replacement contractor.   As often happens, a lawsuit followed.

Following a bench trial, the Court awarded Sooners Group $3.6 million in damages for its costs to complete the project after Sooners Group terminated Nu-Build.  On appeal, however, the Court of Appeals reversed the $3.6 million damages awarded to Sooners Group, and the court’s opinion is instructive to construction lawyers.

Here are two important statements from the Court of Appeals that construction lawyers should remember related to recovering damages for the cost of completing a project:

  1. One,  when seeking damages for completion costs, whether based on a contract or a tort, you must establish that the completion costs are reasonable.
  2. Two, proof of the amounts charged and paid are not evidence that the amount is reasonable.

The Court of Appeals determined that Sooners Group had not adduced any evidence at trial that the completion costs were reasonable, therefore, the entire amount was reversed.

Point number 2 seems illogical to owners and contractors who have had to complete a terminated party’s work.   From their perspective, the amounts charged and paid to complete a project or scope of work are inherently reasonable or else they wouldn’t have paid them.  Why would someone intentionally pay unreasonable costs to complete a project?

Despite the appeal of that logic, the law takes a different view.  There has to be evidence that the completion costs were reasonable to support an award of damages.

So what does this mean for construction lawyers?  One thing it means is that careful thought should be given to selecting experts and contractors that can establish that completion costs are reasonable.

And as simple as it sounds, it means making sure your experts literally say the magic word “reasonable” several times.  There’s no way to know for sure, but if one of Sooners Group’s experts had testified that Sooners Group’s $3.6 million in completion costs were reasonable, those damages costs may not have disappeared.

 

 

 

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.

 

Like most sports fans in the Dallas area, I’ve spent the last couple of weeks paying attention to the countdown for one our local sports heroes, Adrian Beltre of the Texas Rangers, to reach the magical baseball milestone of 3,000 hits.  Even at the age of 38, Beltre is still playing at a high level and all season long there was never any doubt about whether he would reach the 3,000 hit plateau, it was just a question of when.

The “when” was answered on Sunday, July 30th, when Beltre became the 31st player in the history of baseball to amass 3,000 hits.  I was fortunate enough to be at the ballpark Sunday to experience it live.

 

 

Thankfully baseball is a game that acknowledges some milestones are so rare they should be celebrated.  So after the hit, the game was stopped down for several minutes as Beltre’s family and teammates all came onto the field to congratulate him while a banner commemorating the achievement was unveiled on the outfield wall.  The opposing players that were on the field at the time also made it a point to personally congratulate him.

It was a great moment to see.  And I don’t think that the cheering and congratulations were just because a player reached the 3,000 hit milestone.  A lot of it was due to the fact that the player reaching that milestone was Adrian Beltre.

Adrian Beltre is one of those players who by all accounts, does it the right way.  He is respected by players whether they play with him or against him.

Any time I’ve heard his teammates talk about Beltre, they all say he the consummate teammate.  Everyone can see that he plays hard, but it is also obvious that he enjoys playing the game. And you also don’t accumulate 3,000 hits unless you treat every at bat with the same intensity regardless of the score or conditions.

In addition to his performance on the field, Beltre is also a good person off the field.  He gives back to his community through donations to charitable organizations and giving his time to participate in events hosted by charities.  It’s no wonder he has been a fan favorite in Texas since arriving a few years ago.

So what does any of this have to do with avoiding or minimizing construction disputes?  A lot really.  Sometimes people in the construction world focus on so many things, they overlook the importance of something very basic.  If you want to avoid or reduce construction disputes, focus on doing it right.

  • Show up on time.
  • Work hard.
  • Don’t take shortcuts.
  • Be accountable and be willing to hold those around you accountable.
  • Be honest.
  • Accept responsibility for your actions.
  • Treat every project and job with the same intensity and commitment regardless of the size or fee involved.
  • And commit to doing this day in and day out, regardless of the circumstances or conditions.

You see, a lot of the same principles that allow an athlete like Adrian Beltre to excel are the same principles that allow people to excel in any industry.  So just do it right.  It’s simple to say, but too often overlooked.

 

I recently wrote about the WannaCry ransomware attack that crippled companies around the globe and recommended that cyberattacks be addressed in the force majeure provision of a construction contract.

Last week, there was another global cyberattack that was first believed to be another form of ransomware known as Petya, but it turned out that the attack was something more sinister.

Instead of being ransomware, which (usually) results in the victim getting their files and information back at a later date, experts have concluded that last week’s attack was actually malware that was a “wiper,” which prevents the user from ever accessing their files.  In other words, a hacker that unleashes a “wiper” on a system is not trying to make money by demanding some type of ransom payment for the information – they just want to damage and destroy.

In addition to adding cyberattacks to the force majeure provision, you should also consider including a contractual provision addressing other potential remedies in the event of a cyberattack.   For instance, parties may want to consider a termination provision that is triggered by a cyberattack.

Every project is different, so there is no “one size fits all” approach for addressing a cyberattack in a contractual provision, but here is a framework that you may be able to customize for your project:

Cyberattacks. The term “cyberattack” in this Contract shall mean, “an attempt by hackers to damage or destroy a Party’s computer network or system.”  In addition to any other remedy available under the Contract (including any extension of time under Section _____), either Party may terminate the Contract upon _____ days written notice if either Owner or Contractor is the victim of a cyberattack that: (i) substantially deletes or destroys Owner’s or Contractor’s electronic files related to the Project such that Owner or Contractor are unable to continue performing their obligations under the Contract; or (ii) prevents Owner or Contractor from being able to access their electronic files related to the Project for more than _______ days.  If Owner terminates the Contract under this Section _____, Contractor shall be entitled to recover (insert remedies, i.e., treated as termination for convenience, or payment to Contractor of a termination fee). If Contractor terminates the Contract under this Section _____, then Contractor shall (insert remedies, i.e., limited to payment for properly performed work, or payment to Owner of a termination fee).

Cybersecurity is an issue that is not going away.  Whether you use a provision similar to the one above or draft your own provision, make sure you address the issue in your construction contracts.

Have you ever said: “I don’t have a contract with the architect yet.  I only signed a proposal.

I’ve heard this statement or something similar from clients multiple times over the years.  They are usually surprised to find out, however, that if they signed a proposal then they already have a contract.  Here’s some advice for owners and contractors: do not sign proposals from design professionals unless you have them reviewed by counsel!

caution 2

Many design professional proposals contain unfavorable terms and conditions that result in an owner or contractor waiving important legal rights and remedies.  For instance, proposals often contain provisions limiting the design professional’s liability or requiring the owner or contractor to indemnify the design professional from any claims.  Also, proposals often exclude any mention of insurance or ownership of the work product.

Many times, Owners and contractors sign these proposals thinking that they are simply locking in a price for a scope of services, and that the parties will sign a more formal agreement later to establish other terms.  But once a proposal is signed, the parties have a contract.  At that point, the design professional may refuse to sign another agreement.  And if problems arise later on, an owner or contractor may find they have very little recourse.

Let me share a real life story to illustrate my point.  A general contractor’s work required the services of a geotechnical engineer for a new phase of a project, so one of the contractor’s project superintendents called the engineer to get pricing for the engineer’s services.  The engineer faxed its pricing for the services on its standard proposal form (which included the engineer’s standard terms and conditions) to the job trailer.  The superintendent signed and returned the proposal, and the engineer performed the services.

A few months after the project was complete, a large slab in an area of the project began to heave and crack, and ultimately had to be completely replaced.  The cause – the geotechnical engineer’s negligence in performing its services.  The cost of replacing the slab exceeded $1 million but the contractor’s efforts to recover that amount from the engineer were unsuccessful.  Why?  Because hidden within a paragraph of the engineer’s standard terms and conditions was language limiting the engineer’s liability to a very nominal amount.

Even though no one really contested that the damages were caused by the engineer’s negligence, the court enforced the limitation of liability provision, and the contractor and its carrier were the parties were stuck with the repair costs.

So the next time you get a proposal from a design professional, have it reviewed by a lawyer familiar with construction law who can appreciate the potential impact of any terms and conditions in the proposal.  It may slow the process down slightly, but it will be worth it in the long run.