Monday, November 12, 2012

Wisdom from the DBIA National Conference


It’s been a busy few months.  I just returned from the DBIA National Conference in New Orleans.  First, if you haven’t been to New Orleans lately, you should go.  It’s an extraordinarily beautiful city, and the food is amazing.  Be prepared to gain a few pounds.  Second, if you haven’t been to a DBIA National Conference, you should go.  The staff at DBIA, particularly Stephenie Zvonkovich, the DBIA Conference Planning Director, do an amazing job.  In addition to the DBIA staff, I want to give a personal thanks to all of the busy professionals on the National Conference Planning Committee who put in a huge amount of effort to review the hundred plus submissions, make recommendations on speakers, and follow up with speakers to create the best content on design-build in the country. 

We provided some amazing sessions, but one was exceptional.  Jamie Clarke, a Canadian explorer, was our final keynote speaker, and he was fabulous – funny, poignant, inspirational, add some superlatives and you get the drift.  If you are looking for a great motivational speaker, you could not do better.  For more info, here is a link to his website:  http://www.jamieclarke.com/

If you missed this year’s conference, DBIA will be selling the conference materials, and the materials should be available in the next few weeks on the website.  DBIA will also be providing continuing education credits for certification with the conference materials.

One of consistently terrific sessions at the National Conference is “Lessons Learned” from Mike Loulakis, and he didn’t disappoint this year.  I will be discussing a few of those cases in the weeks ahead.  Not surprisingly, Mike noted the Metcalf decision (see my previous post) as one of the “Big 2” of this past year.  The other decision was from the Civilian Board of Contract Appeals, Fluor Intercontinental, Inc., v. Dept. of State, 2012 WL 1144972 (March 2012).  The Fluor case revolved around the construction of an United States embassy complex in Astana, Kazakhstan.  The facts surrounding the case are in heavy dispute.  Fluor asserts that the government made representations regarding (among other things) the availability of local labor and materials as well as the status of providing utilities to the site.  The State Department claims that although it stated what it knew about these issues, that local labor and materials were acceptable for certain items and the intent was that the Astana authorities would provide utilities during construction, but it disclaimed its knowledge, and Fluor should not have relied on the statements in Request for Proposals or in the procurement process.  Instead, Fluor should have performed more due diligence on these issues.  As is typical with construction disputes, it is almost impossible to determine who is correct.  The CBCA found with the State Department and held that Fluor should not have relied on any representations during the procurement process.  Fluor argued that the State Department should have a duty under the covenant of good faith and fair dealing to provide accurate information; however, the CBCA essentially rejected the notion that the State Department had any obligation to get these representations right, as long as there was a disclaimer in the Request for Proposals. 

The CBCA’s position on the covenant of good faith and fair dealing is debatable and is currently up on appeal.  However, this case and the Fluor decision are not “wins” for the Federal government.  In fact, when one looks at the cases together, they are a massive setback for best practices.  If you have heard me speak, you know that my philosophy is to accurately and intelligently place risks on a project.  If the CBCA is correct, then the State Department left their proposers out in the cold on the procurement of a facility with complex security issues in a potentially volatile area of the world. 

I often wonder about the extent of knowledge of geography in our country, particularly when it comes to countries that have only been in existence for the past few years.  I have jeans older than Kazakhstan.  Here is a link to the Central Intelligence Agency website that shows its location:  https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html.  It is surrounded on two sides by Russia and China and on the other side by three former Russian states, Turkmenistan, Uzbekistan and Kyrgyzstan.  Also, according to the CIA, it has vast natural resources, but it’s infrastructure is severely lacking. 

No one should treat this procurement as if it was in the United States.  Yes, business who propose on projects must do extensive investigation on the availability of local resources, but in this case, the party best able to gain intelligence on the availability of the local resources was the government, not the proposers.  The goal in any competition should be to select the design-builder best qualified for the project, not to shift the risk of every condition onto the design-builder.  The best practice in this case would have been for the government to set some general assumptions regarding the local conditions, allow the proposers to set their price based on those assumptions and then work collaboratively with the successful design-builder when those assumptions change.  Notice I said “when”, and not “if.”  The project has not been designed, yet.  Assume that changes will occur, and develop a communications protocol that will effectively manage the change.  If the Federal government continues on the path of stretching the boundaries on what is foreseeable with respect to risk, the cost of procurements will rise dramatically, and we all lose.  Let’s hope that we see a movement from the Federal government to reject these cases, if not from a legal standpoint, then for the sake of best practices and maintaining a viable industry.

Stay tuned for more wisdom from our fabulous speakers at the National Conference.
rob

Monday, September 10, 2012

After Taking the Summer Off . . .

The blog is back.  I have several cases to discuss, but for the first post-summer post, I will be speaking at a number of events in the next few months, and registration for most of them is coming up.  Here is my current calendar:

September 25, 2012:  DBIA NW Region Owner's Forum, Seattle, WA.  This is a full day event focused on owner's concerns.  This year's topic is public/private partnerships.  Link to registration: http://www.dbianwc.org/index.php?option=com_mc&view=mc&mcid=72&eventId=352933&orgId=dbianr

October 12, 2012:  Lean Construction Institute Annual Congress, Arlington, VA.  The LCI Annual Congress is actually from October 9-12, and it looks like a fabulous program.  I'll be attending on Oct. 11 and speaking at the later morning session on Oct. 12.  The topic is lean construction and design-build contracts.  I would love any input that any of you have for this topic!  Feel free to email me.  Link to registration:    www.leanconstruction.org 

October 17, 2012:    Construction Owners Association of America (COAA) Washington Chapter Workshop, Seattle, WA.  9:00 am to Noon.  Brendan Peters of Perkins Coie will be first with "The Legal Side of BIM".  I follow with "Design Build:  Pros and Cons for Owners."  Link to registration:  http://coaa.org/Default.aspx?tabid=353

November 6-9, 2012:  DBIA National Convention, New Orleans, LA.   I expect to see EVERYONE at this conference.  First, New Orleans is an incredible place.  Best.  Food.  Ever.  Second, I chair the conference committee this year, so you know it will be terrific.  Not only do we have an amazing line up of speakers, including General Russel Honoré (Ret.), Commander of Joint Task Force Katrina, Karen Durham-Aguilera, P.E., SES, Director of Contingency Operations and Office of Homeland Security, U.S. Army Corps of Engineers, and Jamie Clark, Extreme Adventurer, we have, not one, but two parties planned for the conference.  One is at the House of Blues in the French Quarter, and one is the always entertaining Awards Dinner, featuring Master Magician Bob Higa.  In addition, I teach the DBIA Core Course, "Contracts and Risk Management" on Nov. 6, and Bill Quatman and I will be talking about the new DBIA Teaming and Subconsultant Agreements on Nov. 8.   Owners can apply for scholarships, but the Sept 17 deadline for those applications is quickly approaching.  Sponsorship opportunities are still available!  Link to registration:  http://www.dbia.org/conferences/expo/2012/default 

Hope to see you all at one of the events above!
rob

Friday, June 1, 2012

DBIA's New Oregon Chapter Hosts Meeting

The DBIA NW Region has started two new chapters in Oregon and in Spokane.  I will be speaking at the Oregon Chapter's inaugural meeting on June 12, 2012.  It's a breakfast meeting at the Governor Hotel starting at 7:30 am.  The official title of the program is "Design-Build, What It Is and Why It's Right for Oregon."  Paul Kisling, Senior Project Manager at Gerding Edlen Development will also be speaking.

If you are in the Portland area or have an office in Oregon, come and meet other folks interested in design-build.  The chapter meetings are terrific places to network, and you will get DBIA and CES credit for attending the meeting. 

Register at the DBIA NW Region website:  http://www.dbianwc.org/

Thursday, May 31, 2012

Decision Comes Down in Surge Protection Protest

The United States Court of Federal Claims decided CBY Design Builders v. US, 2012 WL 1889299 (2012) on May 11.  This protest arose out of the Corps of Engineer’s solicitation for the construction of the Permanent Canal Closures and Pumps to aid in the protection of the city of New Orleans from flood damage.  The goal in the project is to achieve a 100 year level of storm surge risk reduction and to allow rainwater to be evacuated from the city.   In the procurement, the Corps established a “build to budget” amount of $700,000,000.  The solicitation quoted the DBIA definition of “build to budget” as “a method to help owners ensure proposed prices are affordable while further enhancing the focus on technical excellence instead of proposed initial cost.”  The solicitation went further to state, “we expect our solutions to utilize the full budget available and not focus on providing a low bid design.  Attempts to offer lower priced technical solutions may be determined to be non-competitive and result in elimination accordingly.  Offerors shall maximize the capability of the [Permanent Canal Project] within the available budget.”   In addition, the solicitation stated that offers that exceeded the budget would be eliminated from the competition without further consideration.
There were initially five shortlisted proposers; however, two of them submitted offers that exceeded the $700,000,000 ceiling. The three remaining shortlisted proposers were CBY Design Build, a joint venture of Brasfield & Gorie LLC, CDM Constructors and W.G. Yates Sons Construction Co; Bechtel Infrastructure Group; and PCCP Constructors, JV.  Initially, CBY was selected as the successful proposer; however, a series of protests by Bechtel and PCCP to the Government Accountability Office (GAO) delayed the award.  The protests centered around three issues.  First, was there an organizational conflict of interest with respect to the fact that CBY hired a former Corps employee who had worked on the surge protection project?  Second, was the solicitation misleading in that Bechtel and PCCP interpreted the “build to budget” language as not allowing the proposers to submit a budget lower than the $700 million in the procurement?  Third, was the Corps evaluation of the proposals improper because it failed to consider CBY’s proposed foundation and pile design?  The GAO determined that there was no conflict of interest, but it also determined that the rules regarding price in the solicitation were unclear and that the Corps should have evaluated CBY’s design.  The GAO recommended that the Corps issue a corrective action and allow for additional submittals from the parties, and the Corps accepted that recommendation.  CBY appealed the Corps’ decision to issue a corrective action to the Court of Federal Claims.  The Court of Federal Claims was reviewing whether the Corps’ decision to issue the corrective action was “arbitrary and capricious.”
With respect to the first issue, the court agreed with the GAO’s determination that there was no organizational conflict of interest.  Although the former Corps employee had previously worked on the surge protection project, the court ruled that any access to competitively useful non-public information occurred too long prior to the procurement (3 ½ years) to constitute an organizational conflict of interest.
The court’s evaluation of the “build to budget” issue was of more substantive interest.  The problem arose because CBY submitted a cost that was approximately $25 million below the $700,000,000 ceiling, and the Corps evaluated the $25 million savings in CBY’s favor.  Bechtel and PCCP both submitted a budget of exactly $700,000,000, testifying that they believed that the “build to budget” solicitation required that all proposers submit that number.  The court discussed the “build to budget” concept extensively and essentially ruled that requiring proposers to submit the same budget number was not allowed under the Competition in Contracting Act (CICA) or the Federal Acquisition Regulations (FAR).  “A process in which all prices must be the same is one in which price does not matter, running afoul of CICA and the FAR.”  The court cited 10 USC §2305(a)(3)(A)(ii) [the citation is for you legal geeks out there] in stating, “Congress has mandated that in prescribing the evaluation factors for competitive proposals, an agency ‘shall include cost or price to the Federal Government as an evaluation factor that must be considered in the evaluation of proposals.’”  In addition, cost must receive “meaningful consideration” in the evaluation of the proposals.  “If the build-to-budget language in the solicitation were construed to mean that all offerors’ prices would be the same, then the price would not even be a nominal consideration – it would be eliminated as a factor, in violation of CICA and the FAR.” The end result is that the court ruled that the Corps could favorably evaluate the $25 million difference in price and that Bechtel’s and PCCP’s interpretation of the solicitation was unreasonable.   Although the court ruled that the Corps could not accept the GAO recommendation, the court allowed the Corps to re-issue the RFP on other grounds and held that it was not error for the Corps to clarify the budget issue in the re-issued RFP.
The final issue of interest (to me, anyway) is whether the Corps could accept the GAO recommendation to amend the procurement to allow further technical submissions and a substantive review of the submissions.  Bechtel and PCCP argued that the GAO’s recommendation was valid because the Corps violated the procurement requirements by failing to evaluate the CBY’s foundation proposal.  Bechtel submitted testimony that the proposal submitted by CBY was not sufficient to meet the procurement requirements.  The Corps testified that it didn’t really look at the foundation proposal.  CBY argued “that because this was a design-build contract, there was no need for detailed analysis of CBY’s foundation prior to award, and that offerors only had to include ‘design concepts’ in the proposal rather than the full design.”  The court, however, agreed with Bechtel and PCCP.  Because the procurement required that offerors submit their “proposed approach to fully perform the requirements of the RFP,” the Corps had to evaluate the submissions provided by the parties, and its failure to do so justified re-issuing the RFP. 
In the end, the court held that the Corps could re-issue the RFP, clarify the basis on which award would be made and allow for revised submissions from the parties.  Note that procedural posture in this case is a bit awkward.  The Corps was arguing in favor of re-issuing the RFP.  In fact, in the testimony regarding the review of the submissions, the Corps witnesses testified that it did not, in fact, properly evaluate the submissions.  Also, the court was reviewing the Corps actions on an “arbitrary and capricious” standard.  My guess is that if the Corps was on the other side of this case, decided not to amend the RFP and testified that it had, in fact, considered the materials submitted by the parties, that the Corps actions in that case would also be upheld because the “arbitrary and capricious” standard allows for broad discretion on the part of the governmental agency.  Despite the procedural posture of the case, we can glean a few nuggets of wisdom from the court’s ruling.
First, watch out for organizational conflicts of interest.  If there is even a hint of an OCI, make sure that the issue is disclosed and discussed.  The potential OCI in this case could have negated the entire procurement for CBY.
Second, “build-to-budget” procurements in the federal sector may be a problem.  The court very clearly stated that the federal government is required under the CICA and the FAR to meaningfully evaluate price.  We don’t know what “meaningful evaluation” means, but we do know that at least the Federal Court of Claims does not believe that “build-to-budget,” where all of the parties submit the same price, complies with federal law. 
Third, follow the procurement instructions.  The Corps is not required in every procurement to obtain and evaluate final plans; however, when it states in the procurement that final plans should be submitted and that those plans will be evaluated, then the rules have to be followed.  Certainly, agencies could carefully consider language that would require final plans of any sort in a procurement.  Those drafting the RFQs and RFPs should always allow for maximum discretion on the part of the governmental agency.  The point of a design-build procurement should be to evaluate experience and approach, not final plans.
What’s next, you may ask?  There is always the possibility of an appeal, but in the meantime, the Corps is free to re-issue the solicitation and re-evaluate the proposals.  CBY may very well be the successful proposer after the re-evaluation, but with this large a project and with this much money at stake, I’m guessing that we haven’t heard the last of this dispute.

Tuesday, February 28, 2012

DBIA NW Region Hosts Certification Workshop

Are you looking to get that DBIA Certification and just haven't had the time, or do you just want to know about design-build best practices?  DBIA will present a national cerfication workshop March 5-9 in Bellevue, Washington.  I will be teaching the Contracts and Risk class on Wednesday and the Exam Prep class on Friday.  Even better, Craig Unger will be teaching the Post Award class, and Bill Kent and David Gunderson are teaching the Fundamentals and Principles class.

You can get more information at http://www.dbianwc.org/ or http://www.dbia.org/.

Monday, February 27, 2012

NWCCC and DBIA NW Region Presents Seminar on Design-Build Best Practices

I will be presenting at the Northwest Construction Consumers Council/DBIA NW Region conference on design-build best practices on Wednesday, February 29.  My topic is "Legislating Best Practices".  The DBIA NW Region is working with the Washington State Capital Projects Advisory Review Board to revise the design-build legislation in Washington.  Our goal is to incorporate as many DBIA best practices as possible into the legislation.

You can get more information about the conference at http://www.nwccc.org/

Wednesday, February 22, 2012

A Truly Horrible Decision Justifies Caution for Federal Projects

Have you ever worked on a project that just seemed cursed?  The construction of the housing of the Marine Corps Base at Kaneohe Bay is the subject of Metcalf Construction Co., Inc. v. U.S., 2011 WL 6145128 (Fed. Cl. December 9, 2011), and although it is difficult to assess as an outsider, this project was clearly a disaster.  It is also a case that illustrates the proposition that smart people can disagree as to the correct outcome of a case, and in some cases, a court can be flat out wrong.  This project began with not one, but two bid protests.  The project was eventually awarded to Metcalf Construction, and I’m fairly certain that Metcalf wishes it had not filed the protest.  The final cost of the project was $49,947,872, but Metcalf claimed that it spent in excess of $76 million to complete the project.  There are many claims in the extremely long decision by the Court of Federal Claims, but I just want to focus on a one that the court got right, and a few where I believe the court missed the mark.
The Owner Can Insist on Prescriptive Specifications, even in design-build.
Metcalf claimed that in a design-build project, it should have been able to determine means and methods such as the type of project software that it used.  The specifications required that the design-builder use Primavera software, but Metcalf wanted to use Microsoft Project.  Metcalf was simply incorrect on this argument.  The case law is clear that even in design-build delivery, an owner can insist on certain prescriptive items.  As I counsel owners, if there is an item that the owner knows that it wants, I encourage them to specify it rather make the design-builder guess at what the owner wants. 
The Owner Should Be Responsible for Prescriptive Specifications in the RFP.
Here are two claims where I honestly think that the court got it wrong.  The first claim involved soil conditions.  The specifications incorrectly noted that the soils were “slightly” expansive, and the Navy affirmed in response to a question in the RFP process that if the actual conditions were materially different, then the Navy would issue a change order.  As it turns out, the “expansiveness” of the soils was actually “moderate to high”, requiring a substantial change in the excavation of the footprint of the buildings.  The court stated that the difference in the characterization of the soils was not a differing site condition because the specifications had a requirement that the design-builder perform its own soils test and that “expansive” soils were common in Hawaii.  The second claim involved the remediation of Chlordane.  The RFP was inconsistent with respect to the requirement to remediate Chlordane.  In response to a question from one of the proposers, the Navy explicitly stated in the RFP process “No remediation action of the Chlordane contaminated soil is required . . ..”  However, during the course of the project, the Navy, citing the inconsistent specification, did require remediation of the Chlordane.  The court, once again, stated that because the design-builder knew that there was the possibility of Chlordane, then it took the risk of the remediation.
Both of these holdings fly in the face of long standing decisions such as Appeal of M.A. Mortenson Co, ASBCA No. 39978 (1993).  The M.A. Mortenson decision, as well as many others, hold that the design-builder can rely on the information provided in the RFP, even if the design-builder is required to verify the information in the course of its work.  The owner gets a benefit from allowing design-builders to do rely on the information.  Essentially, the RFP acts as a snapshot in time that the proposers can use for the purposes of pricing.  Without drawing some parameters around the RFP pricing, the risk on the design-builders is too great.  Think about the court’s reading of the RFP risk:  the existence of certain types of soils in Hawaii shifts all the risk of the possibility of the presence of those soils on the site, despite a soils report that states the opposite.  The fact that Chlordane exists on the site shifts the risk of the remediation of the Chlordane, despite the fact that the Navy expressly stated that no remediation would be required.  The cost for this project should have been outrageously expensive, but who knew that a court would interpret the risk this way?  As I always state in my classes, no one can predict what will happen in court.  Twelve people who couldn’t otherwise get out of jury duty aren’t the only ones in the courtroom who are unpredictable.
The other problem with this case is that the Navy apparently managed the project as if it were in combat.  One of the issues was the over-zealous inspector who would inspect items multiple times and reject items, even though these items probably should have been accepted.  For example, in rejecting a countertop that 1/64th of an inch off, he actually stated that “on any other job in the universe, he would not only accept [the] countertop but that it actually looked good.... [U]nfortunately this is a war ... no breaks.”  One of the Navy’s Executive Officers ordered a response to a request for a change as a “pre-emptive strike.”  The court even found the Navy’s project manager to be incompetent.  The design-builder claimed that in managing the project incompetently, the Navy breached the covenant of good faith and fair dealing inherent in the contract.  Although the court acknowledged the incompetence of the Navy, it held that the actions did not rise to the level of a breach of contract.

The Navy apparently won the war and has come close to destroying its opponent.  I previously posted that the company was destroyed; however, I've spoken with Terry Metcalf, and he assures me that although the company is not doing business, it is still attempting to recover from the Navy. Mr. Metcalf has also assured me that no corners were cut, but that is only because he had the support of his bonding company and subcontractors.  That would not be the case under most circumstances.  In most cases, the design-builder would not survive such a project, and the owner would then have no one to stand behind the work.  I am hoping that instead of winning this war, that it was only a battle, and the case, in the end, is decided approriately. 

So, the precedent exists.  What should parties do to deal with this issue?
First, design-builders should be much more careful when reviewing the RFP and should ask questions on even slightly ambiguous specifications.  The questions and/or clarifications need to be very specific.  Apparently, under this case, the design-builder is “aware” of just about any problem that could possibly exist.  I strongly suggest a thorough statement regarding what the price includes and what it does not. 
Second, owners should not rejoice.  As noted above, this wasn’t a “win” for the Navy.  If all construction is managed in this way, the industry would fail, and projects would be prohibitively expensive.  Project management by combat is counter-productive and produces horrible projects.  Plus, I believe that if this case is appealed, it should (if everything is right in the world) be overturned.  Assign risk evenly on the party best able to manage the risk.  Design-builders cannot and should not take the risk of all environmental and soils conditions on the ground.  It is simply not feasible, particularly when the owner affirmatively misrepresents how it will handle the risk during the project. 
I understand from the attorney representing Metcalf, as well as Terry Metcalf himself, that Metcalf has filed an appeal.   I wish them luck.

Tuesday, February 14, 2012

DBIA National Board Approves New Form Teaming Agreement

The DBIA National Board met on February 8 and approved two new form documents, the Standard Form of Teaming Agreement Between Design-Builder and Teaming Party and the Standard Form of Agreement Between Design Consultant and Design Sub-Consultant.  I am proud to have been the leader of the Contracts Task Force that drafted and presented the agreements to the Board.  The agreements will be published just as soon as the fine folks at DBIA format the documents (my word processing skills are, thankfully, limited), but I’ll give all of you a preview of the some of the more interesting features of the documents in this blog.
The DBIA Standard Form of Teaming Agreement is the first form teaming agreement specifically drafted for design-build.  I've been teaching the DBIA Contracts and Risk Class for many years, and there have been many requests for a form teaming agreement.   The EJCDC has a teaming agreement, but the instructions note that the document should be significantly revised if it is used for a design-build project.   The DBIA Teaming Agreement is intended to be used when the design-builder is the prime contracting party (the “Design-Builder”) and will subcontract with other parties, such as designers, trade contractors and specialty design-build contractors (the “Teaming Party”). 
Like all of the latest versions of the DBIA documents, the Teaming Agreement has many options so that the parties can customize the agreement with language from the document, rather than the parties creating their own language.  The customization feature saves the parties time and money and avoids attorneys becoming creative with their own language.  Trust me, the last thing the parties want is for attorneys to start getting cute with language.  For example, there are many different options for the Design-Builder to pay the Teaming Party.  There are also many different options for distribution of the honorarium or stipend paid by the owner. 
One of the thorny issues in teaming agreements is enforceability of the document.  If the parties do not agree on the material terms for the subsequent subcontract agreement (the “Subsequent Agreement”), then the courts are likely to hold that the portion of the Teaming Agreement that addresses the Subsequent Agreement is an unenforceable “agreement to agree.”  That leaves the Design-Builder and/or the Teaming Party potentially out in the cold when it comes time to actually perform the project.  In the Teaming Agreement, we dealt with this issue by 1) requiring the parties to negotiate the Subsequent Agreement terms and conditions with the Teaming Agreement and 2) requiring the Teaming Party to provide to the Design-Builder what is essentially a proposal to perform the scope of services in the Subsequent Agreement prior to the Design-Builder’s submission of the Proposal to the owner. 
In negotiating the Subsequent Agreement, the parties have the choice of checking a box for one of the many DBIA form sub-tier agreements, or they can attach their own form as an exhibit to the Teaming Agreement.  Negotiating the Subsequent Agreement with the Teaming Agreement has many advantages.  First, the parties discover whether they can actually negotiate the terms and conditions.  If there will be serious problems with the terms of the Subsequent Agreement, the parties want to know about those problems long before the Design-Builder has promised to the owner that it will bring the Teaming Party to the project.  Second, the Subsequent Agreement sets the baseline for how the parties will work together during the project, allowing the parties to assess risk and cost at an earlier date.
The proposal required from the Teaming Party is referenced in the Teaming Agreement as the “Teaming Party Price.”   The Teaming Agreement assumes that the Design-Builder may negotiate further with the owner after the Design-Builder is selected for the project, and those negotiations may necessitate further negotiations with the Teaming Party (which is why it is a best practice for the Teaming Party to be involved in the negotiations).  The Teaming Agreement protects the Teaming Party during these negotiations because the Design-Builder cannot make promises that differ from the Subsequent Agreement and the Teaming Party Price without the consent of the Teaming Party.  The Teaming Agreement also contains an optional provision for liquidated damages, should the parties be unable to successfully negotiate the Subsequent Agreement.   The Design-Builder has the option, however, of accepting the Teaming Party Price and forming a binding agreement for the Scope of Work in the Subsequent Agreement.   Thus, providing many paths to the proverbial ride into the sunset happy ending, or more accurately, beginning.
The Teaming Agreement also deals with other issues such as exclusivity, ownership of Work Product, confidentiality and termination of the agreement.  Look for further descriptions of these provisions in future blogs.   If you have questions about the Teaming Agreement or think that you might be interested in utilizing the DBIA Agreement, feel free to comment on the blog or call.

Monday, February 6, 2012

Get It In Writing!

In Nascent Group, JV v US, 2012 WL 176612 (Jan. 18, 2012), Nascent was the successful proposer for a contract to construct a border patrol station for the Army Corps of Engineers in my home state of Washington.  Yes, we have a border up here.  We just aren’t interested in putting up a big fence.  The RFP requested bids for 2 stations:  one in Blaine, Washington, and one in Linden, Washington.  Nascent was the successful proposer for the Blaine project, which was clearly the first one out of the gate.  The Corps had funding for the Blaine project, and the contract clearly listed the Linden project as an “option.”  Nascent was very clear that the amount of its bid was based on the savings it would realize by constructing both projects, and there was some evidence that the Corps was less than clear regarding the availability of funding for the Linden project and whether it would go ahead with the Linden project.   What is clear is the following:  1)  There was never a contract to construct the Linden project; 2) The Corps representative told Nascent to make sure it was “whole” in pricing for the Blaine project in case the Linden project didn’t come through; 3) The Corps never signed a contract for the Linden project and despite some possible oral representations otherwise, no one at the Corps had the actual authority to enter into a contract to construct the Linden project because (among other things) the money was never allocated for the Linden project.
Nascent claimed that the representations regarding funding from the Corps contracting officer as well as the notation in its proposal regarding the pricing based on constructing both facilities created an “apparent authority” situation.  That is, that even though the contracting officer did not have the actual authority to enter into the agreement, she had the apparent authority to do so.  Apparent authority is applicable in the private sector; however the court flatly rejected it in the context of the federal government.   Basically, the court found that there was never a contract to construct the Linden project and the government could only be bound by someone with actual authority. 
No, this case isn’t a design-build case, but the federal government does a lot of design-build work, so I thought the case was instructive for two reasons.  The first is that when it comes to the federal government, make sure that the commitment is in writing, and make sure the person making the commitment has the actual authority to do so.  The second instructive point is the incredibly slow process of suing the federal government.  The project began in 2004.  The dispute was filed in 2009.  It’s now 2012, and there are two courts that could potentially review the case after this one:  the United States Court of Appeals for the Federal Circuit, and potentially the Supremes.   

Friday, February 3, 2012

Leave My Liquidated Damages Alone!

In US v. Dick Corp 2010 WL 4666747 (N.D. FL November 9, 2010), a Federal District Court upheld the assessment of liquidated damages against a subcontractor, despite the fact that the Navy had not assessed liquidated damages against the prime design-builder.  The project involved the construction of four buildings at the Pensacola Naval Station.  Dick Corp., the design-builder, subcontracted with James B. Donaghey, Inc., to install the plumbing and HVAC systems.  Out of a $79 million design-build project, Donaghey’s contract was $8,900,000.  The Court found that Donaghey delayed Dick Corp when Donoghey could not meet the performance requirements for the test and balancing approvals.  Dick Corp claimed damages as a result of the delay on the project as well as the impact to the other sub-trades.  The subcontract with Donahey contained a liquidated damages provision of $5,400 per day, and Dick Corp assessed them against Donaghey.
Donoghey protested, claiming 1) that the damages actually incurred by Dick Corp were far less than the liquidated damages amount; therefore, the LD amount was unconscionable and unenforceable; and 2) that the LDs were a “pass through” and should only be assessed if the Owner assessed damages against Dick Corp.  The court sided with Dick Corp holding that assessment of the LDs was enforceable.  First, it doesn’t matter what Dick Corp’s actual damages were.  The parties specifically negotiated the LD amount, taking into consideration what Dick Corp’s potential damages might be.  If the owner had, in fact, assessed LDs, Dick Corp’s actual damages would have been much higher.  Second, the LD provision in the sub agreement was not conditioned on assessment of LDs in the prime. 
Courts love liquidated damages because they want to encourage parties to resolve disputes outside of the courtroom.  Honestly, courts are incredibly busy and don’t particularly want your business.  They would be very happy if you didn’t file a lawsuit in the first place.  Liquidated damages are an extremely useful tool in a design-build agreement, and parties should not limit their use to delays.  The term “liquidated” in the law, simply means “agreed upon.”   Parties can agree upon remedies for many potential breaches, such as failure to meet performance requirements, failure to meet O&M requirements, or failure to achieve sustainability goals.  The liquidated damages limit what could be an astronomical assessment of actual damages.  Can you imagine being required to re-work a building that didn’t meet LEED Gold status?  LDs also provide certainty to parties who don’t want to litigate the cost later.   One of the goals of a construction contract is to reduce disputes down the road, and LDs are a perfect example of limiting litigation costs as well as liability.   

Friday, January 20, 2012

2012 DBIA Conferences

Save the dates for the DBIA Conferences this year.   Once again, the Water/Wastewater and Transportation conferences will be back to back, April 23-27 in Phoenix, AZ.  I’ll be talking about the new DBIA Teaming Agreement and Design Subconsultant Agreement at the W/WW conference on April 24 from 11:30 to 12:30.  The Federal Sector conference is in Washington DC on August 21-23.  Finally, the DBIA National Conference is in New Orleans from November 7-9.  I’m chairing the National Conference Committee, and the committee is working on making it a terrific event.  We will be issuing the call for presentations for the National Conference soon, so start thinking of your ideas.  Go to www.dbia.org for further information.

Thursday, January 19, 2012

The Blog Is Back! Insurance in DB Contracts

The Blog is Back!  After a short-ish hiatus, the design-build law blog is back with more cases, updates and news. 
A new case out of Arizona reminds us all of the importance of getting everyone, including the insurers, on the same page at the beginning of a project.  In Travelers Idem. Co. v. Crown Corr, Inc., WL 6780885 (D. AZ December 27, 1011), a federal District Court held that Travelers insurance was bound by the insurance provisions in the design-build contract between the owner and the design-builder.  This case involves damage to the University of Phoenix/Arizona Cardinals Stadium.  A rainstorm caused 38 metal panels to fall off the stadium, causing significant damage to the façade, retractable roofs and sound system.  Tourism and Sports Authority, the owner of the Stadium, was insured by Travelers, and Travelers brought the cause of action against Crown Corr, Inc., one of the subcontractors on the stadium.     
The Stadium was constructed by Hunt Construction under a design-build contract.  In the contract, the parties waived their subrogation rights with respect to the property insurance obtained by TSA.   When parties waive subrogation rights, they promise not to sue each other if there is a loss that is covered by the insurance.  Essentially, the parties recognized a risk, in this case damage to the property.  TSA insured the risk through Travelers, and the parties agreed that if the risk occurred, the insurance, rather than any individual party, would cover the risk.
Although Travelers recognized that the parties had waived their subrogation rights against each other, Travelers claimed that because it was not a party to the design-build agreement, it was not bound by the waiver of subrogation.  The court rejected this argument for several reasons, but it seemed primarily persuaded by the fact that the design-build agreement, complete with its waiver of subrogation, was entered into prior to the issuance of the insurance policy.  The court found that Travelers had notice of the waiver of subrogation when it issued the policy.  Further, the policy itself allowed for TSA to waive its subrogation rights.  Travelers could not come back after the fact to deny the waiver of subrogation.
The case has a terrific discussion of the complex nature of construction contracts, particularly design-build contracts, and the necessity for the assertion of the economic loss doctrine.  The economic loss doctrine disallows recovery outside of the remedies negotiated between the parties in the contract.  It recognizes that the parties negotiate these contracts on a project by project basis and assign the risks associated with the projects to both parties and, in cases like this one, to an insurance policy. 
“The Contracts were specifically negotiated with the Stadium project in mind and the Parties allocated risks and remedies in their agreements. The Parties did not agree to preserve tort remedies, but instead agreed to waive subrogation against all Parties, subcontractors, and design consultants. Tourism and Sports Authority had plenty of opportunities to assert its right to tort remedies, but instead chose to allow insurance to bear the burden of risk associated with the project. Because of the complex contractual relationships in construction defect cases, Courts have extended the economic loss doctrine to interrelated contracts where, as here, the Parties have had an opportunity to bargain for their rights.”
Given that the economic loss doctrine has taken some hits lately, particularly in my home state of Washington, I appreciate when courts recognize that sophisticated parties can recognize and assign rights and remedies in a contract and then be bound by the allocated risks.