Wednesday, October 30, 2013

The Covenant of Good Faith and Fair Dealing: Dead or Undead?

Just when you thought the blog was dead, it comes back like the plethora of zombie movies that are now in vogue, except not the zombies that run.  That’s just wrong, and I am on record as not a fan of running zombies.  Our only real advantage over zombies is that they are super slow.  Speaking of zombies, it appears that the covenant of good faith and fair dealing is becoming something of a legal zombie, meaning that although it is discussed in the courts as if it is alive, the original concept of the covenant, that the government is required to act in good faith and in a commercially reasonable fashion, appears to be quite dead.  In addition to the Metcalf and Fluor decisions that I have previously mentioned in my blog, there is a dispute brewing in the Civilian Board of Contract Appeals over the construction of the VA hospital in Denver.  ENR published a terrific article on the dispute.

Kiewit-Turner is the joint venture on the project, which the VA describes as an "Integrated Design and Construct" delivery model.  Who knows what that actually means, but what it appears to mean to the VA is that Kiewit-Turner was essentially a CM at Risk and obligated to do a deep dive into the design process and integrate with the designer to provide constructability reviews, innovation, early cost estimates, essentially the full meal deal of what is available under the CM at Risk model.  However, (at least according to the pleading filed by Kiewit-Turner) the VA and the designer would not accept Kiewit-Turner's suggestions or provide a design that would maintain the cost within the anticipated budget.  Indeed, ENR published a copy of a hand written memorandum that the parties signed acknowledging the obligation to keep the design within the budget.  The memo contained the following sentence, "VA shall cause JVT to produce a design that meets their ECCA (Estimated Cost of Construction at Award) with use of alternates and other methods as a safety net."  Kiewit-Turner argues that to hold them to the ECCA, the VA and the designer should have accepted their suggestions and modifications.  The VA argues that in an "Integrated Design and Construct" model, the contractor is ultimately and completely responsible for the cost because of their extensive involvement in the design.  

The answer is actually probably somewhere in the middle but closer to Kiewit-Turner's version that the VA's.  The VA has essentially tried to hijack the Integrated Project Delivery model without any of the essential limitations of liability that protect the constructor and the process under that model.   For any integrated delivery model to work, the integration has to be a two way street.  If an owner is not willing to work as a partner with all of the major players, then that owner should not attempt to deliver a project using one of those models.  Further, the complete disregard of signed written (albeit hand written) memorandum is the essence of a violation of the covenant of good faith and fair dealing.  Perhaps it is this case where the courts will put a bullet in the zombie's brain once and for all and stop pretending that the doctrine exists altogether.  Note that I LIKE the covenant of good faith and fair dealing, and I mourn its passing.  I fully believe that if the government wants to contract with private entities, those private entities should be entitled to rely on the government to act in a commercially fair manner, but if this and the Metcalf decision are decided in favor of the government, the covenant is indeed dead.  The Kiewit-Turner case will certainly be an interesting one to watch.

There are a bunch of opportunities to hear me speak over the next few months.  Here is my schedule:

Society for College and University Planning 2013 Pacific Symposium: “Trends in Project Delivery – Methods to Maximize Value”  Nov. 1, 2013, Portland State University, Portland, OR  8:00 am – 4:30 pm.  Note that registration for this seminar are almost sold out.

DBIA Webinar:  “DBIA Contracts Focus --  The Prime Relationship:  Communication Between the Owner and Design-Builder.  November 12 at 10:30 am Pacific/1:30 pm Eastern.

DBIA NW Region Owner’s Forum:  "Progessive Design-Build and the Washington Statutes"  November 13 at the Harbor Club in Seattle, 7:00 am – 11:30 am.

ENR Webinar: “The Five Risks You Never Saw Coming that Could Badly Damage Your Business”, November 14 from 2:00  – 3:00 pm Eastern, 10:00 to 11:00 am Pacific.  Web link to follow.
DBIA Certification Workshop, Seattle, WA December 2-6.  I’m teaching the Contracts and Risk class on Thursday and the DBIA Certification Exam Prep class on Friday.

In addition, you can catch my previous webinars for both ENR and the American Arbitration Association online.  The AAA webinar is titled:  “Scope of the Arbitrator’s Authority:  Granting Interim and Final Relief” and originally aired on October 24.

Finally, although I’m not speaking, I will be at the DBIA National Convention in Las Vegas November 4-6.  Hope to see you there.