The Ins and Outs of Design Risk on the CM At Risk and the Impact on IPD Projects

The Massachusetts Supreme Court Weighs in on Coghlin Electrical Contractors v. Gilbane Building Company.   September 5, 2015.

et. al.      

Additional Topics on Construction Law, Mediation and Arbitration

Participants in mediation come into the process with conflicting perspectives and it is my role as the mediator to establish pathways of communication within a supportive decision-making environment that allows for a mutually agreeable resolution to take place.  As each mediation is unique, understanding the viewpoint of all participants is the means by which the puzzle pieces of resolution are identified, arranged and solved.

Unlike litigation or arbitration, the participants maintain control over the outcome of the mediation.   Through facilitation provided by the mediator, the participants have the opportunity to assess and to balance intrinsic values and needs with the extrinsic cost impacts.  Mediation is a collaborative process with the potential of achieving mutually beneficial results since the decision-making process rests with those involved, not the mediator, an arbitrator or a judge.   

As a mediator, my goal is to create a confidential and supportive environment, where roadblocks can be transformed into avenues leading to settlement.   Confidentiality, candor, creativity and integrity are the cornerstones of this environment.  Through identifying and understanding the positions of each participant in context of their needs, goals, objectives and motivations, facilitative and evaluative processes initiate communication, enabling the exploration of various potential approaches to resolution, directly with one another or through my role as the mediator.   With the exchange of meaningful and relevant information in a respectful and constructive environment,  analysis is promoted, not only of the substance of the dispute itself at an objective level, but also of the transactional costs in terms of time, expense and emotional impact at a more subjective level.  

Various formats such as joint sessions, party sessions and break-out sessions focusing on the key issues and individuals involved can be utilized to address the unique circumstances of each matter.   Mediation provides the opportunity to identify and narrow the issues, as well as achieve overall resolution, and is a valuable exercise at any stage of the dispute.  Through the process, the participants can consider, analyze and evaluate positions and open their perspective to consider creative solutions.  Mediation provides the participants an opportunity to choose the outcome.

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Recently, the Massachusetts Supreme Court held that within the context of a public project, the Owner gives an implied warranty regarding the designer’s plans and specifications when the Construction Manager at Risk’s duties and obligations extends into pre-construction services including consultation regarding the design of the building project which influences the project’s final plans and specifications.   Such pre-construction activities are common for Construction Managers and range into areas involving constructability reviews, value engineering, life-cost analysis, and input of local building code compliance, among other tasks involved in the development of the construction set of drawings.  Finding this implied warranty to be seated in common law, the court then went on to analyze the contractual indemnification language and to determine whether there was an express abrogation of the implied warranty by the Owner.  Finding no abrogation of the warranty, the court review the broad form of indemnification and found that despite its breadth, the obligation to indemnify did not extend so far as claims and damages arising out of the Designer’s work due to a contractual provisions which exempted liability of the Designer for the preparation and approval of the drawings and specifications.    Finding no circular cause, the Court allowed Gilbane’s action to proceed as against the Owner as a third party defendant where a subcontractor sought damages for costs incurred by design errors, among other causes.

 Since the most common forms of construction contracts include an arbitration clause, the case law interpreting the common contract clauses and discussing the roles and functions of the various construction team members are few and far between and primarily involve public contracting.  Therefore the opinion of the Massachusetts Supreme Court in this case provides practitioners with guidance in drafting Construction Managers at Risk contracts whether in a direct contractual relationship or within the context of the Integrated Project Delivery where the contractual terms and conditions are tightly interwoven between multiple parties.  The importance of clear lines of liability to be drawn in multi-party context is underscored in the drafting of such contracts.  The Court relied on several legal articles in coming to this conclusion including Hackenbrach: “An Overview of Major Project Delivery Methods and their Design Risk Allocations in Shared Design; Sweet & Schneier: “Legal Aspects of Architecture, Engineering and the Construction Process” among others.  Amicus Briefs were filed by several organizations including the American Council of Engineering Companies of Massachusetts, Associated General Contractors of Massachusetts, Inc. and Columbia Construction Company.Type your paragraph here.

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Mary Jo Gilsdorf's Mediation Philosophy

A recent case has surfaced which was handed down from the Pennsylvania Superior Court this past summer on the Pennsylvania Mechanic's Lien law.  Oakdale Equipment Corp. vs. Meadows Landing

Associates, LLP,   1573 WDA 2014, 1866 WDA 2014 (July 15, 2015).  Even though it is non-precedental, as there are so few cases on the Mechanic's Lien law in Pennsylvania post-amendment, it still is important as it provides valuable guidance on perfecting mechanic’s liens on residential property as it focuses upon issues and defenses on liens filed by an excavator and its equipment supplier in a multi-lot subdivision.  The overall highlight of the case is the strict adherence to the procedural requirements under the Mechanic Lien Act. The liens were defeated on procedural grounds due to improper notice and lack of apportionment as required by the statute.  

There was a fair amount of discussion in the opinion as to the basis and underpinnings of each of the holdings. However, for my purposes here, I provide a summary of the high points. In short, the Pennsylvania Superior Court affirmed the lower court ruling and on the three primary issues raised on appeal held:  

1.)  Since the Developer, Meadows Landing Associates filed their Preliminary Objections prior to escrowing the funds with the court to discharge the liens filed by Oakdale Equipment Corp. and Richard Lawson Excavating, Inc. so that the sale of the lots would not be impeded, their Preliminary Objections were not waived.   The Preliminary Objections went to procedural issues, not substantive ones. The PA Superior Court dealt with each lien in turn.

2.)   The court held as Oakdale did not follow the notice requirements of the statute to the letter, Oakdale's notice was defective which defeated the lien on that basis.  The court rejected Oakdale's position that Meadows active participation waived the notice requirements,  that Oakdale's complaint filed with days of the lien itself, did not satisfy the statutory requirement of stating the date and manner of service and was therefore defective in that regard, and that the Doctrine of Substantial Compliance was not applicable when considering the requirement for strict adherence to the statutory requirements.

3.)  In considering Lawson's lien, the Superior Court held as Lawson filed a single lien as against the subdivision instead of apportioning the claim among the lots, the court held that the excavation was an "improvement" under the act and therefore the requirement to apportion the lien among each lot through separate lien filings was required. 

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Co-mediation in the Context of Multi-party Construction Cases

Pennsylvania Superior Court Slip Opinion Underscores Importance of Strict Adherence to Procedural Requirements under the Mechanic’s Lien Law.

By Mary Jo Gilsdorf, Esq.

Seems to me this is a natural solution to bringing greater efficiency and a higher rate of success to construction disputes where there are often several tiers of nested and competing interests.  By the very nature of the contractual relationships in construction, having additional mediators work within in the various interest groups coupled with overall higher level discussions, can build consensus and secure agreement more readily.  Quicker results mean the participants can get back to what they want to be doing most –building!

Maybe it is because of my background as a Cost Engineer that I see such value in this approach.   Rarely in a construction claim – if at all – is a single act, event, occurrence, or circumstance at issue.  More typically, it is a collection of decisions, occurrences and factors which create the claim situation that is brought to mediation.   What happened in the mechanical side of the project affects the costs and schedule of the other parts of the project.  Everything is interconnected.  And yet, the whole can’t be resolved until some of the parts are worked out. Often, this happens at the end of the project where the various components of the overall matter involve many participants. 

Construction by its nature is a multi-faceted process involving various interests in concept, design, cost and constructability.  Certain participants will be aligned on some issues but not on others.  

Effective facilitation of resolution of complex matters depends on understanding these relationships and providing a working environment where resolution can emerge. With two or more mediators working within certain spheres of the dispute and then caucusing together, the information and insights can be quickly gained to bring the matter to resolution.  The significant down-time experienced in multi-party mediations during caucus phases can be put to productive use.   While it is true a single mediator could work with various interests ahead of the mediation session, the time span of the proceeding can be shortened overall as well by using a co-mediation approach.

People in the construction industry are ever aware of the bottom line because of the tight margins involved in the industry.  They know what they need in order to come to agreement. If certain costs issues can be resolved or come within the reach of resolution, the participants in those areas may be more willing to compromise on others if they know they can get what they need in the end.  The mediators involved can work with these expectations and needs to guide and frame a financial resolution reflective of the network of interests.   And by teaming together themselves, can do so more efficiently adding value to the process.

(c) 2015 Gilsdorf Law, LLC