Trust the Leaders 2.0 - Volume 5 by Smith, Gambrell & Russell, LLP

Leaders Trust the

A PUBLICATION OF SMITH, GAMBRELL & RUSSELL, LLP

2.0

SGRLAW.COM

SGR's Construction Law Practice

Building the Future

Volume 5

Contents 3

Editor’s Letter

Introduction

Just a Reference or General Contracting? Online Contractor Referral Services Operate in Evolving Legal Landscape

Love Thy Neighbor? New York City’s Building Code Poses Unique Challenges for Developers

Beyond the Wall A Contractor’s Right of Recovery for Acts of Government Depends on Public, Private and Contractual Concerns

Delay Claims in the Era of COVID-19 Assessing Subcontractor Responsibility for Construction Delays on New York Projects in the Wake of COVID-19

24 Florida: Building for Tomorrow, Today Despite Challenges Posed by COVID-19, Florida’s Home Building Boom Continues 26

Considerations for Construction Projects in Latin America and the Caribbean

30 Ditch Your Old Lien Waiver Forms Owners and Contractors in Georgia Face New Risks Under New Law 32

“We Need More Women and People of Color” SGR Helps Plan, Host Roundtable Discussion on Women In The Construction Industry

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The information contained herein has been obtained from sources believed to be reliable. The content and information in this publication do not constitute legal advice, do not in all cases reflect the opinions of SGR or its attorneys and are not in all cases complete or current as of the publication date. This publication is not intended to and does not create an attorney-client relationship or provide legal advice or legal opinion. Legal advice should be obtained from one’s legal counsel. Permission is granted to use and reproduce this publication in whole or in part for internal and personal reference, provided that proper attribution of authorship is given. Except for material in the public domain, this publication may not be further copied, modified, used or distributed, in whole or in part, in any form or by any means without the written permission of Smith, Gambrell & Russell, LLP. All other rights expressly reserved.

Editor’s Letter Ladies and Gentlemen, Welcome to this issue of Trust the Leaders 2.0. While I truly miss the print version of TTL, I’m proud that this is the fifth issue of our magazine that we have produced entirely in-house, and are providing exclusively online, during the COVID-19 pandemic. This issue features SGR’s Construction Law Practice. Our construction attorneys are known for the depth of their knowledge of the architecture, engineering and construction (AEC) industry, their ability to handle all aspects of the construction process from project conception through dispute resolution, and their work on behalf of owners and contractors across the U.S. and abroad. SGR is currently recognized by Construction Executive, the leading trade magazine about the business of construction, in its list of The Top 50 Construction Law Firms™.

Even if you are not involved in the construction industry, I think you will find several topics of interest in this issue. For example, have you ever thought about how construction projects get done in densely populated New York City? Find out how the New York City Building Code tries to keep the neighbors happy (p. 10). Thinking of an early retirement and moving to Florida? You’re not alone, and the Florida residential building industry is booming because of it (p. 24). And learn what industry leaders have to say about the importance of having more women and people of color in construction (p. 32). We hope you enjoy the issue!

Dana M. Richens Editor-in-Chief editor@sgrlaw.com

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Introduction As head of SGR’s Atlanta Construction Practice, I write to offer a brief introduction to this issue of TTL 2.0. First, I’d like to acknowledge my partner and counterpart in our New York office, James Lotito, who is the head of SGR’s New York Construction Practice. The Atlanta and New York practices work together frequently, along with construction lawyers in other SGR offices, providing the firm a national practice with an established history of working on projects internationally. As for my colleagues who wrote the articles in the pages that follow, I’ve worked alongside some of them for 25 years. Each is hardworking, knowledgeable in construction law and practical. Each possesses the most critical trait a lawyer can possess: a dedication to seeing our clients and their projects succeed. We are not much different from our clients in how we approach our work. Each day, our time is spent addressing newly arisen problems, then focusing on the solution to those problems. We come by an appreciation of our clients’ resolve honestly, since many of us worked in the industry prior to practicing law. Some worked as project estimators, and some designed wastewater treatment facilities. Practicing law can be a grind, requiring a willingness to stick with it, often for long hours, to arrive at the solution. And that fact may explain why we enjoy working

with people who watch the unexpected unfold before their eyes, then look at an impending critical milestone, turning to their colleagues and saying, “grab a seat, I have an idea.” Our clients are not afraid of risk. The author of one of these articles, with whom I have worked almost my entire career, has probably reviewed as many construction agreements as there are buildings in Atlanta. A few times a year, he will page through a new construction contract and, after looking at an aggressive project completion date, state that “contractors are easily the most optimistic people in the world,” shaking his head and smiling. They are. Who wouldn’t want to work with people who believe it can happen if you work hard and work smart. So, if you are paging through this issue of TTL 2.0 and find a topic you’d like to discuss or have a question that comes to mind, track us down. Each of us is always interested to listen to your interests and questions relating to the design, development and construction of capital improvements. Good luck on your current project, and let us know if we can help. Thanks.

Mark Mark de St. Aubin mdestaubin@sgrlaw.com

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Just a Reference or General Contracting? Online Contractor Referral Services Operate in Evolving Legal Landscape By Peter Crofton and Derek André

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Online Referral Services

ost of us have been asked by a friend or neighbor to recommend a “good contractor” for a home repair or improvement project. Most of us are also comfortable using the internet to purchase goods ranging from car air fresheners to cars themselves. And many people have grown accustomed to using the internet to simplify comparison shopping – often through the known reviewing websites and services that aggregate the reviews of other consumers.

Amazon’s Fulfilled by Amazon (FBA) service illustrates these competing issues. Amazon not only provides the platform for third-party sellers but also inventories goods on behalf of third-party sellers, packages and ships the goods to the buyer in Amazon-branded packaging and on Amazonbranded trucks, and accepts and processes returned goods on behalf of third-party sellers. At least one court has found that with FBA, Amazon is functionally acting as the seller, just as if it had the goods on a shelf in a brick-and-mortar store.

Predictably, some internet and technology companies have seen an opportunity to use the internet to provide contractor referrals. Online contractor referral services, though, operate at the confluence of several important, and often conflicting, bodies of law. As a result, maintaining compliance with ever-changing regulations requires creativity and thoughtful planning by service providers.

The Law That Applies to Online Contractor Referral Services Online commerce thrives based on the law that has developed concerning “click-wrap” and “browsewrap” online contracts, often labeled as Terms of Service (TOS). While courts classify TOSs as adhesion contracts, courts routinely enforce these agreements with proper notice to and acceptance by the consumer. However, product liability law is increasingly holding e-commerce platforms liable for injuries caused by goods sold by third parties through these platforms. Product liability law disregards the distinction many TOSs attempt to draw between the online platform operator and the third-party sellers who transact business on that platform.

At the same time, state regulators are increasingly scrutinizing online platforms such as contractor referral services. Some of these referral services, such as Craigslist, function as little more than community bulletin boards where contractors can list their services. Other referral services, such as Angie’s List or Home Advisor, purport to limit participating contractors to those who show proof of required licensing and insurance and pass a criminal background screen. But otherwise, these referral services are simply listing services for a select group of contractors. Still other online referral services offer greater convenience

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Online Referral Services for consumers by pre-negotiating pricing, scheduling the contractor’s work and facilitating payment from the consumer. This last type of referral service is drawing the most scrutiny from regulators because it mimics the activities of a licensed general contractor.

and the various efforts by state licensing boards to increase transparency as to with whom the consumer is contracting. SGR, CSLB and TDLR are slated to present on this topic at NASCLA’s next national meeting.

SGR Is Helping Bring Order From Chaos Home improvement scams, which are perpetrated by a small fraction of the total universe of contractors, cast the entire home improvement industry in a negative light. Bad contractors target senior citizens and others who cannot “do it yourself” for even the simplest home repair. Online contractor referral services provide a pathway for these fraudsters to more easily identify and victimize unsuspecting homeowners over a larger geographic area. Lawyers from SGR's Construction Law Practice are helping bring order and predictability to the “Wild West” of online contractor referral services. SGR is working with the National Association of State Contractor Licensing Agencies 1 (NASCLA) to develop model legislation and promote awareness of the benefits and detriments of online contractor referral services. SGR is also working with NASCLA to address the ever-changing nature of e-commerce and the law that makes that e-commerce possible. SGR, the California Contractor State Licensing Board (CSLB) and the Texas Department of Licensing and Regulation (TDLR) recently presented a webinar to NASCLA’s nationwide members. That presentation focused on the various types of online contractor referral services, the consumer confusion that currently exists in the marketplace,

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The Amazon Case Study Amazon’s former contractor referral service provides an excellent example of the consumer confusion that can arise with online contractor referral services. In the past, Amazon allowed consumers to purchase online home improvement products ranging from faucets to water heaters. Amazon also allowed consumers to “purchase” an installation service for those products as part of the transaction for the purchase of the goods. Amazon set the price for the installation service and the consumer paid Amazon for the installation at the time of purchase. If there were any problems with the work, the consumer contacted Amazon. Consequently, many consumers believed they bought the installation from Amazon – i.e., that they had hired Amazon to perform the installation work. Importantly, in many states, selling these installation services would have required Amazon to be licensed as a contractor.

However, Amazon contended that it was not selling the installation service; instead, Amazon was making it easier for consumers to hire third-party contractors through Amazon’s website. Amazon’s TOS, to which the customer agreed before making purchases on Amazon’s platform, provided that the consumer was contracting directly with the third-party contractor, and that Amazon was not a party to that contract. Amazon’s TOS also provided that it was neither responsible nor liable for poor workmanship by the contractor, even though Amazon offered a “happiness” guarantee for consumers who were unhappy with a contractor obtained via Amazon’s platform. Eventually, the CSLB, TDLR and other state licensure agencies received complaints from consumers. These agencies investigated Amazon’s contractor referral service and determined that Amazon’s business model effectively put it in the role of a general contractor, which required licensure as a contractor. The agencies found that the structure of Amazon’s platform caused consumers to believe they were contracting with Amazon, paying Amazon and resolving problems with Amazon. In effect, these agencies found Amazon looked like a contractor, acted like a contractor and talked (via its website) like a contractor, and therefore should have been licensed like a contractor. As a result of the efforts of these agencies, Amazon recently announced that it was changing its business model. Amazon has elected to stop “selling” work by third-party contractors and instead is obtaining the required general contractor licenses in states in which it offers installation services. Amazon will now be a general

contractor that sells home improvement and installation services to consumers, with Amazon hiring subcontractors to perform work on Amazon’s behalf.

The Future of Online Contractor Referral Services Online referral services fulfill an important need for consumers. Consumers want the convenience of on-demand, online shopping while avoiding scams and fraudulent services. Balancing these competing demands is a daunting challenge for licensing boards and other regulatory bodies. As such, we are likely to see increased regulation of online contractor referral services as well as increased enforcement activity by contractor licensing boards and other consumer protection agencies. In light of these changes, maintaining compliance in this dynamic environment is and will continue to be a formidable challenge.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Peter Crofton pcrofton@sgrlaw.com

Derek André dandre@sgrlaw.com

NASCLA is an association of state agencies responsible for regulating and licensing contractors. NASCLA works with member agencies to standardize and promote knowledge and skills testing for contractors seeking to be licensed, to provide continuing education for licensed contractors seeking to stay current on building codes and requirements, and to coordinate interstate efforts to protect the elderly and other unsuspecting consumers from unlicensed contractors. 1

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NYC Building Code

Love Thy Neighbor?

New York City’s Building Code Poses Unique Challenges for Developers

By Russell Wolfson and Michael Glanzman

ou are a seasoned developer about to break ground on your next great project – an 80-story, 2-million-square-foot tower in Midtown Manhattan. This is the culmination of a process that started five years ago. First, you identified the land and commissioned a zoning study to understand its potential. You raised capital to purchase the land by wrangling investors and lenders. You engaged in lengthy negotiations over a complicated purchase agreement. You hired an architect and entered into contracts with other owners on the block to assemble the air rights necessary to construct a building of the size you desired. As the design developed, you began bidding the project so that you could hit the ground running after the closings. By the time sufficient financing was in place and all of the deals closed for land and air, years had passed since you started the project. You now own the land and the air. You have the necessary capital to sustain the project to completion. You have the final design and the construction team in place. You have pulled the permits. Everything is in place to get started. But the project has stalled – you cannot proceed because your neighbors will not give you access to their properties so you can install protections required by the New York City Building Code.

Adjacent Protections and the Need for Licenses Under the NYC Building Code, developers and builders are required to protect adjacent property. The types of protection required vary depending on the work being performed but most often include a preconstruction survey, structural monitoring, support of party walls, roof and chimney protections, and the installation of sidewalk sheds and overhead protection.1 In addition, when soil, foundation or underpinning work is performed, the person performing such work is required to preserve and protect adjoining structures from damage.2 Installing necessary protections often means obtaining a license from neighboring property owners to access their property to protect it. License agreements are a vital and frequently bothersome component to developing real estate in New York City. Because construction professionals cannot enter adjacent property without permission of the owner, adjacent property owners have significant leverage in negotiating these license agreements.

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NYC Building Code

Savvy adjacent property owners – i.e., owners with the foresight to hire a construction attorney to negotiate the license – are aware of this leverage dynamic and know that developers will likely pay a substantial license fee in exchange for access.

requires” and obligates developers to pay “for actual damages occurring as a result of the entry.”3

A project will usually be stopped until the requisite protection is installed. If a developer does not come to terms with its neighbors by the time construction begins, the project risks indefinite and potentially ruinous delays. During the recent construction boom in New York City, particularly in Brooklyn and the Bronx, neighbors have increasingly demanded absurdly high license fees in exchange for minimal access. On top of that, it is customary for the developers to pay the legal and engineering fees incurred by the neighbors in negotiating such license agreements. This dynamic has sparked a cottage industry of lawyers and consultants who track construction projects in New York City and reach out to neighbors to offer their services “free of charge.”

Court Intervention for Obstinate Neighbors In the worst situations, neighbors and developers simply cannot reach an agreement on a license without the developer paying an excessive fee. In these instances, the developer has two options: it can pay the excessive fee demanded, or it can commence a special proceeding in court to obtain a court-ordered license. The NYC Building Code provides developers with a statutory mechanism to obtain access necessary to install protections by court order. The Building Code entitles developers to a compulsory license “upon such terms as justice

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The compulsory license action, however, does not come without tradeoffs. The proceeding can take months, and even then courts have behaved unpredictably, often awarding generous access and legal fees to the neighbors and putting onerous conditions on developers. Given the high cost and uncertainty of the compulsory license action, developers usually pay up, especially in light of the delays courts are experiencing due to the ongoing COVID-19 shutdown. This entire process can be extremely frustrating for developers, especially since the Building Code does not expressly contemplate a license fee and states that where a neighbor refuses to grant a license, “such duty to preserve and protect the adjacent property shall devolve to the owner of such adjoining property[.]”4 New York courts have traditionally been reluctant to enforce this clause, but recent decisions indicate that this hesitancy may be changing.

In New York Public Library v. Condominium Board of the Fifth Avenue Tower,5 the project owner commenced a compulsory license action seeking a license to enter the adjacent premises to install temporary scaffolding and roof protections. The adjacent property owner demanded, among other things, $1,500 per month for the entire duration of the construction project as a license fee. After failing to reach an agreement on the license, the developer brought a compulsory license action. In its decision, noting that the Building Code does not require a license fee, the court granted the developer’s petition for a license and denied the adjacent owner’s request for a fee.6 Another glimmer of hope for developers is the Supreme Court’s decision in Procida Construction.7 In Proceda, the adjacent property owner sued a construction manager for damage it claimed was caused during foundation work. The court denied the plaintiff’s motion for summary judgment, holding that the plaintiff failed to demonstrate that it granted the defendant construction manager a license to enter the adjoining property and inspect it before the foundation work at issue was performed. In effect, the court enforced that portion of the Building Code that states that where a license is refused, the duty to protect devolves to the adjacent property owner. Whether these cases signal a shift in the way courts intend to address an adjacent owner’s refusal to provide access for construction or are mere outliers is yet to be determined. However, these cases are a step in the right direction for developers.

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A Cautionary Tale Most attorneys practicing construction law are intimately familiar with the nightmarish scenario where a multi-million-dollar project is delayed for months, if not years, due to a recalcitrant neighbor. And even where a project proceeds after a license is obtained, the financial damage from such delays can be devastating to any project. Several years ago, a prolific developer was constructing a 200-unit residential apartment building in Brooklyn with an $80 million budget. A dilapidated brick townhome with a one-story garage sat immediately adjacent to the project on its eastern corner. The developer bought the project after a prior developer had already demolished the existing buildings, so construction could start immediately. To get started, the developer needed to install roof protection on the roof of the garage, but there was no access agreement with the neighbor. The neighbor demanded a $60,000 access fee, and the developer refused to pay such a large amount, feeling it amounted to extortion. After attempting to negotiate an access agreement for the next six months, the developer finally took the neighbor to court for access.

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NYC Building Code

The court also awarded the neighbor most of his legal and engineering expert fees. After multiple hearings, the developer was awarded access 18 months later, but by then most of the building had been constructed except for a small carve out around the garage. The court also awarded the neighbor most of his legal and engineering expert fees and a $45,000 access fee. This was a huge financial hit, even for a project of this size. This cautionary tale demonstrates why clients should commence negotiations on the neighbor access agreements as early as possible, even before the property is acquired if practical. The earlier the neighbor’s motives are identified, the faster they can be addressed, especially if court intervention is or will be necessary.

neighbor. As such, every developer must consider access issues at the earliest opportunity or else risk the viability of its projects by not doing so.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Russell Wolfson rwolfson@sgrlaw.com

Michael Glanzman mglanzman@sgrlaw.com

New York City has seen a construction boom over the past decade that is probably unrivaled in the history of the world. Yet it is the only place where a construction project’s fate can rest so heavily on the whims of a disinterested – or worse, nefarious –

New York City Building Code §§ 3309.4, 3309.10, 3309.12 and 3307.6. See New York City Building Code §§ 3309.4, 3309.5. 3 N.Y. Real Prop. Acts. Law § 881 (McKinney). 4 E.g., New York City Building Code §§ 3309.4, 3309.5, 3309.10. 5 Sup. Ct. N.Y. County, Nov. 30, 2017, Index No. 157703/2017 (Bluth, J.). 6 On appeal, the First Department unanimously modified the Supreme Court’s decision in New York Public Library, holding that although the determination to award a license fee is discretionary, it was an improvident exercise of discretion by the lower court to deny a license fee entirely. 7 Famous Formaggio Pizzeria, LLC v. Procida Constr. Corp., 2018 NY Slip Op. 28064 (Sup. Ct. Bronx County, February 28, 2018). 1

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Beyond the Wall A Contractor’s Right of Recovery for Acts of Government Depends on Public, Private and Contractual Concerns By Scott Cahalan

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Acts of Government

n January 20, 2021, President Joseph R. Biden, Jr. signed a Proclamation suspending former President Donald J. Trump’s Proclamation of February 15, 2019, declaring a national emergency to secure the southern border of the United States.1 President Biden’s Proclamation established that “[i]t shall be the policy of my Administration that no more American taxpayer dollars be diverted to construct a border wall.” The Proclamation directed the Secretary of Defense and the Secretary of Homeland Security, in consultation with the Director of the Office of Management and Budget, to: (i) pause work on each construction project on the southern border wall, to the extent permitted by law [regardless of whether funding is by diverted funds or Congressional appropriations] … to permit: (A) assessment of the legality of the funding and contracting methods used to construct the wall; (B) assessment of the administrative and contractual consequences of ceasing each wall construction project; and (C) completion and implementation of the plan developed in accordance with section 2 of this proclamation; (ii) pause immediately the obligation of funds related to construction of the southern border wall, to the extent permitted by law; (iii) compile detailed information on all southern border wall construction contracts, the completion status of each wall construction project, and the funds used for wall construction since February 15, 2019.2

President Biden’s Proclamation constituted an Act of Government – i.e., an action taken by a federal, state or local government in furtherance of its powers – and its impact is sure to be felt on many public contracts. However, in light of everincreasing regulation, particularly government mandates related to the ongoing COVID-19 pandemic, even private contractors have to consider the implications of an Act of Government on their contracts.

Acts of Government and Public Contracts President Biden’s Proclamation resulted in thousands of stop-work orders being issued pursuant to Federal Acquisition Regulation (FAR) 52.242-15(a), which requires that the contractor on a public works project immediately stop work for a period of up to 90 days after a written order from the government’s contracting officer. The length of the stop-work order can be extended only with the consent of the parties. The contractor must resume work thereafter if the government cancels the stop-work order or if the 90-day period expires without the government terminating the work for default or the convenience of the government. If the work resumes, the contractor is entitled to “an equitable adjustment [to the completion date] or contract price, or both … if (1) [t]he stop-work order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this contract; and (2) [t]he Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage[.]”3

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Acts of Government If the work covered by the stop-work order is terminated for cause or the convenience of the government, the contractor is entitled to all reasonable costs resulting from the stop-work order, plus any recovery allowed under either the default provision or the termination for convenience provision of the applicable contract.4

United States Supreme Court explained in United States v. Spearin, “[w]here one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused, or become entitled to additional compensation, because unforeseen difficulties are encountered.”5 As a result, a contractor is obligated to continue performing its construction work and an owner is obligated to continue paying the contractor, without an adjustment in the contract price or contract time, in the event an Act of Government makes either of their performances more difficult or unprofitable but not impossible.

Acts of Government and Private Contracts While a contractor’s right to recover for an Act of Government on a federal public works contract is covered under the FAR provisions, many private construction contracts do not address recovery in the event of an Act of Government that adversely affects the performance of the contract. In such a case, the doctrine of sanctity of contract provides that each party is obligated to do what it promised to do, so long as performance is possible. In other words, each party assumes the risk that its performance will be costlier, more extended or more difficult than originally anticipated. As the

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Many private contracts contain force majeure clauses that excuse performance under certain circumstances, an Act of Government being one, but what constitutes an Act of Government that excuses performance is often unclear. For example, two lumber companies argued in Seaboard Lumber Co. v. United States6 that their obligation to perform lumber supply contracts was excused because the United States Forest Service refused to agree to an adjustment to the terms of their contracts as a result of the government’s new monetary control procedures, deregulation of savings institutions and other acts of government that led to an increase in interest rates and a slump in the lumber market. The Federal Circuit Court of Appeals affirmed judgment in favor of the United States Forest Service because while the acts of government affected profitability, they did not prevent performance.

Likewise, courts have found that acts of government that result in market fluctuations in the price of commodities;7 acts of a foreign government that cause a collapse in global oil prices; 8 a trade war;9 economic hardship due to a government’s refusal to allow a rate increase to offset an increase in the cost of coal;10 and an increase in the cost of polysilicon as a result of escalating tariffs imposed by the United States and China11 did not excuse performance, so long as performance remains possible even if performance is at a loss. Indeed, “[a] force majeure clause is not intended to buffer a party against the normal risks of a contract. The normal risk of a fixed-price contract is that the market price will change.”12 On the other hand, a government prohibition on the sale of goods categorized as military equipment to Iran excused a seller from performing a contract for the sale of radio communications products because performance was deemed impossible due to an Act of Government.13 Similarly, warships in the Mediterranean Sea excused a contract to deliver sage to Greece during World War II.14 And delays in the delivery of aircraft as a result of government

priority orders during the Vietnam War constituted acts of government that excused delayed performance under the contract’s force majeure provision.15 In sum, contractors generally bear the risk of performance if performance is adversely affected by acts of government. There is no reason, however, that the parties to a private contract cannot follow the lead of the Federal Acquisition Regulations and draft their contract to address the risk of an Act of Government.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Scott Cahalan scahalan@sgrlaw.com

Proclamation of Jan. 20, 2021 on the Termination of Emergency with Respect To The Southern Border Of The United States And Redirection Of Funds Diverted To Border Wall Construction (the “Proclamation of Jan. 20, 2021”) (suspending Proclamation 9844 of February 15, 2019). 2 Proclamation of Jan. 20, 2021, §§ 1 & 2. 3 FAR 52.242-15(b). 4 FAR 52.242-15(c) & (d). 5 248 U.S. 132, 136 (1918). 6 308 F.3d 1283, 1293 (Fed. Cir. 2002). 7 United Sugars Corp. v. U.S. Sugar Co., Inc., 2015 WL 1529861 (D. Minn. 2015); B.F. Goodrich Co. v. Vinyltech Corp., 711 F. Supp. 1513, 1519 (D. Ariz. 1989). 8 Langham-Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327, 1330 (4th Cir. 1987). 9 Shelter Forest Int’l Acquisition, Inc. v. Cosco Shipping (USA) Inc., 475 F. Supp. 3d 1171 (D. Ore. 2020). 10 N. Ind. Pub. Serv. Co. v. Carbon Cty. Coal Co., 799 F.2d 265, 274-76 (7th Cir. 1986). 11 Kyocera Corp. v. Hemlock Semiconductor, 313 Mich. App. 437 (2015). 12 Seaboard Lumber Co., 308 F.3d at 1293 (citing N. Ind. Pub. Serv. Co., 799 F.2d at 274-76). 13 Harriscom Svenska, AB v. Harris Corp., 3 F.3d 576 (2d Cir. 1993). 14 Carvel v. John Kellys (London), Ltd., 53 N.Y.S.2d 640 (Super. Ct. 1945). 15 Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976). 1

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Delay Claims in the Era of COVID-19 Assessing Subcontractor Responsibility for Construction Delays on New York Projects in the Wake of COVID-19 By Dan Horner

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COVID-19 Delays

Delays on construction projects are common given the variables involved.

elays on construction projects are common given the variables involved. Now, however, a new wave of delay claims looms on the horizon as the fallout from the COVID-19 pandemic unfolds. Site closures, supply chain disruption and workforce unavailability are only a few examples of how the pandemic has and will continue to affect the construction industry, and owners, general contractors and subcontractors are all left asking who will bear the financial brunt of these delays. Between general contractors and subcontractors, the law in New York has been clear for some time – unless the contract specifies otherwise, a general contractor is not responsible for delays experienced by its subcontractor unless those delays are a result of something under the general contractor’s direction or control. In 1991, the New York Court of Appeals issued its seminal decision on the subject in Triangle Sheet Metal Works, Inc. v. James H. Merritt & Co.1 There, a subcontractor brought a claim against the general (or prime) contractor on a public works project, seeking damages for delays on the project caused by the city’s architect. The court held that “absent a contractual commitment to the contrary, a prime contractor is not responsible for delays that its subcontractor may incur unless those delays are caused by some agency or circumstance under the prime contractor’s direction or control.” The court explained that many delays on construction projects are outside of the general contractor’s control, and where the general contractor lacks control, there is no fundamental basis for imputing responsibility for delays on the general contractor.

New York courts continue to cite Triangle with approval,2 so contractors should continue to be aware of its potential effect in light of COVID-19 and subcontractor delay claims likely on the horizon. However, while there is a strong argument that the holding in Triangle is controlling when assessing

pandemic-related delays, such delays present a dissimilar fact pattern and, consequently, there is a possibility that pandemic-related delays could garner different results. For example, under Triangle, an owner-caused delay that harms both a general contractor and subcontractor may entitle the general contractor to recover damages from the owner, yet preclude the subcontractor from recovering anything from the general contractor. It remains to be seen whether the courts will apply the same “control” analysis in assessing delays arising from the COVID-19 pandemic where no party is responsible for the cause of delay. And what if New York courts determine that Triangle does not apply to COVID-19 delays, thereby opening the door to subcontractor claims? The existence of “no damage for delay” language will then become paramount.

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COVID-19 Delays Such clauses, which became common in New York construction contracts well before COVID-19, limit recovery for delays to an extension of time for performance and exclude any monetary remedy. The New York Court of Appeals upheld the enforceability of such provisions in the 1986 landmark decision Corinno Civetta Construction Corp. v. City of New York. Thus, even if the “control” element is not a consideration, where there is a “no damage for delay” clause, there is a strong possibility that subcontractors’ recovery for COVID-19-related impacts will be limited.

the parties did not contemplate at the time. ... Thus, even broadly worded exculpatory clauses, such as the one at issue in these actions, are generally held to encompass only those delays which are reasonably foreseeable, arise from the contractor’s work during performance, or which are mentioned in the contract.4

There are, however, additional considerations when assessing the applicability of “no damage for delay” provisions to the pandemic. The New York Court of Appeals has identified four exceptions to the applicability of such exculpatory clauses: (1) delays caused by the contractee’s bad faith or its willful, malicious or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract.3 The second exception is squarely connected to COVID-19. In discussing this particular exception further, the Corinno Civetta court stated: The exception is based on the concept of mutual assent. Having agreed to the exculpatory clause when he entered into the contract, it is presumed that the contractor intended to be bound by its terms. It can hardly be presumed, however, that the contractor bargained away his right to bring a claim for damages resulting from delays which

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Relying on this exception, however, may not be easy. For example, the court in Bovis Lend Lease (LMB), Inc. v. Lower Manhattan Development Corp.5 analyzed whether the delays alleged by the plaintiff-contractor were “uncontemplated” in connection with the contractor’s deconstruction of a building that had been damaged during the events of 9/11. Specifically, the contractor alleged that regulatory oversight and interference during the asbestos abatement phase of the project led to the imposition of far more strenuous standards than had been required under existing regulations, causing substantial delays and additional costs.

Was a global pandemic of this nature “reasonably foreseeable”? In holding that these delays were not uncontemplated, the Bovis court noted that the party seeking to invoke the above exceptions has a heavy burden. In Bovis, the contract included language that stated the contractor specifically assumed the risk for regulatory delays, so the court reasoned that even though the conditions that caused delay “may not have been anticipated, the possibility, however unlikely, of their arising was contemplated and addressed by the parties in their agreement.” Whether New York courts apply the “uncontemplated delay” exception to COVID-19 remains to be seen. Was a global pandemic of this nature “reasonably foreseeable,” or was this pandemic something different? Arguments exist for both sides, so only time will tell while these cases wind their way through the legal system. In the interim, as general contractors assess their potential exposure to their subcontractors when “no damage for delay” provisions exist, they will need to pay close attention to the language of the contract. Force majeure clauses and other relevant exculpatory language that addresses pandemics, global health crises, governmental actions or similar

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3 4 5

events could demonstrate that such events were “contemplated” at the time the parties entered into their respective contracts. Similarly, just as in Bovis, parties should be cognizant of specific assumptions of risk contained in their agreements, especially in connection with delays attributable to supply chain disruption and labor shortages. In the absence of express exculpatory language, though, when it comes to subcontractor claims for COVID-19-related delay damages, general contractors in New York should rely on the Triangle decision, emphasizing their lack of control over the cause of delays, unless and until a different opinion is expressed by the courts.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Dan Horner dhorner@sgrlaw.com

Triangle Sheet Metal Works, Inc. v. James H. Merritt & Co., 79 N.Y.2d 801, 802 (1991). See, e.g., Advanced Automatic Sprinkler Co. v. Seaboard Sur. Co., 139 A.D.3d 424, 425 (1st Dep’t 2016); Superior Site Work, Inc. v. NASDI, LLC, 2018 WL 3716891, at *23 (E.D.N.Y. Aug. 3, 2018); The Hanover Ins. Co. v E.E. Cruz & Tully Const. Co., 2019 WL 3778348, at *6 (N.Y. Sup. Ct. Aug. 12, 2019). Corinno Civetta Const. Corp. v. City of New York, 67 N.Y.2d 297, 309 (1986). Id. 108 A.D.3d 135, 147 (1st Dep’t 2013).

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Florida: Building for Tomorrow, Today Despite Challenges Posed by COVID-19, Florida’s Home Building Boom Continues By Peter Crofton and Derek André

lorida’s construction industry is weathering the COVID-19 pandemic with surprising strength. While Florida’s tourism and hospitality industries have been hard hit, with many projects delayed or canceled, the residential construction industry is showing strength as people continue to flock to Florida. Factors such as the ease of remote work, a good climate for outdoor activities, low mortgage rates, and a favorable cost of living have combined to maintain the demand for new housing in a state that was already experiencing steady population growth. Before the pandemic, residential construction accounted for more than half of all private construction spending in the United States. Singlefamily residences, condominium developments, apartment communities, senior living and student housing are all part of what was a $500 billion residential construction market. Home renovation and specialty trade contractors also make up a considerable portion of the residential construction market. While the construction industry has experienced a decline in volume as a result of the pandemic, residential construction is projected to

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recover faster than other parts of the construction industry in many states, including Florida.

Why Florida is Different Construction in Florida, and particularly residential construction, is different from construction elsewhere in the country. Florida’s building codes already include special requirements intended to reduce damage and loss of life caused by hurricanes and other extreme wind and flood events. For residents of South Florida, local construction code extensions enhance the statewide building code with special requirements to reduce the threat of wind-borne debris in large storms. In light of rising sea levels and higher tides, Florida is also beginning to address the effects of these changes on homes and other buildings. With a mean elevation of approximately 100 feet above sea level, Florida has the third-lowest average elevation of any state, making the state particularly susceptible to rising sea levels.

Florida Home Building

Florida’s construction requirements also reflect the state’s demographic and residential idiosyncrasies. Because Florida is home to scores of senior citizens and retirees, Florida’s laws, regulations and enforcement actions are aimed at protecting seniors from unscrupulous contractors and ensuring that nursing homes and assisted living facilities can safely function after major weather events. For the many residents and tourists who enjoy water sports, fishing and wildlife, Florida has strict requirements relating to site development and stormwater runoff to reduce the impact on water quality. And Florida law is especially well developed on addressing construction defect claims in the context of residential condominiums and common-interest properties.

Compliance is the Name of the Game

Florida’s construction environment requires a focus on compliance with applicable laws and regulations. Regardless of whether the project is residential, industrial or commercial, Florida’s contractor licensure and building code requirements are interlaced to maximize their effectiveness. For example, a contractor must prove its licensure to obtain a building permit, and building officials can report contractors who fail to comply with the building code to the state licensing authority. Often, failing to maintain legal compliance during construction is more than just a legal problem – it may be an event of default under a project’s financing package that threatens the entire development.

Having withstood the COVID-19 pandemic with uncommon verve, Florida’s residential building boom is unlike any other. With an eye toward compliance and an understanding of local custom, general contractors and subcontractors can position themselves to take full advantage of this once-in-a-decade industry-wide opportunity. The attorneys in SGR’s Construction Law group work with some of the country’s largest contractors and developers, on projects ranging from luxury condominiums to university dormitories, and have assisted nationwide remodelers and home improvement contractors. SGR’s experience in residential construction, as well as commercial and industrial construction, sets it apart from other construction law firms that focus solely on commercial construction. With offices in Jacksonville and Miami, SGR covers Florida from north to south and everywhere in between.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Peter Crofton pcrofton@sgrlaw.com

Derek André dandre@sgrlaw.com

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Latin America and the Caribbean

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Considerations for Construction Projects in Latin America and the Caribbean By Greg Smith

onstruction projects in Latin America and the Caribbean are often lucrative investments for all involved – owners, developers, contractors and other stakeholders in the project. However, there are material differences between working in Latin America and the Caribbean, and working in the United States. When considering undertaking a project in Latin America or the Caribbean, particular attention should be focused on at least a few key issues: differing legal systems, language barriers, labor pools and costs.

Differing Legal Systems Many Latin American and the Caribbean nations have legal systems based on a civil law tradition, as opposed to the common law tradition found in the United States and Canada. At a high level, this means that the legal system relies much more on “codes” and “constitutions,” and less on judicial interpretations of laws. This difference can impact how parties on construction projects may contract and the obligations of the parties.

In most common law traditions, parties are free to contract as they deem most beneficial, with certain narrow rules that may override the parties’ intent. Civil law nations, however, tend to have extensive codes that dictate how the parties may contract and limit the provisions that may be included in contracts. For example, under a civil law regime, the code may “fill in gaps” in ways in which the parties may not intend. The careful drafting of contracts is critical for all projects, but particular care must be taken when contracting for projects in civil law nations. Another difference between common law and civil law jurisdictions lies in their treatment of force majeure. In common law nations, force majeure is generally a creation of the contract between the parties. The parties are free to define what, if any, events are considered force majeure events that excuse performance under the contract. In civil law nations, force majeure events are typically defined by code.

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The treatment of liquidated damages also varies between common law and civil law jurisdictions. In common law jurisdictions, liquidated damages are enforced generally if the amount of liquidated damages is a reasonable pre-estimate of damages and if the liquidated damages are not a penalty. If the liquidated damages are found to be a penalty, common law courts will not enforce the liquidated damages provision. In civil law jurisdictions, however, contractual penalties are usually enforceable.

Language Barriers When considering projects in Latin America and the Caribbean, the risk of a “language barrier” must be considered by American and Canadian owners and contractors. While English is spoken throughout Latin America and the Caribbean, most countries in Latin America are not primarily English-speaking nations. Rather, Spanish and Portuguese are the dominant languages. Caribbean nations vary widely in their official languages, with English and Spanish being widely spoken. However, depending on the specific nation, French, Dutch or Creole languages are also common. The potential issues associated with language can be extensive. Most contracts in multinational projects may be translated into two or more

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languages, but determining which version is the “official” version governing the obligations between parties can become thorny. Contracting parties should consider this issue and be clear regarding which language will provide the governing contract. Language must be considered in design development and code compliance as well. As with contracts, design documents may be produced in more than one language. However, governing bodies often require design documents to be produced in a specified language to be approved for permits and code compliance. Further, local officials and inspectors may require communications, both verbal or written, to be in one official language. The design team, regardless of where located, should be aware of which specific language, if any, is required. Another language consideration arises with labor forces, contractors, subcontractors and the like. As a practical matter, it is important to have multilingual members of management and supervising teams to facilitate communication with local workers and tradespeople. Whether bringing in workers or using the local workforce, it is important to have clear communication while working on any project. Many owners and contractors engaged in international construction frequently hire local professionals to help with language issues. Local professionals also often have a better understanding of local customs and requirements that may escape the attention of foreign nationals brought in to manage a project. While perhaps not strictly required, hiring personnel familiar with local languages, customs, codes and the construction market is wise for most projects.

Latin America and the Caribbean Labor Pool Depending on the location and size of projects, the local labor pool for projects may vary widely. For example, the skilled labor pool for an energy project planned near Bogotá, Colombia, a large city with more than seven million residents, is deep and accessible. However, a large resort on a small Caribbean island may need to import most of its labor force. In general, Latin American projects are less prone to labor pool shortages than Caribbean projects. However, local labor laws and unions in certain Latin American nations are much stronger than those in most Caribbean nations. As with understanding the number of available workers, understanding local labor laws – and local workers’ unions – is critical to the success of any project in Latin America or the Caribbean.

Project Costs Materials, supplies and labor are major factors in project costs in the Caribbean. For most projects, almost all materials must be imported. There may be, at best, small factories or businesses that produce limited quantities of construction materials for local use, but these small facilities are unlikely to have the capacity to support large projects. Import costs and tariffs on these materials almost always drive up the costs of construction materials. Labor considerations are a major cost for remote projects. Without skilled local workers, many developers constructing large, remote projects are forced to import most of their labor force. These

workers also need support facilities and essentials, such as lodging and supplies, that further drive up the price of remote projects. In Latin America, materials and supplies are more readily available and costs may be lower than in the United States. However, differing quality standards may be a factor. Care should be taken to ensure that any materials – whether local or imported – conform to local codes and quality standards required for the project. Careful planning is critical for any successful project, particularly one constructed in another country or region. For projects in the Caribbean and Latin America, construction professionals with experience in these markets are a key component of that careful planning. SGR’s construction lawyers work extensively in Latin America and the Caribbean. We have the experience and breadth of knowledge to help successfully navigate construction projects in the region from concept to contracting, and through to project completion.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Greg Smith gsmith@sgrlaw.com

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Ditch Your Old Lien Waiver Forms

Owners and Contractors in Georgia Face New Risks Under New Law By Darren Rowles and William Burnett

hile it is safe to say that most are happy to have 2020 behind us, construction professionals and owners in Georgia must not forget some important recent changes to Georgia’s lien laws. Georgia Governor Brian Kemp recently signed Senate Bill 315 into law, which requires the use of new lien and bond waiver forms as of January 1, 2021. SB 315 revised Georgia’s lien and bond waiver requirements to address a Georgia Court of Appeals decision holding that the old forms waived breach of contract claims. This decision created great confusion within the construction industry, as most construction professionals previously understood the statutory forms as only waiving lien and bond rights. In ALA Construction Services, LLC v. Controlled Access, Inc.,1 ALA contracted with Controlled Access to provide equipment and other services for a project. Controlled Access signed and included two lien waivers on Georgia’s statutory form with its payment applications to ALA. Unfortunately, Controlled Access was never paid, and Controlled Access failed to take steps to preserve its rights to assert a claim of lien.

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Having waived its lien rights, Controlled Access instead brought a breach of contract action against ALA seeking payment for the work performed by Controlled Access. ALA argued that Controlled Access not only waived its right to assert a claim of lien, but also waived its right to file a breach of contract action when it executed the lien waivers. The trial court disagreed with ALA’s argument and held that Controlled Access did not waive its right to assert a breach of contract claim against ALA by executing the lien waivers. The Georgia Court of Appeals reversed the trial court’s decision, holding that Controlled Access’s lien waivers waived both lien rights and any related claims for breach of contract. The court relied on language in Georgia’s lien waiver statute, which provided that: (1) When a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release. (2) Such amounts shall conclusively be deemed paid in full upon the earliest to occur of:

Lien Waiver Forms (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment[.]2 The court stated that the “plain and unambiguous language” of the statute showed that the “[Georgia] General Assembly intended for [the lien waivers] to be binding against the parties for ‘all purposes,’ not just for purposes of preserving the right to file a lien on the property.” The court went on to state, “[t]he statute clearly and unambiguously provides that upon signing the Waivers, Controlled Access had a statutorily imposed responsibility to file either a claim of lien or an affidavit of nonpayment if it wished to keep the debt alive beyond 60 days. Controlled Access did neither and the debt is extinguished.”3 In response to outcry from various construction industry groups, the Georgia legislature passed SB 315. SB 315 revised the lien law to expressly state that lien and bond waivers waive only lien and bond rights and do not affect any other rights or remedies of a claimant, including its right to assert a breach of contract claim. SB 315 removed language in the lien law that the court in ALA Construction relied on in its decision. The statute now states that waivers and releases under the lien statute are binding against the claimant for purposes of “the waiver of lien and … bond rights to the extent stated in the waiver and release.”

SB 315 also increased the time period for a claimant to make notice of nonpayment through filing an affidavit of nonpayment. In Georgia, the affidavit of nonpayment preserves a lien claimant’s lien rights if timely filed and if the claimant is unpaid despite signing a statutory lien waiver. Under SB 315, lien claimants now have 90 days (instead of 60 days under the prior law) from the date of the lien waiver to file an affidavit of nonpayment. It is important to note that under SB 315 the filing of an affidavit of nonpayment appears to be the only method in which a lien claimant can nullify a lien waiver. However, a lien claimant that does not file an affidavit of nonpayment within 90 days loses only its lien and bond rights, maintaining its other rights and remedies. SB 315 responded to one of the more controversial construction cases in recent memory and brought about needed changes to Georgia’s lien law. Still, because of changes in the lien law, owners and contractors in Georgia need to be mindful when dealing with statutory lien waivers. If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Darren Rowles drowles@sgrlaw.com

William Burnett wburnett@sgrlaw.com

351 Ga. App. 841, 833 S.E.2d 570 (2019). Id. at 842-43, 833 S.E.2d at 571. 3 Id. at 843-44, 833 S.E.2d at 572. 1

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“We Need More Women and People of Color” SGR Helps Plan, Host Roundtable Discussion on Women in the Construction Industry By Emma Cramer

n February 9, 2021, the Construction Law Section of the State Bar of Georgia gathered virtually for a panel discussion on the topic of women in the construction industry. With more than 50 section members in attendance, the second annual Women in Construction roundtable event was a resounding success.

American Bar Association and senior managing shareholder at Baker Donelson. The panelists discussed a range of topics, including their paths to the construction industry, obstacles the industry faces in recruiting a more diverse workforce, and how COVID-19 has affected employers and the industry as a whole. The Construction Law Section was founded in 2019 by attorneys in SGR’s Construction Law Practice. Several SGR attorneys hold leadership positions in the Construction Law Section, including Peter Crofton, Greg Smith and Darren Rowles, who serve as chair, vice-chair and secretary, respectively.

This year’s panel was comprised of Nancy Juneau, CEO of Juneau Construction Company; Christine McAnney, general counsel and corporate secretary of Balfour Beatty; Yasmine Murray, general counsel of HJ Russell & Company; and Linda Klein, past president of both the Georgia Bar and the

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The Construction Law Section has grown from just three attorneys to more than 250 in less than two years and offers robust programming for section members, including continuing legal education credit, networking opportunities and an oral history project chronicling the beginnings of construction law in Georgia. This summer, the Construction Law Section is launching a quarterly publication. SGR’s Derek André will serve as the publication’s first editor.

Diversity All of the panelists agreed that encouraging more women and people of color to enter the industry is important for its continued growth. Murray said that she had not envisioned herself going into the construction industry after law school, but she sees a pressing need for more women, and especially women of color, in construction. The other panelists agreed that these groups make the industry stronger by offering unique perspectives. Klein stressed the importance of pipeline programs that bring more women and people of color into the industry, especially in technical roles. Juneau added that we can encourage more women to enter the industry by setting examples at events such as the roundtable, being more visible in the recruiting process on four-year and community college campuses, and showing young talent the excitement of being “a part of the most visible projects in the world that are also the most challenging.” The panelists also discussed how their employers and roles have changed due to the pandemic. McAnney noted that with each jurisdiction passing unique rules and regulations, her legal team has been busy ensuring Balfour’s workforce remains healthy and compliant with local law. Juneau admitted that Juneau Construction’s evolving remote work policy – something the company had considered but never implemented – has been

a somewhat positive outcome of the COVID-19 pandemic. The discussion later shifted to how the construction industry would continue to develop and evolve. McAnney and Murray both stressed a need for the industry to focus on improving infrastructure in the U.S., especially in the transportation sector. Juneau added that sustainability and improvements in efficiency and productivity are key areas for continued industry-wide growth. At the close of the discussion, the panelists agreed that the past year has presented its challenges, both for their own companies and the industry, but that it has also presented opportunities for development and adaptation. Ultimately, each hopes the industry will continue to grow and become stronger in the face of adversity.

If you have any questions about these issues, please contact your Construction Law counsel at Smith, Gambrell & Russell, LLP or contact the following:

Emma Cramer ecramer@sgrlaw.com

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