Snell & Wilmer
Under Construction
 

James J. Sienicki
James J. Sienicki
602.382.6351
jsienicki@swlaw.com
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Jason Ebe
Jason Ebe
602.382.6240
jebe@swlaw.com
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Charles P. Keller
Charles P. Keller
602.382.6265
ckeller@swlaw.com
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Richard G. Erickson
Richard G. Erickson
602.382.6540
rerickson@swlaw.com
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Cary D. Jones
Cary D. Jones
213.929.2501
cjones@swlaw.com
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Jenna Le
Jenna Le
213.929.2519
jle@swlaw.com
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Jenna Le
Michael J. Baker
714.427.7472 OC
213.929.2644 LA
mjbaker@swlaw.com
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Snell & Wilmer
Past Issues
Construction Practice

     

January 2019

Letter from the Editor

Welcome to the winter edition of our Under Construction newsletter. We hope your holidays brought you some much needed rest and relaxation and that your 2019 is off to a wonderful start for you, your family and your company.

In this issue, we start off with an article that looks at the importance of reviewing all of the contract documents or templates you may have to evaluate whether they need to be refreshed or overhauled. The beginning of the year is a perfect opportunity to take the time to do so.

Next, we have an article that addresses legal accountability, construction accidents and OSHA. Construction accidents are inevitable, even for clients who implement and enforce a meticulous safety plan on a project. This article offers a few key questions to consider when thinking about the best prevention, response and defense protocol that both demonstrates commitment to safe construction practices and honors due process and other rights you may have associated with matters of civil and criminal liability when a construction accident occurs.

Our final two articles look at a couple of California cases that may bring some clarification to certain aspects of the construction industry in the state. The first article reviews a recent opinion by the California Third District Court of Appeal that continues the trend in California finding that the deference given to planning and zoning decisions does not mean that such decisions are not in and of themselves CEQA determinations. The second article focuses on a case that brings some clarification regarding due process and the sufficiency of evidence necessary to support a subcontractor substitution on a California public works project.

We hope you find these articles informative and enlightening. Please let us know if you want us to address a specific construction issue in a future newsletter. We hope you have a profitable, busy and safe 2019!

Regards,
James J. Sienicki

Will Your Contracts Help You Succeed or Hold You Back in 2019?

by Jason Ebe

Hopefully you had a great holiday break and are now back to work refreshed and ready to seize new opportunities in 2019. Many of our clients take time early in the year to review their body of contract templates to evaluate a refresh or, in certain circumstances, a major overhaul. The following are suggestions to consider in evaluating your current contracts for use in the coming year.

Update Contracts for Changes in the Law

Federal, state and local lawmakers enact and revise laws and regulations affecting construction on a regular basis. Similarly, federal and state court decisions throughout the year may impact the way your contracts will be interpreted and enforced in the event of a dispute. If you have not updated your contracts recently to account for changes in the law, you should consider doing so.

Create a Family of Templates with Consistent Legal Terms

Does your business use separate forms for one-off projects versus multiple projects? Do you use different forms for consultants, subcontractors and suppliers? Do different divisions of your company each prefer their own templates? Do the legal terms and conditions of these contracts align with one another? If not, you may have trouble administering multiple forms with different vendors on a single project. Think of the headache caused by inconsistent claim and dispute resolution procedures across multiple contracts on a single project.

Many clients have benefitted from a review of the range of contract forms used throughout the business and the development of standardized legal terms and conditions that will apply to, for example, a single project contract, a master contract for use with task orders, a consultant contract, and a materials or equipment purchase order. By simplifying and standardizing terms for use with multiple vendors, you have greater comfort that the same vendor on multiple projects, and multiple vendors on the same project, are subject to a uniform and consistent set of terms for administration, claims avoidance and mitigation, and other uses.

Create a State Addendum for Use of Contracts Across Multiple States

Do you do business in multiple states? Do your contracts reflect that different state laws impact key terms such as prompt payment, pay if paid, liens, indemnity, and dispute resolution? A contract written for use in one state may not necessarily be suitable in multiple states. Or, do you have a different form for each state? Consistent with our suggestion above, it may be more efficient to create a template for use across multiple states, with a state addendum revising only those terms that are specific to that state. The balance of the contract terms will be consistent from state to state.

Are You Ready for New Delivery Models?

Are your present delivery models holding you back? Are you comfortable only in the traditional design-bid-build? Many projects, public and private, commercial and residential, are now being delivered as design-build, in which the owner holds a single contract with the design-build entity to be responsible for both design and construction, and the designer, or constructor, as applicable, is a subcontractor to the design-build lead. Many leading construction industry organizations publish recommended templates for design-build delivery, including the Design Build Institute of America, American Institute of Architects and ConsensusDocs. These forms have notable differences in both form and substance, so consultation is appropriate as to which may best suit your needs. All are negotiable and editable as manuscript forms, provided appropriate steps are taken to copy and use these in accordance with their respective copyrights.

Beyond design-build, more and more project teams are electing to enter into contracts for integrated project delivery, in which the owner, architect, significant design consultants, contractor or construction manager, and major trade subcontractors enter into a single multi-party contract for the sharing of risk and rewards unlike anything found in traditional project delivery. As with design-build, certain construction industry organizations such as AIA and ConsensusDocs have published template contracts for integrated project delivery, but these should be considered as mere starting points for the negotiation of the contract terms most appropriate for the needs of your team and project.

As the development of public private-partnerships (P3s) increases, more work is needed on the contracts and risk allocation for those projects. ConsensusDocs, for example, recently released a standard form of agreement for operations and maintenance services, which can be combined with a design-build contract to provide for a design-build-operate-maintain delivery.

If your current forms don’t enable you to chase and perform work using these delivery methods, now is a great time to get educated on the pros and cons of expanding your delivery models and the contracts suitable for such models.

Are You Ready for New Technologies and Techniques?

Do you use Building Information Modeling in your project? Does your contract address the specific concerns of use of BIM? How about lean or green building principles? ConsensusDocs has template addenda for all of these.

We are also seeing more and more projects incorporating modular construction. Incorporation of modular construction raises Uniform Commercial Code and other products-type legal concerns not typically addressed in depth in construction contracts. To the extent modular construction will be a significant component of your existing or anticipated business in 2019, the contracts need to appropriately address these issues to protect you from unreasonable exposure.

Will you use drones in your business, or will drones be used by others on your projects? There are numerous considerations as to the use of drones that are not presently captured in traditional design and construction contracts. If you use drones, your legal team should have significant experience in drone technology and this quickly emerging area of law, including its interface in construction to help you develop contract language and documents to take advantage of best practices.

With all your other New Year’s resolutions, make a resolution to review and refresh your contracts for 2019 to position your business for success. Don’t hesitate to contact anyone on our team, or your experienced construction counsel, for further details and guidance.

Legal Accountability and Construction Accidents: Investigating, Reporting and Engaging Outside Counsel

by Charles P. Keller and Richard G. Erickson

Construction accidents are inevitable, even for clients who implement and enforce a meticulous safety plan on a project. Despite best intentions and protections afforded to contractors, employees, subcontractors, vendors and property, construction accidents happen. We, therefore, try to advise clients about the best prevention, response and defense protocol that both demonstrates commitment to safe construction practices and honors due process and other rights associated with matters of civil and criminal liability when a construction accident occurs. Here are just a couple of key questions to consider.

What Are the Boundaries to Investigating a Construction Accident?

The obligation to investigate is, for the most part, set by your internal safety plan that accounts for and encompasses any local and/or federal regulatory requirements. These requirements are very familiar to small and large builders and contractors, who devote the required attention to their safety policies and procedures, and to training their employees and seeking compliance through regular, periodic safety inspections. Proper training and documented workplace inspections are usually the first inquiry to any investigation, so a company’s safety plan should be a high priority well before the first shovel hits the ground.

In addition, safety directors, managers and on-site safety representatives are oftentimes the first management representatives on the scene of an accident and are the key players who are initially trusted to decide when, what, why and who to investigate. Not every accident is worthy of a formal, written investigation, so these safety representatives are instrumental in setting the boundaries before company assets are dedicated to drafting a written or other record of what happened and how to prevent another accident. These types of incidents may necessitate the on-site employee to immediately contact in-house or outside counsel. Additionally, these types of incidents may also trigger several protocols necessary to preserve evidence, to videotape or photograph the scene and to outline steps to be followed by employee witnesses before interviews are allowed by law enforcement or government agency representatives. These boundaries are best set and identified in the company’s safety plan or in a separate accident investigation protocol and are vital to exercising command and control over the investigation.

Is There a Way to Make Internal Investigations Confidential?

The short answer is, yes, there are ways a company can designate communications and reports incidental to an accident investigation as confidential. However, this usually, if not always, requires preparation and communication of the report to legal counsel. Because the attorney-client privilege afforded to in-house legal counsel may not be as protective as the attorney-client privilege afforded to outside counsel, and because in-house counsel may not concentrate in the safety and OSHA areas, it may be safer to communicate in writing to outside counsel about the investigation. The attorney-client privilege ideally protects these communications and the documentation flowing from the investigation from, among other things, discovery in litigation and government investigations.

Federal OSHA, unlike Cal-OSHA, does not mandate that accident investigations are performed. While most companies do perform accident investigations, it may be wise to commit, in writing in your safety policies, only to perform written accident reports in certain circumstances. Examples might be a fatal accident, an OSHA reportable injury or illness, a significant injury or illness possibly caused by you to another employer’s employee or an accident causing property damage in excess of a certain predetermined monetary value.

In general, initially, communications to outside counsel about an accident should be expressly made for the purpose of giving the safety representatives at the scene direction regarding preserving the scene, spoliation issues, protecting your witnesses, obtaining evidence and controlling the interaction with governmental investigators. Additionally, outside counsel can later advise regarding tendering a liability or indemnity claim and preparing materials for litigation stemming from the construction accident. Consider emphasizing the intention of the privileged communications with titles or subject lines making it clear the document is for the benefit of legal advice from outside counsel (something as obvious as “ATTORNEY-CLIENT PRIVILEGED WORK-PRODUCT COMMUNICATION TO OUTSIDE COUNSEL IN ANTICIPATION OF LITIGATION AND TO PREPARE NECESSARY CLAIM OR RELATED MATERIALS”). Simply copying outside counsel on an email or other correspondence with key players in the company is generally a mistake. It may be wise to always include outside counsel directly in communications about the investigation and protect the overarching premise that outside counsel’s advice is necessary for preparing for claims and litigation arising from the accident.

When Is the Ideal Time to Involve Outside Counsel in the Investigation?

Involve outside counsel in a construction accident investigation sooner rather than later. Despite the impression that incurring attorneys’ fees early on is premature and more expensive, it may actually be more cost-effective to make sure outside counsel is up to speed right away rather than spending time and more money to catch up later on. Involving outside counsel early also allows the company a more immediate means of communicating confidentially about the accident. Moreover, outside counsel can ensure that the governmental investigation is being conducted according to their procedures and the company and its employees are being afforded their proper legal rights. Also, it may be more difficult to claim attorney-client privilege with in-house counsel who may have less of a role in preparing the company for litigation arising from the accident. For example, if liability or other insurance will cover a claim and its defense, in-house counsel may have little to no involvement with the litigation or in responding to government agencies like OSHA.

Outside counsel may be preferable for many reasons. First, as mentioned above, an outside legal counsel who concentrates on OSHA matters has familiarity with the government investigators. Also, such counsel knows how best to protect the employees during the regulatory interview process and protect the company from unintentionally prejudicing its own case. Additionally, outside counsel can often act as an intermediary for the company when demands are being made upon the company from many sources. Besides law enforcement representatives and OSHA investigators, insurance representatives and claim investigators quickly descend on the scene. Construction accidents involving property damage and personal injury or death additionally trigger a rush to broadly target liability insurance from all potential sources. Subrogation lawyers representing the primary insurer often show up on site at the same time government investigators are making their record of the accident. Second, despite workers’ compensation immunity typically applicable to the injured employees of the company, personal injury lawyers will try to identify any number of other possible tortfeasors who may have some liability for causing the same injuries. A company may also need the advice of outside counsel to address instantaneous media reports of the accident or to respond to inquiries by news agencies. These legal gymnastics that occur immediately after a construction accident may better be handled by outside counsel so the company can deal internally with comforting injured employees, conducting its investigation, maintaining daily operations and keeping the construction project on track.

California Appellate Court Confirms That Lay Public Opinion Regarding Potentially Significant Aesthetic Impacts May Be Enough To Trigger Preparation Of An Environmental Impact Report

by Cary D. Jones and Jenna Le

In an opinion published December 17, 2018, the California Third District Court of Appeal held that lay public opinion commentary regarding a Project’s design and size in a historic district rose to the level of substantial evidence supporting a “fair argument” that the Project may have significant aesthetic impacts on the environment, therefore triggering the need to prepare an environmental impact report (EIR) under the California Environmental Quality Act (CEQA). Georgetown Preservation Society v. County of El Dorado (Simon Cre Abbie, LLC, Real Party in Interest).

Georgetown is a “quaint unincorporated Gold Rush-era hamlet” in El Dorado County. The proposed Project was a discount chain store on three vacant lots on Georgetown’s Main Street adjacent to a museum, historic stamp mill, a bed and breakfast, and a historic residence. Public comments from local lay residents, a licensed architect, a city planner and a professional engineer, were submitted to the County arguing that the Project would not appropriately fit in visually or functionally and did not belong “in an historic gold rush community.” Despite the public criticism, the County proposed a mitigated negative declaration (MND) finding that the Project’s zoning, design, architectural treatments and associated improvements substantially conformed to the County’s General Plan and Historic Design Guide.

The Georgetown Preservation Society sought a writ of mandamus to invalidate the County’s adoption of the MND, claiming the County failed adequately to consider traffic impacts and aesthetic impacts of the Project, and that the Project violated local planning and zoning laws. The trial court held that the public comments submitted to the County provided substantial evidence to support a fair argument that the Project may have a significant aesthetic impact on the environment and thus required an EIR. The County timely appealed claiming that (1) the County’s finding that the Project complied with the local design review process is entitled to deference and should be reviewed under a substantial evidence standard; (2) layperson public commentary does not establish a fair argument that the Project may cause substantial environmental impacts; and (3) the County’s failure to make any explicit findings to discount public commentary should not preclude challenging the comments on appeal.

The Georgetown Court reinforced Pocket Protectors v. City of Sacramento (2004) 124 Cal.App.4th 903, stating that an agency’s own design review is not a substitute for CEQA review if there is substantial evidence before the agency that the Project may have a significant effect on the environment. The Court dismissed the County’s attempt to rely on Bowman v. City of Berkeley (2004) 122 Cal.App.4th 572, in which the Second District Court of Appeal found that “where a project must undergo design review under local law, that process itself can be found to mitigate purely aesthetic impacts to insignificance.” The Court clarified that Bowman indicates that local design review may mitigate aesthetic impacts, however, it does not “necessarily or always adequately addresses aesthetic impacts.”

Further, the Court affirmed that lay public commentary on nontechnical issues can provide substantial evidence to support a fair argument that a project may have a significant aesthetic impact. The Court acknowledged that while “a few stray comments may not be enough,” the evidence here represented a “large number of interested people” who believed this Project was “too big” and “too boxy or monolithic to blend in” and thereby created a negative effect on aesthetics. The Court emphasized that the significance of an activity may vary with the setting and that the Project at issue here might fit smoothly into a different town of similar size. There was sufficient evidence to show that “this project in this location might significantly impair the central district’s unique and treasured Gold Rush character.” Moreover, the Court reasoned that opinions that the Project will not be aesthetically pleasing do not have to come from experts with certain qualifications, stating that a “rational layperson familiar with the area could conclude a 9,100 square foot chain store spanning three lots may negatively impact the central district’s aesthetics,” thereby requiring an EIR.

The Court also found that the County failed to make any explicit findings questioning the credibility of the public commentary and that the public comments may not be categorically disregarded.

The Georgetown case continues the trend in California finding that the deference given to planning and zoning decisions does not mean that such decisions are not in and of themselves CEQA determinations. As such, lay public commentary on aesthetic factors can provide enough fodder to require an EIR.

California Clarifies Subcontractor Substitution Hearing Procedures and Standard of Review

by Michael J. Baker

The new year brings us some clarification regarding due process and sufficiency of the evidence necessary to support a subcontractor substitution on a California public works project. The case of note is JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District, decided at the beginning of this year. The California Court of Appeals did an extensive and comprehensive review of what is required in terms of due process and evidence to substitute a subcontractor on a public works project under California law. In this case, the Santa Monica College District was acting within its authority when it allowed one of its contractors to substitute a subcontractor on the construction project.

The general contractor for the Santa Monica Community College District (“College District”) sought to substitute one of its subcontractors, JMS Air Conditioning (“JMS”) on statutory grounds, citing two of the six grounds permitted under California statutory authority (Public Contract Code 4107) to substitute a listed subcontractor. The grounds cited were the subcontractor’s failure or refusal to perform the subcontract obligations and the subcontractor was not properly licensed for a portion of its scope of work pursuant to California State Contract’s License law, albeit properly licensed for the other portions. Under California law, this triggered a substitution hearing.

The College District proposed as the hearing officer its facility manager with knowledge about the project to hear the matter and determine the substitution. The facilities manager limited the hearing to two hours. There was no opportunity for cross-examination of witnesses; however, there was no limit imposed on written submissions or exhibits or witness statements that could be submitted by either party at the hearing. The hearing took place before the hearing officer. The subcontractor denied that it refused to perform any work and denied lack of proper licensure.

The facilities manager who conducted the hearing accepted all the written materials offered, heard oral testimony (not under oath) and the evidentiary presentations of the parties. He further allowed the parties to reply to each other and permitted closing arguments. The decision of the College District was to approve the substitution based on the grounds there was sufficient evidence of the failure to perform and lack of proper licensure.

The subcontractor sought review of the College District decision in the Superior Court by way of writ of administrative mandamus on grounds that the facilities manager lacked jurisdiction, the subcontractor was denied due process, and that the findings lacked substantial evidence to support the decision. In the writ proceeding, the Court rejected the jurisdictional and due process claims. However, the court found there was substantial evidence supporting the substitution based on a finding of improper licensure, but found no substantial evidence to support a substitution based on a failure or refusal to perform.

On appeal, the subcontractor challenged jurisdiction – asserting the facilities manager could not hear the substitution request because the law required the awarding authority Board to hear the request. The Court of Appeal rejected this argument and held that it is permissible for an awarding authority to delegate someone to act as a hearing officer to conduct a hearing and rule on the substitution request. The Court held that the subcontractor substitution law does not require the governing Board to micromanage the process or who hears a substitution request.

The court went on to state that the substitution hearing only affects ancillary rights, it does not adjudicate anything beyond the limited right to substitute the subcontractor. Accordingly, the Court noted the amount of due process afforded in such a hearing is limited because it does not affect a fundamental vested right. The substitution request only determines whether a subcontractor is substituted and determines no substantive rights. The Court pointed out the subcontractor is free to pursue any claims regardless of the outcome of the substitution hearing. The court rejected the subcontractor’s argument regarding the right to cross-examination and determined that procedural safeguards vary depending upon the alleged right involved, the nature of proceedings and the burden of that proceeding. The substitution hearing is narrow and has a limited purpose; therefore, a subcontractor substitution hearing requires a correspondingly limited amount of due process. In reaching its decision, the Court looked to the practical necessity to resolve the subcontractor substitution disputes quickly without a burden on the public entity and the impact to a project.

On the issue of the sufficiency of the evidence necessary to support the substitution request, the Court stated that only substantial evidence needs to support the decision because the substitution request decision does not substantively affect any fundamental right. There is no binding legal effect on the subcontractor’s ability to pursue separate judicial proceedings, therefore there is no preclusive effect either way and further there is no preclusive effect on the state contractor license board on the licensing issue. The court applied a highly deferential review test — there only needs to be enough substantial evidence to support the decision.

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