Types of Legal Issues in Construction
Construction projects, by their nature, are highly complicated and often take place over a significant period of time. It should come as no surprise that many disputes arise on construction projects, whether between owners and contractors, subcontractors, suppliers, construction managers or general contractors. Some of the most common types of construction disputes are contract breaches, construction delays, and construction defects.
Contract Breaches
A breach of contract occurs when a party fails to fulfill any terms of a legally binding agreement between the parties. Examples of contract breaches include:
Contract breaches will typically occur sometime after the signing of documents and during the course of construction. After a breach of contract has occurred, the other party will usually be seeking damages, either in the form of monetary damages, or other forms of relief. How damages are determined will be dependent on the type of breach, and the terms of the contract. In some instances, contractual terms will need to be litigated (i.e., whether or not they are binding), and, as such, it is always best to resolve contractual terms before the contract is signed.
Construction Delays
Construction delays often occur due to factors such as weather conditions, equipment loss or breakdown, scope of work additions, or labor issues. Disputes between owners and contractors often occur over whether the contract is sufficiently specific, whether "time is of the essence" should be applied, and to what extent the contractor may be entitled to extensions of time to complete the project . Since most construction contracts address circumstances that may occur during the course of the construction, it is significant that the contract address delay issues and how they will be handled. Where the contract does not address a delay issue, or if the contract language is vague, industry standards will likely be applied to determine the type and amount of damages.
Construction Defects
Construction defects claims can come from either owners or contractors, and may be filed in State or Federal court. In some instances, depending upon the parties to the action, a defect claim may also be filed with the New Jersey Division of Consumer Affairs, Division of Workplace Standards and Labor, Office of Weights and Measures (the "DCA").
The DCA can investigate construction defects involving two or more trades. Examples of two or more trade disputes which may be referred to the DCA include kitchen remodels, home additions, new home construction, roof installations or repairs, window installations or repairs, siding installation or repairs or alternative energy system disputes. If there are multiple trades involved in the dispute, the DCA will require an expert review (unless the owner waives this requirement), and may require the parties to submit to mediation through the New Jersey Association of Home Builders. If the dispute is still not resolved, the DCA will then schedule a hearing on the matter. Once the DCA determines that a defect exists, the contractor may be ordered to pay for the cost of repairs (not including upgrades), and the contractor’s license may be suspended or revoked.
Construction Law 101
At the heart of most construction legal cases is a construction contract. They are the basis for the legal relationship between the parties. The contract stipulates the roles and responsibilities of all the parties; the work that must be performed and at what price, as well as a timeframe for completion. All contracts must be properly executed to be enforced. They can only be amended by agreement of all parties.
If a party violates the contract, then some type of breach has occurred. The occurrence of a breach nearly always creates a dispute that can result in legal action. The sizes of the contracting parties don’t really matter. Either party can initiate the legal action including the individual homeowner who used a written contract that wasn’t properly executed.
There are some contract clauses that often become points of contention during the construction process:
These points are often used to support each side of the case, either the plaintiff or the defendant, focusing the secondary issues on sub-par construction practices or project delay. The primary contract dispute centers around whether or not there was a proper contract to begin with. Therefore, it can become very important during the case to determine if there were any omissions that would impact either party’s obligations under the contract. An example of this would be a mutually agreed upon provision that the contract would not be enforceable until a $250,000 performance bond was obtained. If that bond never materialized, then the contract would not be enforceable.
If one party fails to perform, it will almost always breach the contract, and almost always forms the basis of a claim for damages or specific performance. Frequently, the aggrieved party suffers some form of damage that can be compensated monetarily. In this case, they sue for damages. However, a party may still be ordered to perform under the contract. Performance is the fulfilment of the promise to do something as in the performed contract. Specific performance is a court order to a party to perform their obligations according to the contract. Specific performance is most often requested when monetary damages are insufficient to meet the needs of the damaged party like an injunction or declaratory judgment. These are other remedies that a court can order including punitive damages if there is evidence of malice, fraud, oppression, or other wanton, deliberate and oppressive conduct. Under certain conditions, attorneys’ fees may also be ordered by the court.
Landmark Construction-Related Legal Cases
Over the years, a number of construction legal cases have established significant legal precedent for construction law and have had a long-lasting effect on the construction industry.
In 2009, Reed Construction Data Sued McGraw Hill for copyright infringement, alleging that McGraw downloaded digitized images of cover sheets from public bids in order to create a competing set of electronic bidding services. Upon ruling that the collected bids constituted a compilation copyright, the court stated that the plaintiff owned the copyright to the collection of bids, but not the individual bids themselves. The judge further noted that even though individual bids may not be copyrighted, later-bid invitations must cite to the previous one, thus establishing a copyright for the following bid.
In 2012, the Bricklayers Union of New Jersey sued Grunley Construction over their ‘Constituted Union’ status with the National Labor Relations Board (NLRB). They alleged that Grunley’s practice of requiring security fees for the affiliation with the union was discriminatory and hence, not ‘constitutional’ under the Labor Management Reporting and Disclosure Act. This suit also held federal jurisdiction due to the Walsh-Healey Public Contracts Act (PCA). The PAC created different compensation systems under the NLRB and the National Labor Relations Act (NLRA). It also involved the National Labor Relations Board jurisdiction as it was appealed to them by Grunley.
In the 2018 case of "U.S. ex rel. Hawkins v. The AmerisourceBergen Corp.", three American subsidiaries of Dusseldorf based wholesaler AmerisourceBergen sought to deduct the discounted costs of building materials from their contracts with the Department of Defense. Review from the Court of Appeals for the Federal Circuit held that for these claims of fraudulent discounts, the federal government had to provide evidence that discounts were offered, and AmerisourceBergen accepted them. Whereupon, if a builder receives rebates from a wholesaler and does not report the cost of the rebate in their contract with the DOD, that amount is considered an overstatement and there can be a claim for fraud.
Construction Professionals in Legal Actions
Construction legal professionals, such as construction lawyers and construction attorneys, play a multifaceted role in the prevention and resolution of construction disputes. From the outset of a project, their involvement ensures that project owners, contractors, and subcontractors are aware of the legal requirements for compliance and are operating within the bounds of the law.
Understanding Contract Law
Construction legal professionals recognize the importance of well-drafted contracts as a means to minimize legal disputes. By assisting in the preparation and negotiation of contracts, they help clients clarify the terms and conditions of the agreements going forward. These construction contract terms should contain all pertinent information regarding the project and can vary by a significant margin. Standard contracts, such as those published by the American Institute of Architects, are not necessarily standard but a guideline for creating a custom contract that will serve the specific needs of each project effectively. Construction law professionals are knowledgeable about construction law and maintain a working knowledge of other industries’ laws.
Compliance with Laws and Regulations
Construction legal professionals also guide project owners, contractors, and subcontractors on compliance with all applicable federal, state, and local laws, rules, and regulations. Most important, construction lawyers and construction attorneys help ensure compliance with all The Occupational Safety and Health Administration (OSHA) standards and requirements and state labor laws for safety and employment. They can draft safety rules and regulations for workers to ensure a safe workplace by identifying risks and potential hazards and helping you avoid liability for acts of employees related to those disasters. Construction law professionals also keep track of labor laws and regulatory changes to provide up-to-date legal guidance and protection.
Persuading Owners, Contractors, and Subcontractors
Construction attorneys and construction lawyers understand the need to persuade owners, contractors, and subcontractors to comply with the contracts signed by the parties. Persuasion is an often overlooked but necessary skill when it comes to maintaining a legal contract. Negotiating contract terms and conditions is one way for construction law professionals to assist clients in reaching practical agreements. Throughout the construction project, the lawyer also reviews documents to ensure contractual compliance. While careful attention to documentation and invoicing can address minor concerns, many project conditions can be more difficult to manage without construction lawyers or construction attorneys to review compliance issues.
Interpreting the Terms and Conditions
One of the most backbreaking tasks performed by construction legal professionals is document review. They can help you interpret the terms and conditions in the contract and map them to the actual construction project in ways that make sense. If there is a need to amend a contract, construction attorneys and construction lawyers can effectively change contract language that is ambiguous or misinterpreted.
Resolving Disputes when Necessary
When a dispute arises, construction legal professionals have the expertise to negotiate on your behalf to reach a settlement with another party quickly, and when that is not possible, they can represent you in litigation and advocate for your legal rights. In litigation or arbitration, construction lawyers and construction attorneys are entrusted with every aspect of the case, including the discovery process and drafting of pleadings. They know the appropriate motions to file and how to seek damages. Without the assistance of construction legal professionals, you may spend more time, money, and effort resolving a construction dispute that could have been avoided with the right legal documents drafted by an experienced construction attorney.
The role of legal professionals is instrumental in preventing disputes from developing and ensuring that disputes are resolved quickly and efficiently.
The Importance of Avoiding Construction-Related Legal Issues
A grunt of exasperation escapes many construction and contracting personnel, when they fall prey to a new legal case on the horizon, which mirrors one they were just involved in, or one they have already lost. The law is a complicated, iterative process. What can one do to increase your chances of success? Most importantly, this value starts with contract management. Construction contracts have a lot of verbiage, and often contractors will simply sign and go along with the process. Unfortunately, this can lead to endorsing unfavorable conditions, which can be used against you later. Get into the habit of reading contracts fully, and getting your contracts team involved in gaining external guidance if any conditions seem unfavorable. The importance of documenting the progression of your project cannot be understated. Poor documentation of a project can come back to literally haunt you. From the very beginning of your project, document every situation: contract negotiation , delay and start dates, progress on each stage of work, changes in crew employment, any verbal discussions or email correspondence between relevant parties. With as many players as a construction project can have, each contractor has to expect that someone will be less than honest at some point, or will misinterpret circumstances, and then your own side might misinterpret the other party’s interpretation. Don’t get over the assumption that everyone is going to act in good faith just because you’re all working together. They could easily misstate your positions, spread falsehoods about communication you’ve had (even when it’s documented), and other types of loopholes to get around what you initially agreed to. This can affect everything from payroll to invoices and even signal changes in project price. Reaching clear, professional agreement before you ever break ground is always better than waiting until after a dispute has broken out.
Construction Law: Implications for Projects
Construction laws and regulations naturally have a profound impact on every facet of the construction process. From project conception to design, and then construction oversight role, they permeate every step of the process and can often dictate whether or not a project is realized as intended. To that point, non-compliance with construction laws and regulations can lead to costly delays, project home or building rework, removal of construction work completed, and even costly fines or lawsuits. In short, these regulations outline parameters which must be observed, from a compliance standpoint, for a given project to be realized.
Recent changes in laws can have a sizable impact when planning a construction project. For example, recent changes to zoning restrictions, building codes, and environmental regulations in certain municipalities can impact a number of different industry sectors, including residential, commercial, and industrial construction. In addition, some changes in laws impact construction timelines themselves wherein a new project may require additional planning time due to increased restrictions on the type, size, or scope of a specific type of construction work. When federal OSHA requirements are adopted by certain states in their own workplace regulations, those who commonly work in more than one state can experience additional hurdles, including new standards for the safety of temporary workers and laborers.
Trends in Construction Legal Cases
Emerging trends in the area of construction legal disputes will likely be guided by the increasing use of technology and smart buildings, the means and methods of the construction phase and its close relationship with energy efficiency and security, as well as changes to local building codes and other regulations surrounding the built environment.
With more than 80% of our cases being shareholder disputes, it is critical to follow the changes to corporate and other laws, and this will include tracking new legislation in the area of partnerships , construction (both design and construction), green building, healthcare, and their nexus to energy efficiency.
In addition to technology’s role in the construction and management phases of the built environment, the industry should pay attention to some new technologies and their impact on the regulatory environment. For example, as a result of the use of drones and increased prefabrication in electric and plumbing fields, we are beginning to see some regulators altering the way in which they interact with the construction community and by whom work can be performed.
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