What’s New?
Introducing our E-Newsletter! We have transitioned Construction in Brief to an electronic newsletter. Please explore our articles on our website as we no longer send out printed copies. You can subscribe to our e-newsletter here.
We are excited to announce a new practice group, Consumer Protection & Regulatory Defense! You can read about this new group below. In this issue, we also cover the growing trend of “design-assist” in the construction industry and important factors to consider when faced with delay claims. In the Q&A with Marian Kornilowicz, you will gain insight into our Business Transactions Group and the services we provide our clients. Last but not least, the date for the 2019 Construction Executive Boot Camp has been set, so please take a look below and mark your calendars!
Ashling Ehrhardt, Co-Editor-in-Chief
Christopher Sexton, Co-Editor-in-Chief
Sydney Pierce, Associate Editor
New Faces
Joshua M. Deal joined the New York office as a construction associate. He represents owners, contractors, design-builders, and subcontractors on both private and public projects on matters including mechanics’ lien claims, payment and performance bond claims, delay claims, and construction defect claims.. Josh also represents property owners in the negotiation and drafting of construction license agreements with neighboring property owners and in related litigation under New York State’s Real Property Actions and Proceedings Law.
Before joining Cohen Seglias, Josh was an associate at a mid-sized defense firm in New York where he handled a broad array of matters including, commercial litigation, employment investigations and litigation, products liability, civil rights litigation, construction injury litigation, toxic torts, and railroad liability litigation.
Kelsey E. Riehle recently joined the Philadelphia office as a construction associate. As a litigator, she works closely with owners, contractors, subcontractors, and design professionals in all phases of the construction and dispute resolution process. Kelsey counsels her clients early on in projects to maximize their success and minimize risk. When disputes do arise, she employs a practical and thoughtful approach to resolving legal challenges.
In addition to her experience in the construction sector, Kelsey has defended clients in general liability, mass toxic tort, and products liability matters and litigated cases in federal and state court. She previously served as an adjunct professor of business law courses in North Carolina.
Paul Felipe Williamson joined the Washington, DC office earlier this year as a construction associate. He concentrates his practice in construction litigation and represents contractors, subcontractors, design professionals, owners, and other parties on both private and public projects. In addition, he leverages his several years of experience in the defense contracting industry to counsel clients regarding compliance with the Federal Acquisition Regulation (FAR) and its supplementary regulations.
Prior to joining Cohen Seglias, Paul was an attorney at an Am Law 100 firm, where his practice focused on resolving his clients’ complex commercial disputes in federal and state courts. Paul also has significant experience in managing complex, large scale, eDiscovery matters.
Cohen Seglias Ranked in Chambers USA 2019
We are pleased to announce that Cohen Seglias is recognized in the 2019 edition of Chambers USA: America’s Leading Lawyers for Business, the preeminent legal ranking of attorneys and law firms. Our Construction Group is once again named a leading practice in Pennsylvania. In addition, four Cohen Seglias attorneys are individually recognized–the highest number of ranked attorneys ever for the firm. Roy Cohen, Ed Seglias, George Pallas, and Jason Copley are named as leaders in the field of Construction.
Cohen Seglias Ranked in The Top 50 Construction Law Firms® of 2019
We are proud to announce that Cohen Seglias is ranked eighth in Construction Executive’s The Top 50 Construction Law Firms® of 2019. For its inaugural ranking, Construction Executive, an Associated Builders and Contractors (ABC) publication, surveyed hundreds of law firms across the United States with dedicated construction practices.
Save the Date: 2019 Construction Executive Boot Camp!
Thursday, October 24, 2019
Sheraton Valley Forge Hotel
On October 24, we are co-hosting the annual Construction Executive Boot Camp with McCarthy & Company, MRG (Madison Risk Group), and The Shepherd Agency. We are excited to bring you another great event, so look out for more information!
Our Newark, NJ Office Moved!
Please update your records for this office.
One Newark Center
1085 Raymond Boulevard, 21st Floor
Newark, NJ 07102
P: 973.474.5003
F: 973.826.4860
Announcing Our Consumer Protection & Regulatory Defense Group
In today’s competitive market place, companies face an increasing level of scrutiny. Many of their policies, practices, and marketing strategies are subject to complex federal, state, and local consumer protection laws, as well as oversight by both federal and state administrative agencies. To help our clients navigate this complicated landscape, Cohen Seglias formed the Consumer Protection & Regulatory Defense Group.
The Group, led by partners Chris Carusone, Jonathan Cass, James McNally, and Steve Williams, works with clients of all sizes, from small, privately-held businesses to Fortune 500 companies, and across a variety of industries, such as financial services, real estate, and manufacturing. With experience in both government investigations and defense litigation, our attorneys help clients stay compliant with relevant consumer protection laws and regulations and provide creative and cost-effective defense strategies when corporate investigations are launched or when litigation becomes necessary.
Counseling businesses that are the targets of consumer protection investigations conducted by state attorneys general and governmental agencies, including the Department of Justice, the Federal Trade Commission, and the Consumer Financial Protection Bureau, is another focus of the Group. The Group has particular experience representing clients who operate in Pennsylvania and are the subject of corporate investigations by the Pennsylvania Office of the Attorney General (PAOAG) under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL). Practice Group Chair Chris Carusone is a former Chief Deputy Attorney General in the PAOAG and his experience gives unique insight into how government attorneys and investigators think, the goals they hope to achieve, the tactics that they employ, and the limitations to which they are subject. The Group puts this experience and knowledge to work for our clients, developing strategies to respond to investigations, preventing the expansion of such investigations into broader areas of the company’s operations, and minimizing the financial losses, changes to business practices, and adverse publicity that frequently accompany consumer protection investigations.
Our consumer protection attorneys also represent companies that are the subject of private lawsuits brought by consumers. They have successfully defended individual and class action claims alleging a variety of state and federal consumer protection laws, including the Fair Debt Collection Practices Act, the Pennsylvania Fair Credit Extension Uniformity Act, the Fair Credit Reporting Act, the Telephone Consumer Protection Act, the Truth-in-Lending Act, and the UTPCPL, as well as common law claims alleging deceptive trade practices and invasion of privacy.
PLA Struck Down: New, Stricter Requirements Set for Future Use
On January 11, 2019, the Pennsylvania Commonwealth Court struck down a Project Labor Agreement (PLA) contained in a bid solicitation on a PennDOT project that required the use of union labor. The ruling also set stricter requirements for the use of PLAs on public projects in the Commonwealth and described certain factors that generally will invalidate the use of a PLA.
PLAs in Pennsylvania
PLAs are pre-hire collective bargaining agreements that establish the terms and conditions for labor on specific construction projects. When required by an owner (whether public or private), PLAs typically mandate that labor comes from union hiring halls, while prohibiting labor strikes, picketing, and lockouts during the project.
Advocates tout PLAs as effective for managing project costs and preventing project delays. Opponents have argued that PLAs are politically-driven and anti-competitive, thus increasing costs and discriminating against non-union contractors.
Although certain municipalities in Pennsylvania, like Philadelphia and Pittsburgh, have issued executive orders requiring the use of PLAs on projects that meet specific criteria, Pennsylvania itself has no law permitting, requiring, or prohibiting the use of PLAs on construction projects.
The Pennsylvania Commonwealth Court Addresses PLAs in 2019
In Allan Myers, L.P. v. the Pennsylvania Department of Transportation, the Pennsylvania Commonwealth Court struck down a PLA requirement in a bid solicitation for a highway construction project. The Project was a multi-phase project involving street improvements in Montgomery County, Pennsylvania. The first phase of the Project was completed on budget and a year ahead of schedule. When the second phase was let to bid, the solicitation included a requirement that all contractors sign a PLA, which required full use of local union labor and contained “no strike” provisions. Backlash prompted PennDOT to re-issue the solicitation with a carve-out: bidders affiliated with United Steelworkers were not subject to the PLA’s hiring requirements and could use their own workforces. PennDOT argued that it was justified in using the PLA because it needed to ensure timely performance.
A contractor–Myers–challenged the solicitation on the grounds that it discriminated against non-union contractors and violated the Pennsylvania Constitution. The Commonwealth Court agreed. The Court recognized that PLAs on public projects have been challenged and approved by Pennsylvania courts before, but those cases involved “extraordinary circumstances” (for example, the state would lose its funding if the project was not completed on time, there were labor shortages, a school needed to open by the start of the semester, a prison had safety concerns from a growing inmate population). In reaching its decision, the Court delineated some general requirements for implementing PLAs:
- “Extraordinary circumstances” are necessary
- Inconvenience to drivers generally will not constitute “extraordinary circumstance” on a highway project
- PLAs generally cannot force non-union contractors to use union labor exclusively
- Certain contractors cannot be given special treatment based on their union affiliation
This last point was not entirely new, but it stood out significantly in Myers due to PennDOT’s carve-out for United Steelworkers. The carve-out did not subject the United Steelworkers to the “no strike” provisions, and the Court reasoned that this undermined the argument that a PLA is necessary for timely completion. Last, the Court noted that it did not help PennDOT’s position that the first phase of the Project was completed one year ahead of schedule using a non-union contractor.
At this time, Myers is controlling law for the use of PLAs on public projects.
Use of PLAs on Public Projects: A More Rigorous Challenge
Myers did not invalidate PLAs but simply limited the circumstances in which they can be used. Public entities (and private owners) will certainly continue to use them on projects. Contractors, however, should be aware that where there are PLAs, they must meet specific requirements to be valid and that they may be challenged in court successfully. As a result, contractors looking to bid projects using PLAs should be aware of their ability to challenge, and that challenges posed by other contractors may delay the project and potentially invalidate bid solicitations.
Liquidated Damages and Multiple Causes of Delay: How is Responsibility Apportioned?
Delays are an unfortunate but all-too-common reality in the construction industry. Even in the best of circumstances, proving who bears responsibility for a delay is often a burdensome task. On the most straightforward of projects, delays are often at the hands of several parties, creating many convoluted and puzzling questions not only for parties hoping to recover some of the costs they suffered as a result but also for parties seeking to avoid such damages because they did not contribute to the delay.
Consider a building project where the owner delayed the delivery of a concrete block because it made late design changes. Suppose further that, even without these changes delaying delivery of the block, the masonry installation of the block could not move forward because the excavator on the project was behind schedule and had not yet completed the necessary predecessor work. When the project finishes late, the owner assesses liquidated damages against the contractors. How does this delay get apportioned, especially in light of the fact that the owner, arguably, caused some of the delay?
It’s not meant to be a riddle: these are common issues in the construction industry and this example is based on a real case. These concurrent or intertwined delays can render apportionment of responsibility a difficult and sometimes impossible task. In using the example above, the owner will argue that it did not cause the delay because the excavation work was not yet finished and work could not be done anyway. By contrast, the excavation contractor is going to argue that it did not cause the delay because, even had the excavation work been finished, no material could be delivered due to the design changes. This is an overly simplistic example. It is often the case that such an issue occurs in the realm of dozens of contractors, involving different situations causing delays. Although there is no uniform approach in the courts, it generally used to be the case that a party would be precluded from seeking liquidated damages if that party also contributed to the delays on the project. This is because, prior to expert scheduling analysis, there was not a very reliable and accurate way of apportioning responsibility for multiple delays on a project. Without such a tool, parties and courts alike struggled to pinpoint a fundamental element of any construction delay claim: causation.
With expert scheduling analysis, however, the modern trend that courts employ permits a party to recover if it can prove, with some degree of specificity, who is responsible for what amount of the delay. Notably, this is not necessarily a shift in the paradigm, as many courts are still applying the same rule as they did in the past. Rather, over time, parties using expert scheduling analysis have been able to more effectively and efficiently establish responsibility for various delays.
In considering again the example above, if the owner employed a scheduling expert to conduct a delay analysis, and that expert provided a data-driven report with a conclusion that 75% of the delays were caused by the excavation contractor, and 25% were caused by the owner, the owner may still be able to recover 75% of the liquidated damages from that contractor. Under the former approach, the owner may not be able to recover any of the liquidated damages, despite the determination that the contractor was 75% responsible.
For owners, contractors, and subcontractors alike, it is important to be cognizant of the complexities of a delay claim when multiple causes of delay exist. Aside from the difficulty in establishing who has caused what delays, courts have also taken inconsistent approaches to analyzing these issues. While it appears that courts are trending in the same direction, there remains some uncertainty. For now, it is imperative that parties are aware of the various moving parts in such circumstances to avoid problems in the future.
Contractor Obligations in the Design-Assist Model
In the traditional “design-bid-build” project delivery system, a project owner sometimes engages a construction manager or contractor during the pre-construction phase to consult and provide insight regarding costs, sequencing, scheduling, and constructability issues. After completion of the initial design phase, the construction documents are published and then provided to subcontractors for review and bidding.
But, in the ever-evolving world of construction contract risk, a new concept is taking root. In the “design-assist” approach, the project owner assembles a construction team during the design phase to collaborate with the architect or engineer in an effort to minimize design issues during the construction phase of work. Trade contractors become active participants in the development of plans and specifications. Supporters of this approach believe, in the long run, it improves value on a project by taking advantage of contractors’ respective specialties and facilitating better constructability, more efficient scheduling, and fewer RFI’s and change orders. Sounds good, right? Maybe not.
From a legal standpoint, early collaboration amongst the owner, architect, engineer, and contractors raises knotty questions about who is responsible–and ultimately liable–for design problems that reveal themselves during the construction phase of a project. While a contractor may reasonably expect that any changes proposed by the contractor and approved during the design-assist process by the project owner and designer(s) would insulate the contractor from second-guessing at a later time, this expectation is not necessarily true. Instead, the advanced input by contractors may expose them to liability for design errors that someone believes they should have caught.
For the last century, since the seminal case of United States v. Spearin, it generally has been accepted throughout the construction industry that the project owner impliedly warrants the adequacy of the design plans and specifications. Under this rule, liability arising from defective design is borne by the owner. The Spearin doctrine, as it is known, holds that if a contractor is required to perform work on a project in accordance with plans and specifications prepared by an owner or owner’s representative, then the contractor is entitled to rely on the plans and specifications and is not, in the end, liable for design defects. More precisely, “insertion of the articles [in a contract] prescribing the character, dimensions and location of the [contractor’s work] imported a warranty that if the specifications were complied with, [the contractor’s work] would be adequate.”
In Pennsylvania, the case of Bilt-Rite Contractors, Inc. v. The Architectural Studio similarly holds that where a design professional prepares plans and specifications on a project, a contractor is entitled to rely upon the design documents in submitting its bid and performing its work. In fact, under the Bilt-Rite case, if the design plans and specifications are defective in a material way, the contractor who relied upon them may sue the design professional, even without a direct contract.
Although most courts have adopted Spearin’s reasoning, there are exceptions. For example, in 1907, the Texas Supreme Court held in the case of Lonergan v. San Antonio Loan & Trust Co. that the contractor was liable after a building collapsed due to defective design documents. In Lonergan, the Texas court dismissed the notion that the owner impliedly warranted the design plans and specifications and ruled that, when defective plans and specifications lead to damages, the contractor bears the risk of loss. Although Spearin was decided a decade after Lonergan, the Lonergan holding has never been expressly overturned and appears to remain the law in Texas.
Historically, responsibility for defective design has been attributed to the owner and designer so long as the plans and specifications in question are primarily design in character (as opposed to performance). As design-assist becomes increasingly common, could contractors hired to consult during pre-construction inadvertently waive or disclaim the project owner’s implied warranty of the plans and specifications?
In the recent case of Coghlin Electrical Contractors, Inc. v. Gilbane Building Co., Massachusetts’ highest court considered this question. The case was on appeal after the trial court initially determined that a contractor who provided design-assist services during pre-construction was later prohibited from bringing a claim against the owner when problems arose due to alleged design deficiencies. Notwithstanding the Spearin doctrine, the trial court found that the contractor’s early role in assisting with development of the plans and specifications acted to waive the owner’s implied warranty.
On appeal, the Supreme Judicial Court of Massachusetts reversed, holding that a contractor’s involvement performing design-assist services during pre-construction did not disclaim the owner’s implied warranty with respect to the plans and specifications. The court stated that “although [the contractor] undertakes significant design-related obligations, there is no express abrogation of the implied warranty.”
Looking to the specific contract provisions in Coghlin, the court determined that the language supported, rather than waived, the owner’s implied warranty. The contract stated that “[the Contractor] shall consult with [the Owner] and the Designer regarding the selection of materials, building systems and equipment, and shall recommend alternative solutions whenever design details affect construction feasibility, schedules, cost or quality (without, however, assuming the Designer’s responsibility for design) and shall provide other value engineering services to [the Owner].” The contract also stated that the designer “shall decide all questions which may arise as to the interpretation of the [design] and as to the fulfillment of this Contract on the part of [the Contractor].” Under the contract, because the owner and designer maintained authority over design, the owner’s implied warranty would remain effective.
Unlike “pay-if-paid” or indemnity contract language, which have produced a long and predictable body of case law in virtually all states, design-assist provisions are not standard in today’s construction industry and have not yet developed a consistent interpretation by associations such as the American Institute of Architects or by courts that have addressed the issue. The Coghlin decision emphasizes the importance of contractors negotiating language in their contracts that clearly defines and delineates responsibility for design. Indeed, contractors and subcontractors must be careful to ensure that ultimate authority over the plans and specifications remains with project owners and their designers, and that contract language expressly reserves contractors’ rights to protection against, and exclusion from, design errors.
Q&A with Marian A. Kornilowicz
Our newsletter team recently sat down with the Chair of the firm’s Business Transactions Group, Marian Kornilowicz.
Tell us a little about your practice and the services you provide to your clients.
A: I joined Cohen Seglias 19 years ago as a commercial litigator. Over time, I transitioned (or as I sometimes say, evolved) to transactional work and now serve as the Chair of the firm’s Business Transactions Group. Transactional work better suits my personality in that it retains an adversarial aspect (aggressively representing my client’s interest) but it allows for a win-win conclusion–generally, to be successful, the deal has to close. More importantly, my litigation background allows me to look at a transaction or transactional document from the perspective of what can go wrong and how to minimize the risks. This approach and broad-based experience are shared by the lawyers in my group.
My group consists of about a dozen attorneys with expertise in mergers and acquisitions, trusts and estates, corporate governance, and financing matters. We provide services to clients who are buying, selling, developing, or leasing real estate; clients who are considering, preparing, or implementing a succession plan, whether it be with the next family generation, an insider, or an outside buyer; and clients who are reorganizing, buying, or selling businesses.
What types of clients do you represent?
A: Given the firm’s legacy, we represent every kind of business involved in construction from owner, contractor, subcontractor to supplier. They range from small regional shops to large multinational companies. However, today, about half of our clients are non-construction related. They include individuals, small local or regional businesses, and large companies involved in every business imaginable. For example, we are currently assisting in the purchase or sale of three restaurant/bars; the reorganization and sale of two construction businesses, one to a senior long-term key employee and the other to the next generation of the family; the formation and startup of two marijuana-related businesses; and the formation of a funding company which will be acquiring loan packages from commercial lenders.
What do you like most about your practice?
A: I love the diversity of the work I do and the clients with whom I work. Every transaction is different with varying levels of complexity. They may include the sale or acquisition of million-dollar businesses or real estate or the employee purchase of a small mom & pop company. The clients include immigrants, children of immigrants, and corporate America. What could be better?
