Legal Issues for Construction
ACCM 5th Annual Conference:
Building Education Facilities Against the
May 19, 2009
Mark W. Kelley
Miller Brown & Dannis
Murphy Austin Adams Schoenfeld LLP
Legal and practical issues with Alternate
What to do when the money runs out
Recordkeeping and documentation
Alternate Project Delivery:
Sometimes familiar and repetitive is ok;
the key is to eliminate the repetitive
change order and claims drill that has
given this old standby a bad reputation.
Point/counterpoint: a strong
prequalification plus competitive bidding is
the most economical approach for most
districts in today’s markets.
Ed. Code 17406, an old statute put to an
interesting new (relatively) use.
Point/counterpoint: the best compromise
between cost and control?
What is the CM’s role in LLB?
D-B-B vs. LLB:
Is The Same
LLB Builder or
Architect D-B-B Contractor
The 3 Contracts
Preliminary Services Agreement:
Developer acts as a pre-construction
District leases the site to Developer.
Terminates when Facilities Lease terminates.
Developer constructs facility per Plans and
Developer leases the facility back to the District.
Developer transfers title of the facility to the
District upon final payment. 7
Generally recommend a Validation Action
once Board approves a LLB contract.
Need a strong selection process to get
Owner’s team must closely monitor:
Cost vs. estimates
Change orders, use of contingency etc.
Isthe final cost of LLB projects higher?
LLB does not automatically bar change
orders or claims (but less likely due to
Developer’s involvement with design),
Owner changes (“Scope creep”)
Often will be debates over what extra
costs are charged to contingency.
CMs are responsible for the construction,
not just overseeing the construction. Each
trade bids separately to the school district
but the CM takes over responsibility of the
CM at risk is problematic on school
projects because there is no clear
PCC 20111 requires award of public school
construction to the low bidder.
Govt Code 4526 allows award of CM contracts
based on demonstrated competence and
professional qualifications--not low bid.
Govt Code 4529.5 defines CM services as
project design review and evaluation,
construction mobilization and supervision, bid
evaluation, project scheduling, cost-benefit
analysis, claims review and general
management and administration of construction
project--but not construction itself.
Ideas, Part 1
Given the potential legal challenges, CMs
need to try to have the school districts
tailor the CM contracts to minimize the risk
that a challenge will be successful. Some
Ideas, Part 2
Each trade contractor needs to provide payment
and performance bonds and insurance for its
portion of the work.
The CM should only bond its services, not the
entire construction project.
If possible, avoid having the trade contracts
assigned to the CM by the District.
All documents (contracts, securities in lieu of
retention, etc.) should identify the CM as the
"CM" and not as the "Contractor."
The CM should not indemnify the District for the
trade contractors actions.
What To Do When The Money
[Are We Really Talking About This
What do the contract documents say?
Contract suspension and termination
How and when an Owner can suspend
How to minimize and mitigate losses
How the team can work together to keep
costs and frustration to a minimum
Issues frequently encountered
Options When Running
Out of Funds
Defaulton the construction contract
Terminate or suspend the contract:
Negotiatesuspension of the work
Some other ideas
Suspending or Terminating
First: look at the contract documents for:
Termination or suspension for cause
Termination or suspension for convenience
Second:figure out where you are on the
money and on the construction
Recordkeeping And Documentation
[Dull, Yes, But Important!]
Keep It Cool
Recordkeeping needs to be correct, clear,
concise and impassionate--tell "what
happened"--keep out personal opinions unless
absolutely necessary to the factual record.
Personal comments or observations of the
contractor's character or personality or similar
commentary should never be included.
Solicit the input of the designer when necessary
in documenting events--keep track of the
designer's time of response--you will also be
documenting for the owner the designer's
compliance with the standard of care.
Stay On Top
Correctly and clearly document
nonconforming work--do not
underestimate the cost and amount of
labor it will require to complete the work
Timely respond to all inquiries.
Respond fully and completely when the
CMm disagrees with contractor
comments--especially true with scheduling
Assume That Your Letter
Will Be Exhibit A
Remember that everything you say or
write may be reviewed by a third party at a
later date and you may be deposed on
same--don't let anything go unanswered or
answered in an incomplete or
Owner Team’s Monthly
Letter from CM to the Contractor.
You are currently falling behind your baseline schedule on numerous activities:
--Electrical trim and lighting
--Interior doors and hardware
These delays are due solely to your lack of manpower.
Owner Team Identifying
the Critical Path
Letter from CM to the Contractor.
Your letter to the District identifies Owner decisions as critical. However, the critical
path is now your rework of the canopy walkways outside the classrooms.
Defining the Cause
Letter from Construction Manager to Contractor.
Demolition work is still incomplete. Your refusal to perform your contract work
continues to severely delay the completion of this building.
As discussed, it is apparent that there is a shortage of manpower to complete all the
Notice to Contractor
Letter from Owner to Contractor.
We are hereby informing you that we will enforce liquidated damages due to your
delays in the library building. These delays have prevented the District from taking
When the Contractor
Keeps the Meeting Minutes
There is a significant problem with slow responses to RFI’s and open items, and this
has resulted in project schedule delay.
How to Reach Us
Mark Kelley (415) 543-4111
Blair Shahbazian (916) 446-2300