Justice Alito to construction industry: Pay attention to forum selection!

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On Tuesday, a unanimous Supreme Court established a high barrier for contractors who find themselves unhappy with “forum selection clauses” in their contracts. Atlantic Marine Construction Co., Inc. v. United States District Court, 571 U.S. ___ (2013) (No. 12-292).

Contractors doing business with large companies in other states, such as suppliers, fabricators or general contractors, have probably already agreed to one of these clauses without much thought. It is easy to write off forum selection as legalese or boilerplate, but doing so may unwittingly subject your business to litigation or arbitration in a distant and inconvenient place, which ultimately puts you in a worse position in the unfortunate event of a contract dispute.

The Supreme Court’s decision strongly favors enforcing those agreements, and calls on contractors to pay attention to such clauses before signing a contract.

What for(um)?

The “forum” is the institution, such as a court, where you must seek a remedy, or where you can be required to participate by another party seeking a remedy. It may also specify a venue, or location, where that remedy must be sought.

The forum and the venue will be important if there is ever a dispute. The forum can impact access to evidence, ability to subpoena witnesses, and of course, cost and convenience.

If you primarily work in South Dakota or Iowa, consider the costs and inconvenience of having to resolve your contract dispute in Florida or California! This is particularly problematic if your prime contract or subcontract requires disputes be heard in a court in the state where the project is located, and a dispute arises involving materials purchased from an out-of-state supplier whose contract specifies a forum in a different state!

What did Justice Alito say?

Without a forum selected in the contract, courts can hear parties’ concerns about how the forum impacts the parties, and consider factors such as cost and convenience.

However, if the contract designates the forum, the Supreme Court says courts should give that agreement “controlling weight in all but the most exceptional cases.” The Supreme Court determined that courts must deem all private interests (such as cost and convenience) to “weigh entirely in favor of the preselected forum.”

Justice Alito explained that enforcing contract terms, “bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Therefore, courts assume that contractors bargain for all terms in the contract. Justice Alito said,

A forum-selection clause, after all, may have figured centrally in the parties’ negotiations and may have affected how they set monetary and other contractual terms; it may in fact, have been a critical factor in their agreement to do business together in the first place.

A central assumption in the Supreme Court’s analysis is that all terms in the contract were in fact bargained for by the parties, regardless of the number of pages or the size of the print.

If the U.S. Supreme Court assumes this, then contractors must assume this too. Indeed, private contracts are negotiable, and terms such as forum selection should be part of the upfront negotiations, and written to reflect the parties’ reasonable and fair expectations.

If forum selection clearly favors one party, then the dispute resolution will be easier for that party, and the other party is left with less leverage in any dispute. This becomes part of the (sometimes unforeseen) cost of entering a contract.

Nobody wants to think about disputes before entering a contract. Sometimes, however, the best way to avoid a dispute is to plan for it, including taking the time before signing your contract to ensure that it includes a fair and practical dispute resolution process, which works for both parties, and does not give an unfair or substantial advantage to either party by including a one-sided forum selection clause.

For further discussion, please see the Dallas Morning News article about the Supreme Court’s decision.

Before signing any contract, take the time to read it carefully, and to choose your contract terms, including the forum selection clause, with care!

Build it right. Keep it real.

 

© 2013 Welle Law LLC. No unauthorized use or reproduction.

This blog is for informational purposes only and should not be interpreted as legal advice. You should contact your attorney regarding any particular issue or problem. Nothing on this website creates an attorney-client relationship between Welle Law LLC (or any of its attorneys) and the reader.

Restricted Site Access

MoneyBurger

Raw Meat

Under public contracts, your right to payment is like raw meat. If immediate steps are not taken to preserve it, it can turn from a valuable asset into a decaying mess.

On public projects, you can protect your profit margin by immediately preserving your rights when changes occur. If this does not consistently happen in your organization, it’s likely for one of two reasons. First, you might be failing to identify the change. Second, you might be failing to respond to the change.

Restricted site access is one common change that is frequently overlooked. It should almost always call for a time extension, and in most cases, for reimbursement of extra costs. However, this issue is routinely neglected until it’s too late for the tenderloin.

Are you identifying site access restrictions?

Site access does not disappear in a vacuum. A jobsite is often only partially restricted, or restricted for a certain purpose, and sometimes for multiple, complex reasons.

For example, the contractor in Moorhead Construction Company v. Grand Forks was (eventually) awarded its extra costs for Phase II contract work, after Phase I (earth work and site preparation) was completed both late and defectively. As a result, soil conditions were softer than specified at the end of Phase I, which prevented the Phase II contractor from using its heavy equipment, and required it to use more expensive methods to access the lagoon bottoms and embankments. The federal appeals court specifically recognized the contractor’s early, written, consistent communications in affirming payment to the Phase II contractor.

Site access involves more than an owner obtaining timely permits and right-of-way easements. The Moorhead case is an example of site access overlapping with differing site conditions. In addition, site access regularly involves:

  • Unfinished preceding work
  • Unanticipated utilities, including utilities that aren’t relocated on time
  • Severe or unusual weather
  • Changes to seasonal hauling restrictions
  • Environmental regulations

Each of these situations can cause:

  • Project delays
  • Liquidated damages
  • Lower production
  • Idle crews
  • Idle equipment
  • Extra mobilizations
  • Impact to other jobs

The government benefits from low, competitive bids, estimated by making reasonable assumptions about site access. Under most public contracts, extra costs and delays caused by unexpected site access restrictions are the government’s responsibility, particularly if the restriction is not disclosed in the contract.

You will benefit by recognizing site access as a distinct issue because different issues implicate different rights, and may require different responses to preserve those rights.

How (and when) are you responding to site access restrictions?

You won’t know the full impact for weeks or months. It’s easy to put your response on hold until you know whether the magnitude of the situation warrants a response. By that time, your claim may be releasing a slight odor.

The key is to plan a response that is both automatic and easy, so that it happens quickly, every time. At a minimum, remember three things when you encounter unexpected restricted site access:

  1. Write early.
  2. Write often.
  3. Be consistent.

Write the Engineer early and often. As a practical matter, it is your burden to enforce your rights. Most public contracts require contractors to meet various deadlines or risk waiving important rights, sometimes even to document a lack of response by the Engineer. Keep correspondence clear, to-the-point, factual, and…

Be consistent. This requires that you quickly learn the facts and understand your rights, so that you can document these consistently, and correctly.

Site access restrictions are often beyond the contractor’s control. Responding quickly and consistently to site access issues will help you find more and better options in your freezer. Happy grilling.

Build it right. Keep it real.

 

© 2013 Welle Law LLC. No unauthorized use or reproduction.

This blog is for informational purposes only and should not be interpreted as legal advice. You should contact your attorney regarding any particular issue or problem. Nothing on this website creates an attorney-client relationship between Welle Law LLC (or any of its attorneys) and the reader.

Pricing Construction Equipment

 Toll PlazaKnow Your Costs

If you want to make a profit in low-bid construction, it helps to know your costs. Knowing your costs can make or break margins not only at bid time, but also when plans change during the work.

Every contractor has different methods to price equipment. You may (or may not) consider a multitude of factors, like operating labor, supporting crew labor, equipment “fleet” costs, overhead, and/or profit. Sometimes only your estimator fully understands the logic.

Show Your Costs

When plans change, the task of pricing equipment also changes. I recommend two simple strategies to make this task easier, and to improve your results when you want to get paid for changed or extra work.

First, maintain an Equipment Rate List. This should include all the equipment you own, and it should be updated each year. The list should clearly indicate what is included and excluded in each rate (such as operators or fuel). Then, when called on to price change order work, your Equipment Rate List can be a great starting point to demonstrate equipment costs.

If possible, use your Equipment Rate List for purposes other than pricing change order work (such as quoting rental rates or preparing actual competitive bids). Demonstrating other uses will ensure the list is more reliable and more credible to the engineer.

You should also be prepared to show how you calculated each rate. Your calculations must be reasonably demonstrated to capture your actual equipment costs.

The second strategy is to simply show your work when preparing bids, and to keep your written calculations and assumptions in your confidential bid file so that you can use those later if and when needed to price change order work.

Since you are presumably in the best position to know your own equipment costs, the costs you calculate at bid time (when your costs have to be competitive) are presumably the most reliable.

Many owners and engineers will consider paying for change order work based on the rates used in your bid, if you can clearly demonstrate how those hourly or daily were used to calculate your low bid.

Bid schedules typically call for lump sums or unit prices for each category of work, and the hourly or daily equipment rates are hidden within those prices as one of many components that make up the final bid. Engineers are far more likely to accept those rates if you can clearly demonstrate how you got from point A (the hourly rate) to point B (the bid).

HDD Example

Consider that you are attempting to drill through unexpected cobble with a 2005 Ditch Witch 4020 and a modified rock reamer.

The contract incorporates the 2007 edition of the EJCDC general conditions, which call for a change order based on the cost of the work, including the cost of “all materials and equipment furnished and incorporated in the work, including costs of transportation and storage thereof.”

You know that drilling through cobble took 50 hours, whereas drilling through the silty sands and fat clays shown in the soil borings should have taken only 20 hours. Your increased costs are for 30 extra hours.

In all likelihood, your drill rig is not listed in the Blue Book. Your modified rock reamer is definitely not listed. And, maybe your water truck is listed, but you know that the Blue Book severely undervalues it.

The question is what hourly cost to multiply by 30 extra hours for a revised bore price. You can answer that question by using either or both of the above strategies. And, under either strategy, you should be prepared to demonstrate to the engineer how your operated rate was used to calculate your low bid.

If your method is fair, consistent, and well documented, the engineer should give it fair consideration.

Build it right.  Keep it real.

 

© 2013 Welle Law LLC. No unauthorized use or reproduction.

This blog is for informational purposes only and should not be interpreted as legal advice. You should contact your attorney regarding any particular issue or problem. Nothing on this website creates an attorney-client relationship between Welle Law LLC (or any of its attorneys) and the reader.

In low bid construction, how do you plan for unanticipated events with unknown price tags?

Welle Law Construction Law BlogCosts Will Change

In low bid construction, projects can cost more than expected due to differing site conditions, design errors, or delayed site access, just to name a few of the items that are difficult to include in your bid.  Increased costs, however, are not limited to equipment and labor expenses on the jobsite.

For instance, if you want to do anything about labor and equipment costs, you have to decide whether to invest even more valuable time to try to minimize those costs.  This could include your time, or your project managers’ time, which you probably prefer to be spent bidding or building the next job.

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