Architect to Serve Jail Time Over Design and Construction Defects That Killed Los Angeles Firefighter

An architect recently pleaded no contest to an involuntary manslaughter charge stemming from the ceiling collapse at a luxury home that the architect designed and built. The architect was sentenced to three years of probation and one year in county jail. For more information regarding this story, see the recent ENR story, "Architect Will Serve Jail Term Over Blaze that Killed L.A. Firefighter."

While most construction professionals strive to meet their obligations based upon pride and professionalism, there are risks on any project that can go beyond those that can be insured. Preti Flaherty attorney Kenneth E. Rubinstein has written on the topic in the Constructor Magazine and has spoken on the topic at the American Council of Engineering Companies 2012 Annual Conference. For further information, Ken can be reached at (617) 226-3868 or (603) 410-1568 or by email at krubinstein@preti.com.

For more information on professional liability matters, contact Ken or any member of our Professional Liability Group.

Mello Construction, Inc. v. Division of Capital Asset Management, 84 Mass. App. Ct. 625 (December 18, 2013)

The question presented on appeal was whether a general contractor may sue the Division of Capital Asset Management (DCAM) for money damages after a discretionary decision to deny an annual application for certification to bid on public construction projects. DCAM is the Massachusetts state agency within the Executive Office of Administration and Finance established to oversee public building projects and to administer the public bidding statutes. The Appeals Court affirmed the Superior Court’s dismissal of the contractor’s complaint.

From 1985 until 2004, Mello Construction, Inc. (Mello), a general contractor specializing in large-scale public construction projects, received annual certificates of eligibility from DCAM. In October 2004, Mello submitted its annual application for certification. On August 19, 2005, DCAM issued a preliminary determination denying the application based in part on two negative contractor evaluations. As permitted by the statute (M.G.L. c. 149, §44D), Mello timely requested reconsideration and submitted additional information and documentation to DCAM, including lengthy rebuttals of the allegedly biased evaluations. On October 27, 2005, DCAM, refusing to disregard the negative evaluations, denied Mello's application for four reasons: (1) failure to achieve a minimum average project rating required for certification; (2) receipt of two failing scores on projects; (3) failure to disclose on its application the termination from another project; and (4) failure to disclose the invoking of a performance bond.

After a hearing in January 2006, the Attorney General issued a decision on April 6, 2007, affirming the denial of the application. In July 2007, Mello commenced this Superior Court action against DCAM, seeking monetary damages. On December 1, 2009, DCAM filed a motion to have the case proceed pursuant to a writ of certiorari under M.G.L. c. 249, § 4, which was allowed. The parties then filed cross motions for judgment on the pleadings. DCAM's motion for judgment on the pleadings was granted, Mello's motion was denied, and the complaint was dismissed. Mello filed a timely notice of appeal.

Under the Massachusetts competitive bidding statute, every contract for the construction of public buildings estimated to cost more than $100,000 “shall be awarded to the lowest responsible and eligible general bidder.” DCAM was charged by the Legislature with the duty of certifying bidder eligibility, and eligibility is a prerequisite to bidding on any public construction contracts. Each year, a contractor must submit a detailed application to DCAM and DCAM is required to evaluate the applicant "on the basis of the application and on relevant past performance according to procedures and criteria" mandated by statute and the regulations and guidelines prescribed by DCAM. The contractor has the burden of establishing to DCAM's satisfaction that it is competent and responsible. DCAM has wide discretion in deciding whether to issue a certificate of eligibility.

DCAM's requirements and conditions for certification are lengthy. Some events occurring within the five-year statutory look back period require the mandatory denial of an application for certification, while others constitute justifiable cause for denial. Discretionary grounds for denial include, as herein relevant, the following events: termination for cause from a building project, a record of two project ratings that fall below the passing score established in DCAM's Contractor Certification Guidelines and Procedures (guidelines) on more than one building project, and a record of an invoked performance bond. DCAM may also deny an application based on the provision of either false or misleading information or the failure to provide all required information.

This appeal turned on the meaning of "remedies at law" that an aggrieved party may seek following the exhaustion of its administrative appeal. Mello contended "the remedies at law" referred to in the second paragraph of M.G. L. c. 149, § 44D(4), was the right to bring a civil action for money damages against DCAM with a full jury trial on the merits. However, the court disagreed, noting that the Commonwealth of Massachusetts did not waive its sovereign immunity with respect to any claims arising from the denial of, or refusal to, issue a license or certificate. The court further noted that even if immunity was waived, the legislative intent necessary to infer an implied right of private action from the statute was absent in this case. The court also noted the statute provided an applicant with the remedy of an administrative appeal to the Attorney General and expressly empowered the Attorney General to institute enforcement proceedings, if warranted, against DCAM.

The court was also not persuaded by Mello's argument that a cause of action for money damages against DCAM existed at common law. The court noted that licenses are required to engage in many occupations and businesses; and the loss of a license may cause devastating financial and emotional consequences to an applicant. Nonetheless, there is no right to money damages flowing from an improper licensing action.

To learn more about this case, contact attorney Daniel Sonneborn at 617-226-3800 or by email dsonneborn@preti.com. To learn more about construction law or professional liability matters, contact any member of Preti Flaherty's Professional Liability Practice Group.

Contractors Have No False Claims Act Liability for Overweight Trucks

In a refreshing rebuke to the certification theory of False Claims Act (“FCA”) liability, the Fifth Circuit in United States ex rel. Stephenson v. Archer Western Contractors, Case No. 13-30327 (5th Cir. Dec. 2, 2013) affirmed the dismissal of a complaint alleging FCA liability brought by the owner and manager of a trucking company against various contractors working on the reconstruction of the New Orleans levee system for the United States Army Corps of Engineers.  The complaint alleged that the contractors had defrauded the government by falsely certifying as part of their requests for payment that they were in compliance with all “Federal, state and municipal laws, codes and regulations applicable to the performance of the work” when in fact they were consistently violating state and local weight limits for trucks on highways.   The evidence presented to the Court indicated that the topic of overweight trucks had been raised in emails between the government and the contractors and that it was readily visible on-site.  Nevertheless, the government had never issued any stop work orders, never stopped the delivery of clay by the overweight trucks to the project site, and never withheld payment to the contractors.  Accordingly, the Fifth Circuit concluded that the alleged “fraud” was immaterial and could not be a basis for FCA liability.

There are innumerable laws and regulations that may apply to a particular construction project.  This decision makes it clear that only those violations of law which actually affect the decision of the government to pay for the work being performed on the project are a basis for FCA liability.  In particular, the decision suggests that payment by the government with full knowledge of the violation may be a basis to conclude that such violations are immaterial.  This should hopefully alleviate any concerns for contractors signing off on such certifications that technical violations of laws or regulations unrelated to the government’s payment decision should not result in FCA liability.

For more information on professional liability and construction issues, contact attorney Nathan Fennessy or a member of Preti Flaherty's Professional Liability group.

Why the Project Delivery Method Matters in Construction Litigation

The most common theme in construction litigation is a dispute between owners, contractors, and designers as to who was responsible for a construction defect that caused delays or additional costs.  In these cases, the matter is often determined by which construction delivery method was being used by the parties involved.

Most construction is done on a design-bid-build model, meaning that the owner hires a designer (architect/engineer) to put together plans and specs, and then the owner hires a contractor to build to those plans and specs.  When the owner hires the contractor, they are given an implied warranty (the Spearin doctrine) that if the contractor builds in accordance with the plans and specs that the design is sufficient so that the contractor will achieve the intended purpose.  In other words, if an owner gives the contractor plans and specs that will result in a building envelop, the owner can't then blame the contractor when the contractor builds in accordance with the faulty design.

By contrast, some construction is done on a design-build basis in which the owner hires one firm that is responsible for both the design and construction of the building.  In that instance, if something goes wrong, the owner doesn't have to figure out who is at fault - they have one firm that carries all of the responsibility.  Notably, even in cases where the construction was generally done on a design-bid-build basis is not necessarily dispositive, because sometimes contracts will leave specific aspects of the construction (such as HVAC) to be done on a design build basis.  In those instances, the designer will provide most of the design for the building, but will intentionally exclude certain systems, with the understanding that the contractor (or more likely his sub) will likely design the particulars of their solution anyway.

When litigating this issue, take a look at the plans and specs to find out whether the roof was being done on a design-build basis as that will be critical to your analysis.  Part of that analysis is looking to see whether the contract provides a "design spec" or a "performance spec" for that aspect of the work.  A design spec allows the contractor to determine the means and methods of construction (how to perform the work), but tells the contractor the specific materials or sizes that are required.  Where a design spec is used, the owner (and by extension, the architect) retains responsibility for the design being used.  A performance spec, by contrast, simply dictates the desired outcome, but leaves it to the contractor to determine how to achieve that outcome.  In these instances (even where the contractor still has to provide shop drawings for their solution to be approved), the contractor ultimately bears all responsibility for all aspects of meeting the defined objective.

For more information on construction or professional liability matters contact attorney Ken Rubinstein at 603-410-1500 or any member of Preti Flaherty's Professional Liability Practice Group.

Massachusetts High Court Voids Advance Waiver of Subcontractor Bond Rights

Last month, the Massachusetts Supreme Judicial Court held that a contract provision that required a subcontractor to waive its bond rights for work to be performed on a public project was void and unenforceable.

The court explained its ruling by noting, among other things, that the bond requirement set forth in M.G.L. c. 149 § 29 was designed to benefit subcontractors who work on public construction projects, as these subcontractors lack the right obtain a mechanic's lien. The court noted that Massachusetts already prohibits advance mechanic's lien waivers, and the same policy reasoning should apply to prohibit advance waivers of bond claims.

Contractors and subcontractors should be aware that the court only discussed claims involving bonds supplied pursuant to M.G.L. c. 149 § 29, and this ruling does not necessarily apply to other payment bonds.

A copy of the court's decision in the matter of Costa v. Brait Builders Corporation and Arch Insurance Company (SJC-11011) can be found here. For further information, please contact Ken Rubinstein at 617-226-3868 or William Whitney at 603-410-1571

New Hampshire to Allow Liens for Professional Design Services

The New Hampshire Legislature has passed, and the Governor has signed, a bill amending Chapter 447 of the New Hampshire Statutes which covers Liens for Labor and Materials. The amended statute will allow those who provide "professional design services" to file and perfect mechanic's liens for nonpayment of work related to a construction project. Formerly, the statute only applied to those who performed labor or provided materials for a construction project. The statute defines "professional design services" to include "any services provided by a licensed architect, licensed landscape architect, licensed engineer, permitted septic designer, certified wetlands scientist, certified soil scientist, or licensed land surveyor that is directly related to the improvement of real property." The amendment also extended the right to file and perfect liens to subcontractors who provide professional design services. If you have any questions regarding this development in the law, please contact Kenneth Rubinstein at (603) 410-1568 or William Whitney at (603) 410-1571.

The Growing Risk of Personal Liability for Senior Executives

Executives face significant risks as they conduct business in an increasingly challenging and litigious environment, and as business leaders struggle to help their business recover from the Great Recession, personal liability for senior executives is fast becoming a growing concern.  Construction executives frequently believe they have no personal risk in operating their businesses.  Unfortunately, they may learn a costly lesson when they incur defense costs or, worse, pay settlements, judgments, or even face criminal liability.  There are countless potential bases for personal liability.  Many stem from the construction work itself, while others are tied more to the management activities.  The following are a few of the growing areas that should concern senior executives:

• Errors and Omissions and Insurance Gaps - It is well known that architects and engineers can be personally liable for any performance that deviates from the standard of care in the industry.  However, most professionals are unaware of the many exclusions and conditions within their policies, and professionals can easily find themselves without coverage if they are not careful.  In addition, as the construction community strives for more collaboration, contractors may find themselves without insurance coverage to the extent that they provide design-assist services, as most commercial general liability and builders risk policies exclude this risk, leaving contractors who perform design services unprotected.

• Foreign Corrupt Practices - As construction firms expand their business overseas, they frequently encounter cultures where bribery is an accepted business practice.  Regardless of the foreign culture, such conduct could expose the executives involved to civil or even criminal penalties at home, as U.S. authorities clamp down on U.S. firms involved in corruption overseas.

Bidding on public construction contracts? Massachusetts AG's Office offers searchable online archive

At the heart of a successful bid for public projects is a firm understanding of the process ahead of you.  That involves knowing the important dates and other timing issues of the bid, understanding the information required for an accepted bid, and familiarizing yourself with the applicable law and your rights under the law.  Advance planning and good organization can take a lot of the stress out of what can be a confusing and unnecessarily confounding process.

Last August, Massachusetts added a resource for those bidding on public construction contracts: a searchable online archive of bid protest decisions.  The Bid Protest Decision Lookup is a new feature on the Attorney General’s website and covers bid protest decisions dating back to 2003. In reaching its decisions, the Massachusetts AG applies decisions law from statutes, cases, and prior bid protest decisions of the former Department of Labor and Industries and the Attorney General’s Office.  Reviewing past decisions of the AG’s office should be an important tool to help the aspiring bidder avoid previously established pitfalls and roadblocks to a successful bid.

At present, the database covers protest decisions dating back to 2003 with a selection of decisions from 1989-2002.  The Attorney General’s Office is hoping to expand the coverage to include the remaining decisions from 1989-2002.  The Bid Protest Decision Lookup is available here.

For more information on construction law, contact Preti Flaherty attorneys Neal Pratt at 207.791.3000 or William Whitney at 603.410.1500.