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Articles Posted in Construction Contracts

A recent ruling by the Fifth District Court of Appeal demonstrates the potential ramifications of ambiguities in the mediation and arbitration provisions of construction contracts. The ruling found the lower court correctly determined that the parties had a valid agreement to arbitrate certain claims because the contract clearly required arbitration for claims arising before final payment was due. However, it was silent regarding the procedure for resolving claims arising after the final payment became due, so the case was remanded back to the lower court for a determination as to whether the claims arose before or after final payment was due.

In Royal Palms Senior Apartments Limited Partnership v. Construction Enterprises Inc. et al., Royal Palms appealed the nonfinal order entered in favor of Construction Enterprises Inc. staying the developer’s lawsuit pending mediation and arbitration based on its assertion that the trial court erred in finding a valid arbitration agreement existed and its claim was subject to arbitration.

5DCA-300x183The Fifth DCA affirmed lower court’s finding that the parties had a valid agreement to arbitrate certain claims. However, because it is unclear whether Royal Palms’ claim was one subject to arbitration, it remanded the case for a determination of that issue.

The parties entered into a contract in 2006 for CEI to build the Royal Palms Senior Apartments. The agreement was comprised of the “AIA Document A201-1997 General Conditions of the Contract for Construction” (“General Conditions”) and a supplementary document (“Supplementary Conditions”), which modified and deleted portions of the General Conditions and controlled if the two documents conflicted.

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Michael-Clark-Gort-photo-thumb-160x240-13551Firm partner B. Michael Clark Jr. authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which is titled “Statute of Limitation Begins to Run When Principal Under Surety Bond Abandons Construction Project,” focuses on a recent ruling by the Second District Court of Appeal finding that the limitations period for action on a surety bond began to run when the principal under the bond abandoned a construction project.  Michael’s article reads:

The [Lexon Insurance v. City of Cape Coral and Coco of Cape Coral] case stems from an ordinance that was adopted by the city of Cape Coral in January 2005 to initiate the development of an approximately 450-acre parcel, which included a single-family subdivision to be built by Priority Developers.  The city’s ordinance required the developer to provide a surety bond, and Lexon issued two subdivision bonds totaling $7.7 million. Disputes arose, and the contractor stopped work on the project in March 2007.

dbrlogo-thumb-220x41-94239In March 2012, Coco of Cape Coral purchased the project for $6.2 million, and in July of the same year the city adopted a resolution demanding that Lexon fulfill its obligations under the bonds. When Lexon declined, the city filed suit against it for breach of contract and declaratory relief, and the claims were later assigned to Coco.

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The American Institute of Architects’ (AIA) contract documents, which are generally regarded as the construction industry standards, are updated by the organization every 10 years, and the 2017 update released earlier this year contains considerable changes from the 2007 editions.

The changes in the documents directly impact the roles and responsibilities of each of the parties in construction and design contracts.  Some of the major owner/contractor changes include:

  • New exhibit with comprehensive insurance and bonds provisions that can be attached to many of the AIA owner/contractor agreements.
  • Expression provision in the AIA A201-2017 General Conditions addressing the rights of the contractor and the obligations of the owner in the event of a loss on the project if there is no property insurance procured.
  • New provisions relating to direct communications between the owner and contractor.
  • Revised provisions pertaining to the owner’s obligation to provide proof that it has made financial arrangements to pay for the project and the contractor’s rights related thereto.
  • Simplified provisions for the contractor to apply for, and receive, payments.
  • Single Sustainable Projects Exhibit that can be used on any project and added to most AIA contracts to address the risks and responsibilities associated with sustainable design and construction services.

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LindseyTLehr-200x300The firm’s Lindsey Thurswell Lehr authored a guest column that appeared in the “Board of Contributors” page of today’s Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was titlted “Ruling Reinforces Need to Abide by Contracts in Construction Disputes,” focused on a recent Florida appellate court ruling finding that property owners which forgo the contractual mechanisms for resolving construction disputes will not prevail in the state’s courts.  Her article reads:

Strictly adhering to the modus operandi for addressing and resolving disputes that is codified in construction contracts is essential to prevailing in any resulting litigation.

The Florida Third District Court of Appeal recently reinforced the obligation of construction defect litigants to adhere to the terms of their contract, finding that property owners which forgo the contractual mechanisms for resolving disputes will not succeed in Florida’s courts.

The ruling by the Third DCA in the case of Magnum Construction Management v. City of Miami Beach relieved the contractor of liability for alleged safety concerns with a playground that it installed at the city’s South Pointe Park. The appellate panel ruled that the city did not give the contractor the opportunity to fix the purported issues with the playground as required under its contract. Instead, the court stated that the city replaced the playground in its entirety without considering that the safety concerns could have been corrected by the contractor.

dbrlogo-thumb-220x41-94239The court’s decision in this case reinforces the importance of abiding by all contract terms and requirements in construction disputes. Construction contracts often allow the contractor which performed the work to have the opportunity to fix and cure any purported problems and defects. If a property owner ignores this contractual stipulation, as the city of Miami Beach appears to have done in this case, Florida’s courts are very likely to rule against them.

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Stuart Sobel 2013-thumb-180x270-86799Firm shareholder Stuart Sobel authored a guest column that appeared in the May issue of Construction Executive magazine, one of the leading construction industry trade publications in the country.  His article, which was titled “Dispute Review Boards: An ADR Technique That Works,” focused on the use of DRBs for major projects as an effective means to avoid or resolve disputes that may arise during construction.  Stuart’s article reads:

Disputes are endemic to the collaborative nature of construction. It seems prudent to anticipate the disputes, even where the precise nature of the dispute is unknowable, and create a structure for proactively addressing and resolving them when they do arise. Traditional dispute resolution, whether arbitration or litigation, when invoked at the end of the project, takes place too late to save it or get it back on track. Instead, proactive onsite real-time dispute resolution is warranted to protect working relationships, cash flows and schedule progress.

Arbitration has become the preferred alternative dispute resolution forum for resolving construction disputes because it is private, streamlined and presided over by experienced construction professionals.

However, just as with litigation, arbitration only comes into play after a dispute has ripened. The arbitration process usually extracts a considerable toll on the project participants through damaged relationships and expenses. The parties involved are very unlikely to continue doing business together in the future. In addition, discovery in arbitration proceedings is now wider, longer and more expensive, and its growing resemblance to litigation has become unmistakable. Thus, despite its reputation as a cheaper alternative to litigation, arbitration has become more expensive as the process permits more litigation-like discovery, with attendant administrative costs and arbitrators’ fees.

Instead, consider the scenario where an independent person or board, respected by all project participants, is designated in the operative construction contracts to stay abreast of the design and construction and to attend and observe all pertinent meetings (owner/architect/contractor meetings, change order meetings and even important contractor/subcontractor meetings). Through this process, the dispute resolution neutral or, where there is more than one, the Dispute Resolution/Review Board (DRB), can quickly understand theConstruction-Executive-Logo nature and genesis of disputes that are blossoming — before they slow or stop the construction progress.

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MichaelKurzman_59661.jpgThe recent ruling by the Third District Court of Appeal that firm shareholder Michael Kurzman wrote about in the preceding blog post below was the subject of a front-page article in the Oct. 1 issue of the Daily Business Review. The article, which was titled “Third DCA Says Company Can’t Foreclose on Itself,” focused on the tactics used by a Coral Gables developer to attempt to eliminate the claims and liens filed against it by general contractor CDC Builders, Inc.

On behalf of my client CDC Builders, Inc., I was very pleased to have served as the company’s lead trial court counsel and appellate co-counsel (special thank you to John K. Shubin and Deana D. Falce with Shubin & Bass, P.A.for all of their hard work on this case) in its recent successful appeal before the Third District Court of Appeal. CDC appealed a trial court’s decision that could have had significant negative implications for Florida’s construction industry. Indeed, we were assisted on the appeal by the South Florida Chapter of the Associated General Contractors in an Amicus Curiae brief, as this case was of critical importance to the construction industry.

A recent ruling by the Fourth District Court of Appeal reiterates that Florida’s courts will favor arbitration when there is a clear arbitration provision in construction contracts, even if the contracts also include a jury waiver provision.In the case of Bari Builders, Inc. v. Hovstone Properties Florida, LLC, a condominium association sued the developer for construction defects, and the developer filed a third-party complaint against Bari Builders (its subcontractor). The subcontract with Bari included both a provision that the parties agreed to binding arbitration to resolve any claim as well as a separate provision stating that “the parties waive the right to jury and agree to determination of all facts by the court.”

Stuart Sobel 2013.jpgThe firm’s Stuart Sobel played a very important role in helping the builder of the new PortMiami Tunnel, which opened for traffic last month, to resolve a significant dispute and avoid a potentially lengthy delay during construction. Stuart served as the lead legal counsel for tunnel builder Bouygues Civil Works Florida, Inc., and he was instrumental in helping the company to secure a $58.5 million settlement that was the subject of a front-page article in the February 5, 2013 edition of the Daily Business Review.

Florida’s Second District Court of Appeal recently issued an important opinion in the case of Snell v. Mott’s Contracting Services, Inc., over the issue of lien rights and the differences between arbitration and litigation.