Talking Mediation at AEC Forensics

Thank you to my friend and relatively frequent guest poster here at Construction Law Musings, Brian Hill (@aecforensics) for letting me invade his great blog on risk management and best construction practices, AECforensics.com, and talk about one of my favorite topics, mediation.  As I have said on many an occasion, mediation is often the most efficient and cost effective way out of a bad situation (read: construction claim).  I share these thoughts in more depth over at Brian’s blog.

Here’s a taste:

Whether your dispute is big or small, has to do with interpretation of your, hopefully well drafted, construction contract or the allegedly poor quality of the work, or any other reason why a payment dispute (and in commercial construction, it is always some form of payment dispute), mediation is almost always a good option.  Remember, litigation and arbitration are expensive and even if you win, your construction business will take a hit, mainly because you cannot and should not budget for litigation (I mean, really, everyone should just do the right thing, correct?).

For the rest of my thoughts, head on over to AEC Forensics and read the full post here.

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© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

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Talking Mediation at AEC Forensics

Project Documentation: The Bad Little Email That Got Produced

Believe it or not, there are always a wealth of emails and other documents produced in litigation that help “make the case” for the other side. Take, for the example, the e-mail I found in the files of one superintendent entitled “PROJECT DELAYS” … the words could not have been clearer … “I think we need to begin to tell management that we are late.  We also need to consult the claims team to determine how late we really are.

On another case, I found this nugget: “Although we should give them notice of this claim, let’s wait until our equipment has left the port on their vessel before telling them.

Best Practices advises that you should have a written document management policy in place.  This policy should define and describe the role of the following:

  • Critical project documentation, such as correspondence, meeting minutes, daily reports and logs, calendars and diaries, accounting records, submittals, schedules, photographs, etc.
  • Non-critical documentation, such as personal emails, instant messages, text logs, blog trails, website traffic logs, etc.

The advent of project management software and web based platforms (i.e., Procore, Microsoft Dynamics, buildertrend, planswift, PlanGrid, e-Builder ) have enhanced document control by allowing the user to track revisions, store master files, and streamline the review process.  However, the human element is still involved.  Any policy must set appropriate boundaries and guidelines for the following:

  • Personal use of email (…a good place to find “mismanagement” emails…)
  • Use of profanity (…I always search for the juicy four-letter words…good emails…)
  • Risks of informal communications (…see emails above…)
  • And, of course, a document retention policy (…don’t shred right after lawsuit is filed…)

Failure to formulate a policy that addresses these simple areas almost guarantees that the bad little email will get created and produced.

Project Documentation: The Bad Little Email That Got Produced

Project Documentation: The Bad Little Email That Got Produced

Believe it or not, there are always a wealth of emails and other documents produced in litigation that help “make the case” for the other side. Take, for the example, the e-mail I found in the files of one superintendent entitled “PROJECT DELAYS” … the words could not have been clearer … “I think we need to begin to tell management that we are late.  We also need to consult the claims team to determine how late we really are.

On another case, I found this nugget: “Although we should give them notice of this claim, let’s wait until our equipment has left the port on their vessel before telling them.

Best Practices advises that you should have a written document management policy in place.  This policy should define and describe the role of the following:

  • Critical project documentation, such as correspondence, meeting minutes, daily reports and logs, calendars and diaries, accounting records, submittals, schedules, photographs, etc.
  • Non-critical documentation, such as personal emails, instant messages, text logs, blog trails, website traffic logs, etc.

The advent of project management software and web based platforms (i.e., Procore, Microsoft Dynamics, buildertrend, planswift, PlanGrid, e-Builder ) have enhanced document control by allowing the user to track revisions, store master files, and streamline the review process.  However, the human element is still involved.  Any policy must set appropriate boundaries and guidelines for the following:

  • Personal use of email (…a good place to find “mismanagement” emails…)
  • Use of profanity (…I always search for the juicy four-letter words…good emails…)
  • Risks of informal communications (…see emails above…)
  • And, of course, a document retention policy (…don’t shred right after lawsuit is filed…)

Failure to formulate a policy that addresses these simple areas almost guarantees that the bad little email will get created and produced.

Project Documentation: The Bad Little Email That Got Produced

Construction Contracts And Arbitration Provisions: Is The Word “May” Mandatory? Maybe!

You don’t always say what you mean. And you don’t always mean what you say.  In construction contracts, parties attempt to use plain and ordinary words to describe their respective obligations.

As an example, when the parties use the word “shall” in their agreement, they generally understand that the obligation specified is mandatory. Or when parties use the word “may” in their contract, performance is permissive or optional given the plain meaning of the word. Consider the following construction contract provisions:

“If the Owner fails to make payment for a period of 30 days, the Contractor may, after seven days written notice, terminate the Contract and recover from the Owner payment for Work performed.”

“The Work may be suspended by the Owner as provided in Article 14 of the General Conditions.”

“Payments may be withheld on account of (1) defective Work not remedied, (2) claims filed by third parties, or (3) failure to carry out the Work in accordance with the Contract Documents.”

In all of theses examples, it seems clear that the parties agreed to allow—but not require—the specified performance. The word “may” was permissive in nature.

According to some courts, however, this traditional line of reasoning is no longer the trend in the context of arbitration provision in construction contracts. For example, in TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in arbitration at the election of one of the parties. The arbitration agreement provided:

“If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the procedures set for in [previous section] . . . then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.”

The court held that the above provision was mandatory at the election of one of the parties: “The word ‘may’ . . . means that either party may invoke the dispute resolution procedures, but neither party is compelled to invoke the procedures. . . . [But] once a party invokes the arbitration provision, the other party is bound to arbitrate.”  The Delmarva court reasoned that the disputes provision would be “rendered meaningless” if the word “may” was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.  The Fourth Circuit reached the same decision in United States v. Bankers Ins. Co.

Given the trend that the courts have interpreted the term “may” as “shall” in the context of arbitration agreements, parties to a construction contract must be careful in understanding both the plain, ordinary meaning and the legal meaning of the particular words used. In the above examples, if the parties wanted arbitration of disputes to be permissive and non-mandatory, they could have clarified their contract by including more explicit language (i.e., “any and all disputes,upon mutual agreement, may be arbitrated” or “with the consent of the other party, either party may commence arbitration”).  It is important in contract drafting that you say what you mean and you mean what you say.

Construction Contracts And Arbitration Provisions: Is The Word “May” Mandatory? Maybe!

With VA Mechanic’s Liens Sometimes “Substantial Compliance” is Enough (but don’t count on it)

The Supreme Court of Virginia Building, adjace...
The Supreme Court of Virginia Building, adjacent to Capitol Square in Richmond, Virginia (Photo credit: Wikipedia)

Virginia mechanic’s liens are a powerful and tricky beast that in most cases require absolute precision in their preparation.  However, an interesting opinion recently came out of the Virginia Supreme Court that may provide a bit of a “safe harbor” from the total form over function nature of a mechanic’s lien.

In Desai, Executrix v. A.R. Design Group Inc., the Court considered a lien memorandum that had what could be described as technical flaws in the preparation of the mechanic’s lien by A. R. Design Group.  The basic facts are that A. R. Design Group used the form of lien found in Va. Code Sec. 43-5 (also found as Form CC-1512 at the Virginia Judiciary website) when it recorded two lien memoranda for two pieces of property owned by a trust.  Relating to one of the two properties, the memorandum failed to identify the “Owner” as the trustee of the trust.  On the memoranda relating to both properties the affidavit verifying the amounts claimed did not identify the signatory as agent for A. R. Design Group, instead listing the agent as the claimant and further failed to state a date from which interest is claimed or a date on which the debt was due.

Needless to say, the owner argued that each of these technical defects invalidated the memoranda and therefore they should have been released.  Somewhat surprisingly the Fairfax, Virginia Circuit Court disagreed and held the liens to be valid.  On appeal, the Virginia Supreme Court affirmed the lower court.  The held that the failure to add the word “Trustee” after Ulka Desai’s name did not invalidate the lien because the trustee had all of the rights of ownership and furthermore that naming Desai in the memorandum served the purpose of putting third parties on notice of the lien.

As to the naming of a vice president of A. R. Design Group as claimant, the Court held that this was not a “substantial” defect that would cause prejudice to a party or thwart the purpose of the statute.  Because the claimant was properly identified in the lien memorandum itself and it was clear that the person executing the affidavit was an agent of the company, the Court held that this defect was not substantial and held that it fell within the safe harbor of Va. Code Sec. 43-15.

Finally, and more interestingly, the Court found that failure to state a date from which interest could be claimed or a date when the amounts due are or would become payable in this case were not fatal.  As to the interest, the Court stated that in the case before them no interest was being claimed so no date was necessary.  As to the failure to state a date when the amounts claimed are due, the Court looked at the requirements of Va. Code Sec. 43-4 and Va. Code Sec. 43-5 and concluded that because A. R. Design Group used the form found in Section 43-5:

[t]he memoranda were substantially compliant because they closely tracked the form required by Code § 43-5, they provided sufficient notice that the owner was claiming amounts due and any defect in the memoranda would not thwart an underlying purpose of the statute, such as providing notice to third parties. Therefore, A.R. Design is entitled to the safe harbor provided by Code § 43-5.

In short, the Virginia Supreme Court looked at a lien memorandum that had a technical flaw or two and concluded that its substantial compliance with the mechanic’s lien statute and its purpose did not require its invalidation.

Does this case mean that you shouldn’t worry about title searches, proper certification of mailing, and other technical requirements of the lien statutes?  Of course not.  Does this mean that the assistance of a Virginia construction lawyer that is experienced with mechanic’s lien matters is now unnecessary?  Nope.  The Court in this case was looking at a particular set of facts and circumstances.  Frankly, the lien claimant was a bit lucky in my opinion because of the particular confluence of circumstances.  I would still be very careful with mechanic’s liens and would not read this one case as a thawing of the strict requirements of these powerful collection tools.

As always, I recommend that you read the case yourself and draw your own conclusions.  If they are different from mine, I’d love to hear them.

As always, I welcome your comments.  Also, please subscribe to keep up with this and other Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

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With VA Mechanic’s Liens Sometimes “Substantial Compliance” is Enough (but don’t count on it)

Construction Contracts And Arbitration Provisions: Is The Word “May” Mandatory? Maybe!

You don’t always say what you mean. And you don’t always mean what you say.  In construction contracts, parties attempt to use plain and ordinary words to describe their respective obligations.

As an example, when the parties use the word “shall” in their agreement, they generally understand that the obligation specified is mandatory. Or when parties use the word “may” in their contract, performance is permissive or optional given the plain meaning of the word. Consider the following construction contract provisions:

“If the Owner fails to make payment for a period of 30 days, the Contractor may, after seven days written notice, terminate the Contract and recover from the Owner payment for Work performed.”

“The Work may be suspended by the Owner as provided in Article 14 of the General Conditions.”

“Payments may be withheld on account of (1) defective Work not remedied, (2) claims filed by third parties, or (3) failure to carry out the Work in accordance with the Contract Documents.”

In all of theses examples, it seems clear that the parties agreed to allow—but not require—the specified performance. The word “may” was permissive in nature.

According to some courts, however, this traditional line of reasoning is no longer the trend in the context of arbitration provision in construction contracts. For example, in TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in arbitration at the election of one of the parties. The arbitration agreement provided:

“If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the procedures set for in [previous section] . . . then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.”

The court held that the above provision was mandatory at the election of one of the parties: “The word ‘may’ . . . means that either party may invoke the dispute resolution procedures, but neither party is compelled to invoke the procedures. . . . [But] once a party invokes the arbitration provision, the other party is bound to arbitrate.”  The Delmarva court reasoned that the disputes provision would be “rendered meaningless” if the word “may” was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.  The Fourth Circuit reached the same decision in United States v. Bankers Ins. Co.

Given the trend that the courts have interpreted the term “may” as “shall” in the context of arbitration agreements, parties to a construction contract must be careful in understanding both the plain, ordinary meaning and the legal meaning of the particular words used. In the above examples, if the parties wanted arbitration of disputes to be permissive and non-mandatory, they could have clarified their contract by including more explicit language (i.e., “any and all disputes,upon mutual agreement, may be arbitrated” or “with the consent of the other party, either party may commence arbitration”).  It is important in contract drafting that you say what you mean and you mean what you say.

Construction Contracts And Arbitration Provisions: Is The Word “May” Mandatory? Maybe!

Be Sure to Dot All of the “I’s” and Cross the “T’s” in Virginia

English: Logo of the SCC eFile website. Taglin...
English: Logo of the SCC eFile website. (Photo credit: Wikipedia)

As a construction company from outside of Virginia that wants to work here in the Commonwealth, there are numerous “hoops” that you need to jump through to be able to perform work and most importantly get paid.  Among these are obtaining a Virginia contractors license, find a registered agent here in Virginia, hopefully find a local construction lawyer to help with your contracts, and (the subject of this post), register with the Virginia State Corporation Commission for the authority to do business in the Commonwealth of Virginia.

Aside from it being a requirement of state law, the real world consequence of failing to register to do business is that, while you could file a lawsuit to enforce a claim (such as a mechanic’s lien), failure to register could cost you the ability to enforce or obtain any judgment on that lien.  In other words, you could go through the costly litigation process, “win” and then be barred from any recovery simply because you did not follow this step.

As an example of the real world consequences of this statute, a recent case from the Virginia Supreme Court, World Telecom Exchange Comm. LLC v. Sidya, the Court vacated a $2.35 million dollar damage award for the plaintiff because it failed to obtain a certificate of authority to transact business prior to the entry of the final judgment.  While this case involves the telecom industry and does not factually relate to construction, the same principal applies.  Namely, if you are a construction contractor from a neighboring state to Virginia, failing to take the relatively simple steps necessary to obtain such a certificate of authority can have serious consequences.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

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Be Sure to Dot All of the “I’s” and Cross the “T’s” in Virginia