The Firm Hits the Seven Year Mark

English: A birthday cake

(Photo credit: Wikipedia)

My how time flies!  It seems like I blinked and seven years have passed since I opened my solo construction practice on July 1, 2010.  The reaction of friends, family, and importantly clients to the move since my announcement 7 years ago has been wonderful.  Frankly, going solo was one of the best decisions I could have made professionally (of course, the best decisions I made were to ask my wonderful wife of now 23 years to marry me and to have the three great kids that make my life fun and interesting every day).  I truly enjoy being the “captain of my own ship” and having both the responsibility and flexibility that comes along with that title.

Since my last yearly post, I became an official mediator for the Goochland County Virginia General District Court while growing my private mediation practice.  I was named to the Virginia Legal Elite in Construction Law for the 10th straight year (and all of my years in solo practice).  Thank you again to all of you who have such confidence in me and my firm.  Along with this honor, Super Lawyers saw fit to name me to the 2017 Super Lawyers in Construction Litigation.  Also, my (admittedly less consistent) postings here at Construction Law Musings have been going on for 8 and a half years as of this post.

I have had another year on the Board of Governors of the VSB’s Construction and Public Contracts Law board and the seminar committee has another great time at the Boar’s Head planned this October (stay tuned for details).  In an additional honor and bit of fun as well, I was asked to join the Virginia Bar Association’s Construction and Public Contracts Section Council.  If you’re a construction attorney here in Virginia (or just across the border) then I recommend a membership.

On the home front, my oldest daughter finished a successful Sophomore year at West Virginia University (go Mountaineers), my son graduated from high school and is headed to Appalachian State University (go Mountaineers (again)), and my youngest daughter is headed to high school in the fall.  Every year I wonder how these great kids grew up so fast!

So, without further ado, thanks to all of you that read this blog and that have supported me in so many ways over the last 7 years. Most importantly, thanks to the best family, and in particular the best wife, anyone could ask for. I could not have done all of this without you.

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

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The Firm Hits the Seven Year Mark

Hard To Handle

For this week’s Guest Post Friday here at Construction Law Musings, we welcome back Brian L. Hill.  Brian is a construction consultant known for helping clients solve complex issues related to the architecture, engineering and construction (AEC) industry. He is also the editor and publisher of AECforensics.com, which dissects the latest trends impacting quality and risk management in the built environment.

For the better part of twenty years, I’ve had a front row seat to over 1,000 construction lawsuits, claims and other disputes. Whether it is allegations over defective design, manufacture or installation, or claims of delay or cost overruns, or related to injuries, death, or even diminished value, there are some clear trends and patterns that have emerged over the years. The past decade in particular has seen sweeping changes to the nature of construction claims and disputes, and as a result, many veterans in the legal, insurance claims and expert services arena have struggled to adapt.

In this article, I will share some of the trends and insight I have picked up on from working with some of the top professionals in the industry when it comes to handling the increasingly complex nature of construction claims and disputes.

Single-family residential lawsuits involving dozens or hundreds of homeowners in a single tract, which at one point represented the bulk of claims in terms of both quantity and dollar value, are much more rare than ever before. The answer to why that is should be readily apparent to most: America’s home building productivity screeched to a halt during the recession and has yet to resume to previous levels. Similarly, condominium and other multifamily for sale projects just haven’t been in vogue for a decade, so we don’t see nearly as many lawsuits and claims involving homeowner associations as we used to.

Apartments, hotels, schools (K–12, and higher ed), governmental facilities, medical facilities, office buildings, skilled nursing and assisted living facilities, and other nonresidential projects are examples of the types of projects that are involved in disputes more often in recent history. Looking at that list, a common theme emerges — these are all more complex project types.

Not only that, but the stakeholders involved in these types of claims tend to have a lot more at stake, in addition to having the resources to retain top representation. The stakeholders themselves are more complex, often with sophisticated organizational structures, sometimes even involving foreign entities. For instance, one trend that insurance carriers are reporting is that more and more claims are coming forward on projects involving EB–5 Visa money.

Since insurance carriers are the entities that most often end up funding various claims, disputes and their ultimate resolution, you can be sure that insurance policy language is evolving in response to the new trends as well. Unfortunately, this means that the already high self-insured retention (SIR) requirements of many policies is only getting higher. (In case you don’t know, the SIR is like a deductible in that as an insured, your coverage doesn’t kick in until you’ve satisfied the SIR. Some publicly held builders have SIRs of $10-million.)

Because of the high SIRs, claims adjusters rarely have much if any involvement in a claim’s early stages, when early resolution is most beneficial to all parties. Another factor complicating the insurance coverage issue in today’s construction claims world is that even with the high SIRs, unless an actual lawsuit is filed, there may not be a claim for the carrier to respond to. That is a situation that can occur in an active construction project where a claim exists in absence of filing suit, or — in an increasingly common scenario — in a state where “right to repair” laws require certain criteria be met prior to actually filing a lawsuit that would trigger coverage.

The other “gotcha” that comes with the right to repair laws is that it can be extremely difficult to obtain a full release of liability in return for making repairs. Plaintiff counsel are reluctant to grant full release unless both the repair methodology and scope meets their experts’ requirements. In response, defense counsel are often reluctant to recommend their clients undertake repairs, congnizant of the additional risk that may result, without any guarantee of release of future liability.

How Best to Manage Complex Construction Claims and Disputes?

The increasingly complex nature of modern construction claims and disputes demand a completely different skill set and level of analysis in order to achieve resolution. That applies not only to the legal team, but also to the designated team of technical experts required to make sense of various claims.

With regards to the legal team, multiple layers of representation are often required, and that goes for both the plaintiffs, defendants and cross defendants. Sure, a solid understanding of contracts and construction practices is an obvious prerequisite. But you’ll also need someone on the team that has intimate knowledge of your state’s applicable legislation and case law as it applies to design and construction.

An essential resource that is needed on most cases I’ve been involved with is coverage counsel — an expert on your state’s insurance coverage policies and interpretations, with real world experience litigating such issues. One piece of advice I hear frequently is to also make sure that you have a strong line of communication with key decision makers for the parties you are representing and make sure those decision makers show up when required. (Too many cases drag on, with millions of costs/fees wasted, all because a representative of the carrier with proper signing authority failed to show up to a mandatory settlement conference, for example.)

Another critical aspect to managing complex claims and disputes is having the right technical experts, consultants and specialists on hand, as needed. Sometimes the choice of what type of expert is obvious, but not always. For example, if you are representing the architect or engineer, you obviously want an expert on standard of care for that profession, but you might also want to consider bringing in an expert on construction management standard of care to evaluate the design professional’s relationship with the rest of the team. You also need specialty experts, available on an as-needed basis, to answer the specific highly technical issues that will inevitably come up during the process.

Economic loss is often barred as a cause of action in claims involving one’s personal residence, but as more nonresidential projects end in dispute, the possibility of economic loss may become a factor. We’ve seen this come up in delay claims more commonly in recent years. Having an economic loss expert, in addition to an expert on estimated construction costs, has proven invaluable in some of those situations.

Of course there are some other economic realities that need to be considered when handling complex construction claims and disputes, such as the cost of these wonderful legal and technical experts that have now become critical. Whether you are working on behalf of the owners, the designers, the contractors, or some other party, the more manageable the costs, the happier your client will be, and the more likely you’ll get future assignments and referrals.

The biggest cost factor by far that we see in today’s claims and litigation world involving the built environment is dealing with the massive volume of evidence. In a single family home tract, besides the drawings and subcontracts, you aren’t going to typically find too much data to go through. On a $125-million mixed-use high rise however, you could easily find yourself with hundreds of thousands of documents. What’s worse is that those documents might be in hard copy spread amongst dozens and dozens of bankers boxes, or scanned into massive monolithic PDFs each containing thousands of pages, or even scanned into individual files per each page. And of course rarely are any of these document repositories ever well organized. The key is to retain a consultant or expert on document management to reduce wasted and duplicative effort on the part of your entire team.

What you don’t want to have happen is to have one of your experts miss a critical piece of evidence because they either weren’t provided with the document (in an attempt to reduce costs) or worse, because nobody knew the document existed. Having the right document on hand, at just the right moment, has been decisive in many cases I’ve worked on over the years. A six-figure cost for document management isn’t unwarranted in a high-stakes, bet-the-company claim when tens of millions of dollars are at stake.

Perhaps the most important factor in reducing the incredible cost of today’s complex construction claims and disputes comes down to plain old good project management. No one single person or even party can handle 100% of a complex claim. It is a collaboration between multiple lawyers, their staff, experts, consultants and others. Just like on an actual construction project, communication is key. Maintaining strict protocols for communication to ensure that what’s privileged remains so, while keeping everyone informed of what they need to know, is a dance that is not for the faint of heart.

What’s Next?

Just as the design and construction of the built environment has evolved greatly over the past several decades, so too has the handling of the claims and disputes associated with it. Two decades ago when I first started out in forensics, we took pictures on actual film, took notes using paper on clipboards, and stored our project case files in so many three-ring binders. Nowadays, we use digital cameras and tablets, and have terabytes of data stored in secure encrypted private clouds.

Some of the upcoming trends I see:

  • An increasing percentage of claims will be resolved in mediation and/or alternative dispute resolution, and outside of the courtroom
  • More claims related to occupant health and indoor environmental quality can be expected
  • Failure to achieve certain sustainability goals or incentives will become a cause of action in more jurisdictions
  • Operations and maintenance of facilities will play a larger role in building performance, and will thus come into play more in future claims
  • Insurance technology, particularly enhanced through artificial intelligence, will be greatly beneficial to the carriers, less so for insureds
  • As BIM and other collaborative construction technologies become more mainstream, the need for digital forensics will become more critical in e-discovery
  • Drones, robots, LiDar, 3D scanning, Infrared, and other advanced technologies will facilitate more advanced and less costsly/risky investigations

The one key factor that I have seen proven time and time again for handling complex construction claims and disputes is agility. Bamboo’s strength comes from its flexibility. By adapting and adjusting your approach to a given situation, and perhaps most importantly, by actively listening to opposing parties, even the most complex and contentious of claims can be resolved with minimal wasted expense.

If you find this Musing to be interesting and have a comment, please join the conversation below and subscribe to keep up with the latest information.

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Hard To Handle

Construction Lawyers Should Be Problem Solvers

Shasta Dam under construction, California

(Photo credit: Wikipedia)

No one wants to call a construction attorney.  Those of us that practice construction law and advise contractors, subcontractors and suppliers in the construction industry know this.  We are associated with problems.  We are seen as necessary evils when folks in construction feel the need to call us.  I get it and frankly don’t have an issue with being associated with problems.  If this seems counter intuitive or like I’m giving in to the negative stereotypes of attorneys, I’m not.  Just read on to see why I don’t find this to be true.

Mechanic’s liens, bond claims, in fact any construction claim is a symptom of a problem with your project (usually a problem that has to do with payment).  When you as a construction company have a claim it is because someone else that is a party to your construction contract or that is working at your construction project has not performed.  These issues present problems that, while they are well “problematic,” have a solution.  That solution will likely be far from ideal and may take time and energy to reach, but it is there whether through arbitration, litigation or my favorite form of ADR, mediation.  Unfortunately, the Murphy’s Law driven nature of commercial construction means that you cannot be in the construction business for long without running into a problem.

As a construction attorney I love problems.  Not in the way that you’d think, namely that problems are what keep me in business in the form of fees for the recording of liens or filing of lawsuits.  I love problems because I love to help my clients solve them.  Hopefully this means that I help them anticipate these problems and come up with business practices and risk management strategies to minimize their number and impact on the bottom line.

It is true that litigation is not a money maker for anyone but us lawyers.  The time taken away from your business and the money paid to lawyers and experts is a drain on your profitability.  This is in my mind where the thought that we attorneys are a drain rather than a help to construction originates.  When clients think lawyer, they think litigation and payment issues.  What I hope is that at some point what the thought process will be is that when a construction lawyer is thought of, he or she is thought of as a problem solver and risk manager.

I would much rather get involved early to discuss potential contractual pitfalls, issues with change orders that occur on the fly, and the myriad other issues that I’ve seen on other occasions so that those in the construction industry can stick to building courthouses instead of spending time inside them.  I’ve said on many occasions, both here at Construction Law Musings and elsewhere, that I take the “counselor” part of “attorney and counselor at law” seriously.  My goal is to be a partner with my construction clients to anticipate issues and use my expertise in this area to help construction companies in Virginia grow their business in a profitable fashion.

So, in the end, I do like problems when they are anticipated and managed properly, but I like solving them more.

If you find this Musing to be interesting and have a comment, please join the conversation below and subscribe to keep up with the latest information.

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Construction Lawyers Should Be Problem Solvers

Where Insurance and Contracts Collide in Construction

Location in the Commonwealth of Virginia

Location in the Commonwealth of Virginia (Photo credit: Wikipedia)

As has been said a “few” times here at Construction Law Musings, the courts of the Commonwealth of Virginia strictly interpret the actual terms of a construction contract.  A recent case in the Circuit Court for the City of Richmond provides yet another example of this fact.

In Fixture Specialists Inc. v. MGT Construction Mgmt. Inc., the Court looked at whether a waiver clause in the prime contract between the owner, Cedar Street Genesis, and the general contractor, MGT Construction Management, Inc. (“MGT”) can be extended to protect a plumbing subcontractor and acknowledged third party beneficiary of the all risk insurance policy carried by the owner.  In this case, MGT withheld approximately $130,000.00, an amount over and above any insurance coverage, from Fixture Specialists to cover damages incurred due to a water leak alleged to have been caused by Fixture Specialist’s negligent performance of its scope of work. 

Fixture Specialists argued that the following clause protected it and precluded MGT from withholding any funds:

The Owner and Contractor waive all rights against (1) each other and the Subcontractors, Sub-subcontractors, agents and employees each of the other, and (2) the Architect and separate contractors, if any, and their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other peril to the extent covered by insurance obtained pursuant to this Paragraph 12.3 or any other property insurance applicable to the Work, except such rights as they may have to the proceeds of such insurance held by the Owner as trustee. The foregoing waiver afforded the Architect, his agents and employees shall not extend to the liability imposed by Subparagraph 4.18.3. The Owner or the Contractor, as appropriate, shall require of the Architect, separate contractors, Subcontractors and Sub-subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of all other parties enumerated in this Subparagraph 12.3 .6.

Fixture Specialists filed a motion for partial summary judgment and argued two points, both of which were rejected.  The first was that this waiver clause applies to FSI to preclude any damage claim by MGT against FSI.  The second was that even if the Waiver Clause did not apply, MGT’s exclusive remedy for the water damage was to turn to the all risk policy even in the event that the damage exceeded the limits of the policy because it was a third party beneficiary to the prime contract.

The Court rejected the first argument stating:

It is clear to the court that the Waiver Clause precludes Cedar Street Genesis and MGT, the only parties to the contract, from bringing suit against each other and each other’s subcontractors and sub-subcontractors. It does not apply to claims that MGT may have against its own subcontractors, including FSI.

The Court then went on to state that the second argument failed because 1. MGT had no contractual obligation to provide insurance for FSI and 2. MGT required FSI to carry its own insurance, therefore a plain reading of the contract precludes FSI’s second argument.

In short, the Court looked at the construction contracts between the owner and MGT and the subcontract between MGT and FSI and read them as written to deny FSI’s motion for summary judgment and allow the trial to go forward.

As always I recommend that you read the case (linked above) for yourself.  I also recommend finding a local experienced construction attorney to assist you in the drafting and negotiation of your construction contracts to be sure that you are protected in a case such as this.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Where Insurance and Contracts Collide in Construction

Legislative Changes that Impact Construction 2017

Virginia General Assembly

Virginia General Assembly (Photo credit: Wikipedia)

Well, the Virginia General Assembly has finished its yearly run through the legislative process and this year there are a few highlights for those of us in the construction industry.  It is always interesting to see what issues are the big ones that get a lot of attention.  This year the changes impacted public procurement, VOSH fines, and employment of unlicensed individuals on a job site.  These changes to the various statutes that impact the day to day operation of the construction industry in Virginia will go into effect on July 1, 2017.

The following bills passed the legislature and in my opinion affect my clients in the Virginia construction industry (I’ve used the House Bill numbers, but there are often corresponding Senate Bill numbers as well):

  • HB2366– This bill amends the Virginia public procurement process to establish requirements for the procurement of construction using the construction management and design-build procurement methods by state and local public bodies and covered institutions of higher education, as defined in the bill, and the conditions under which such methods may be used.  The bill amends several sections of the Virginia Code to set requirements for everything from competitive negotiation to CM at risk.  I will let you read the particulars for the amendments here.
  • HB1552– A bill that requires each local school board to implement a plan to notify students and their parents of the availability of career and technical education programs and to include annual notice on its website to enrolled high school students and their parents of the opportunity for such students to obtain a nationally recognized career readiness certificate at a local public high school, comprehensive community college, or workforce center.  The text for this bill can be found here (the relevant changes are in paragraph D-11 of the statute).
  • HB1979– A bill that exempts from licensure work undertaken by a person providing construction, remodeling, repair, improvement, removal, or demolition valued at $2,500 or less per project on behalf of a properly licensed contractor, provided that such contractor holds a valid license in the residential or commercial building contractor classification.  The bill does also add certain caveats and also adds some stiffer penalties for use of unlicensed workers or subcontractors.  The text for the amended statute can be found here.
  • HB2017– A bill that authorizes a locality, where the bid, performance, and payment bond requirements are waived, to waive the requirement for prequalification for a bidder or contractor with a current Class A contractor license for nontransportation-related construction contracts in excess of $100,000 but less than $300,000 upon a written determination made in advance by the local governing body that waiving the requirement is in the best interests of the locality. The bill prohibits localities from entering into more than 10 such contracts per year in which the bidder or contractor’s prequalification requirement has been waived. The bill contains technical amendments.  For the text of the amended statute, click here.
  • HB1883– A bill that keeps Virginia’s safety program from being taken over by the Federal OSHA Program and increases the maximum amount of civil penalties that may be assessed by the Commissioner of Labor and Industry for certain violations of occupational safety and health laws from $7,000 to $12,471 and for willful or repeated violations of such laws from $70,000 to $124,709. The measure also requires the Commissioner annually to increase the maximum civil penalty amounts, starting in 2018, by an amount that reflects the percentage increase, if any, in the consumer price index from the previous calendar year.  For the actual legislative changes, click here.

While the General Assembly passed other bills that have an effect on construction in Virginia, these were the highlights.  For more on legislative changes as well as other topics of interest to Virginia construction professionals, check out the AGC of Virginia website and its legislative updates.  Of course, I have to add that you should always consult an experienced construction attorney to assist you in assessing the impact of these changes to your construction business.

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

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Legislative Changes that Impact Construction 2017

When Is the Contractor’s Termination for Default Proper? When It Does Bad Things.

Sometimes you “do” bad things.  Sometimes you “look like” you do bad things.  Just look at the difference between Bad-boy Jack and my youngest daughter, Haven, who just “looks like” she’s up to no good.  In the world of construction contracting, both can get in you in trouble, including a termination for default of performance.

nogood

Appeals of  Industrial Consultants, Inc. d/b/a W. Fortune & Company, ASBCA No. 59622 (2017) involved a construction contract to upgrade an HVAC system at a facility in New Hampshire. The Board held that the contractor was properly terminated for default where: (1) it repeatedly insisted on changing the design of the project; (2) it furnished the submittals consistently late and at times did not submit them; (3) it did not respond to certain communications regarding design changes and rejections; and (4) it never submitted a safety plan.

The Facts.  Following award of the contract to the successful bidder, immediate concerns arose regarding the design. The contractor’s presiden believe there was a defect in the design and he began to offer suggestions on redesign. The contractor submitted numerous RFI’s, to which the government responded. During the process, the contractor delayed in providing submittals and often times never provided submittals. The contracting officer sent a notice to the contractor demanding the contractor to cure its deficiencies.  Numerous communications are back and forth between the parties, all of which demonstrated that the contractor was accusatory and combative.  In the end, the contracting officer has sent three cure notices and ultimately issued a termination for default.

The Decision. The Board found that the contractor failed to proceed with the work in violation of FAR 52.233-1 (Disputes) (June 2008), which requires that the “contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” As to the merits, the Board found:

The government bears the burden of demonstrating that [the contractor] did not perform in a timely manner and that it failed to gain approval of its submittals. Failure to proceed with the work during a dispute is a ground for termination for default. In this appeal, it is undisputed that [the contractor] failed to complete the work on time, failed to proceed with the work after the Corps rejected its proposed changes to the project, and failed to furnish some submittals and failed to gain approval of other submittals. The government has made a prima facie case for default termination; [the contractor]must, therefore, prove that its nonperformance was excusable.

The Board then found that the contractor’s default was not excusable—as it had a basic misunderstanding as to its role as a contractor on the project.

Lesson Learned.  Utlimately, the Board concluded that “government contractors must perform the contracts they execute and cannot require the government to rewrite the contract so that they can build some other project they like better.”  In this case, the contractor questioned the design of the HVAC system and notified the government of those concerns.  But in the end, the government  chose to proceed with the design. At that point, the contractor had one choice: continue to build the project as it had contracted to do.  It did not have the option to act bad by “dragging its feet” and refuse to perform, which ultimately led to the termination for default.

When Is the Contractor’s Termination for Default Proper? When It Does Bad Things.

When Is the Contractor’s Termination for Default Proper? When It Does Bad Things.

Sometimes you “do” bad things.  Sometimes you “look like” you do bad things.  Just look at the difference between Bad-boy Jack and my youngest daughter, Haven, who just “looks like” she’s up to no good.  In the world of construction contracting, both can get in you in trouble, including a termination for default of performance.

nogood

Appeals of  Industrial Consultants, Inc. d/b/a W. Fortune & Company, ASBCA No. 59622 (2017) involved a construction contract to upgrade an HVAC system at a facility in New Hampshire. The Board held that the contractor was properly terminated for default where: (1) it repeatedly insisted on changing the design of the project; (2) it furnished the submittals consistently late and at times did not submit them; (3) it did not respond to certain communications regarding design changes and rejections; and (4) it never submitted a safety plan.

The Facts.  Following award of the contract to the successful bidder, immediate concerns arose regarding the design. The contractor’s presiden believe there was a defect in the design and he began to offer suggestions on redesign. The contractor submitted numerous RFI’s, to which the government responded. During the process, the contractor delayed in providing submittals and often times never provided submittals. The contracting officer sent a notice to the contractor demanding the contractor to cure its deficiencies.  Numerous communications are back and forth between the parties, all of which demonstrated that the contractor was accusatory and combative.  In the end, the contracting officer has sent three cure notices and ultimately issued a termination for default.

The Decision. The Board found that the contractor failed to proceed with the work in violation of FAR 52.233-1 (Disputes) (June 2008), which requires that the “contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” As to the merits, the Board found:

The government bears the burden of demonstrating that [the contractor] did not perform in a timely manner and that it failed to gain approval of its submittals. Failure to proceed with the work during a dispute is a ground for termination for default. In this appeal, it is undisputed that [the contractor] failed to complete the work on time, failed to proceed with the work after the Corps rejected its proposed changes to the project, and failed to furnish some submittals and failed to gain approval of other submittals. The government has made a prima facie case for default termination; [the contractor]must, therefore, prove that its nonperformance was excusable.

The Board then found that the contractor’s default was not excusable—as it had a basic misunderstanding as to its role as a contractor on the project.

Lesson Learned.  Utlimately, the Board concluded that “government contractors must perform the contracts they execute and cannot require the government to rewrite the contract so that they can build some other project they like better.”  In this case, the contractor questioned the design of the HVAC system and notified the government of those concerns.  But in the end, the government  chose to proceed with the design. At that point, the contractor had one choice: continue to build the project as it had contracted to do.  It did not have the option to act bad by “dragging its feet” and refuse to perform, which ultimately led to the termination for default.

When Is the Contractor’s Termination for Default Proper? When It Does Bad Things.