Top Line: A Faint Heartbeat for “Implied Waiver”?

April 2nd, 2014 by Todd

In an article I wrote in 2008 for the now-defunct Northwest Construction magazine, I called American Safety v. City of Olympia, a 2007 decision of the Washington Supreme Court, the “final nail in the coffin of implied waiver.” More than six years later, a new case might have me revise that pronouncement to the “next to last nail” instead.

Since 2003, construction lawyers and their contractor clients have had the Mike M. Johnson v. Spokane County decision of the Washington Supreme Court repeatedly beaten into their weary heads. We lawyers have come to believe it to be the next-to-the last word on the issue of a construction project’s owner’s ability to demand absolute adherence to a requirement that a contractor provide the owner with written notice of an intent to seek more money or time for any change that occurs on a construction project. When the court announced its decision in Mike M. Johnson, it appeared to many of us that a long line of authority that originally arose with decisions made before statehood by our Territorial Supreme Court was in grave danger. Those cases stood for the proposition that requirements for written notice in a construction contract were for “the convenience of the owner,” and could be waived in myriad ways, including by implication (course of conduct on the project, the owner ordering the work and clearly knowing the contractor was expecting more time and/or money, etc.). In Mike M. Johnson, a majority of our Supreme Court essentially said, “a deal’s a deal,” holding that requirements for written notice (and presumably requirements for written agreement on changes) in a construction contract were strictly enforceable absent some “unequivocal” indication that the owner had waived them.

The day that the Mike M. Johnson decision was announced was, by pure happenstance, the same day as the annual meeting of the Washington State Bar Association Construction Law Section. Members of our section who regularly represent public owners virtually danced into our meeting that day, while we who more regularly advise contractors were—to say the least—not happy with the decision. And since 2003, the Mike M. Johnson decision has been the subject of innumerable articles and Powerpoint slides produced by construction lawyers and experts. Several attempts to introduce anti-Mike M. Johnson legislation in Olympia have withered and died without passing out of committee. I believe many of us were convinced that it was authority here to stay, and we regularly told our clients, “whatever you do, get it in writing.”

In American Safety, the City of Olympia, having unilaterally closed a project after the contractor apparently went out of business, entered into post-contract discussions with the contractor’s surety, which asserted that it (standing it the shoes of its principal, the contractor) was entitled to extras under the contract. For a period of some months, the surety and the City exchanged information and negotiated about those changes. Then, citing to Mike M. Johnson, the City asserted that because neither the principal nor surety had given timely notice of the alleged additional costs, no right existed to request them. The surety sued, claiming that the City’s willingness to negotiate on a project it had closed was at least implied waiver of the notice requirements. But, the Washington Supreme Court disagreed, curiously holding that the City’s behavior in negotiating extras with the surety was “equivocal,” and therefore not “unequivocal,” leading to a Mike M. Johnson-like result. My take was that if opening a closed job and negotiating for a period of months was not “implied waiver” of the requirements for written notice, nothing ever would be, and therefore, I—somewhat boldly–announced that the nearly 150-year old concept of “implied waiver” was likely forever dead in Washington state.

But hold on there, Buckaroo. After Division I of the Washington Court of Appeals published its opinion in Top Line Builders v. U.S. Bank on March 10, it seems that “implied waiver” may actually have some life after all. Top Line involved a contractor’s attempt to foreclose a lien, which it had recorded for an amount including both the unpaid balance of its written contract, and an even larger amount of what it asserted to have been agreed-upon but unwritten change orders. U.S. Bank, the project’s lender, didn’t record its deed of trust (security for its loan) until after the contractor had begun its work, meaning that any proper lien recorded by the contractor would have priority in a foreclosure of the real property. The bank asserted that because the contract between the contractor and its customer required all changes to be in writing, the lien was only proper as to the unpaid amount of the written contract (the lien statute restricts liens to the “contract price”), and that the alleged change order amounts were not properly part of the lien (and therefore the amounts of those alleged changes were not superior to the bank’s priority), because the requirement for written change orders (and presumably the accompanying requirement for written notice) was not adhered to by the contractor. Essentially, the bank repeated the same rationale the City of Olympia had given the surety in American Safety.

I was surprised to see the Top Line Court cite a number of pre-Mike M. Johnson cases, holding that the requirements for written change orders could be “mutually waived” by the parties, including by a showing of “evidence that the owner authorized, permitted and/or directed” the extra work to be done. Ultimately, the court determined that the contractor and project owner had, in fact, waived the requirements for written change orders, and that the amounts for those changes were properly recoverable in quantum meruit. In holding that both the remaining contract balance and the quantum meruit change orders were properly part of the lien, the court interpreted the definition of “contract price” as set out in the lien statute, and specifically, the portion of that definition that says, “if no price is agreed upon, then [the contract price is] the reasonable and customary charge therefore.”

Needless to say, I was a little taken aback in reading the Top Line decision. Having written a number of articles touching on the Mike M. Johnson case over the years, Mr. Johnson and I have become occasional e-mail pen pals. After reading Top Line, I went back and reviewed the facts cited by the Washington Supreme Court in the decision that so dramatically impacted Mr. Johnson’s life (see the decision by Division III of the Washington Court of Appeals in Travelers v. Mike M. Johnson to learn about some of that impact). In his dissent in Mike M. Johnson, the late Justice Tom Chambers was concise: “…[Spokane County] directed the contractor to do additional work, was fully informed of all relevant information known by the contractor, and observed the contractor do the work.” Maybe I’m wrong, but I’d bet a dollar to a donut that had he known he could rely on the owner’s “direction” to do the added work as “evidence” of implied waiver by Spokane County (as the Top Line contractor did), Mr. Johnson would have been yelling “I was directed!” at the top of his voice in 2003.

But where does Top Line leave us we now? Are we back to a pre-Mike M. Johnson “implied wavier” possibility? My guess is, and my advice to my clients will be that we’re not. What’s not spelled out in the facts of Top Line is whether or not the contract specified that failure to comply with requirements for a writing waived any claim. That language not only appears in the WSDOT Standard Specifications, it is creeping into many private works contracts that are crossing contractors’ (and their lawyers’) desks today. Clearly, “better safe than sorry” remains the watchword today. I often tell my clients that in any aspect of their businesses, they take need to do all they can to give the other side with no reason not to pay. And, while many of us grew up on the handshake agreements that were regularly honored “back in the day,” in a post Mike M. Johnson world, getting it in writing still seems to be the surest way to get paid. In this century, anyway.

Proposed rule expands Clean Water Act jurisdiction

March 31st, 2014 by Jerry

AGC of America reports that the Environmental Protection Agency (EPA) and US Army Corps of Engineers (USACE) proposed their new rule aimed at clarifying the definition of “waters of the U.S.” and which bodies of water fall under federal jurisdiction. This definition is critical to many of the Clean Water Act programs affecting how contractors perform their work, such as the Section 404 Dredge and Fill Permits, Section 402 Stormwater programs, and Section 311 Spill Prevention, Control, and Countermeasures plans.

At this point, the proposed rule appears substantially similar to a previously leaked version, a massive – and unnecessary – expansion in Clean Water Act jurisdiction. Ditches, ephemeral and intermittent streams, tributaries, and isolated waters located in a floodplain or riparian area (which have no defined limit in the rule) are all now potentially jurisdictional.

The rule is expected to be published in the Federal Register soon, with a 90-day comment period in effect after publication.

IMCO shows students construction in action

March 24th, 2014 by Jerry

imcoOur thanks to IMCO General Construction, Superintendent Joe Lupo and his outstanding crew for hosting a group of Bellingham High School students at Imco’s Lynden Wasterwater Treatment Plant expansion project today.

AGC’s Northern District provided lunch for the whole gang, and Joe had their attention every step of the way on his site tour. Thanks again, Joe!

Bad roads cost you nearly $2000 annually

March 20th, 2014 by Jerry

Driving on deficient roads costs each Seattle area driver $1,845 per year and Spokane area drivers $1,423 per year in the form of extra vehicle operating costs as a result of driving on roads in need of repair, lost time and fuel due to congestion-related delays, and the cost of traffic crashes in which roadway features likely were a contributing factor.

This is one of the alarming findings in a new report,Washington State Transportation by the Numbers: Meeting the State’s Need for Safe and Efficient Mobility,” by TRIP, a national transportation research firm.

The report notes that throughout Washington, nearly half of major roads and highways are in poor or mediocre condition. A total of 27 percent of Washington bridges show significant deterioration or do not meet current design standards. The state’s major urban roads are becoming increasingly congested, with drivers wasting increasing amounts of time and fuel. And Washington’s rural non-interstate traffic fatality rate is significantly higher than the fatality rate on all other roads in the state.

Of course, increased investment in transportation improvements at the local, state and federal levels could relieve traffic congestion, improve road and bridge conditions, boost safety, and support long-term economic growth.  But the 2014 State Legislature recently adjourned without passing a comprehensive transportation funding package.  Hopefully the TRIP report will spur renewed attempts.

General contractor needed for CPAR Board

March 5th, 2014 by Ben

The state has an opening for a general contractor representative on its Capital Projects Advisory Review Board. Applications are due by March 14.

The board evaluates public capital project construction processes and advises the Legislature on policies related to public works delivery methods. There are 23 members on the board, including four legislators and five political subdivision representatives.

Board members must be knowledgeable about public works contracting. They serve four-year terms and can be reappointed once.

Applications can be found at www.governor.wa.gov/boards/application/default.aspx. Questions can be directed to Molly Keenan, Molly.keenan@gov.wa.gov or (360) 902-4110.

State Senate considering public works funding bill

February 20th, 2014 by Jerry

The Public Works Assistance Account (PWAA) is a mechanism to provide low interest loans to local governments to help them build major infrastructure projects that they would not otherwise be able to afford.

Between 1985 and 2013, the PWAA was used to make loans totaling $2.84 billion for approximately 1,975 local government public works projects. These include the acquisition, construction, repair, replacement or improvement of bridges, streets and roads; water systems; storm and sanitary sewage systems; and solid waste facilities, including recycling.

However, last year the Legislature redirected the Public Works Assistance Account’s funding streams away from capital projects and into the general budget, until 2019.  The unintended consequences of this action are now becoming clear:  Several local infrastructure construction projects have been put on hold because market interest rates for loans for these projects have added millions of dollars to the costs, making them unaffordable for many local governments.

The State House of Representatives recently passed a bill, SHB 2244, which would restore funding to the PWAA in 2015.  This bill passed the House with a strong bipartisan vote of 87-11. By making local infrastructure construction projects feasible, the bill helps spur private economic development which, in turn, boosts state funding for education and other needs.  In addition, this bill will create jobs. Employment in the construction industry in Washington State grew by only 0.2% in 2013, one of the slowest rates in the nation.  This bill will help the industry in its recovery.

Now, attention turns to the Senate.  With the legislative session set to conclude March 13, there isn’t much time for the Senate to act. Everyone is encouraged to contact their State Senators and urge them to support SHB 2244.

Seattle pins the tail on the Donkeys in fundraiser

February 5th, 2014 by Ben
Donkeys_menMcKinstry President Doug Moore, left, and CEO Dean Allen try out orange and blue.

Another competition was held between Seattle and Denver; this one for bragging rights between McKinstry offices.

The offices challenged each other to see who could raise the most money for charity in the two weeks leading up to the Super Bowl. Seattle came out on top — again — by raising $8,440 to Denver’s $3,215 in the “Cheers for Charity” event.

Donkeys_flag  The Bronco flag flew half-mast for a day at McKinstry’s Seattle office.

The real winners were the organizations receiving the money, including 826 Seattle, Washington Business Week and Safe Crossings.

But the competition also came with a few strings attached: Each contribution milestone reached by either office triggered a requirement for the other office to meet.

Denver beat the $2,000 threshold, which meant the Seattle execs had to wear Donkey, I mean Bronco, jerseys at work for a day and fly the Donkey, I mean Bronco, flag on the corporate flagpole for a day.

Fortunately, there were no stipulations on how the flag was to be flown (see picture).

In Denver, the operations manager had to wear a Seahawks jersey and put Seahawks magnets on his truck until opening day of next football season. They also had to fly the 12th Man flag over their office.

Hee-haw!

Blind Acceptance of Evidence of Insurance is Asking for Trouble

February 3rd, 2014 by Todd

Last year, I wrote an article published in Engineering News Record entitled “Understanding Insurance: A ‘Must” for Every Construction Professional.” In that article, I discussed how my thinking about construction insurance issues has been forced to evolve from my days in the 1980s as a construction project engineer and project manager, up to an including my role today advising clients on construction issues. My theme was that contractor’s insurance is no longer a “one size fits all” item, and that construction professionals, in addition to understanding labor, materials, equipment and scheduling, have to now be passably fluent in insurance, too.

Illustrative of my point is Delean’s Tile & Marble v. American States Insurance, approved for publication last week by Division I of the Washington Supreme Court. In that case, a general contractor was engaged to perform repairs on a condo project after the original developer settled with the Homeowner’s Association over claims for defects in the original construction. The general, in turn, hired a subcontractor to perform some of the repair work, which it apparently did not do well. When the subcontractor refused to fix its allegedly flawed work, the general hired a replacement subcontractor and made a claim against the original sub under the terms of their subcontract that required the sub to indemnify the general. The dispute resulted in a lawsuit.

The insurer provided a defense to the subcontractor, and represented the sub throughout the proceedings, up to and including the time that the sub settled with the general for something north of $150,000. However, the insurer refused to pay the settlement amount, and began a declaratory action, seeking a ruling from the court that no coverage for the settlement amount was available, even though the general was an “additional insured” under the requirements of the subcontract.

The general also filed a claim with the sub’s comprehensive general liability insurance carrier, asserting that it has been named an “additional insured” under that policy pursuant to the requirements of the subcontract. Obviously, if unable to obtain indemnity for its damages from the original subcontractor, the general contractor was expecting the insurer to pick up the tab for the defects in the sub’s work. However, the insurer denied the claim, asserting that the multifamily exclusion in the sub’s policy precluded coverage.

The general had the defective work repaired at a total cost (including attorney’s fees) of more than $170,000, and sued the sub. Eventually, the general obtained a judgment against the sub (presumably under the indemnity provision of the subcontract) in that action. The sub was defended by its insurer under a reservation of rights in that action.

However, before the judgment was entered against the sub, the insurer began a suit of its own—a declaratory action asking the court to determine that there was no insurance coverage under its policy from which the general (or the homeowners) could recover. Each party filed a motion for summary judgment in the declaratory action, and the court ruled that the multi-family exclusion barred a recovery from the insurer for the damages associated with the sub’s work, and that the general was entitled to no defense against the homeowner’s actions against it., And, all because of the multi-family exclusion.

On appeal the Court of Appeals affirmed, rejecting the general’s attempts to parse the definitions in the policy upon which the insurer relied, repeatedly holding that those attempts “lacked merit.” Marching through the general’s assertions one by one, the Court of Appeals provided either definitions from the policy itself or common usage of the terms on which the general (unsuccessfully) relied to attempt to avoid the multi-family exclusion.

Gone are the days when receiving the Accord form “evidence of insurance” was enough to check off that requirement from a subcontractor. The enormous condominium litigation industry that has evolved over the past 15 or so years has prompted nearly every CGL carrier to exclude multi-family construction from its contractor policies. In fact, these exclusions are what has given rise to the “wrap up” and “Owner Controlled Insurance Plans” (OCIP) we see on nearly every condo project built over the last several years.

We now all expect that original condo or apartment construction will have some version of an OCIP these days. What’s interesting about Delean’s, however, is that it is not about the original construction of a condo, it’s about the second-tier repair construction to a condo. Yet, the same lessons with regard to the availability of multi-family insurance apply. Moreover, it’s highly possible that whichever sub repaired the Delean’s sub’s bad work had a similar exclusion in its policy, and the specter exists that the pattern of no coverage for defects might just continue.

Insurance literacy then involves more than just getting an Accord form in the mail, seeing that your company has been named as an “additional insured,” and filing that piece of paper. Literacy today requires not only an understanding that the insurance exists, but of what it consists, and perhaps more importantly, what is excluded from it. General contractors who work on any aspect of multi-family projects, including in particular the repairs being made after the first round of litigation, would do well to include a requirement in the insurance portion of their subcontracts that the sub must provide insurance for the type of project on which it’s working, either by providing a policy with no multi-family exclusion, or by paying for a rider to the base policy that covers all aspects of the project in question.

Watch Super Bowl stadium get built in 50 seconds

January 24th, 2014 by Ben

With the big game between the Seattle Seahawks and Denver Donkeys about a week away, EarthCam is sharing a time-lapse video of MetLife Stadium under construction. The clip compresses about 2½ years of construction into 50 seconds.

The $1.6 billion stadium was filmed from August 2007 to March 2010.

Go Hawks!

L&I doing the home show circuit

January 24th, 2014 by Ben

The Department of Labor & Industries will have a booth at 18 home shows this winter/spring throughout the state to inform homeowners about hiring the right construction contractors.

L&I says home show attendees in search of a contractor should arrive with a plan that includes:

• Know what you want. Whether planning to update your bathroom or build a fence, write a list of the features you must have versus the features you’d like to have. Bring magazine pictures of desired features.
• Talk to a variety of vendors and contractors. Bring a list of questions about your project and ask contractors about their experience.
• Confirm prospective contractors are registered with the state at www.ProtectMyHome.net. Registered contractors must have a business license and a current certificate of liability insurance and a bond on file with L&I, providing some recourse if the project goes bad. Just because contractors have a booth doesn’t mean they’re registered.

The first event, the Tacoma Home & Garden Show, is running until Sunday inside the Tacoma Dome. Admission is $12.