As most subcontractors probably know, a construction lien is an important tool to ensure payment, but the lien process is full of pitfalls for the unwary. For the uninitiated, knowing beforehand all the steps needed to perfect a lien can help prevent contractors from learning those lessons the hard way.

One requirement that can trip contractors up, and result in forfeiture of lien rights, is failure to provide the statutory notice of right to lien. Many contractors do not involve their lien recording service or attorney until they fail to receive payment and it is time to record the lien, which can often be too late. Providing adequate pre-lien notice, as a matter of course, can protect a contractor’s right to seek payment from the owner if a project goes sideways.

The statutes regarding notice of right to lien in Oregon and Washington are similar, but with some fine, but important, distinctions. Given that many contractors perform work in both jurisdictions, it is important to have familiarity with those distinctions. One of them was established just this year in the Washington Supreme Court case of Velazquez Framing, LLC v. Cascadia Homes, Inc. That case involved an unfortunately all-to-common situation, in which a second-tier subcontractor, Velazquez Framing, was not paid for labor and materials it supplied to a project, even though the first-tier subcontractor had been paid for that work.

Velazquez Framing recorded a lien on the project for labor and materials but had failed to provide a pre-lien notice. When Velazquez Framing sought to foreclose its lien, the trial court dismissed the lien altogether for Velazquez Framing’s failure to provide the notice of right to lien. Velazquez Framing appealed and the Washington Court of Appeals confirmed, but the Supreme Court reversed, holding that the Washington pre-lien notice statute, RCW 60.04.031(1), required pre-lien notice only for the furnishing of “professional services, materials, or equipment” and labor was thereby exempted from the notice requirement.

This result raises two important, related points. First, if a contractor fails to provide pre-lien notice on a project in Washington, it can still record an enforceable lien for the labor. While, of course, it would have been better for Velazquez Framing to have supplied the pre-lien notice and have been entitled to enforce the lien as to its material costs as well, at least it was allowed a portion of the lien.

Second, the court relied on the “practice of lien segregation,” which provides that “a claimant may enforce that portion relating to labor so long as the court has an evidentiary basis to segregate the value of the labor from materials.” This means that to recover the labor portion of the lien, the lien cannot be in a lump sum amount, but must be broken down between labor and materials such that a court can segregate the two categories of costs from one another.

It is good practice to both break down the lien total into labor, materials, and/or equipment categories on the lien itself and attach a more detailed breakdown of each category in an exhibit to the lien. By doing this, if any part of the lien is invalid — whether due to lack of notice or, for example, including non-lienable items — the court will have an evidentiary basis for segregating the costs and leaving the rest of the lien intact.

In contrast to the Washington pre-lien notice statute, Oregon’s statute does not contain a blanket exemption of labor from the notice of right to lien requirement. Instead, the Oregon statute, ORS 87.021, differentiates the notice requirement based on the type of project. That is, a subcontractor providing labor to a commercial project is not required to provide pre-lien notice to the project owner, while a subcontractor on a residential project is required to provide the notice of right to lien.

On the other hand, a subcontractor that supplies only materials (i.e., does not also supply labor) is required to provide a pre-lien notice regardless of whether the project is residential or commercial. A materials supplier should also consider providing a notice of right to lien to any mortgagee on the project to maintain the supplier’s lien priority over any mortgage or trust deep on the property. See ORS 87.025(3).

Normally, this would require a materials supplier to obtain a title report to identify any mortgagees, which is an additional expense. However, if the materials costs will be significant and the supplier has any worries about project financing and/or the solvency of parties up the contracting chain, it might be worth spending a couple hundred dollars for the report to make sure you have priority.

As the above suggests, instead of trying to track every instance of when a notice of right to lien is or is not required, it is a much easier and safer practice to just send pre-lien notices out as a matter of course. Many lien services have online forms that contractors can fill out to make sending the pre-lien notice relatively simple. For example, check out the RoHillCo Notice of Right to Lien at www.rohillco.com/forms/right-to-lien.php (last visited Feb. 11, 2024).

Given the potential forfeiture of lien rights should a contractor fail to provide the required notice, erring on the side of over-notification is advisable. Indeed, no one has ever had a lien invalidated because of providing too much notice. Sending a notice of right to lien is a relatively low-cost, low-effort way to increase the chances of getting paid the money you are owed. Put simply, just send the notice.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses on construction law. Contact him at 503-598-5524 or��brent.carpenter@jordanramis.com.

This article is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post Just send the notice: an update on pre-lien notice requirements | Opinion appeared first on Daily Journal of Commerce.

The June 2021 Pacific Northwest heat wave resulted in hundreds of deaths across Oregon and Washington, including several in workplaces. While Oregon OSHA had already begun rulemaking to address workplace heat illness, the extreme temperatures obviously gave those activities added urgency.

Following the heat wave, Oregon Administrative Rules 437-002-0156 were enacted for heat illness prevention. Meanwhile, Washington Administrative Code 296-62-095, regarding outdoor heat exposure, have been in effect since 2008 and were expanded in July 2021. Familiarity with these rules is key to a contractor keeping its employees safe and complying with the law.

The two sets of rules – largely identical, but with some important differences – have some key provisions. Following is an overview of what construction contractors need to do to avoid employee illnesses and agency fines.

Both sets of rules are triggered by a threshold temperature. The Oregon rules apply when an employee performs work in a setting, either indoors or outdoors, in which the heat index is 80 degrees or higher. Washington’s rules apply at varying temperatures, depending on the employee’s clothing. If the employee is dressed in PPE, such as a chemical resistant suit, the rules apply at 52 degrees; they apply at 77 degrees if the employee is attired in double-layer woven clothes, such as coveralls; and at 89 degrees for all other clothing types. Both sets of rules exempt certain work situations from their purview, such as when an employee’s exposure to heat is merely incidental (i.e., for less than 15 minutes) and other exemptions not generally applicable to the construction industry (e.g., emergency services).

Both sets of rules also require that employers offer sufficient shade for their workers. Under the rules, shade is not sufficient “when heat in the area of shade defeats the purpose of shade, which is to allow the body to cool,” such as an unair-conditioned vehicle. The rules provide that an employer must provide “one or more shade areas that are immediately and readily available.”

The rules provide specifications for the shaded areas, requiring that: (a) the shade area must either be open to the outside air on at least three sides or be ventilated mechanically; (b) the amount of shade present must be enough to accommodate the recovering employees; (c) the shade must be located as close as practical to the work area; and (d) shade present during meal periods must be enough to accommodate all employees on the meal period who remain on-site.

The Oregon rules further provide that if trees or other vegetation are used to provide shade, the thickness and shape of the shaded area must provide sufficient shadow to protect employees. The Washington rules further provide that the shaded areas must not adjoin a radiant heat source such as machinery or a concrete structure. Both sets of rules provide for limited exceptions to the shade requirement, with the Washington rules providing that “in lieu of shade, employers may use other sufficient means to reduce body temperature” and the Oregon rules providing that an employer need not provide access to shade when doing so “is not safe or it interferes with the ability of employers and employees to complete the necessary work” (e.g., during high winds). However, in such situations, Oregon employers must provide equivalent heat illness protection such as cooling vests or water-dampened cotton clothing.

Both sets of rules also mandate the provision of drinking water to employees. The Oregon rules define “drinking water” as “potable water that is suitable to drink and that is cool (66-77 degrees Fahrenheit) or cold (35-65 degrees Fahrenheit).” The Washington rules do not contain a water temperature specification but provide that water should be “suitably cool.” Both sets of rules require that the employer provide an employee at least 32 ounces (i.e., one quart) of drinking water per work hour and the opportunity to consume the water. They also provide that bottled water and “electrolyte-replenishing beverages that do not contain caffeine” (e.g., sports drinks) can be used as substitutes, though the Oregon rules specify that such substitutions should not “completely replace” drinking water.

Both sets of rules further provide for a set of “high-heat practices.” The Oregon rules provide that when an employer cannot limit an employee’s exposure to a heat index less than 90 degrees, it must: (a) provide a means for an employee to communicate, in the employee’s spoken language, with supervisors; (b) implement methods to promptly identify any employee suspected of experiencing heat-related illness, such as creating a mandatory buddy system; (c) designate at least one employee as authorized to call for emergency medical services; (d) when an employee works in a structure that does not have a mechanical ventilation system, employers must measure the indoor temperature and humidity and take action in accordance with the rules to reduce the employee’s exposure to elevated heat; and (e) provide a rest break schedule that allows the body to cool down and recover. The Washington rules are not as detailed in this regard, but provide for the provision of shade, discussed above, and require that employees take breaks for at least 10 minutes every two hours and must be paid unless taken during a meal period.

Both sets of rules further provide that employers must provide annual employee heat illness prevention training which discusses, among other things, the risk factors and signs of heat illness, procedures for complying with the rules, such as taking breaks in the shade, and the importance of water consumption. Additionally, the Oregon rules require employers to document compliance with the training requirements.

Finally, the Oregon rules require employers to establish three additional plans: (1) an emergency medical plan to address employee exposure to excessive heat; (2) an acclimatization plan (i.e., plan for employees to acclimatize to working in hot weather); and (3) a heat illness prevention plan that includes, among other things, how employees are to be trained, how to recognize heat illness, and how water and shade will be provided.

While the Pacific Northwest has not experienced a heat wave in 2022 comparable to the 2021 heat wave, it has nevertheless been a hot summer, with Oregon Gov. Kate Brown issuing a state of emergency from July 26–31 due to extremely high temperatures. Given that high temperatures in the summer are likely here to stay, employers should thoroughly review the relevant rules and ensure that they have the required plans and policies in place to both protect their employees and comply with agency requirements.

Brent Carpenter is a Jordan Ramis PC shareholder. His practice is focused on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: A look at Oregon and Washington rules for heat illness prevention appeared first on Daily Journal of Commerce.

Most construction contracts contain a provision requiring a written change order as a condition precedent to payment for changed work. However, even in the absence of a written change order, a contractor may be entitled to payment, as an equitable adjustment to the contract price, for changed work under the legal theory of constructive change.

A claim for constructive change typically arises when the owner denies a change order request because it believes that the work in question is within the scope of the contract and directs the contractor, expressly or impliedly, to perform the work under those terms. In this case, the contractor believes the work is outside the scope of the contract, notifies the owner of a claim, and performs the disputed work under a reservation of its rights to seek compensation.

A contractor must prove two elements to prevail on a claim of constructive change: 1, the disputed work was beyond the scope of the contract (i.e., the change element); and 2, the owner ordered the change and/or is culpable for the change (i.e., order/fault element).

To prove the change element, a contractor must show that its actual performance went beyond the scope of the contract. This element is seemingly straightforward, but on a complicated project with numerous changes the identities of contract work and changed work can become fuzzy. Therefore, as with any other claim, a contractor should, to the best of its ability, segregate and document its costs associated with the changed work as it performs the work, as opposed to attempting to do so after the project is complete.

To prove the order/fault element, the contractor must show the owner’s action or inaction amounted to an order to perform the changed work. The least ambiguous owner order is, obviously, the owner’s denial of a change order followed by a direct, express order to perform the work under the original contract price. More ambiguous is when the owner merely recommends that the contractor perform the changed work. Whether a recommendation or other less direct communication constitutes an order is determined by considering whether the communication was such that the contractor reasonably felt compelled to perform the work.

Mere suggestions or discussion of methods may not reasonably lead a contractor to believe it is being compelled to perform the work. Further, if the order is made by an owner’s representative (e.g., by field directive) as opposed to the owner itself, the contractor may be required to prove that the representative had the authority to order the work or that the owner ratified the representative’s order.

Constructive changes typically arise out of disputes regarding what work is required under the contract, defective plans and specifications, acceleration of work, and the owner not fulfilling its obligation to cooperate with the contractor and not impede or delay the contractor’s work. A classic example of a dispute regarding the scope of work under a contract is the situation in which the contractor bid the work intending to utilize a certain method and the owner insists that the contractor use a more expensive method. Interpretation of the specification can also lead to constructive change, as the owner may interpret ambiguities in specifications to require a different, more expensive method of performance, while the contractor interprets them to require a less expensive method.

Regarding defective specifications, when an owner provides a contractor with plans and specifications, those plans and specifications contain an implied warranty that they are accurate, adequate and complete and that if the contractor follows them, a satisfactory performance will result. Typically, a contractor’s claim relating to defective specifications is for increased cost of performance due to the defect. In the case of defective specifications, there is not an “order” to perform the changed work as such, but instead the defect is considered the fault of the owner, thereby satisfying the order/fault element.

Another common claim for constructive change is for acceleration – performing the work in a shorter period than anticipated prior to performance. Acceleration and its related claims of disruption and delay are discussed more fully in my September 2021 article for the 91��Ƶ. Finally, regarding the owner’s duty to cooperate and not impede the work, a contractor must show that an owner’s breach of that duty, which arises from the general contractual duty of good faith and fair dealing, was the result of unreasonable acts or omissions.

Examples of unreasonable owner conduct are unreasonably withholding clarification on specifications, unreasonably withholding notice to proceed, unreasonable changes to testing or inspection methods, and/or improper rejection of work.

The key first step for any contractor that is ordered, directly or indirectly, to perform changed work is to provide notice to the owner. Notice allows the owner to make any adjustment to the work it may deem necessary to mitigate increased costs and control the work. Failure to provide notice therefore arguably deprives the owner of those opportunities and could serve as the basis for denial of the claim.

Notice should be provided in strict compliance with the contract notice provision, especially if the contract is governed by Washington state law, which requires strict compliance. Oregon law is not as harsh as Washington law in that regard and actual notice may in certain situations be sufficient. However, the safest route is to strictly comply with the contract notice provision.

After providing notice, a contractor should diligently track its costs associated with the changed work and consider any other potential claims it could have because of the change, such as claims for acceleration, disruption, and/or delay. While some courts allow for recovery of the “cumulative impact” of multiple changes to work, this type of claim is generally less preferable than bringing discrete contract and constructive change claims.

While a written change order is always the preferred outcome when a contractor encounters the need for changed work, in the absence of a change order it may nevertheless obtain an equitable adjustment under the theory of constructive change, provided that it gives timely notice, tracks its costs carefully, and is able to prove the change and order/fault elements.

Brent Carpenter is a Jordan Ramis PC shareholder. His practice is focused on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Compensation for changes in the absence of a written change order appeared first on Daily Journal of Commerce.

Most construction contracts that include scopes of work that are measured in unit quantities provide for a unit price, rather than a lump sum, for those items. Owners typically provide an estimate of the necessary quantities in the bid package in order to guide the contractor in bid preparation. However, many contractors have experienced situations in which the actual quantities varied from the quantity estimate provided by the owner.

Frequently, owners attempt to disclaim complete reliance on the estimates by inserting language such as Section 00120.20 of the Oregon Standard Specifications for Construction (2021), which provides that “quantities appearing in the bid schedule are approximate” and that ODOT does not “warrant that the actual individual items … or quantities will correspond to those shown in the bid schedule.”

However, generally, when an owner provides an estimate of quantities, the contractor is entitled to rely on that estimate in preparing its bid. Subject to the terms of the contract, such estimates are typically binding on the owner, and it must bear the cost of any quantity overruns. Indeed, the purpose of unit prices is to alleviate the risk that a lump sum bidder faces when the actual units exceed the estimate – that the bidder underbid the project and has no recourse for payment for the extra units. Unit price bidding provides the per-unit price, which the owner should pay for actual number of units performed.

Many contracts address variations in estimated quantities with contract provisions specific to the issue. However, there are significant differences in contracts for federal and state of Washington public works contracts, on one end of the spectrum, and state of Oregon public works contracts and private construction project contracts, on the other end of the spectrum.

On the clearer end of the spectrum, contracts impose certain thresholds and limitations on payment for variations in estimated quantities, and on the fuzzier end of the spectrum, contracts contain ambiguous, subjective criteria for payment.

As an example on the clearer end of the spectrum, Federal Acquisition Rule 52.211–18 provides that a contractor is entitled to an equitable adjustment if the variation in estimated quantities is above 15 percent. Similarly, Division 1-04.6 of the Washington Standard Specifications for Road, Bridge, and Municipal Construction (2022) provides for an equitable adjustment if the variation in estimated quantities is great than 25 percent. As illustrated, some contracts lay out very clearly the conditions under which a contractor may expect payment for variations in estimated quantities. In the case of most federal and state of Washington public works projects, the variation must be 15 or 25 percent respectively before an equitable adjustment to the contract price will be made.

On the fuzzier end of the spectrum, Oregon public works projects subject to the ODOT Standard Specifications have a more subjective method for addressing variations in estimated quantities. Section 00140.30 of the specifications acknowledges that variations in estimated quantities may occur, but does not use the percentage variation method used on federal and state of Washington projects. Instead, the ODOT Standard Specifications distinguish between “insignificant changed work” – that is, changes that “do not significantly change the character or unit cost of the work” – and “significant changed work” – that is, when “the character of the work, as changed, differs materially in kind, nature, or unit cost from that involved or included in the originally proposed construction.” In the case of insignificant changed work, the specifications provide that the owner will only pay the bid price, but for significant changed work, the owner will adjust the contract price, based on an amount agreed to by the parties.

Thus, a contractor who experiences a variation in estimated quantities on a project subject to the ODOT Standard Specifications must show that the variation meets the definition of “significant changed work.” Obviously, a determination of whether a change is “significant” is much more subjective that a determination of whether there was a 15 or 25 percent variation. Therefore, contractors on Oregon public works projects subject to the specifications will likely bear a heavier burden in proving their claims than their counterparts on federal and state of Washington public works projects.

As for private construction contracts, they are not subject to the statutes and regulations governing public works contracts, and therefore may or may not contain variation in estimated quantities provisions at all and, if they do, there is no universally used form of provision. As with the ODOT Standard Specifications, estimated quantities provisions in popular form contracts for private construction projects are often open to interpretation. For example, the provision contained in the General Conditions of the American Institute of Architects set of form contracts is illustrative. AIA A-201, Section 9.1.2 provides that the contractor is entitled to an equitable adjustment if the variation causes “substantial inequity” to the contractor. The term “substantial inequity” is not defined in A-201, leaving it to the affected party to argue that the inequity of a given variation in estimated quantities is “substantial.” Such disputes would ultimately be decided by a court, likely after protracted, costly litigation.

As the Oregon and AIA examples show, some contracts leave the issue of when a contractor is entitled to payment for a variation in estimated quantities up for debate. Use of subjective criteria such as “significant changed work” and “substantial inequity” leave contractors at risk of not being paid for variations in estimated quantities. While an Oregon public works contractor has little choice but to accept the ODOT Standard Specifications, a private contractor should attempt to negotiate a clear method, such as those offered by the FAR and WSDOT Standard Specifications, for addressing variations in estimated quantities. In any event, as with any claim, a contractor should put the owner on notice as soon as it experiences or foresees a variation in estimated quantities and keep detailed records of its increased costs.

Brent Carpenter is a Jordan Ramis PC shareholder. His practice is focused on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Variations in estimated quantities for construction projects appeared first on Daily Journal of Commerce.

Like almost every other aspect of life, global supply chains have been upset by the pandemic. It has increased the costs of construction materials and disrupted construction schedules due to late deliveries. Impacts to the costs of materials and time of delivery obviously can have a financial impact on contractors. If the contract does not provide for contractor claims for material cost escalations, or prohibits such claims, the contractor may be liable for the escalation. Further, if material delivery delays in turn delay the project, a contractor could face the assessment of liquidated damages.

In previous articles, I discussed ways to potentially mitigate the risk of the assessment of liquidated damages due to pandemic-related delays through the invocation of contractual force majeure provisions and/or the common law doctrines of frustration of purpose and impracticability of performance. Given the unprecedented increases in material costs and delays in delivery of materials, contractors facing the assessment of liquidated damages should review their contracts for a force majeure provision or, in the absence of one, consider the common law defenses mentioned above and discussed in my previous articles.

However, contractors faced with astronomical material cost increases may also wonder whether they are locked into their bid price and whether they can get some financial relief from the owner. Some contracts contain – and likely most future contracts will contain – provisions that address this question. On the less equitable end of the spectrum of those contract provisions, owners may try to place all of the liability for material cost escalations on the contractor.

For example, a contract may provide that material escalation costs are to be included in the bid and that no cost escalation charges are allowed. Whether such a provision would be effective to bar claims by contractors for material cost escalations is evidently not an issue that has been addressed by an Oregon appellate court. However, considering such a provision in light of the unprecedented escalation in material costs due to pandemic-related supply chain issues, a contractor could argue that such price escalations were unforeseeable at the time the parties entered into the contract. In other words, the contractor could not have foreseen the astronomical cost increase and therefore could not have reasonably been charged with including that contingency in its bid. Whether this argument would prevail against an unambiguous prohibition against material cost escalation claims is unknown.

On the kinder, more certain end of the spectrum, some contracts contain provisions that attempt to more fairly allocate the risk of material cost escalations. Such provisions typically provide that the contract price will be equitably adjusted through the change order process when there is a “significant” materials price increase. A “significant” price increase is usually defined as an increase of 20 percent or more from the contract date to the date of installation of the materials.

Some provisions cap the allowable cost increases to a percentage of the originally anticipated cost of the material. The presence of such a provision can provide clarity and assurance to both the owner and the contractor by allocating the risk more equitably, with the contractor knowing that it will not have to completely absorb the cost increase, while providing the owner assurance that its liability for any escalation has a limit.

That said, most contracts entered into prior to the recent supply chain issues fall in the middle of the spectrum; that is, they do not address material cost escalations. The reason for that absence is likely because, prior to the pandemic, prices have generally not risen so sharply in such a short period of time. While material cost escalations did occur prior to the recent supply chain issues, in general those escalations could be anticipated and addressed in the contractor’s bid. Contracts that do not reasonably or clearly allocate the risk of material cost increases (i.e., the majority of contracts entered into prior to the supply chain issues) have left contractors and owners in uncharted territory, with the contractor’s expectation of profitability competing with the owner’s expectation of staying within budget. Which interest will prevail will be left to negotiation and, inevitably, litigation.

Regardless of where the contract falls on the spectrum of its treatment of material cost escalations, to preserve its claim, a contractor should immediately put the owner (or general contractor in the case of a subcontractor or material supplier claim) on notice of the price escalation and follow the contract’s change order and/or request for equitable adjustment procedure. Additionally, contractors should attempt to negotiate informally with owners to obtain an equitable adjustment. Reasonable owners should recognize that even if the contract does not address material cost escalations, or even if it prohibits such claims, the present pandemic-caused material cost escalation was unforeseeable if the contract was entered into prior to the supply chain issues.

Going forward, contractors should attempt to negotiate the inclusion of price escalation provisions in their contracts to avoid potentially being liable for the full amount of the material cost escalation. These provisions can and should be as specific as possible. That is, if contractors are aware that the cost of certain materials may increase dramatically between the date the contract is signed to the date of performance, they should specifically provide for that possibility in the material cost escalation provision. Some consideration and risk allocation at the contract negotiation phase is vastly preferable to litigation when the project is complete.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses his practice on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Who pays for material cost escalations during construction? appeared first on Daily Journal of Commerce.

Delay, disruption and acceleration of construction projects are nothing new and most seasoned contractors have experienced one or all of them. However, the pandemic and environmental events, such as last year’s historic wildfires and this summer’s record heat wave, might point to a future in which contractors may be affected more frequently.

Following is a discussion of three distinct legal theories, which are often hopelessly intertwined factually. That is, disruption of work, through trade stacking and direction to perform work out of sequence, can lead to delay – and that may then lead to acceleration as the contractual completion date approaches. However, each of these legal theories has its own elements of proof, which a contractor will need to keep in mind should it anticipate bringing a claim.

Delay is inexcusable, excusable or compensable – and the distinctions are based on which party has “control” of the occurrence that caused the delay in a critical path activity.

An inexcusable delay is one caused by an occurrence that was within the control of a contractor or its subcontractors and/or suppliers and not in the owner’s control. For these delays, the contractor is not entitled to compensation or an extension of time. Examples include delays caused by the contractor’s defective work, normal weather conditions, and failure to coordinate subcontractors.

An excusable delay is one caused by an occurrence that is within neither the contractor’s nor the owner’s control. For these delays, the contractor is not entitled to compensation, but is entitled to an extension of time. Examples include delays caused by abnormal weather conditions, labor strikes, and governmental action.

A compensable delay is one caused by an occurrence that is in the owner’s control, but not within the contractor’s control. For these delays, the contractor is entitled to compensation and an extension of contract time. Examples include delays caused by defective plans and specifications, the owner’s failure to provide timely access to the project site, and untimely approval of shop drawings and submittals.

A concurrent delay is when, for example, an excusable delay and an inexcusable delay occur concurrently. In that case, the delay is treated as excusable (i.e., contractor only entitled to extension of time). Further, an excusable delay can be compensable when it would not have occurred but for a compensable delay. For example, delays caused by defective plans and specifications unforeseeably push a contractor’s work into abnormal weather, which further delays the contractor’s work. While the delay resulting from the abnormal weather would normally be a non-compensable delay, it is rendered compensable by the fact that the contractor would not have experienced the abnormal weather had the plans and specifications not been defective. A contractor that wishes to obtain compensation or an extension of time due to a delay must prove the key element that the event was outside of its control.

Disruption occurs when a contractor experiences a reduction in its expected productivity of labor and equipment on both critical and noncritical work. In order to recover on a claim of disruption a contractor must prove that the disruption was: 1, outside of the “normal” type disruption inherent in construction projects, and 2, caused solely by a compensable event that was within the other party’s control. In determining whether a compensable event was within control of the other party, courts examine whether the event: 1, was foreseeable at the time the parties entered into the contract; 2, was within the contractor’s express or implied legal duty to control; 3, was within the contractor’s actual physical control; 4, was caused by the contractor’s negligent acts or omissions; or 5, could have been avoided or mitigated by the contractor.

Among the disruptive acts and omissions that can lead to loss of productivity are: improper scheduling of work activities of subcontractors and suppliers; improper coordination of construction activities; directing out-of-sequence work; causing trade stacking; preventing access to work areas; making work available on a piecemeal basis; and mismanaging the change order process. The preferred method for proving time impacts is use of the critical path method (CPM) analysis. However, the reality is that most construction projects do not lend themselves to a tidy CPM analysis. If one cannot be employed, because of failure to make contemporaneous updates to the schedule, an “as-built” schedule can be compared to the contractor’s “as-planned” schedule to provide a reasonable analysis of the project’s critical path and the effects on it of time-impacting events.

Acceleration is compression of the time allowed for a contractor to complete its work on the project and can be directed or constructive. Directed acceleration can take the form of a unilateral change order or a more informal demand to “pick up the pace” of work, and under either scenario the contractor may recover its increased costs incurred in achieving the accelerated schedule.

Constructive acceleration typically arises out of a dispute between the parties regarding whether a contractor is entitled to an extension of time or compensation for a compressed schedule. To prevail on a claim for constructive acceleration, the contractor must prove that: 1, it encountered an excusable or compensable delay to the critical path that justified an extension of contract time; 2, it requested an extension of time in accordance with the contract; 3, the other party denied or ignored the request for an extension of time; 4, the other party expressly or impliedly directed the contractor to finish its work by the original completion date; 5, the contractor provided timely notice of an acceleration claim; and 6, the contractor actually accelerated performance and suffered damages as a result. A contractor that brings a successful acceleration claim may recover costs that include overtime, loss of productivity due to working out of sequence and the inefficiencies resulting therefrom, loss of productivity due to working longer hours, and increased administration due to additional supervision.

The legal theories of delay, disruption and acceleration are distinct legal theories with their own elements of proof. The reality of most construction projects is almost always less clean cut, and these issues become almost inextricably intertwined. However, a prudent contractor can make the web a little less tangled by becoming aware of the claim elements and doing its best to document and preserve these distinct claims through directives and other communications, keeping track of the costs resulting from any delays and impacts, and providing notice of a claim as soon as possible.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses his practice on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Delay, disruption and acceleration: untangling the tangled web appeared first on Daily Journal of Commerce.

Bidders on public works projects in Oregon and Washington are probably at least passingly familiar with the bid protest process. Typically, if the second low bidder is aware of a material irregularity or informality in the apparent low bidder’s bid, the second low bidder may protest that defect to the contracting agency and it must do so within a very brief window of time. Consider the significant differences between the bid protest deadlines and procedures in Oregon and Washington, of which contractors should be aware.

One caveat at the outset – the following is based on the standard procedures under Washington and Oregon statutes and regulations; however, contracting agencies are free to modify these statutes and regulations through the terms of their solicitations (i.e., the invitation to bid or request for proposals). So, it is vital that a contractor be familiar with the protest procedure provided for in the solicitation and follow that procedure should it choose to submit a bid protest. If the solicitation does not contain a protest procedure, then a contractor should assume that the applicable statutes and regulations apply.

The general rule in Oregon is that bidders on public construction projects are required to submit bid protests within seven calendar days of issuance of notice of intent to award to the apparent low responsive bidder. The Oregon regulation expressly provides that the seven-day protest period applies unless a different protest period is provided for in the solicitation. Thus, the triggering event in Oregon is not when the apparent low bidder is revealed at bid opening, but when the contracting agency gives notice of its intent to award. Therefore, a disappointed bidder must submit a protest within seven days of that event.

If a contracting agency denies the bid protest, the bidder can then seek judicial review of the denial in the circuit court in the county in which the contracting agency is located. While the statute does not provide for a specific time frame for bringing such an action, as a practical matter, a bidder would be wise to file a lawsuit as quickly as possible to prevent notice to proceed or performance of the work on the project. Waiting until performance has commenced to file a lawsuit gives the contracting agency a persuasive argument that stopping performance and redoing the solicitation would not be in the public interest.

The most prudent course of action would be for a disappointed bidder to immediately file an action for injunctive relief and declaratory judgment and a motion for a temporary restraining order, which a bidder may be able to obtain without notice to the contracting agency. The statute also provides that the prevailing party may recover its damages and attorney fees incurred in prosecuting or defending against the protest. Therefore, before commencing litigation, disappointed bidders should consider the risk of having to pay the contracting agency’s damages and attorney fees in the event the protest is denied.

As noted earlier, there are some important distinctions between the bid protest procedures in Oregon and Washington. The general rule in Washington (simplified for this article) is that bidders are required to submit bid protests within two business days of bid opening. That is, the triggering event for the protest period in Washington is bid opening, not issuance of notice of intent to award, as in Oregon. This distinction may seem minor, but could have important impacts on whether a bidder’s protest is timely.

For example, in Oregon, if a bidder is fifth low, it would generally not be required to file a protest of an irregularity in the fourth low bidder’s bid, as such a protest would have no effect on contract award. Conversely, in Washington, applying the plain meaning of the bid protest statute to the hypothetical above, the fifth low bidder would be required to protest irregularities in the bids of other bidders who were not in line for award, in order to preserve their legal rights. While seemingly inefficient and impractical – as it would require the contracting agency to make a determination regarding bids that would have no effect on contract award – this is what the language of the statute requires of bidders. Therefore, the prudent bidder would request copies of all bids, review them carefully, and protest any irregularities it finds.

If the contracting agency denies the bid protest, Washington case law holds that a bidder must seek a temporary restraining order before the contract is executed. As mentioned above, it is merely advisable that an adversely affected bidder in Oregon seek injunctive relief immediately, while in Washington it is required to preserve a bidder’s legal rights. Thus, an aggrieved bidder in Washington must act quickly and file an action in Superior Court for injunctive and declaratory relief.

Under Washington case law, a bidder is not entitled to recover its damages or attorney fees, though a contracting agency may be entitled to recover its attorney fees if a court finds that the temporary restraining order was “wrongfully issued,” which in the context of bid protests means that the bidder seeking injunctive relief lacked a reasonable basis for doing so. Therefore, as with bid protests in Oregon, a bidder must consider the risk of having to pay the contracting agency’s attorney fees when evaluating whether to seek judicial review of the denial of a protest.

There are significant differences in Oregon and Washington bid protest law, and contractors need to be aware of those differences. An Oregon-based contractor may occasionally bid on Washington projects or vice versa, and assume the rules are the same. However, as noted, there are key differences between the procedures that could affect contractors’ bid protest rights.

Again, the first place to look to determine the proper procedure is the solicitation. If it provides no guidance, then contractors should assume the aforementioned rules apply and do their best to strictly comply with them. As with all bid protests, timing is key and knowing the deadlines ahead of time will help bidders preserve their protest rights.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses his practice on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Differences in Oregon and Washington bid protest processes appeared first on Daily Journal of Commerce.

As most construction contractors and subcontractors know, construction liens can provide important payment security and also the ability to recover attorney fees if they prevail in foreclosing their liens. In past articles, I have discussed some of the myriad of issues which can arise regarding liens, such as statutory notice requirements and lien recording deadlines.

Another issue that arises with some frequency is whether particular items included in a lien are “lienable” — that is, whether they are items which are allowed under the lien statutes.

Both Oregon and Washington lien statutes provide that a contractor or subcontractor shall have a lien for furnishing labor, materials and/or equipment on an improvement (i.e., a construction project). In Oregon, a contractor or subcontractor has the right to a lien for labor that adds value to the improvement, including wages and overhead. The lien may also include the cost of labor not performed on the project site if that labor is expended to fabricate goods to be incorporated into the project, like the fabrication of steel beams or wooden trusses. However, if the labor does not “add value” to the improvement, such as costs for demobilizing well drilling equipment when a project was terminated, it is not lienable.

Washington lien statutes define labor as the “exertion of the powers of body or mind performed at the site for compensation” which is performed on the project site. Thus, Washington law expressly limits “labor” for purposes of lien claims to labor performed on the project site. Case law limits what constitutes labor even further, holding that labor does not include construction management and administrative tasks, which the courts have found do not improve the property.

Regarding materials, in Oregon, a contractor or subcontractor has a lien for materials furnished to a construction project, provided that the materials become part of the project or are consumed by the project. Courts will generally make the assumption that materials delivered to a project site became part of or were consumed by the project. However, if the materials are not delivered to the project site, but instead to another location, the lien claimant must show that they were used to fabricate an item that is ultimately incorporated into the project, such as beams or trusses, which are fabricated specifically for the project.

In Washington, the materials must be intended to be incorporated into the project. Recognizing the difficult task a claimant would face if it had to prove that the materials it furnished were actually incorporated into the project, courts in Washington, as in Oregon, assume that if materials are delivered to the project site, they were incorporated into the project. Washington courts require that materials be furnished in good faith to be incorporated into the project, which means that delivery of materials that were not ordered will not provide or extend lien rights.

Provision of equipment is apparently straightforward in both Oregon and Washington, as only one case discusses the issue of the inclusion of equipment costs in a lien — a Washington case in which the court held that if the use of the equipment is merely incidental to labor, then a lien does not arise for the equipment.

The above illustrates that there are no bright-line rules about what is lienable and what is not. Courts must determine, on a case-by-case basis, whether the claimed items are lienable based on subjective criteria, such as whether the labor “added value” to the project. Thus, claimants are sometimes left guessing about what is lienable and what is not. So, what happens if a court determines that a lien contains lienable and non-lienable amounts and how can a claimant protect its lien rights? The answer depends on how detailed the lien is as to the amount claimed. In both Oregon and Washington, if the non-lienable items can be segregated from the lienable items, then the lienable portion of the lien will likely survive.

However, if the lien simply contains what is required by the lien statutes — which is simply the principal amount of the lien — it would likely be difficult to segregate out the non-lienable items. In other words, simply following the statute and stating the lien amount in a lump sum can leave the claimant’s lien rights in jeopardy. If a court is unable to segregate the non-lienable items, then there is a strong chance that the court will hold that the lien is invalid.

Further, owners have legal recourse, provided by statute, against a lien claimant for invalid liens. In Oregon, a lien claimant who “knowingly files” an invalid lien is liable to the owner for the greater of $5,000 or the owner’s actual damages, whichever is greater.

In Washington, an owner may bring an action under the state’s “frivolous lien” statute and a court may order the lien released if the owner proves that the lien is “frivolous and made without reasonable cause, or clearly excessive.”

In both states, a lien claimant whose lien is determined to be invalid is potentially liable to the owner for the owner’s costs and attorney fees incurred in challenging the lien.

Thus, while a lien provides valuable security, that security is not without risk. Fortunately, the means of mitigating that risk is fairly straightforward — do not record a lump sum lien. Instead, attach a breakdown of the lien amount as an exhibit to the lien. That way, if there is any question about whether an item is lienable or not, it should be fairly simple to segregate out any amounts in the lien which turn out to be non-lienable. The claimant could then record a partial release of the lien in the amount of the non-lienable items and the remainder of the lien would likely stand. This outcome is obviously a lot better than the lien being declared invalid altogether and the claimant having to pay the owner’s attorney fees.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

��The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: Construction liens in Oregon and Washington: How to protect your rights appeared first on Daily Journal of Commerce.

Many private construction contracts contain what are known as “no-damages-for-delay” provisions. These provisions typically provide that a contractor may not recover damages (i.e., money) from the owner for owner-caused delays, or in the case of a subcontract that the subcontractor may not recover damages from the general contractor for delays. These provisions do not typically prevent a contractor from recovering contract days (i.e., time), but instead act as a bar to what is known as compensable delay.

For public construction contracts in Oregon, such provisions are unenforceable by statute. The statute does not address the enforceability of such provisions for private construction contracts. In Washington, such provisions are unenforceable by statute for both public and private construction contracts. While several states, like Oregon, have declared by statute that no-damages-for-delay provisions are unenforceable in public construction contracts, Washington is the only state that has declared them unenforceable in both public and private construction contracts.

The enforceability of these provisions in private construction contracts in Oregon is an open question. The majority of jurisdictions – 27 states plus the District of Columbia – have held that no-damages-for-delay clauses in private contracts are enforceable with exceptions. Courts in those jurisdictions have recognized some variation on the following exceptions:

• delays not contemplated by the parties;
• delays caused by fraud, concealment, misrepresentation, bad faith, or willful, malicious or grossly negligent conduct;
• delays amounting to active or direct interference; and
• delays so unreasonable that they constitute an intentional abandonment of the contract.

Some jurisdictions add other exceptions, such as the commonly used exception for delays not specifically enumerated in the clause. Fifteen jurisdictions, including Oregon, have no statutory or case law on whether no-damages-for-delay clauses in private contracts are enforceable, though many of those have statutes, like Oregon’s, making such clauses unenforceable in public contracts. A small minority of jurisdictions (only seven) hold that no-damages-for-delay clauses in private contracts are enforceable without exception.

For contractors in Washington, the law is clear – no-damages-for-delay provisions in both public and private construction contracts are unenforceable by statute. However, contractors in Oregon have little guidance as to whether a no-damages-for-delay provision would be upheld by a court with or without exceptions. Given that the majority of jurisdictions allow exceptions to no-damages-for-delay clauses in private contracts; that among those states is the neighboring state of California; that Oregon prohibits such clauses in public contracts; and that Washington prohibits such clauses altogether, it seems somewhat likely that a court would find that the exceptions listed above apply in Oregon. Stated another way, it seems unlikely that a court would side with the decided minority of jurisdictions which allow no exceptions.

Assuming the exceptions do apply, what sort of claims would they allow? Examples of such conduct would be unreasonably withholding notice to proceed or unreasonably restricting access to the project site. In Washington, contractors clearly have a path to recovery for damages caused by such delays. In Oregon, it seems somewhat likely that a court would allow such damages, but perhaps subject to limitations.

Thus, contractors who enter into private construction contracts in Oregon that contain a no-damages-for-delay provision should be aware of the unsettled nature of the law regarding these provisions. The spectrum of possibilities ranges from a court deciding to determine that no-damages-for-delay provisions in private contracts are void as a matter of public policy to a court enforcing such provisions without exception. The two extremes seem unlikely and the likely outcome would probably be somewhere in the middle. As with any such ambiguity, contractors should seek to mitigate the associated risk through smart contract negotiation.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses his practice on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: No-damages-for-delay provisions in private contracts appeared first on Daily Journal of Commerce.

Construction liens are a powerful tool to ensure payment from an owner or a general contractor on private construction contracts and subcontracts. However, to preserve this security, a contractor needs to be cognizant of the deadline for recording a lien.

In Oregon, that deadline is 75 days from the last day the contractor provided labor, material, and/or equipment to the project or the date of substantial completion – whichever is earlier. In Washington, the deadline is 90 days from the last day the contractor provided labor, material, and/or equipment to the project. While those deadlines seem straightforward enough, an issue that has arisen repeatedly is determining the date on which the deadline begins to run.

A decision by Washington Court of Appeals in March 2021 illustrates how this issue continues to arise even decades after the lien statutes were created. In Brashear Electric, Inc. v. Norcal Properties, LLC, the contractor argued that repairing its own work extended its deadline to record a lien. The contractor based this argument on the word “repairing” in Washington’s lien statutes. As mentioned above, Washington’s lien statutes provide that a person must record a lien “not later than ninety days after the person has ceased to furnish labor, professional services, materials, or equipment.” The statutes provide that the furnishing of labor, materials, or equipment must be “for the improvement of real property.”

The statutes define “improvement” to include “constructing, altering, repairing, remodeling, demolishing, clearing, grading, or filling in, of, to, or upon” real property. The contractor argued that its repair work – caulking around a rooftop air conditioning unit, which was the alleged source of a leak, and repairing a loose light fixture connection – was “repairing,” as the term is used in the statutes. The court rejected this argument, reasoning that “repairing” means to “restore” something that “once worked properly,” but is now broken. In the case of nonconforming work, such as that at issue in the case, the court reasoned that such work never “worked properly.” The court also reasoned that “a lien is intended to secure payment for money owed” and “a contractor is not paid to correct its own nonconforming work.” Therefore, the court held the contractor’s liens were untimely.

This holding is consistent with Oregon case law, which provides that the 75-day deadline to record a lien begins to run when the contract at issue is “substantially complete.”

Determining whether a project is “substantially complete” is a factual determination made by the court or jury on a case-by-case basis. Oregon courts have consistently held that “trifling” work or repair of one’s own nonconforming work does not extend that deadline. For example, in a case where the contractor replaced a defective heater, which required minimal labor and was performed under warranty, the court held that such work did not extend the time for recording a lien. Conversely, a court held that a project was not substantially complete when electricians had yet to wire the appliances.

However, occupancy of the project premises is not in and of itself dispositive proof that a project is substantially complete. Under the Oregon lien statutes, an owner or contractor may issue a notice of substantial completion, which alerts project contractors that they must record any claim of lien in accordance with the lien statute (i.e., within 75 days of the date of the notice). However, the Oregon Supreme Court has held that the statutory notice “is neither the exclusive nor conclusive test for deciding when completion of a structure has occurred.”

As the above discussion makes clear, there is a lot room for disagreement over when the lien recording deadline begins to run. Obviously, a contractor will want to avoid costly litigation to determine whether its lien was timely recorded. While this may ultimately be necessary in some cases, such a scenario may be avoided by simply keeping the deadlines in mind as a project is being wrapped up. If a firm is almost done with its contract work and is concerned about getting paid, it is a good idea to calendar the lien recording deadline (erring on the side of recording earlier) and start putting together its lien (i.e., determining the amounts expended on labor, materials, and/or equipment and compiling the backup for those amounts). Doing so can preserve payment security and put pressure on those up the contracting chain to provide payment.

Brent Carpenter is a Jordan Ramis PC shareholder. He focuses his practice on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.

Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

The post OP-ED: When does a construction lien deadline start to run? appeared first on Daily Journal of Commerce.