“Dark matter” is an invisible, mysterious substance that makes up about 27 percent of the universe. Its existence is inferred from its gravitational effects on ordinary matter, but it’s not made of the same particles. While difficult to observe directly, its impact is real.

Similarly, there are usually hidden factors that impact resolutions of disputes. While lawyers focus largely on the contracts, the law and the facts, all of which are more tangible and available, we sometimes overlook the invisible forces behind the scenes.

These hidden forces can dictate the outcome in mediation. If you have ever wondered why the opposing party’s position makes no sense given the observable merits of the dispute, you may be missing the dark matter. Here are some examples.

Cash flow is often a major consideration for the defending party. The defense may privately acknowledge that the merits of the case are unfavorable and that going to trial poses significant risk. However, if funds are not available to settle, the process may drag on. Large corporate defendants may await an uptick in their markets – yielding a strong revenue flow – before they are able to settle. They may also want to close their fiscal year before paying or committing to pay a large settlement. Do not underestimate the importance of year-end results and the effect they have on individual compensation and job security. In cases where large sums of cash are not currently available, the paying party should explore with the mediator whether payments can be delayed, made in installments, or come in the form of goods and services.

There are other business forces that can affect settlement efforts. For example, one of the parties may be in merger or acquisition talks that could be impacted (negatively or positively) by a large settlement. In addition, refinancing efforts or a campaign to raise capital may be under way that affects a party’s motivation to settle at a particular time. Finally, similar or even related disputes with other parties could be pending. The outcome of one dispute could have a ripple effect on others. It is important to dig deeper to discover if larger business forces are in play.

Another key factor is whether the right decision-makers are at the table. The optimal decision-maker is one who 1, has authority to settle up to the highest reasonable value of the case; 2, can objectively weigh the pros and cons of settling, without ego or an emotional stake in the underlying events; and 3, has been properly educated on the contracts, law, and facts at issue. While it is easy to determine if the decision-maker is a “higher-up” executive with apparent authority, his or her limit of authority is likely unknown. It can be equally difficult to know whether the other criteria are met. A good practice is to ask your mediator to inquire with the opposing attorneys and, where necessary, to request a direct discussion between the mediator and the decision-maker to confirm 1-3 above.

A fourth factor is the ongoing business relationship between the parties. Disputes are generally harder to settle if the parties never want to see each other again. Conversely, if they need each other to conduct their business, finding a path to settlement is considerably easier. In these situations, both parties can justify a less-satisfactory result to preserve future opportunities. If the relationship can be expanded, or if an immediate nonmonetary business benefit can be conferred, the need for money changing hands now is diminished. Legal marketing professionals often tell lawyers to “learn your client’s business.” In mediation, you should also learn the opponent’s business to improve the odds of resolution.

Finally, “timing” is a theme that runs through the factors above and other dark matter considerations. Is the project done and is the damage now calculable? Have the decision-makers had time to be properly educated? Is it impossible to settle until a third party gets involved or until an event occurs that offers an opportunity to strike a deal? Is trial imminent? Perhaps most importantly, have the parties felt the pain – or do they otherwise appreciate – the time commitment of litigation and the weight of monthly legal bills?

Experienced attorneys and mediators can often predict or manage these timing factors to mitigate the legal expense and waiting time otherwise necessary to settle a case. They can also ensure that you consider both the visible and invisible factors that will facilitate resolution and allow the parties to move on with their lives.

Eric Grasberger is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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.

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Many construction, development, and real estate purchase agreements provide for early mediation as a condition precedent to arbitration or court litigation. Early mediation sessions usually fail, only to be followed months later by additional mediation sessions that succeed. If most cases are settled later, why can’t they be settled sooner before incurring the time and expense of legal battles?

Here are five keys to improving your odds of success at early mediation.

First, ask your attorney to interview a few of your project employees who will need to testify in support of your case. Obtain their email and text files first and search for key words to locate messages that would be problematic or supportive of your case. The interview should focus on the tough questions that will be asked by your opponent in a deposition or at trial. If the opponent agrees, consider stipulating to a short list of the key employees on both sides, the same or very similar search terms, and the exchange of the responsive emails sufficiently in advance of mediation to let the impact of those documents sink in. Many cases hinge on email and text admissions made contemporaneously during the project. They also hinge on the credibility and substance of key witness testimony.

Second, obtain and exchange with your opponent preliminary expert reports on the technical issues in the case. While expert reports at this stage will be developed without the benefit of depositions or full document discovery, many experts can provide a reasonably accurate forecast of the merits based on preliminary information. Encourage your expert to be candid with you, and you should be candid with the expert. Doing so will arm you with the information needed to assess and settle your case early.

Third, ask your attorneys to provide a range of expected attorney fees, expert fees, and related legal costs that will be incurred at the following stages: costs through early mediation; costs up to the start of trial; costs through the conclusion of trial; and costs during any available appellate proceedings. Ask them to provide the assumptions they employed when estimating these fees and costs. Ask your attorneys to explain whether your fees are recoverable and, if so, what percentage of those costs is likely to be awarded by the arbitrator or judge if you prevail. You should assume that your opponent will incur its own legal costs that are within 25 percent to 33 percent of your costs, and that they will seek reimbursement of those costs from you should the costs be recoverable under contract or applicable law.

Fourth, in conjunction with the above, consider the mandatory exchange of pre-mediation settlement offers. If possible, this should be done under rules that prevent the recovery of fees and costs by prevailing parties who fail to obtain a better result at trial. This method may add considerable risk to any party that rejects a settlement offer. As part of the “first offer” analysis, ask your attorney to prepare his or her own evaluation of the settlement value of the case. Parties who value their case significantly higher or lower than their attorney often need further education of the risks and merits of the case, or at least a second opinion from another attorney. Getting the initial round of offers on the table often takes the first half of the first day of mediation. Given that most mediations are only one day, you can waste precious time waiting until mediation to exchange initial offers. Performing the settlement valuation and exchanging first offers in advance of mediation allows the mediator and parties to focus on the gap between the newly established goalposts during mediation.

Finally, ask your mediator to plan at least one pre-mediation session with each party to focus on the tasks above and any other steps to optimize chances for an early settlement. Some refer to this process as “Guided Choice Mediation.” The mediator may suggest a meeting between dueling experts where the mediator is the referee. The mediator may also suggest a particular negotiation plan, face-to-face meetings with decision-makers, or other measures aimed at preventing a stalemate at mediation. Equally important is not using precious mediation time to simply meet the parties, get a feel for their positions, extract the first offer and counteroffer, and plan next steps in real time.

The failure of an early mediation is usually not the fault of the mediator. Nor is it a sign that the case is incapable of settlement. The failure typically results from an under-considered process and the lack of investment by the parties in priming the mediation for success.

Eric Grasberger is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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.

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Change orders are a fact of life for construction projects. They can be challenging even when the owner and contractor agree on the scope, price, and schedule impacts associated with the change. Change orders are far more difficult when the owner and contractor disagree, especially when the job is still in progress. For example, the owner may believe the scope of work at issue was included in the existing contract price, and the contractor may respond that it never contemplated that scope of work and has no costs in its price to cover the work. What should the parties do in this situation?

The contract likely has a dispute resolution clause that provides for claims to be handled in court or arbitration. While this approach may need to be invoked, it would involve many months of effort with an uncertain outcome. Another option is mediation. However, even the best mediators cannot resolve all disputes, and mediation would take time to organize and schedule. In the intervening months, the project clock keeps ticking. The contractor may be financially unable or unwilling to spend its own money on work that wasn’t included in its price. The contractor may refuse to proceed without pay even in the face of another contract clause requiring the contractor to continue work while a dispute is pending. Conversely, the owner is unlikely to be able to await an arbitration outcome because the work must proceed to keep the project on schedule.

Enter the disputed change order clause. This clause is surprisingly absent from many standard form agreements. Where absent, parties can amend their existing contract to add this clause and temporarily defuse a change order problem until mediation or arbitration can resolve it.

Here are the key elements of a disputed change order clause:

First, the clause requires the contractor to submit a reasonable cost estimate for the changed work with adequate substantiation for the owner to vet the proposed price. The parties may agree that the estimate will be reconciled with actual costs later, or they may agree that the estimate becomes the final price for the work, without admitting who is responsible for payment.

Second, the clause specifies that the owner must specifically order the contractor to perform the disputed work after seeing the contractor’s cost estimate. The order should explain in writing the owner’s interpretation of the disputed work, including its precise scope and why the owner believes the work is already covered under the existing contract price.

Third, the owner must agree to pay a percentage of the substantiated cost estimate plus the contractor’s normal percentage fee. The percentage paid by the owner is usually between 40 percent and 80 percent and is subject to negotiation at the outset. The contractor then bills for the work as it would for an agreed change order, and the owner pays as it normally would, except that it pays only the agreed upon percentage. This same process applies to any time extension associated with the work. The agreed upon percentage is applied to the reasonable time extension requested and substantiated by the contractor. The resulting days are, at least temporarily, added to the contract time.

Fourth, the disputed change order clause explains that the owner’s agreement to pay a percentage and the contractor’s agreement to accept that percentage is under a “reservation of rights.” In the ensuing mediation and arbitration process, the owner reserves the right to claim back all the money it paid and the time it added to the contract. The contractor reserves the right to seek the full amount of its costs and fee and the full time extension it initially proposed.

Fifth, the percentage of money paid and time allotted are specified in the disputed change order clause to be inadmissible in the arbitration process, meaning each party presents its position to the arbitrator without the arbitrator knowing about the tentative partial payment, the partial time extension, and each parties’ reservation of rights. The arbitrator’s final decision is then reconciled with the parties’ temporary arrangement under the disputed change order clause.

The disputed change order clause is not perfect and neither party will be happy with the partial – but temporary – concession they make. In the bigger picture, however, this concession allows the work to proceed, it avoids escalating damages from project delay if a change order standoff ensues, and it allows both parties to present their full position in arbitration.

Eric Grasberger is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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.

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Selection of a contractor should be done carefully. There are many good contractors, but not all are the right fit for your project. Most owner-contractor relationships are long-term engagements that require good communication, patience, and trust. This is equally true whether the project is commercial or residential. Frustration over cost, schedule, business or domestic interruptions, and legal disputes can be mitigated by taking time to make a well-informed choice. Here is a checklist to help selection of the right contractor. Contractors should also apply the criteria below when choosing subcontractors.

Price and schedule

After first developing a clear and complete scope of work, solicit several proposals from construction firms that are known for handling projects that are a similar type and size. It may be surprising how much price and schedule terms can vary. Avoid open-ended contracts that do not specify a maximum price or a certain date for completion. While less common for small-scope projects, contractors are usually willing to stand behind their completion date by agreeing to pay daily liquidated damages for a late finish. Contractors should also supply a construction schedule. For large projects, the construction schedule should be very detailed and many pages long. Even for residential projects and smaller commercial ones, a simple schedule showing milestone dates for major accomplishments (e.g., delivery dates of key items and completion dates for each major stage of work) is very helpful to keep track of progress. However, if the scope of work is not well-defined, or if design is still under way, most contractors will not commit to a schedule or price; if they do, the schedule will likely be too long or the price too high to offset the risk of the many unknowns. Continue to refine the scope until the contractor is willing to make proper commitments.

Team

Be sure to meet and interview the team that will be directly responsible for performing the work. Understand that the person who “sells” the contractor’s services may not be involved later. Because the team is critical to the relationship and to good performance, ask each team member specifically about their own experience on this type of project (rather than the company’s experience). Ensure that the contract requires your approval of any substitution of team members. Ask team members how often they plan to be on-site. Ask if they anticipate any significant family leave or vacations during the project. Finally, ask for their personal philosophy about how to resolve differences that may arise on the job between you and the contractor, and between the contractor and its subcontractors.

Resources

There are several important questions to ask about the contractor’s resources:

• How many other projects will the contractor be handling at the same time it is working on yours? Is that typical? Does it have sufficient resources to stay on time and budget if it takes on other projects during the same period?
• Does it employ full-time workers, or will it be looking to supplement through manpower supply companies? Ask the contractor to describe the background checks it performs to ensure that high-quality, experienced labor is retained.
• What problems does it anticipate with timely delivery of materials and equipment? Are these items impacted by supply chain problems currently?
• Ask the contractor to identify its primary vendors. Ask if any of these vendors anticipate long lead times for specific items; if so, what are the delivery windows for these items?

These are important questions that need to be explored before deciding to hire a contractor. Among other things, the answers to these questions will reveal how well prepared the contractor is for your project.

Experience and reputation

Look carefully into the contractor’s background before soliciting a proposal, or at least before retaining its services. For residential projects and light commercial ones, check with the Oregon Construction Contractors Board for claims history and proof of licensure, bonding, and insurance. Internet searches and online reviews are also helpful but not always reliable. Use multiple sources when performing these background checks.

References

Good contractors should have no problem providing at least five good references. While just about any contractor can provide one or two references, the ideal list should have names and numbers for parties tied to the contractor’s five most recent projects. Develop a list of questions ahead of time and call at least three of the five.

Dispute history

Disputes happen. A contractor’s involvement in a dispute should not disqualify it from your project. The contractor may not have been at fault; the owner may have been unreasonable; or uncontrollable circumstances may have caused the dispute. However, if disputes appear to be frequent, or if research reveals that the contractor was not reasonable in attempting to avoid and quickly resolve disputes, you may want to select a different contractor. It is more important to find a contractor that stays out of trouble than one that has glitzy marketing materials and a professional sales force.

Time invested in selecting a contractor or subcontractors through the practices outlined above should save significant time (and frustration) during your project.

Eric Grasberger is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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.

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Mediation is commonly used in the construction claims process to resolve disputes. Twenty years ago, the typical mediation was conducted close to the trial date. The stakes were high. Tensions were higher. And the parties stayed well into the evening or early morning hours attempting to settle.

Things are different today. The allure of a mediated settlement often leads to multiple mediation sessions during the life of a dispute. In fact, most construction and design contracts now call for an early mediation session before a lawsuit or arbitration demand can be filed. Despite good intentions and great mediators, early mediations often fail. Why do they fail, and can anything be done to increase the odds of success?

One major obstacle is that the parties usually lack key information in the early stages of a dispute. Each side is entrenched in its own version of events and rejects any contradictory version. Formal discovery has not begun, and most parties will not (voluntarily) search for information that challenges their views. The parties head into mediation confident in their moral high ground. They are dismissive of their opponents’ situation, financial or otherwise. They sometimes assume the worst about their opponents: they are hiding the truth; they know their claim lacks merit; they are trying to line their own pockets. It is not until time-consuming, expensive, and involuntary document exchange and depositions occur that they are forced to face what they were happy to never learn.

But they will learn it. The question is when. To remedy this problem without the expense of full discovery, parties preparing for an early mediation should exchange targeted documents. These usually include emails from key witnesses, accounting documentation to support claimed damages, and preliminary expert reports when subject matter expertise is needed. An honest, open-minded review of this information is critical in forming a balanced perspective of the risks one faces as one heads down the litigation path.

Another reason early mediations often fail is that legal costs are still relatively low. Few people compromise without something pressuring them to do so. Mounting legal costs add significant pressure, especially when one knows that the heaviest costs – the costs of trial – are yet to come.�� But those costs seem far away to many early mediation participants.

For reality to set in sooner, lawyers should provide candid fee estimates before mediation. They should be broken out monthly or at least by quarter to avoid the appearance of only a distant threat. The individuals attending the mediation should present the fee estimates to those above them in the chain of command. Doing so can lead to a larger grant of settlement authority prior to mediation.

Some cases involve a key legal issue that is pivotal to the outcome. It might be the interpretation of a contract clause. It could be the manner in which case law or a statute will be applied to the facts of the dispute. If not dependent on the resolution of disputed facts, the parties should consider getting resolution of the key legal issue prior to the early mediation.

Arbitration can be tailored for this purpose. For example, the parties could appoint a single arbitrator whose only role will be resolution of that issue. The parties can brief and argue the issue within a few weeks and obtain resolution soon thereafter. Achieving a settlement at an early mediation is more likely when the outcome of the key legal issue is known.

Finally, early mediations often do not involve the right decision-makers. The dispute may have a low profile within the company. It may not have the attention of upper-level management. This changes as lawyer fees grow, trial approaches, and company representatives spend increasing amounts of time in support of the litigation. Upper-level management has at least two things that mid- or lower-tier managers do not: 1, higher settlement authority; and 2, a less-biased view of the case merits, untainted by emotion and deep involvement in the project details. The sooner upper management is involved, the better.

Early mediations may fail even when the challenges above are considered and mitigated. Not every case is settled, and few early in the process. But there is a bright side: If the steps above are taken by all parties, the ensuing discovery process will be more efficient and the next mediation will have a far greater chance of success.

Eric Grasberger is a Stoel Rives partner and a member of the construction and design group in its Portland office. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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.

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Change orders are a fact of life on construction projects. Despite commitments up front to limit or eliminate changes, they still occur. It is common to have changes agreed to by parties that include stipulations on contract price and time. It is also common to see owners, contractors and subcontractors disagree on: 1,��whether the work in question is really a change, and 2,��a fair adjustment to the contract price and time when changes are acknowledged. Disputes over changes can be minimized by following a few simple steps.

The most important step is to provide notice of the change before any expense is incurred. Changes that originate from the owner typically do not suffer from notice problems, because the changes do not occur unless the owner asks the contractor to make them. This ensures both parties have knowledge of the changes before the work is done. Changes that originate from the contractor or from subcontractors, however, are at greater risk of a notice failure.

For example, a subcontractor foreman may direct the crew to perform the work on the assumption that the work is within its subcontract scope, only to have the project manager realize later that the completed work is outside their scope. Another example is when the contractor performs changed work in a hurry, believing the owner will agree to pay after the fact because the work was necessary.

In these scenarios and others when advance notice is not provided, the owner or other upstream party is deprived of the opportunity to turn down the work, research alternatives, locate better pricing, or explain that the work was not a change in the first place. Many disputes are caused by a failure to provide advance notice.

Notice alone often is not enough to avoid disputes. Even if all parties know that changed work will be performed, they should attempt to agree on price and time impacts before any expense is incurred. Absent price and time estimates in advance of the work, there can be wildly different assumptions between the contracting parties about project impacts, leading to costly disputes.

Sophisticated parties attempt to set change order pricing ahead of time in the underlying contracts. Unit prices, equipment rates, profit margin percentages, daily rates for general conditions and other categories of cost can be stipulated in advance, preventing arguments later. While these clauses are helpful and should be included in a good contract, the underlying labor, equipment and material quantities involved with changed work often cannot be predicted at the contract execution stage. This makes it necessary to discuss and agree on quantities and other unstipulated items after contract execution but before the changed work begins.

Finally, despite proper notice and advance discussions over anticipated costs, the parties may still disagree on a fair price and time impact for the work in question. These preliminary disputes can delay implementation of the changed work, and delay the overall project. They can even increase the impact of changed work because the optimal window for completing the work was missed while the parties debated proper contract adjustments.

The contract can help. First, the contract should provide that all project work, including changed work, must continue without delay despite ongoing disputes, including disputes over appropriate contract adjustments for changed work. Second, the contract should provide a mechanism for funding the disputed work until the parties can later negotiate an adjustment or obtain a third-party decision under the dispute resolution procedures in the contract.

Disputed change order clauses provide that each party will fund a percentage of the costs while both reserve all rights to later seek reimbursement of their funded share. This prevents either party from shouldering 100 percent of the cost of changed work that they believe is not their responsibility, not fairly priced, or not properly accommodated in the construction schedule. This procedure also mitigates increased price and time impacts caused by prolonged change order negotiations that delay implementation of the changed work.

Frequent and timely communication – including advance notice, price estimates and anticipated schedule changes – will prevent most change order disputes from negatively impacting the project. Having the right contract clauses in place will also ensure minimal disruption when changes inevitably occur.

Eric Grasberger is an attorney in Stoel Rives LLP’s construction and design practice group. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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A recent lawsuit, Chicago Housing Authority v. Destefano & Partners, resulted in a ruling that says project owners and developers may not allocate liability for Americans with Disabilities Act (ADA) claims to architects, contractors or other project participants. Though the ruling defies contract law and common sense, several courts across the country have similarly refused to let owners seek indemnity from those who commit ADA errors.

The ADA is a federal statute enacted in 1990. It’s intended to provide remedies for discrimination against disabled individuals and to prevent discrimination in the first place. Despite the lack of clear language to this effect, the ADA is viewed by the courts as pre-empting conflicting state laws, including contractual or common law indemnity.

Owners are not ADA experts. They pay designers and contractors to comply with the ADA. When compliance is not achieved, like with any other violation of the contract documents, owners enforce their contract rights and ask for repairs. This generally works in other areas. Even with building code violations, where many requirements are aimed at life/safety concerns, owners are permitted to seek contribution and indemnity from responsible parties. Owners themselves are not off the hook. They remain liable to the extent of their own fault, and for any refusal of those they hired to make repairs.

But courts view the ADA differently. As stated in Rolf Jensen & Associates Inc. v. Mandalay Corporation, “Permitting an owner to, in essence, circumvent responsibility for its violations of the ADA and the Fair Housing Act through an indemnification claim would lessen the owner’s incentive to ensure compliance with the ADA and FHA.”

The courts have rejected developer arguments to the contrary, including that allowing indemnity claims would encourage developers to hire expert ADA firms and delegate responsibility to them, increasing the involvement of ADA experts in design and oversight of projects.

Courts also reject any attempt by developers to label their claims as “negligence,” “breach of contract” or “breach of warranty,” because each of these claims is still seeking indemnity from the ADA plaintiff’s claims.

While the courts note that architects, contractors and others who play a direct role in the discrimination may themselves be sued by the ADA plaintiffs (including government entities or private individuals), the reality is that owners and developers will be targeted because they have the deepest pockets.

Liability for ADA defects ranges from personal and bodily injury to constructive eviction, loss of use of property, and physical injury to real property, including the cost of repair. In the Rolf Jensen & Associates case, the owner settled with the Department of Justice by agreeing to install retrofits costing more than $20 million before seeking indemnity from the architect.

What can a project owner do given the current state of the law?

The Chicago Housing Authority (CHA) believed (incorrectly) that it was different from owners in other ADA cases because it was never officially fined or cited for an ADA violation and instead took on the repairs “voluntarily.” It argued, therefore, that its claims against the architect were not for indemnity.

The court disagreed, noting that the CHA did not itself identify and proceed to fix the defects: “Instead, HUD was forced to expressly notify CHA that the elderly residential apartment units worked on by defendant failed to comply with … the ADA. Accordingly, CHA failed to uphold the responsibilities required of building owners under the federal accessibility standards.”

It would appear from this passage that an owner may be permitted to seek damages from those who commit ADA errors if, without nudging from the Department of Housing and Urban Development or any other ADA plaintiff, the owner discovers the defects on its own and seeks to address them. Thus, a self-imposed ADA audit gives owners the best chance of getting the responsible parties to pay or contribute to any ADA shortcomings on a project.

There are other steps that owners should take. First, they should hire vendors with a track record of compliance and expertise with ADA requirements.

Second, all participants should verify that their insurance policies provide coverage for ADA defects. Coverage is available under professional liability policies and some commercial general liability policies with the proper language and endorsements. The insurance should be maintained not only during construction, but for several years thereafter – when claims are more likely.

Third, there is no harm in attempting to include creative contract clauses to avoid the ban on indemnity. For example, a clause stating that an owner and an architect share 50/50 on any ADA liability might hold up under the ADA, because the owner is seeking only partial contribution, not complete indemnity. Such clauses might be helpful, but they cannot be relied upon under current case law.

Finally, a U.S. Supreme Court ruling or a national legislative solution may be in order. The language of the ADA does not expressly prevent indemnity claims, so the ban on indemnity comes from the few courts who examined the issue to date. A legislative or Supreme Court solution should recognize that the best policy to ensure compliance (and that enough money exists to make repairs) is to hold all responsible parties accountable, including owners, developers, designers and contractors.

Eric Grasberger is an attorney in Stoel Rives LLP’s construction and design practice group. Contact him at 503-294-9439 or eric.grasberger@stoel.com.

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Owners are optimists and contractors are negotiators. Maybe this explains the increasing (and for owners, disturbing) presence of liability waivers in construction and design contracts. Savvy owners – especially those with experience in litigation – know the importance of avoiding the growing variety of clauses that limit liability for construction industry vendors. Likewise, general contractors and architects need to be on guard against sub-tier liability waivers often lurking in the fine print or at the end of lengthy proposals.

THE CONSEQUENTIAL DAMAGES (CD) WAIVER

Consequential damages consist primarily of lost revenue from the inability to use a completed project. Whether composed of lost rents in apartment projects or lost sales of manufactured products, consequential damages are the very dollars the project was built to generate. Like all liability waivers, the CD waiver is often sold as “standard in industry,” even though many upstream parties successfully avoid the clause in negotiations. Consequential damages can be as great, or greater, than the cost to repair a defective facility. They also can be covered under commercial general liability policies and professional liability policies carried by contractors, designers, suppliers and manufacturers. The cost of these policies is (directly or indirectly) a cost of the project that upstream parties bear, so waiving the benefit of a policy you paid for is uniquely unsavvy.

THE LIMITATION OF LIABILITY (LOL)

Why waive only one type of liability (like consequential damages) when you can waive them all? LOL clauses usually limit all types of liability and damages, and are the most dangerous of all waiver clauses. For some contracts, LOL clauses can appeal to the upstream parties’ sense of fairness or at least their practical business sense. Examples include geotechnical investigations that sample minute portions of a site to determine the overall soil profile for the project, and manufacturing projects where the facility will generate more revenue in one month than the cost to build the project. In these cases, exposing the vendor to unlimited liability grossly disproportionate to the fee earned would limit or extinguish the number of vendors available to provide the service. But most LOL clauses cannot be justified. Why should the upstream party bear the liability of a failure by the downstream party? Almost all LOL clauses start with a dollar limit that is disproportionately low compared with the owners’ risk and the vendors’ insurance limits or other assets. Like CD waivers, leaving a proposed LOL clause in the contract, without at least negotiating conditions and reasonable dollar limits, reveals an unhealthy level of optimism.

THE WARRANTY ILLUSION

Some warranties are great. Many are not. Our eyes focus on the number of years of “protection” while failing to see the many limitations imposed by the fine print. To the sophisticated purchaser, fancy colored ribbon printed on the border of the warranty page is a red flag. The liability limitations found within a warranty may justify relabeling the document a “disclaimer,” not a “warranty,” and you may be better off with no warranty at all. The limitations are not just limitations on the warranty itself, but on all damages that the product or service may cause to the purchaser. Windows, roofing products, HVAC equipment and heavy machinery all carry warranties that deserve a careful read. Warranties or guaranties offered by service providers can also disguise unfavorable terms that should be avoided. Especially if the volume of the product or service purchased is large, the consumer has leverage and should not assume the warranty is non-negotiable.

There are several other types of liability limits and disclaimers, but they are easy to spot if you look for them. Many can be avoided completely once spotted, and almost all can be negotiated to more reasonable conditions and limits.

Here are some common negotiating points: waivers should not limit recovery of insurance proceeds, waivers should not waive completely uninsured claims or damages, liability limits that exceed the insurance policy limits and/or proceeds encourage the liable party to push for full payout from the policy, waivers should be void if the vendor fails to maintain the insurance coverages and limits required by the contract, and waivers should cover only the direct vendor and not sub-tier providers.

Finally, limitations of liability should be for dollar amounts large enough to encourage careful vendor performance, and large enough to provide a meaningful upstream remedy, but not so large that they create risk unreasonably disproportionate to the vendor’s fee and its ability to control the project outcome.

Eric Grasberger is an attorney in the Construction and Design practice group of Stoel Rives LLP and may be reached at 503-294-9439 or eric.grasberger@stoel.com. ��

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Litigation is an unfortunate byproduct of the construction industry. With so many players contributing design services, construction services, materials and equipment in a confined space under a tight budget and timeline, it is no surprise that disputes develop.

And it should be no surprise that the contracts between these players often contain differing dispute resolution clauses that can prevent all parties from entering one forum to resolve their differences. Too often we see some portion of related claims being resolved in court while the balance is resolved in one or more arbitrations. This leads to extensive and overlapping hearings, increased attorney fees, and sometimes inconsistent results from multiple decision makers operating in isolation.

Disciplined use of consolidated dispute resolution clauses will minimize or prevent these problems.

1. Standard consolidation clauses

Many standard form contracts (such as AIA and AGC forms) already provide an option for consolidated arbitration. They state that both parties to the contract agree that all project participants involved in the dispute may be consolidated into a single arbitration if the other parties’ (e.g. subcontractors and suppliers) arbitration clauses allow for consolidation under similar procedural rules and arbitrator selection procedures.

This option was not always available in standard forms. Earlier versions of the standard forms did not specify consolidation, and the arbitration service organizations and courts would refuse to consolidate disputes absent mutual agreement of all parties. Some involved parties refused to participate in consolidated proceedings, hoping that sitting on the sidelines would marginalize their involvement in settlement talks and minimize their share of the blame in the final adjudicated result. This approach produces mixed results for the parties that refuse consolidation.

2. Standard consolidation clauses often fail

While today’s standard consolidation clauses are a good start, they fail to solve the entire problem. The prime contractors and architects do not consistently include flow-down clauses that require all their subcontractors to abide by the same consolidation agreement. Moreover, even if the prime parties do include proper flow-down language, the subcontractors often fail to include this language in their sub-sub contracts and purchase orders.

A typical water intrusion case illustrates the problem. The owner usually has the same consolidated arbitration clause with its prime contractor and architect. If the prime parties are sophisticated, they have good flow-down language with their subcontractors. But when a subcontractor purchases envelope products such as windows, doors, siding, paper or caulk, it often uses purchase order forms that get very little attention, and consolidated dispute resolution is ignored. If a product failure is a substantial contributing factor in a dispute, there is limited ability to join the product manufacturer in a consolidated proceeding, and the manufacturer usually elects to sit on the sidelines.

3. Maximizing consolidation

Several steps can be taken to avoid the pain of unconsolidated disputes. First, ensure that all prime contracts between the owner and the contractor, the architect and any other party hired directly by the owner (such as civil, environmental and geotechnical engineers) contain the same consolidation clause. Second, in the prime contracts, require that the prime vendor include flow- down language which ensures its subs and even sub-subs, suppliers and manufacturers are bound by the same or very similar consolidated arbitration provisions.

Third, at least for major subcontractors and suppliers, the owner and prime vendor should require an advance copy of the final contract before it is signed to ensure that consolidation (along with other key issues) is appropriately addressed. Fourth, consider using a prime consolidation clause that gives the owner the power to elect litigation in court (either by a judge-only trial or a jury trial), in the event one or more parties significantly involved in the dispute are not contractually bound to consolidated arbitration.

The advantages of arbitration may be outweighed by the need to get all parties into one forum, even if that forum is the courtroom. Giving the owner discretion to select its forum when faced with consolidation problems could be challenged by opposing parties, but because the goal is advancing consolidation, courts should be inclined to enforce the clause.

4. Consolidated trials

When the parties are considering a court proceeding, they should not assume that all parties are subject to the consolidated jurisdiction of a single court. Care must be taken to ensure that proper forum selection clauses and governing law clauses are employed in conjunction with consolidated dispute resolution clauses.

Unlike other clauses that require heavy negotiation, most parties agree that consolidated dispute resolution is a good idea. Achieving consolidation merely requires careful drafting and enough rigor to ensure that downstream parties are governed by the same contract language.

Eric Grasberger is an attorney in the construction and design practice group of Stoel Rives LLP. Contact him at 503-294-9439 or eagrasberger@stoel.com.

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Some states have enacted statutes eliminating much of the uncertainty surrounding construction claims. Owners, designers, contractors and suppliers in these states convene to draft compromise legislation they all can accept. While it isn’t ideal for any one party, the legislation shortcuts many of the disputed motions and recoverability concerns that add cost and time to litigation and often prevent settlement. Here are the key battlegrounds that statutory reform could tackle:

Statute of limitations

Oregon needs one statute of limitations and one statute of repose applicable to all claims (regardless of legal theory) on construction projects. Currently, architects and contractors are subject to different limitation periods and sometimes different rules for when the limitation periods begin to run. This results in liability that varies based on the timing of the claim rather than the merits.

Some people believe that litigants and their experts skew the allegations to target one defendant more than another, simply because the targeted defendant does not have a statute of limitations defense while others do. There is no reason one industry group deserves a shorter limitations period than another. The explanation for the current difference is that some have better lobbyists than others.

Negligence claims

Another battleground is whether a plaintiff can assert a negligence claim for economic damages (as opposed to a breach of contract claim) against defendants. Negligence claims are governed by a two-year limitations period that begins to run upon discovery. Contract claims against contractors are subject to a six-year limitations period running from the date of breach, regardless of discovery.

Because a negligence claim can be discovered and therefore asserted long after a breach claim has expired, the ability to file a negligence claim is a critical aspect of Oregon construction law. However, it is uncertain because of the lack of statutory guidance and changing case law from the Oregon appellate courts about the type of relationship between the parties required to allow a negligence claim to proceed. As with the statute of limitations, lawyers expend many hours briefing and arguing over the ability to sue for negligence.

Recoverable damages

Much time is spent arguing over limitations of liability and waivers of consequential damages. Limitations and waivers are found in contract clauses of varying length and clarity. Some clauses are inconspicuous and not negotiated; other clauses are negotiated for days.

Several states ban attempts to limit liability. Oregon’s anti-indemnity statute is a step in that direction, but more clarity is needed on when – if ever – a party can contractually absolve its liability for construction or design work.

Insurance problems

Unlike Washington and many other states, Oregon has no “bad faith” laws that allow an insured party to show that its insurer acted in bad faith by failing to respond or provide coverage. Bad faith laws add an element of risk to insurance providers that can lead to better claims handling, including earlier settlements.

In addition, Oregon should consider banning certain coverage exclusions on construction projects. To the unwitting owner or contractor, some exclusions appended to the back of their insurance policies can severely limit or void all coverage for common claim scenarios. As one example, no residential contractor should carry insurance with a “residential exclusion” buried in the policy.

Mandatory envelope training

The Construction Claims Task Force, appointed by the Legislature in 2005, was charged with finding solutions to the construction defect crisis and related insurance crisis in Oregon. The task force was specifically directed not to engage in finding “procedural” solutions, which were defined to include issues like those addressed above.

The task force did, however, conclude unanimously that the best way to address construction defects was to require training (and badging) of all workers who engage in the building envelope trades such as siding, windows and roofing. The recommendation from the task force was not adopted by the Legislature because of industry pressure and lobbying to avoid it.

In the wake of two decades of heavy defect litigation, Oregon certainly has improved the quality of construction through better (voluntary) training in the private sector. But as long as defect claims and other construction claims persist, we should look for ways to cut litigation expense, streamline cases and add a degree of certainty to the aforementioned issues. Only a concerted legislative effort by all industry groups can accomplish this goal.

Eric Grasberger is an attorney in the construction and design practice group of Stoel Rives LLP. Contact him at 503-294-9439 or eagrasberger@stoel.com.

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