Nearly three years ago, which is light years in the world of artificial intelligence (AI), I drafted an article published by the Daily Journal of Commerce on whether AI could be trusted to draft a construction contract. At the time, the blunt answer was “no.” I recently revisited this topic using a leading AI chatbot. Despite significant improvements in AI over the past couple of years, project owners, contractors and design professionals should still avoid putting their complete trust in AI to prepare their next construction contract — at least not without human intelligence reviewing the work of the AI chatbot.

While AI is developing at breakneck speeds, discretion is (still) the better part of valor when it comes to drafting and reviewing construction contracts. In 2023, for purposes of the above-referenced article, I experimented with ChatGPT to see if I could use it to generate an accurate mechanic’s lien waiver form to pair with a construction contract for a project in California. At the time, it produced a form that looked pretty good to the untrained eye but was not compliant with California law.

When I made this same query to a leading AI chatbot this week, the chatbot produced an accurate form along with a disclaimer to the user accurately stating California requirements when preparing lien waiver forms. When I experimented further and asked the same AI chatbot some basic questions for drafting a change order provision, things did not go as well. Unprompted, the chatbot presented me with a mini-dissertation on change order options and language to seamlessly incorporate into various industry forms, such as American Institute for Architects (AIA) forms. I hadn’t asked for these suggestions and, while they looked helpful at first blush, it set off an alarm due to the prevalence of “AI sycophancy” — a documented pattern where an AI model pursues human approval over accuracy. The chatbot even quoted so-called “core provisions” from an AIA form, which it referred to as “exact text excerpts” but “kept below the copyright threshold.” Not recognizing the referenced “exact text excerpts,” I typed “Are you sure?” I received this response:

“You’re right to challenge that — my earlier description was not reliable, and I conflated concepts that are often handled in the Owner–Contractor agreement (A101/A102/A133) with what A201 actually says. Thank you for catching it. Below is what I can support from published, citable sources.”

While AI has clearly made significant strides in the past couple of years, this anecdote suggests that project owners, contractors and design professionals should still think twice before relying too heavily on AI in connection with their next contract.

Many attorneys have learned this lesson the hard way as courts across the country have been issuing scathing legal decisions chastising (and often sanctioning) attorneys and law firms for submitting court filings containing false, AI-generated case citations or legal opinions. In one case, just last month, a federal judge in New York issued a detailing the many AI-produced errors in court filings by the attorneys. Similar to the AI sycophancy concerns discussed above, the judge in the New York case pointed out that the court filing at issue was “noteworthy for its conspicuously florid prose,” as it “featured an extended quote from Ray Bradbury’s ‘Fahrenheit 451’ and metaphors comparing legal advocacy to gardening and leaving the indelible ‘mark(s) upon the clay.’”

Notwithstanding the above concerns, AI is making significant inroads into the construction industry and will continue to do so. AI’s relevance to the construction industry continues to develop daily, and articles are regularly published regarding the uses and associated risks of AI. For example, the Daily Journal of Commerce recently published an article discussing authorship and data disclosure risks for contractors and design professionals when using AI on construction projects.

AI’s impact on the construction industry is likely to be profound, if it isn’t already. Project owners, contractors and design professionals should stay up to speed on AI developments and continue to experiment with ways to boost their productivity. But they should also proceed cautiously — and not forget to ask, “Are you sure?”

Mario Nicholas is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9510 or mario.nicholas@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.

The post Revisiting reliability of AI in drafting construction contracts | Opinion appeared first on Daily Journal of Commerce.

Drafting and negotiating subcontracts can be tricky for both general contractors and subcontractors. General contractors are caught in between owners and subcontractors as the ones that will be held responsible for the work performed by the subcontractor, and their subcontracts should reflect that risk. Subcontractors, on the other hand, may lack the leverage to heavily negotiate subcontracts and will want to pinpoint key risk-shifting provisions.

Here are three examples of the many issues both contractors and subcontractors should consider when reviewing their next subcontract.

Role of the prime contract

General contractors: Subcontracts often include a “flow down” clause, which generally requires the subcontractor to assume the same responsibilities to the general contractor that the general contractor assumes to the owner. General contractors should consider taking additional steps. First, review the order of precedence clause to understand how conflicts between the prime contract and subcontract will be resolved. Second, consider whether particularly important terms from the prime contract should be specifically referenced to avoid any ambiguity when incorporated into the subcontract. Finally, consider whether certain provisions, such as liquidated damage provisions, should potentially not apply to the subcontractor and therefore either need to be excluded from or modified in the subcontract.

Subcontractors: If the subcontract provides that the prime contract is incorporated by reference or other similar language, subcontractors should consider requesting a copy of the prime contract now — when negotiating the subcontract or preparing bids.

Contingent payment clauses

General contractors: Consider making the obligation to pay subcontractors conditional upon payment by the owner. These are often referred to as “pay-when-paid” and “pay-if-paid” provisions. Whether the provision is when-paid versus if-paid is critical because under the latter, if-paid, the subcontractor will be paid only if the general contractor is first paid by the owner. Under when-paid provisions, general contractors are typically required to pay subcontractors within the time period specified or a “reasonable time,” even if the owner does not pay the general contractor. Many states will enforce these type of contract provisions, but often only if the parties’ intent is clear from the specific subcontract language. If hoping to enforce a contingent payment clause, general contractors should ensure that they have taken time to carefully craft these provisions to avoid attack based on the law applicable to the subcontract. For projects in Oregon, state law will likely apply to interpretation of the subcontract and “unambiguous” language is typically required to enforce contingent payment clauses. General contractors should carefully review their contingent payment clauses before relying on out-of-state or national forms not prepared with Oregon law in mind.

Subcontractors: Awareness is key when it comes to contingent payment clauses. Who bears the risk if the owner files for bankruptcy or otherwise doesn’t pay for reasons unrelated to the work? If the general contractor is asking subcontractors to shoulder that risk, subcontractors should know this at the outset of the subcontract negotiation. Subcontractors should also not limit their review to progress and final payment language. Many subcontracts incorporate pay-when-paid or pay-if-paid language into delay and change provisions that can be easy to overlook. Regardless of whether the subcontractor seeks to delete these terms entirely, modify if-paid to when-paid provisions, or strike a balance by modifying other key risk-shifting terms of the subcontract, identifying contingent payment clauses at the outset of negotiation is a critical step.

Dispute resolution

General contractors: Multiple risks must be balanced when drafting dispute resolution provisions in subcontracts. If the owner asserts a claim against the general contractor for something done by the subcontractor, the general contractor will want to hold the subcontractor accountable. A typical land mine in this area is when the prime contract calls for litigation, but the subcontract calls for arbitration, or vice versa. If the dispute resolution provisions conflict, the general contractor may find itself stuck in two separate disputes — one in court and one in arbitration — with the potential for exponential legal fees and conflicting results. General contractors also need to protect themselves from subcontractors’ claims that may stem from actions by the owner, by the general contractor itself, or by other subcontractors or suppliers. As a result, general contractors benefit from a fluid dispute resolution provision that allows the general contractor to direct the dispute into its preferred forum based on who is asserting the claims and which parties are involved.

Subcontractors: Headwinds often arise when attempting to significantly modify dispute resolution provisions because the general contractor will likely demand consistency among its subcontracts. However, subcontractors should take the time to map out the claims process they must follow to ensure they have a viable path to recovery, including for claims that are ultimately the responsibility of the owner, prime contractor, or other subcontractors (usually through the prime). Subcontractors should also consider how to approach nonbinding, pre-dispute requirements, such as a meeting of principals or mediation. Because these steps are nonbinding, there may be more room for negotiation and, depending on the circumstances and parties involved, subcontractors may benefit from adding or striking these pre-dispute requirements.

Mario Nicholas is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9510 or mario.nicholas@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.

The post Subcontracts: tips for general contractors and subcontractors | Opinion appeared first on Daily Journal of Commerce.

Many owners, contractors, and design professionals take a “boilerplate” approach to dispute resolution provisions and don’t consider the risks specific to the project at issue. Parties also often wait until an actual dispute arises before closely analyzing dispute resolution provisions. To avoid pitfalls and mitigate risk, consider the following issues on a project-by-project basis when reviewing your design or construction agreement:

What steps, if any, are required prior to litigation or arbitration?

The parties should envision the disputes that seem most likely for each particular project, consider their relationship with the other key parties to that project, and analyze whether mandatory pre-dispute meetings, mediation, and/or other precursor events might increase the possibility of resolving disputes, or create expensive hurdles to resolution. Many agreements have tiered or “waterfall” dispute resolution provisions that require the parties to engage in a series of events prior to submission of a dispute to binding arbitration or litigation. Examples include (but are not limited to) a meeting of key project personnel, a meeting of project executives, a meeting of company executives, submission of disputes to the project architect (or another designated “initial decision maker”), and/or nonbinding mediation. While there is no wrong answer for mandatory pre-dispute resolution steps, and the parties are limited only by their creativity in crafting these provisions, the makeup of the owner, contractor, design team, etc., on each project is unique and merits fresh consideration of these issues for each project.

Which state’s law governs disputes, and where must disputes be resolved?

Many agreements contain a forum-selection and choice-of-law provision that will specify where disputes must be resolved, and which state’s law applies to disputes. Typically, the forum-selection clause and choice-of-law provision will specify the state of the project or the home state of one of the parties. Many states, including Oregon, have statutes that void or make voidable forum-selection and choice-of-law provisions in construction agreements that require resolution of disputes in a foreign state or make disputes subject to the laws of another state. This issue can become more complex if the agreement also contains an arbitration provision, as statutes like ORS 701.640 may not apply to void a forum-selection or choice-of-law provision that requires arbitration in a foreign jurisdiction or under foreign law. As the applicable state law can have unique and often unexpected consequences for any number of construction issues, in addition to creating a possible “home field advantage” for one of the parties, these provisions should not be glossed over when reviewing a construction or design agreement.

If you’ve selected arbitration, the devil is in the details

For experienced construction counsel or parties that have been through multiple arbitrations, saying a dispute is subject to “arbitration” (as opposed to litigation) is only the tip of the iceberg. Which arbitral body? What rules apply? Is discovery limited? Are depositions allowed (and how many)? How many arbitrators? What evidentiary rules apply? Will testimony be submitted in advance or given orally? What are the timing restrictions? What if a critical party is not required to arbitrate and won’t agree to join the arbitration? The questions go on and on. In “What parties ought to consider when considering arbitration provisions,” published by the 91��Ƶ last year, my colleague Zachary Davis touches on many of the key issues that should be considered for one’s next arbitration provision. While this topic merits a stand-alone article, the key reminder is that arbitration provisions should be tailored to the particular project and, depending on perceived risks with a given project, minor or major modifications to a company’s “standard” arbitration provision may be merited.

If you’ve opted for litigation, have the parties waived their right to a jury?

Do you want a jury to decide the fate of your next dispute? Maybe yes. Maybe no. Regardless, a jury will likely add more uncertainty because jurors are often unpredictable, and there is no guarantee your jurors will have much experience, if any, with construction or design issues.

If you’ve opted for litigation, is “removal” to federal court likely or possible?

One often overlooked issue is the possibility of “removal” of a dispute from state court to federal court — most often under diversity jurisdiction in construction disputes. Speaking generally, if one of the contracting parties is a “citizen” of a different state than your company or the location of the project, then there may be a possibility or likelihood that a dispute could be subject to removal to federal court even if it is first filed in state court. The “citizenship” of each party for this analysis is a technical question that will require legal analysis. There can even be unexpected avenues for removal depending on the applicable forum, such as “snap removal,” where a party’s citizenship might be ignored if that party has been sued but not yet served with the lawsuit at the time removal is sought. Like state-specific choice-of-law issues and questions of arbitration versus litigation, whether a dispute unfolds in state court or federal court can have a meaningful impact. For example, a state court lawsuit in Oregon may have no expert discovery while a federal court lawsuit in Oregon will likely have extensive and detailed expert discovery. Many lawsuits involving projects with regional or national general contractors can be removed to federal court.

While the preceding list is far from comprehensive, parties are encouraged to reread the next dispute resolution provision they encounter with these types of issues in mind. Most critically, parties should revisit these issues regularly for each project.

Mario Nicholas is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9510 or mario.nicholas@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.

The post What to consider when analyzing dispute resolution provisions | Opinion appeared first on Daily Journal of Commerce.

If you ask one of the leading artificial intelligence (AI) chatbots, ChatGPT, if you should rely on it to draft a construction contract, it responds that it is “highly recommended to hire a construction attorney rather than relying solely on ChatGPT or any AI model to draft a construction contract.” As support, ChatGPT provides a handful of reasons construction attorneys haven’t (at least yet) gone the way of the dodo, including:

Legal expertise

While there may come a day when AI provides accurate legal advice, we are not yet in that reality. For now, many AI models include disclaimers such as “I am an AI language model and not a legal professional.” While AI is quite good at brainstorming or flagging potential issues, and at times exceptionally good when jargon is used to ask the right questions, growing pains show when you ask AI to craft legal documents that align with applicable laws and regulations. For example, ask ChatGPT to draft a mechanic’s lien waiver form for use on a project in California and it will spit out a form that appears to check all the right boxes. The form may even include a reference to an on-point California statute, which makes it look even more legitimate. The problem is that some states, including California, set out a required lien waiver form by statute and the AI-generated form misses the mark (despite my multiple attempts to prompt the model to get the form right). While the use of AI may be tempting to avoid bringing in a legal team, project owners and contractors and design professionals should think twice before signing on the dotted line if their new “attorney” is a free robot.

Customization

This article is in no way a condemnation of AI. There are many ways AI can enhance what lawyers already do and improve efficiency for owners, contractors, and attorneys. But when it’s time to customize a contract to address a particular project’s unique requirements, specifications, and risks, that’s when the experience and creativity of counsel can be invaluable. Many construction projects also rely on customization of template contract forms, such as those generated by the American Institute of Architects, DBIA, or ConsensusDocs. Such forms are protected by copyright and AI models generally can’t provide the full text of the documents – leaving AI software unable to customize many standard industry forms.

Risk assessment and mitigation

Dovetailing with the need to customize each contract to a particular project’s needs and applicable legal requirements, sole reliance on AI to generate the significant risk-shifting provisions is rife with problems. For example, prompting ChatGPT to generate an “EPC (Engineering, Procurement, and Construction) contract for a complex construction project in Oregon” results in an EPC contract drafted from scratch within seconds. Like the mechanic’s lien waiver form example above, the resulting contract looks pretty good from a high level, with sections on project description, responsibilities of the contractor and owner, compensation, warranties and guarantees, indemnification, limitation of liability, and termination. But the whole AI-generated EPC contract is shorter than two pages – whereas real-world EPC contracts are often very long documents – and addresses each of the listed topics in a very superficial manner. Knowing the right questions to ask, you can prompt AI software to customize and expand each of the particular contract provisions and add missing provisions, but doing so results in a Frankenstein contract. Attempting to create a state-specific contract can also produce anomalies with real-world consequences, such as an EPC contract for a project in Oregon that is subject to dispute resolution under arbitration rules made up, or “hallucinated” in AI speak, by the AI software. (As a further cautionary tale of “hallucinations,” an experienced lawyer recently by submitting a court filing he later admitted was generated by ChatGPT and included “bogus judicial decisions with bogus quotes and bogus internal citations,” as the judge pointed out in response to the court filing.)

Negotiations

Unless you’re comfortable negotiating the contract document generated by AI alone, you will need an attorney to assist with contract negotiations. Even crafting the document is somewhat of a one-way negotiation with your own computer as you must prompt the AI software to add provisions A and B; make provisions C and D more owner (or contractor or architect) friendly; make provisions X, Y, and Z apply to Oregon law, and so on. And once the one-way negotiation with yourself ends, the real work starts when you must negotiate the contract with the other side.

Peace of mind

The final reason given by ChatGPT for why you shouldn’t rely solely on AI to generate a construction contract is a sound one. Peace of mind is why we hire attorneys and what attorneys strive to provide.

In summary, if you’re planning to experiment with the use of AI on your next construction project, don’t necessarily stop, because it can be an amazing tool. But loop in a construction attorney before the draft document goes out the door.

Mario R. Nicholas is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9510 or mario.nicholas@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.

The post Can artificial intelligence be trusted to draft a construction contract? | Opinion appeared first on Daily Journal of Commerce.

Inflation is hitting the country hard. Consider this: $1 million in January 2020 has the same buying power as over $1.7 million today, according to the . How much weaker the dollar will get is anyone’s guess.

As the economy – the construction market in particular – continues to experience inflationary challenges, it is critical that owners, contractors, and design professionals beware of the risks presented by inflation and understand the options to mitigate those risks. Following are answers to questions that industry professionals may have regarding such issues.

Where does my contract address inflation?

Odds are likely that your contract does not directly address inflation. But that does not mean that the impact of inflation is not embedded in your contract (or should be embedded in contracts you sign in the future). Review these contract provisions closely, with an inflation lens:

• Escalation clause: If a contract includes a specific provision dealing with material price increases, then that provision is a good place to start. Escalation clauses handle price increases in a variety of ways and often entitle the contractor or design professional to additional compensation (or a credit) if the price of material “x” deviates by some fixed percentage from a baseline figure for the expected cost of that material.
• Impossibility of performance: Depending on applicable law, this doctrine may provide a defense to a claim of breach of contract where the impact of inflation made it impossible to perform the duties of the contract. Whether performance is “impossible” will vary depending on the circumstances, and many jurisdictions will require objective impossibility – meaning that it must be impossible for any similarly situated owner, contractor or design professional to perform. This legal doctrine may also apply even if the contract does not have a specific provision addressing this issue.
• Impracticability of performance: A cousin to the preceding provision, if performance is impracticable, but not impossible, there may still be a defense (or at least a mitigating effect) of a failure to perform.
• Force majeure: Read the force majeure clause carefully to see if the impact of inflation could be captured, and if the relief available is merely more time to perform (which may not be helpful when dealing with inflation), or an adjustment to the cost of performance.

Such provisions are the tip of the iceberg but a good starting point. Other relevant clauses include constructive change provisions or extensions of time clauses. Creative parties may even draft a provision specifically addressing the risk of inflation.

Can I recover damages specifically for inflation?

There are limited decisions analyzing whether courts or arbitrators should take inflation into account when awarding damages. In specific circumstances, such as bad faith claims against insurers, there is precedent in some courts for taking into account the effects of inflation. For example, in this specific context the Court of Appeals for the Ninth Circuit (analyzing California law) upheld the use of inflation as an element of damages where, among other factors, “there was a steady rate of inflation during the compensable period.” (See Leslie Salt Co. v. St. Paul Mercury Ins. Co., 1981.)

Several years later the Ninth Circuit (this time analyzing Arizona law) held that “the factfinder may take inflation into account in measuring damages for breach of contract where doing so will put the damaged party in as good a position as if the contract had been fully performed and will avoid an otherwise unjust result.” (See Safeco Ins. Co. of Am. v. Duckett, 1988.)

How these decisions or related opinions will impact a non-insurer dispute under Oregon law appears to be an open question. There is dictum from a recent Oregon Supreme Court decision that appears to acknowledge the relevance of inflation when evaluating certain types of damages (see Busch v. McInnis Waste Systems, Inc., 2020), but whether the court’s reasoning in Busch will translate to a commercial construction dispute remains to be seen.

Does prejudgment interest compensate for inflation?

The objective of compensatory damages is to put a plaintiff in a position the plaintiff would have occupied if no wrongful conduct had occurred. As many disputes are resolved years after the fact, prejudgment interest is one way to compensate a party for the time value of money. But whether prejudgment interest will also account for the effects of inflation will depend on the time period at issue.

In times of high inflation, prejudgment interest may be insufficient to fully compensate a party as most prejudgment interest statutes are not indexed to account for inflation. Parties to construction disputes, in particular, are cautioned not to assume the award of prejudgment interest is a foregone conclusion – even putting inflation aside. Construction disputes often involve damages for additional work, delayed work or changed work that are heavily contested in quantum, and often subject to expert disputes. Depending on the jurisdiction of a dispute, even successful claims may not generate an award of prejudgment interest (or may only produce a limited award of prejudgment interest), which during times of inflation can be particularly damaging to a company’s bottom line.

During volatile times like these, it is critical to stay informed and plan accordingly. Tools for monitoring construction cost trends (like the one at ) are great resources. It’s important for all construction project parties to keep inflation top of mind when evaluating their next dispute or negotiating their next contract.

Mario Nicholas is a Stoel Rives LLP partner and a member of its construction and design practice group. Contact him at 503-294-9510 or mario.nicholas@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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The combination of the COVID-19 pandemic, skyrocketing construction material costs, labor and material shortages, and a hot housing market presents a predictable risk: despite your best efforts, your project might not finish on time. What should owners and contractors do to prepare?

Evaluate whether to waive consequential damages

“What do you mean I can’t recover all my damages?” Owners often unwittingly agree to a mutual waiver of consequential damages as many industry standard construction template agreements include a mutual waiver. The consequences of overlooking a waiver of consequential damages can be devastating. When a project is late, the owner and contractor (but principally the owner in my experience) may suffer consequential damages. As generally known in the industry, consequential damages include, among other things, lost profits, loss of use, increased financing costs, lost opportunities, and damages to reputation. These damages often dwarf the owner’s direct damages and can possibly exceed the total contract value. The strategy for contractors is generally straightforward: insist on a waiver of consequential damages. Contractors may even want to strengthen the template waiver provisions found in many standard construction agreements. Owners, on the other hand, are wise to address this issue head-on during the contract negotiation and not accept the waiver of consequential damages as a foregone conclusion. Market forces will likely dictate whether owners can strike the waiver altogether. But even if the waiver cannot be avoided, owners have options such as: 1, linking the waiver to apply only to non-insurable damages, 2, setting a cap on the recovery of consequential damages, 3, excluding certain categories of damages from the waiver, 4, limiting the waiver to damages incurred prior to the date of substantial completion (during which period the owner may be protected by a liquidated damages provision), or 5, insisting on a liquidated damages provision as a condition for including the waiver of consequential damages. Owners are also cautioned to avoid or limit a consequential damages waiver clause’s application to lost revenue after substantial completion, which arises when construction defects cause the need for repairs and tenant evacuations. Don’t be the party uttering the first sentence of this section.

Consider liquidated damages

To allocate the risk of delay before construction begins, owners and contractors should both consider stipulating to liquidated damages. These should be a reasonable forecast of the owner’s delay damages, and ordinarily should not be a penalty (a liquidated damages provision that is a penalty is at risk of being unenforceable). Contractors benefit from a liquidated damages provision because they can price the risk of delays from the outset of the project and better evaluate the cost of accelerating. Contractors also often pair an agreement on a liquidated damages provision with a mutual waiver of consequential damages. Among other benefits, this pairing means the contractor’s risk for delays substantially decreases once the project reaches substantial completion as liquidated damages are typically linked to the date of substantial completion. Owners benefit from a liquidated damages provision because they can predictably measure the cost of delays. Owners can also use liquidated damages to push contractors that fall behind schedule. Owners are cautioned, however, to avoid back-of-the-napkin calculations of liquidated damages as undervalued liquidated damages can backfire and possibly even motivate the contractor to finish late. As discussed in a prior column written for the 91��Ƶ (“When to have the hard talk about setting liquidated damages,” by Colm Nelson, on Sept. 18, 2020), deciding when to negotiate liquidated damages is also a tricky issue that should be approached with care during each project.

Double-check claim-related contract provisions

Does your construction contract require the contractor to submit an analysis (often referred to as “time impact,” “critical path,” or simply “delay” analysis) to substantiate a request for additional time? Can you recover attorney fees under your contract if you have to file suit or demand arbitration? Can you recover expert costs in the event of a dispute (for instance, the expert hired to prepare the required critical path analysis)? Will you be presenting your delay claim to an arbitrator experienced in the construction industry or a judge or jury that may have little to no familiarity with construction claims, let alone delay analyses? Does your contract have a force majeure provision? How about a material cost escalation clause? These are some of the issues that should be carefully reviewed in any contract negotiation with an eye toward the risk of project delays.

One silver lining of the COVID-19 pandemic may be the reminder that we should always expect the unexpected. That is the right mindset when reviewing your next construction contract amid the many challenges facing the industry today.

Mario Nicholas is an attorney in Stoel Rives LLP’s construction and design practice group. Contact him at 503-294-9510 or mario.nicholas@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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Whether you are an owner, contractor or design professional, construction disputes are, unfortunately, inevitable. Here are some tips to help avoid potential pitfalls and resolve disputes as efficiently as possible, whether before or after formal litigation (or arbitration) commences.

Limit your project file to your actual project file

Before saving documents to a project file – that folder almost every party has on its computer system to manage documents for each individual project – ask yourself two questions. First, is everything in the folder related to this project? And second, is everything in the folder truly a “project file” document? The goal is to have a project file that is truly representative of the project and not a folder where stray documents are saved randomly (such as the PowerPoint presentation prepared for last year’s company retreat titled “2019 Top Screwups: Let’s Improve!”). Another angle is to consider whether only “project file” documents are being saved. If the case ends up in litigation you can be assured the other side will ask for a complete copy of your project file. Some personnel routinely download their entire email file (.pst file) to the project file or use the project file as a “desktop” equivalent for the time period that they’re working on the project. While you may be allowed to withhold certain documents in the event of litigation, avoidance of these types of practices should minimize future land mines in the project file.

Be (super) organized

In the film “Office Space,” fictional boss Bill Lumbergh confronts programmer Peter Gibbons: “Uh … we have sort of a problem here. Yeah. You apparently didn’t put one of the new cover sheets on your TPS reports.” Though Peter swiftly apologies, stick with Bill here – use the new cover sheet. The better organized and more consistent you are in your documentation the easier it will be for you to quickly educate yourself, your team, your lawyer, the opposing party, your surety, and all other involved parties. Staying organized is one of the best things you can do to avoid or minimize disputes.

Don’t destroy your electronic data

While every company and jurisdiction is slightly different in its approach, you can be assured that mistakenly or deliberately “losing” electronically stored information is potentially disastrous. Periodically review your document retention schedule to ensure your schedule is up to date with current requirements and that you are doing what you say you are doing. Too often years pass after retention schedules are prepared and somebody changes something without properly documenting the change – and before you know it you are out of compliance with your own protocol. Don’t learn this lesson in the middle of a lawsuit. Some companies purge records when their “computer is full,” which can also lead to problems. Referred to as “spoliation of evidence,” negligently or deliberately destroying records can lead to sanctions; dismissal of claims (in part or entirely); negative inferences, such as the presumption that the deleted files were harmful to the deleting party; or the inability to raise certain arguments or defenses.

Pick up the phone

Parties in the construction industry are notoriously studious in documenting just about everything. That should be celebrated. But there are times when you and your project team members, from top to bottom, should instead consider picking up the phone. This is especially true in moments of frustration or when there is a question that merits input from your in-house or external lawyer. Before you send a “*#%!” email or make that note in your daily report, walk around the block and consider whether you should instead discuss the issue. It might not be as immediately satisfying, but that email or note will not read well years later when projected in size 72 font in a courtroom.

Prepare for tomorrow, through today’s contract

This topic merits a separate entry, but one of the best ways to prepare for disputes is by knowing what is in your contract and having the right terms included. One way to keep these issues top of mind is to have a template checklist that provides an overview of key dispute-related terms for any given project (e.g., notice requirements, dispute resolution provisions such as pre-dispute meeting(s) or mediation or arbitration or litigation, consolidation procedures, and right to recover attorneys’ fees). In the context of arbitration, parties can also agree up front on discovery procedures and potentially limit (or expand) certain discovery obligations per their preferences.

You never quite know where a dispute will take you, but the more rigorous you are in maintaining good daily habits, the better chance you have of reaching a favorable resolution.

Mario Nicholas is an attorney in Stoel Rives’ construction and design practice group. Contact him at 503-294-9510 or mario.nicholas@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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As headlines warn of an impending recession, parties should take proactive measures to avoid (or perfect) liens. Below are five tips the savvy owner, developer or contractor should consider as work continues in uncertain times.

1. May I see your license?

Under Oregon law [ORS 701.131(1)], subject to certain safe harbors, a contractor may not perfect a lien unless it has a valid license with the Construction Contractors Board (CCB) “at the time the contractor bid or entered into the contract for performance of the work,” and “continuously while performing the work for which compensation is sought.”

Owners/developers: Upon receipt of a lien, the owner’s first step should be to check the licensing status of the contractor on the CCB’s website. The owner should also confirm if the contractor was licensed: 1, when it bid the job; 2, when it executed the contract; and 3, continuously while performing the work.

Contractors: If the contractor lacked a license at any relevant time, then it should closely review the “safe harbor” provisions in subsection (2) of ORS 701.131 before it files a lien. The safe harbor provisions provide some latitude to the CCB, arbitrator or court to disregard the above license requirements.

2. I thought you were getting the lien waiver!

Owners/developers: Although lien waivers are commonplace, they are all too often left in a drawer after the parties execute the contract. Owners should develop a system at the start of each project to diligently track the receipt of conditional and unconditional lien waivers. It can be helpful to have for each project a document czar who tracks receipt of insurance documents, lien waivers, etc., and uses a matrix or other systems to ensure nothing is missed.

3. I waived what?!

Contractors: When contractors execute lien waivers, they should closely review the waiver language and expressly preserve certain claims. Sophisticated owners will request lien and claim waivers that not only waive a contractor’s lien rights, but also waive its right to file a host of claims (such as negligence, breach of contract, delay and impact claims). To avoid an unintended waiver, contractors should expressly reserve certain claims each time they execute a lien waiver.

4. Can you help with one more thing?

Six months after the contractor completes its work, the owner requests that the contractor return to the job and perform additional, non-warranty work. Should the parties execute a change order or enter into a new contract?

Owners/developers: Under Oregon law, a lien claimant generally must file its lien within 75 days after it stops providing labor, renting equipment or furnishing materials, or 75 days after the “completion of construction” [see ORS 87.045(1)] – whichever is earlier. In the scenario above, if the parties execute a change order, the owner may inadvertently revive the contractor’s lien rights for work performed more than 75 days earlier. To limit the contractor’s lien rights to only the new work, the owner should request the parties enter into a new contract.

Contractors: The contractor will want to take the position that all of its work, including the new work, was done pursuant to a single contract. As little as $578.13 of work performed eight months after a contractor completed its original contract work and submitted its final billing has been held sufficient to revive a contractor’s lien rights for the entire project (provided the work is not “trifling” work). The contractor should request a change order to the original contract.

5. What does this notice mean?

Oregon’s lien laws include a range of statutory notice pitfalls for contractors. Owners and developers should take advantage of these notices.

Owners/developers: One tip for owners is to start running the 75-day clock to file a lien by posting a “completion notice” [see ORS 87.045(2)], and recording a copy of the notice with the county. If a contractor overlooks the completion notice, then it may forfeit its lien rights. Another tip is that if a lien has already been filed, issue notices under ORS 87.027 and/or ORS 87.057, which require that the contractor provide specified information under a tight timeline. If the contractor fails to timely respond it can lose its right to recover attorneys’ fees and costs – a primary leverage point for lien claimants.

Contractors: Carefully examine owner communications to ensure they don’t overlook potentially critical statutory notices that may be buried in seemingly innocuous communications.

The above tips are merely the tip of the iceberg when it comes to negotiating Oregon’s complex lien laws. All parties involved should be vigilant in protecting their rights as we continue to wade into a potential downturn.

Mario Nicholas is an attorney in Stoel Rives LLP’s construction and design practice group. Contact him at 503-294-9510 or mario.nicholas@stoel.com.

The post OP-ED: Recession warnings piling up: a harbinger of liens? appeared first on Daily Journal of Commerce.