It is old news that construction is all about time and managing risk. The contracting parties have always used contracts to allocate the risks of unexpected costs associated with construction.

Historically, an owner would hire a design professional who furnished plans and specifications to the contractors who “built per plans and specs.” Through the contracting process, the price for the work shown on the plans was agreed upon and the risk of loss for over-budget costs and cost overruns was transferred to the subcontractor by holding it responsible for the “means, methods and costs associated with the contractor’s scope” as long as the design did not change.

For example, a framing contractor was always responsible for planning and staffing its work, purchasing the supplies, and completing the work required on time. If it cost more than expected, the subcontractor paid the difference under traditional “bid build” contracts.

Things have changed

More and more often subcontractors and contractors, in the private sector, get a contract by submitting proposals for partially designed scope of work at an agreed price. Depending on the project or the designers, the extent of undersigned detail and loosely defined criteria can be small or extensive and “delegated design” is born. Of course, the devil is in the details. While it is easy to overlook the significance of this change when pricing the work, delegated design changes the allocation of risk, making the subcontractor the designer.

What is delegated design? It’s the transfer of responsibility, and all associated risk, for the design of a component system or element of a project to someone other than an architect or engineer or design professional of record. In other words, delegated design focuses on specialty systems and is similar to design-build, but, as applied, transfers far more risk to the subcontractor.

The contract does not specify delegated design

Contracts rarely use the term delegated design, and a contractor needs to pay careful attention to understand the scope of delegation. Typically, the provisions that describe delegated design include phrases like “scope of work includes design, delivery and installation of a functioning building system, consistent with the intent of the contract documents. Subcontractor’s proposal includes construction details and specifications omitted, or not shown, but inferable from or necessary for, a fully integrated system, compliant with local building codes and all other building systems.” In other words, the plans and specs are not final, may or may not be complete, and may or may not represent the expectations of the owner. Nonetheless, cost of completing the design both on paper and for the project is included in the price.

Six tips for limiting delegated design risk

Delegated design and related concepts are here to stay and the risks cannot be eliminated. However, there are certain questions or requests that can limit or expose the extent of the risk:

1. Review all design documents for completeness before submitting a price. You can only accurately price what you know.

2. Limit the scope of design duties to design services “typically performed by trade contractors” or list the design duties specifically.

3. Exclude design interface with other building systems installed by other trades.

4. Verify that insurance includes coverage for professional and design services.

5. Require all design documents that must be stamped are also stamped by the designer of record for the project.

6. Exclude design of aesthetic elements.

Roger Lenneberg is an attorney and chairman of Jordan Ramis PC’s construction law team. He previously worked as an arbitrator, mediator and in-house counsel for a national subcontractor and developer. Contact him at 503-598-5585 or roger.lenneberg@jordanramis.com.

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The University of Oregon School of Law last month held its first Women in Construction conference: “A Conference to Educate and Empower.”

On April 27, women and men gathered to learn about the importance of supporting the other half of our society in the construction industry. Topics ranged from women’s shared experiences in the industry to diversity in leadership to hot topics in construction law. Each subject area was presented by panelists who care about the equality, education and empowerment of women in construction.

As an inaugural event, the sold-out crowd was a surprise and speaks to the high level of interest in the unique perspectives of women in a business traditionally dominated by men. Being surrounded by a host of powerful and influential women in the industry was a new experience for me. It was both humbling and inspiring.

As a speaker, I had a chance to share my ideas on how women can be disproportionately affected by the common construction challenges. As a participant, I learned how to be a better advocate. Even though many people are advocates for women, this forum was a chance to hear what women felt about issues in the workplace.

The organizers of this program created a special environment where everyone had a voice; attendees could take a day and gain some insight into what it takes to succeed as a minority and compete efficiently in the construction business. This conference shed light on a complex issue the construction industry does not quite (but should) understand.

Here is what I learned: It can be very uncomfortable to be a minority in a crowd. It can be painful to be on the receiving end of generalization about one’s gender. People do not need to intend harm to do harmful things. Women who stand up as leaders have to fight a headwind every day!

Did I know these things at some level? Of course. But I did not know how I inadvertently contributed to these struggles by not speaking up and by dismissing some issues as trivial. As I sat and listened to stories of dismissive comments, outright insults and examples of obvious discrimination, I thought to myself, “What if this happened to me every day? Would I have carried on? Would I have succeeded? Would I have been asked to speak at this conference?”

I became aware of the pressure and discrimination that women face every day in this industry. I left with a new outlook about how women are impacted day to day – not just the tradeswomen but leaders in the field as well. I gained a better understanding of the challenges we as leaders face in helping build a better work environment for everyone. I heard women say what we all think: “Everyone in our industry suffers when we do not respect our differences.”

It doesn’t matter if you’re a woman or a man. Personal success depends on the person, but not everyone has the opportunity to succeed. At this conference, we listened and learned that there is more to that than just welcoming women and people of color to the industry. Now we need to create opportunity through education, outreach and a commitment to make the construction industry a place where everyone has the opportunity to thrive. We need to listen to each other’s perspectives and in turn start creating a better place to work together.

Everyone needs to understand how uncomfortable it can be to work in this industry as an outsider, and it is up to us to make everyone feel like an insider.

My colleague Carolyn Pearson, an employment and litigation attorney at Jordan Ramis, also attended, and she said it best: “I will definitely attend again next year and I suggest others do too. It was welcoming and friendly in nature. There was no pressure or feelings of people grasping for business. The tone was more about the issues you face in this industry and how it affects the workplace. There was a real sense of camaraderie.”

It was no surprise the overwhelming amount of praise given after the conference. Our firm is proud to be part of this endeavor being an inspirational, educational and eye-opening annual event. The initial conference has set a great standard for what’s to come next year.

Roger Lenneberg is an attorney and chairman of Jordan Ramis PC’s construction law team. He previously worked as an arbitrator, mediator and in-house counsel for a national subcontractor and developer. Contact him at 503-598-5585 or roger.lenneberg@jordanramis.com.

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In my February column for the 91��Ƶ, I warned of the risks of arbitration. Recently, the dangerous arbitration statute ORS 36.695 came into play in an important Oregon Supreme Court decision, Couch Investments LLC v. Peverieri.

The dispute was about who should be liable for stormwater drainage improvements required by the Oregon Department of Environmental Quality. Peverieri, the landlord, believed that Couch Investments should be responsible. Couch Investments, the tenant, believed that Peverieri should be responsible. They both signed a stipulation to arbitrate and limit claims. In that stipulation, there was a very consequential phrase: “The only issue to be resolved through arbitration is whether [tenant], as tenant, or [landlords], as landlord, are liable under the lease that is the subject of the above actions (the lease) for the cost of storm water drainage improvements required by the Oregon Department of Environmental Quality (the DEQ issue).”

After the arbitration proceedings, the arbitrator ruled that Couch Investments should make the necessary improvements and that Peverieri should foot the bill (assuming the bill is under $32,500). Peverieri believed that the arbitrator overstepped his bounds in prescribing a remedy because the decision he was faced with per the stipulation was who was liable. He was not asked to do anything beyond that.

All the way up to and including the Oregon Supreme Court, the courts ruled in favor of Couch Investments. Why? Because the quoted section of the stipulation could easily be interpreted as “the only issue we are covering is storm water drainage” and not as “the only thing the arbitrator can decide is liability for storm water drainage improvements.” Couch Investments argued that there were many disputes involving the relationship between these two entities and the quoted section of the stipulation was to express that only the dispute concerning stormwater drainage would be covered in arbitration.

The court likely would have ruled in favor of Peverieri if it more explicitly expressed its intent to waive ORS 36.695(3), which gives the arbitrator broad powers by stating, “As to all remedies other than those authorized by subsections (1) and (2) of this section, an arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances of the arbitration proceeding. The fact that such a remedy could not or would not be granted by the court is not a ground for refusing to confirm an award under ORS 36.700 (confirmation of award) or for vacating an award under ORS 36.705 (vacating award).”

In fact, in the opinion issued by the Oregon Supreme Court, Justice Martha Lee Walters draws attention to Peverieri’s failure to waive the rules of arbitration statutes numerous times. Specifically, she states, “In this case, tenant contends, the parties did not waive or vary the arbitrator’s default authority to order remedies; the stipulation to arbitrate contains no express invocation of ORS 36.610(1), and a waiver cannot be implied from its wording.”

That statute that Walters mentioned, ORS 36.610(1), gives parties the ability to waive or vary the effect of the requirements of ORS 36.600 to 36.740. Those are a lot of rules that can be changed, but only if they are altered before the arbitration agreement is signed. The real kicker is that Peverieri may very well have been trying to do just that. Yet, not only was it unable to receive the protections it was hoping for because the stipulation was too vague, but the stipulation was specific enough in other regards that it qualified as a valid agreement to arbitrate under ordinary principles of state contract law, and as a result it was unable to vacate the arbitration by proving the agreement to arbitrate was null. So, when entering an arbitration agreement, remember to invoke ORS 36.610(1) and be specific about what rules you want changed.

Roger Lenneberg is an attorney and chairman of Jordan Ramis PC’s construction law team. He previously worked as an arbitrator, mediator and in-house counsel for a national subcontractor and developer. Contact him at 503-598-5585 or roger.lenneberg@jordanramis.com.

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Arbitration has become increasingly common in recent years. Many contracts, for both businesses and consumers, now include a provision that requires disputes be resolved in arbitration.

While arbitration is a very cost-effective way to resolve disputes, there are inherent risks involved. One who chooses to bypass the court system also is choosing to bypass the certainty that the decision rendered will be congruent with the law. Though there is never complete certainty that a court will rule in perfect congruence with the written law (which is why our system includes appeals courts), there is far more certainty compared to arbitration.

Mediation and arbitration are governed by chapter 36 of the Oregon Revised Statutes, and nowhere within does it state that the arbitration decision must be based on the laws in effect. More specifically, ORS 36.695 states that arbitrators do not have to base their decision on how a court would decide. It states, “As to all remedies other than those authorized by subsections (1) and (2) of this section, an arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances of the arbitration proceeding. The fact that such a remedy could not or would not be granted by the court is not a ground for refusing to confirm an award under ORS 36.700(Confirmation of award) or for vacating an award under ORS 36.705 (Vacating award).”

Instead of defining the criteria that arbitrators must use to make decisions, chapter 36 is concerned with the rules of how and in what circumstances a dispute moves to mediation or arbitration. The court only decides to move the dispute to arbitration and enforces the arbitration decision. All other matters are referred to the arbitrator. Grounds for appealing an arbitration decision exist but are limited. The reason they are limited is that arbitration is designed as an alternative to court trials. It would defeat the purpose of arbitration to have the courts heavily involved in decisions made by arbitrators.

Let’s look at an example in real estate law, which relies heavily on boilerplate documents. One of these documents, the earnest money agreement, is used in almost every real estate transaction. An earnest money agreement is a show of good faith similar to a security deposit. It requires a potential buyer to deposit a certain sum of money, oftentimes in an escrow account, to let the seller know that he or she is serious about purchasing the property.

The form commonly used in Oregon contains a provision specifying that arbitration will be administered by the Arbitration Service of Portland. However, the provision does not indicate what the internal rules of the arbitration service are, nor does it specifically state that the arbitrator is required to follow the law. Most alarming of all, there is no warning that the parties may not be given the protections of the disclaimers and waivers contained in the earnest money agreement. Depending on the opinion of the arbitrator, moving to arbitration could undo a large part of what a party believed it was entitled to by the agreement.

So what does one do upon reception of a contract with an arbitration provision? Revise it instead of signing it. Be careful about signing any arbitration agreement, particularly if the provision does not state that the arbitrator must award based on the law, and failure to do so is grounds to vacate the award. I encourage parties to consult an attorney to learn how to best revise arbitration provisions to protect themselves from unwanted surprises.

Roger Lenneberg is an attorney and chairman of Jordan Ramis PC’s construction law team. He previously worked as an arbitrator, mediator and in-house counsel for a national subcontractor and developer. Contact him at 503-598-5585 or roger.lenneberg@jordanramis.com.

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Because the construction business has gotten more and more complicated, reliance on outside professionals has become an unavoidable cost. For many businesses, hiring professionals is the last thing on the wish list because of concerns about unpredictable cost, uncertain outcomes and questionable investment return. Despite those concerns, professionals are a necessity today.

With little planning, a good professional can improve the bottom line, provide expertise that can be useful again and again, and be a solid investment in proactive management to reduce risk. The world of “must have“ consultants for the construction industry has grown beyond lawyers and accountants and now includes information technology experts, human resource consultants, water envelope specialists and risk managers, just to name a few.

Although it may seem like the easiest path, skipping the professional advice rarely pays off in the end. Here are some suggestions for getting better value from professional service providers:

1. Be proactive. Develop relationships with key outside professionals who have expertise in preventing problems. Reach out to these professionals early and often. A few brief visits can help avoid longer visits in the future with professionals who charge by the hour.

2. Ask your professional to meet with you at your office for the first working meeting. This initial meeting establishes your respective roles and sets the tone for the ongoing relationship. In your own environment, you are the leader and have access to all the information and resources you need to start the project in the right direction.

3. Collaborate with the professional. During the first meeting, create a work plan that includes a clear statement of the relationship goals, the specific “deliverable(s)” desired, project milestones (to measure progress), and a completion date (and/or progress check-in date if work is ongoing). This is an opportunity to share your professional approach and ensure that it matches theirs.

4. Ask for a budget in “professional hours,” not dollars. Professional services are billed by the hour and by creating a budget for hours, you focus attention on productivity, time and efficiency. When the budget is exceeded, require authorization for more time and ask for explanations for overruns.

5. Require monthly reports and updates. These can be simple and on forms you prepare. This process keeps you informed and involved, and encourages faster progress (which saves time and money).

6. Ask for a written statement of options for proceeding with targeted tasks, and ask that relative costs and benefits of each approach be included. For example: Ask an information technology consultant to outline the comparative costs, risks and performance of off-the-shelf software versus customized software. Professionals are often consulted in areas where one has little accurate information. Rely on your professional to educate you so you can make an informed decision based on complete information.

7. Make sure you have a written fee agreement.

8. Call upon receipt and ask about it if you have a question on the billing or work product. Resolve all issues quickly.

9. Make sure you get copies of everything your professional sends out. Email and transmitting documents electronically makes this process much easier than it used to be.

10. Ask for drafts well in advance of when documents must be filed or executed or a key decision made. Don’t allow yourself to be rushed into something you have not had time to consider.

11. Treat the relationship as a working relationship; this is the goal, rather than a superior/subordinate relationship. Ask relevant questions, get concise and direct answers, and educate the professional as well as yourself. Over time, you will learn what you should and should not do yourself. In this way, your professional relationships can last a lifetime, not just for the life of one project.

Roger Lenneberg is an attorney and co-chairman of Jordan Ramis PC’s construction law team. He has 30 years of experience as a construction attorney. His practice focuses on construction law, real estate and litigation. Contact him at 503-598-5585 or roger.lenneberg@jordanramis.com.

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