Construction projects by their nature tend to be document intensive. This is a function of how the industry delivers projects: An owner traditionally hires an architect or engineer to design a project, who in turn hires subconsultants. The same happens on the construction side: An owner hires a general contractor, who hires subcontractors and purchases materials from suppliers, all of whom may further contract downstream for various services, labor, materials, and equipment.  Each party maintains its own project files and communicates upstream, downstream, and across stream via email, text, communication apps, and various project management systems. Though other project delivery methods may change the contracting scheme, this in most cases will not materially impact the volume of communication and documentation generated during design and construction of a project.

Thus, it should be no surprise that construction disputes are similarly document intensive, particularly in the age of electronically stored information — or “ESI.” Depending on the amount at issue, nature of the dispute, size of the project, and number of parties involved, the number of documents collected, searched, reviewed, culled, and produced can be in the millions.

To address these challenges — and to provide transparency and assurance that the parties are taking the same measures to collect, search, and produce responsive data — parties and their counsel will often enter into ESI protocol agreements that spell out requirements for cooperation and transparency, as well as the processes the parties will take to meet their document discovery obligations.

Most ESI protocol agreements address six principal issues: 1, the obligation to preserve documents; 2, the obligation to collect documents; 3, the means and methods the parties will use to search collected documents for potentially responsive material; 4, the procedures for addressing privileged material; 5, the format in which non-privileged, responsive material will be produced; and 6, the process for resolving disputes.

1. Preservation

The law typically imposes an obligation on parties to preserve evidence once they reasonably anticipate arbitration or litigation. However, the parties may want to modify or make more specific that general requirement by, for example, agreeing on specific custodians whose ESI will be preserved.

2. Collection

Typically, an ESI protocol will address custodial data sources — i.e., data sources connected to specific individuals, such as email files — and non-custodial data sources — i.e., data sources not connected to specific individuals, such as share files and project files. The parties’ agreement will typically address custodial collections’ date ranges, which may initially be shorter than the period for which custodial data will be preserved.

3. Search processes

Next, an ESI protocol will often address the methodology the parties will use to search for potentially responsive material. This can include an iterative process for proposing and revising party specific search term lists that the parties will use to search custodial data. Agreement on search terms often involves multiple rounds of search term reports that show the total documents searched and the total hits, as well as term-by-term data such as the number of parent item hits for each term (i.e., emails), the number of hits with family (i.e., emails plus their attachments), and the number of unique hits (i.e., documents that do not contain any of the other search terms).  But just because a search term results in a “hit” does not mean it is responsive or will be produced. That determination will be made after the hits are reviewed for privilege and responsiveness.

In many cases, non-custodial data sources — like project files — will not be subject to the search term process because they are organized in such a way that lends to identifying responsive documents without the use of search terms.

4. Privilege

Often the parties will address in their ESI protocol the extent to which privileged documents will be logged. Because attorneys are often involved in construction disputes before the project is even completed, the volume of privileged material can be significant — and creation of a detailed log may be time-consuming. To address that concern, the parties may agree that communications with trial or arbitration counsel do not need to be logged. The parties may also agree to a phased logging requirement in which an initial privilege log may include only the details that can be readily exported into an Excel spreadsheet from a document’s metadata, such as to/from/cc, date and time sent, subject line, and whether there are any attachments. The other parties would then have the opportunity to request additional information on a document-by-document basis.

5. Format of production

An ESI protocol will almost certainly include requirements for the format in which ESI will be produced. Most commonly, the parties will agree to produce “load files” that when uploaded into an e-discovery platform like Relativity work together to allow efficient viewing, searching, and filtering. The load files may include a native file, an image file (with a Bates stamp inserted in the lower right corner of the imaged document), a metadata file, and an extracted text file. The formatting section will also address whether and how ESI will be deduplicated and how parent-child relationships (i.e., emails with their attachments) will be preserved. Many law firms employ paralegals specially trained to analyze and advise on these highly technical matters.

6. Process for resolving disputes

An ESI protocol may typically include a process for resolving disputes that almost certainly will require conferral before any dispute may be raised with the court or arbitrators. In some cases, the parties may also agree that matters related to e-discovery will be resolved in the initial instance by a discovery master who is experienced with adjudicating disputes related to e-discovery processes.

Lastly, the role of AI in the aforementioned processes — and e-discovery in general — is rapidly evolving. Many law firms are offering clients the option to use AI tools in aid of functions historically performed by lawyers and paralegals. Early results with some of these tools are promising but still require critical review by the legal team.

Fulsome document discovery is a critical part of reaching the merits of a dispute — particularly in document-intensive construction cases.

Zachary Davis is a Stoel Rives LLP partner and a member of the construction and design practice group in the firm’s Portland office. Contact him at 503-294-9410 or zachary.davis@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 Managing document discovery in construction disputes | Opinion appeared first on Daily Journal of Commerce.

Since the Oval Office transition in January – and the rapid shifts in law, policy, and economic uncertainty that followed – my colleagues and I frequently field a variation of the same question: Is this a force majeure under my contract?

Most often, the answer is not nearly as straightforward as the question. Providing an answer – to the extent we can – usually requires that we dig into the factual circumstances and analyze multiple interrelated contract provisions and sometimes also arcane common law doctrine that requires wiping the dust from old law school textbooks. And, as lawyers are ought to do, whatever answer we ultimately provide almost always starts with “it depends.”

Because uncertainty and change appear to be ongoing themes of the current political and economic landscape, having a basic understanding of contractual and legal lexicon relevant to the various doctrines that may excuse or modify a party’s performance obligation is critical.  Those principles may include the following (and may also hark back to memories of the COVID-19 pandemic):

• Force majeure: These contract provisions – which sometimes use the term “force majeure” but often do not (the American Institute of Architects forms are a good example) – typically provide relief to one or both parties based on the occurrence of certain delineated events or sometimes, more ambiguously, events that are “beyond the party’s reasonable control.” Historically, force majeure provisions in construction contracts provide additional time for performance to the contractor, but not additional money. This shifted somewhat post-pandemic, as force majeure became more front-of-mind during negotiations.
• Change in law: These contract provisions similarly provide relief to one or both parties based on changes in applicable law – which may or may not be a defined term – that occur after contract execution and materially affect performance. During the pandemic, parties relied on change-in-law provisions to excuse or delay performance based on stay-at-home orders and others enacted at various levels of government intended to slow the spread of the coronavirus. Changes in tariff law and other executive orders may similarly trigger change-in-law provisions, though careful analysis is typically required.
• Impossibility or impracticability: Performance may be excused under common law principles when it becomes objectively impossible or economically impractical. For instance, a landowner who has entered into an agreement to lease their building on a future date may be excused from performance if the building is destroyed by fire prior to the lease date, rendering performance impossible. The bar for excusing performance under these doctrines is typically high, and generally requires objective evidence that performance as originally anticipated is rendered impossible or economically impractical.
• Frustration of purpose: Performance may also be excused when an unexpected event occurs – the non-occurrence of which had been assumed by the parties – and frustrates the entire purpose of the contract. This typically requires evidence that the contract was formed with a specific purpose, that the occurrence of an unanticipated event frustrates that purpose, and the non-occurrence of that event was a basic assumption underlying the initial formation of the contract.
• UCC: Contracts involving the sale of goods may be subject to the Uniform Commercial Code (UCC) as adopted in the state whose law governs the contract. The UCC has codified the impracticability doctrine, which may excuse a seller’s performance when certain circumstances are satisfied.
• Anticipatory repudiation: There are various other contractual principles that may in certain circumstances excuse a party from performing, including anticipatory repudiation. For instance, if party A to a contract makes a statement that it does not intend to perform, party B may then be excused from its obligation to perform.

In applying these principles, courts (and arbitrators) will first and foremost study the parties’ contract to see whether they agree how the risk of the event at issue would be handled prior to the dispute. If they agree, courts (and arbitrators) will typically apply the contractual remedy. But if the parties do not agree – or if there is ambiguity – then the court (or arbitrator) will look to their toolbox of other doctrines that may excuse, delay, or otherwise alter a party’s obligation to perform. And, of course, the facts of the particular circumstance and various equities at stake will weigh heavy in the decision maker’s consideration and ultimate decision.

Zachary Davis is a Stoel Rives LLP partner and a member of the construction and design practice group in the firm’s Portland office. Contact him at 503-294-9410 or zachary.davis@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 Understanding contractual remedies and principles in uncertain times | Opinion appeared first on Daily Journal of Commerce.

Whether a construction dispute is subject to arbitration or court litigation, the parties to the dispute will most likely engage in a process to exchange their project files, project-related emails, and a myriad of other project-related documents relevant to the dispute. While this process is not unique to construction cases, the fulsome exchange of documents is particularly critical to fairly resolving them because the story of a construction dispute is almost always told through the emails and other communications between and among the various project participants. Construction lawyers are well-versed in the issues this presents, particularly in the era of electronically stored information (“ESI”). Nonetheless, owners, design professionals, and contractors would all benefit from even a rudimentary understanding of the process and their obligations.

The first step is to ensure that potential evidence is not destroyed. The law imposes an affirmative obligation to preserve evidence even before litigation or arbitration is under way – often at the point litigation or arbitration becomes “reasonably foreseeable.” Evidence subject to the preservation obligation includes not just project-related documents – both in paper form and ESI – but also the physical evidence, including the project itself. The failure to preserve evidence could result in harsh civil or criminal penalties.

In the modern ESI era, the preservation obligation imposes unique challenges. Email and other data systems utilized by businesses may be subject to record retention programs that automatically delete files on a scheduled basis. It is critical that these systems are suspended once the preservation obligation is triggered. It is equally important that individuals not discard, delete, or destroy ESI or other project documents. If physical evidence – like building materials that became part of a project – must be moved or altered in any way, it is important that the other parties to the dispute (or potential dispute) be provided with advanced notice.

Once the preservation obligation is triggered, it typically continues until the matter is resolved.

In most large construction disputes – and even some smaller ones – shortly after arbitration or litigation is commenced, the parties’ attorneys will confer to discuss and formalize an ESI protocol that the parties will use to collect, search, and produce relevant information. Because most construction projects span multiple years, it is impractical for the parties and their lawyers to do a page turn of all emails, texts, instant messages, and other communications sent and received during the project. Thus, the purpose of an ESI protocol is to establish agreed-upon search procedures that maximize the likelihood that relevant material is collected, identified, and produced on an equivalent basis by all parties.

There are at least four core elements to an ESI protocol:

An agreement to collaborate in good faith

Because the ESI protocol is standing in for a full-scale page turn to identify relevant documents, the process is dependent on each side acting in good faith and having confidence that the other parties are making like efforts to collect, identify, and produce relevant information.

An agreement on the sources of data subject to preservation, collection, search, and production

Typically, the data sources will be grouped into custodial data sources – i.e., the data sources specific to individuals (i.e., custodians) – and non-custodial data sources – i.e., the data sources where shared information is stored, like a project file. Depending on the likelihood that a specific data source will have information relevant to the dispute, the parties will agree whether the source will be subject to collection or just preservation. For custodial productions, the parties may also agree to limit the date range for collection with respect to a particular custodian based on the time period that the custodian worked on the project. For instance, if Jane Smith worked on the project only briefly, the parties may agree to initially collect Ms. Smith’s emails only from that specific time period.

An agreement on the way the parties will search the collected data for potentially relevant material

This mainly applies to the emails and other ESI collected from custodial data sources and not project files or other non-custodial sources. Because many of the custodians will have worked on the project for years – and thus will have lengthy collection periods – the volume of total ESI collected from these individuals makes it impossible to perform a page-by-page review to identify the relevant emails and other documents that are responsive to a discovery request. Instead, parties typically agree on search terms that each party will use to identify potentially relevant material. The development of search term lists is typically a collaborative and iterative process that involves running trial searches and exchanging search term reports that show the number of “hits” for each term. Because the purpose of this initial search is to identify potentially relevant documents, the focus is on terms likely to identify documents related to the project in general as well as specific issues in the case rather than elimination of irrelevant documents. Each party will cull out irrelevant documents and other documents not subject to production – e.g., privileged communications – during its internal review processes.

An agreement that metadata will be preserved and produced intact and on the format(s) for production

The metadata provides important information about a document, such as its author, when it was created, and when it was last altered. This can be critical evidence – sometimes even more so than the content of the document. Additionally, law firms representing parties in large construction disputes typically use sophisticated eDiscovery software to manage document discovery. It is important that the parties agree on the metadata fields that are subject to production to maximize the efficiency of the review process using those platforms. It is equally important to agree on the format of production – e.g., whether documents will be produced only in native format or both in native format and with image files.

A fulsome document production is essential to the fair and meritorious resolution of construction disputes. A party’s lawyer will typically lead all stages of the effort to ensure their client meets its obligations to preserve, collect, and ultimately produce documents relevant to a dispute. But the party itself plays an important role in that process, and a fundamental understanding of the party’s obligations is critical for avoiding the sometimes-harsh results of noncompliance.

Zachary S. Davis is a Stoel Rives LLP associate and a member of the construction and design practice group in the firm’s Portland office. Contact him at 503-294-9410 or zachary.davis@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 Document preservation, collection and production obligations | Opinion appeared first on Daily Journal of Commerce.

When negotiating design and construction contracts for large projects, it is common for sophisticated parties to push to the end of their negotiations the half-dozen or so provisions that one side or the other has characterized as “deal-breakers.” Often in the eleventh hour, one of the parties will make a concession (sometimes many concessions), have their bluff called, or possibly propose a creative solution that saves the agreement from irreversible derailment.

Other times, negotiations fail, and the deal derails. This result may be the unavoidable outcome of a marriage that was not meant to be. But in other cases, there may have been a missed opportunity for compromise.

How can parties mired in a stalemate find a way to pass the checkered flag? Here are some tips:

Consider whether the stated position is really a “deal-breaker”

“We never agree to that” is a common refrain during negotiations. But the absence of historic precedent is by itself not a rational justification for not agreeing to something in the present. There may very well be a good reason why such precedent was established in prior deals. But that reasoning may not apply to the current deal, and there is value in reexamining the basis for such precedent on a case-by-case basis.

Consider whether there is room for a “bend-but-do-not-break” middle ground

When parties cannot get over that final hump with disputed terms, it is often because they tend to gravitate toward a “take-it-or-leave-it” mindset with the contract terms they deem most important. Waivers of consequential damages are an area where this happens. For contractors and design professionals, obtaining from the owner a waiver of consequential damages is often a “non-negotiable” deal point. On the flip side, owners want to preserve their remedies against responsible parties, believing that they should not be forced to take on risk that others are in better position to control.

Too often, both sides see these and other similar limitations on remedies as black and white and not subject to negotiation. And while both parties may be justified in their concerns, a deal can often be made that provides the contractor or design professional with insulation from outsized risk, while also preserving a remedy for the owner by, for example, excluding from the waiver amounts recoverable from insurance. The owner may also seek to condition the enforceability of the waiver on the other party maintaining the insurance required under the agreement. This solution provides the contractor or design professional with peace of mind that its own out-of-pocket risk will be limited – so long as it complies with the requirements to maintain insurance – while ensuring that the owner will have a remedy.

Consider whether negotiations on certain items should be escalated to the parties’ executive teams

Another reason why deals sometimes fall apart is that the negotiation teams do not involve – or wait too long to involve – the key executives with decision-making authority. One of the most effective ways to resolve an impasse at the negotiation team level is to engage the executives from each side. The executives may have authority that the negotiation teams lack and will also bring a different perspective that could lead to better focus on priorities or creative compromise.

Consider whether there are commercial levers that could help resolve an impasse over legal terms

Legal negotiations are often siloed from negotiations on commercial terms. But one way to resolve disputes over risk allocation is to adjust the commercial deal to ensure that the financial terms align with the risk allocation.

Do not let perfection be the enemy of the good

A law professor once told me that the best negotiated deals are the ones in which neither side is happy with the outcome. While there may be some hyperbole to that statement – nobody wants to start a construction project from a position of disappointment – it is a good reminder that striving for the perfect deal every time is not a realistic outcome.

Negotiating contracts on complex construction projects can be challenging. But a challenging negotiation can be a sign that both sides are engaged in a healthy exercise to equitably balance risk in a way that starts the path to a successful project.

Zachary S. Davis is a Stoel Rives LLP associate and a member of the construction and design practice group in the firm’s Portland office. Contact him at 503-294-9410 or zachary.davis@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 Strategies for getting difficult contracts to the finish line | Opinion appeared first on Daily Journal of Commerce.

When reviewing a proposed design or construction contract, the responding party will often do a cursory check to see whether the contract proposes arbitration or litigation for dispute resolution. So long as the proposed method generally aligns with that party’s preferences, it will not look further at the specifics of the proposed process. For the uninitiated, this can lead to surprises when a dispute arises, especially when it comes to issues like whether the arbitration will be held before a single arbitrator or a panel of arbitrators, the rules that will apply to the arbitration, and the scope of discovery.

Construction and design attorneys, on the other hand, spend many working hours (and sometimes nonworking hours) contemplating these exact issues. I have developed a checklist of items that I advise my clients to consider in their arbitration provisions. The combined goal of these considerations is eliminating surprises if a dispute arises and balancing efficiency with the desire for a fair process. Typically, that checklist includes the following topics:

Rules applicable to the arbitration

The parties may – and often do – agree in their contract to the procedural and evidentiary rules subject to the arbitration. Deciding which rules will apply to the arbitration – and whether there are any exceptions to those rules (such as for discovery) – is maybe the most important provision because a dispute could proceed under very different paths depending on the rules that apply.

For instance, the American Arbitration Association’s (AAA) Construction Industry Arbitration Rules provide for relatively limited discovery (i.e., pre-hearing document exchange and depositions). While this might be appropriate for smaller disputes, it rarely is appropriate for disputes involving large, complex construction projects. The Procedural Rules of the Arbitration Service of Portland (ASP), on the other hand, provide that the scope of discovery is the same as allowed by the Oregon Rules of Civil Procedure, which grant relatively broad rights of discovery. Thus, for disputes involving large construction projects, the ASP rules are in most cases better equipped to arm the parties and the arbitrator with what they need for a fair resolution.

Of course, as addressed below, the parties can also agree to conduct discovery pursuant to the Federal Rules of Civil Procedure or corresponding state court rules notwithstanding their agreement that the AAA rules (or ASP rules or those of some other body) otherwise apply.

Single arbitrator or panel of arbitrators?

Arbitrations may proceed before a single arbitrator or a panel of three (or more) arbitrators depending on the parties’ agreement or the rules applicable to the arbitration. A typical arbitration provision in a design or construction contract might provide for a single arbitrator for disputes below a certain dollar threshold and for a panel of three arbitrators for disputes above that threshold.

Because arbitrators are compensated by the parties for their time, arbitrating before a panel of arbitrators – as opposed to a single arbitrator – will add cost; it also will add scheduling difficulties that can push the final hearing out in search of dates that work for everyone. The parties can also agree in their contract to certain qualifications that an arbitrator must meet in order to serve. This is common in contracts involving highly technical or specialized construction. For instance, parties to an engineering, procurement, and construction agreement for a commercial solar array might agree that any arbitrator must have a background in the solar industry.

Scope of discovery

A belief has developed among many lawyers and arbitrators that one of the perceived benefits of arbitration – greater cost efficiency compared to litigation – can only be achieved when discovery is limited. AAA’s rules reflect this paradigm. The reality, however, is that in most construction disputes the documents – and particularly emails and text messages – tell the story. Thus, the party without those documents is at a significant disadvantage if the scope of discovery is limited in a manner that prevents a full and fair exchange of documentary evidence.

This issue can be avoided by prospectively agreeing that the scope of discovery will be governed by the Federal Rules of Civil Procedure (or alternatively the Oregon Rules of Civil Procedure or other state court rules in the jurisdiction where disputes will be heard). Recent amendments to the Federal Rules of Civil Procedure adopted a requirement that discovery be “proportional to the needs of the case” – thus baking into the rules a safeguard intended to limit abusive discovery practices while at the same time ensuring access to discovery based on considerations that include “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” An agreement that discovery will be subject to the Federal Rules of Civil Procedure has the dual benefit of guarding against runaway discovery costs that are disproportionate to the matters at issue while ensuring fair access to information.

Maximizing opportunity for resolution in a single proceeding

Rare is the construction dispute that involves only two parties. A typical defect claim might include claims by the owner against the design team and the contractor and subcontractors. For both efficiency and avoidance of inconsistent outcomes, it is often in the parties’ mutual benefit to have all related claims consolidated into a single arbitration proceeding. The agreements between the owner and the architect and between the owner and the contractor might include a requirement for a consolidated arbitration proceeding, but what if downstream contracts do not? One way to address this scenario is to include an off-ramp in the arbitration provision that gives the owner the right to elect consolidated court litigation in the event all necessary parties cannot be joined into a single arbitration proceeding.

These are just four of the many moving parts that are important to consider when agreeing to arbitrate disputes in a construction or design agreement. Owners, designers, and contractors would all be well served to give them more than just a passing glance.

Zachary S. Davis is a Stoel Rives LLP associate and a member of the construction and design practice group in the firm’s Portland office. Contact him at 503-294-9410 or zachary.davis@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 parties ought to consider when considering arbitration provisions | OP-ED appeared first on Daily Journal of Commerce.

This is the third consecutive April in which my byline has filled this column space.

In April 2020, just weeks after Oregon Gov. Kate Brown formally ordered Oregonians to “Stay Home, Save Lives,” I asked whether construction projects could or should continue during the shutdown. While the order did not on its face require construction projects to halt, I offered the viewpoint that proceeding with ongoing or planned construction was not without impact or risk tied to COVID-19. While speculating that it was likely the governor’s order would remain in place “for several more weeks if not into the summer” – which in hindsight was quite optimistic – I provided a checklist for owners, designers and contractors to consider when deciding whether to continue a project or start a new one during the pandemic.

Then, in April 2021, I looked back at a year of practicing construction and design law during a pandemic. I reflected on a year spent negotiating, drafting, analyzing and haggling over force majeure provisions, while noting that prior to March 2020 I had never spent more than five minutes negotiating force majeure language in a construction or design contract. I also offered thoughts on other often overlooked contract clauses that took on renewed importance during the pandemic, including “change in law” provisions, and remarked on the importance of determining how various contract provisions and remedies triggered by the pandemic interact within the broader context of the whole contract. Finally, I provided a brief reminder that while the occurrence of a force majeure event such as a pandemic might allow for delayed or excused performance (or in some cases a monetary remedy), it will typically not excuse the obligation of the claiming party to provide notice or the performance of obligations not causally impacted by the event.

Now, 24 months after that first column and nearly 25 months since the governor issued her order, we might finally be emerging to see the ever so evasive light at the end of the tunnel. Social distancing and masking requirements have been removed from most settings, indoor dining has returned, students are back in school, and many of us have returned to the office.

But that does not mean that impacts from the pandemic are over. While the health risk appears to have somewhat retreated (for the time being at least – we now know well enough not to count our proverbial chickens), the realities of a world economy hampered by two-plus years of global pandemic remain. Supply chain issues, labor shortages and inflation have combined to create their own issues and may be felt more by the construction industry than any other. And there is not any sector of construction that seems to be spared.

On top of these ongoing reverberations from the pandemic, the Russian invasion of Ukraine is likely to pose further interruptions of global commerce. While it seems shallow-minded to focus on the global economic fallout of the atrocities carried out by the Russian military, it is also true that both Russia and Ukraine have sizable roles in global supply chains. Russia and Ukraine contribute raw materials, chemical products and various manufactured equipment to the global economy, and Russia of course supplies Europe with nearly a third of its oil and more than a third of its natural gas. Interruptions to these various supply chains are already felt and are likely to become only more pronounced as the war continues.

So, while much has changed since I penned the first column in 2020 and the second in 2021, the considerations for owners, designers and contractors with ongoing construction projects or those beginning new ones are in many ways the same, but with new twists. The focus for many parties has shifted from things like the impacts of government shutdown orders and social distancing mandates to whether ongoing supply chain interruptions or labor shortages are a result of the pandemic, the Ukraine war, or some other cause and whether they excuse performance or are otherwise subject to a contractual remedy.

As a construction and design attorney, if there is one thing that I emphasized to my clients over the past two-plus years it is that many of these questions cannot be answered with a one-size-fits-all solution. What might be an excusable or compensable event for one project may not be subject to a remedy for another project or even for a different contractor working on the same project. As we (hopefully) push further past the worst of the pandemic, and the pandemic-related impacts become more indirect and more intertwined with other global events like the war in Ukraine, this will likely prove to be even more true. Like I concluded in April 2021, I am confident that the experiences of the past two years leave the construction industry well prepared to face these new challenges.

Zachary Davis is a partner and construction and design practice group member in the Portland office of Stoel Rives LLP. Contact him at 503-294-9410 or zachary.davis@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 OP-ED: Looking back — and forward — after two years of a pandemic appeared first on Daily Journal of Commerce.

The previous time my byline appeared in this column, we were just a few weeks into the government-ordered lockdown, and I pondered whether construction projects could – or should – continue. In the year since, the construction industry proved adaptable as owners, general contractors and trade contractors labored to ensure that work continued while employees were kept safe and there was compliance with the various government-ordered and -recommended practices intended to slow the spread of COVID-19.

While we are still many months from being past the pandemic, we have at least neared the light at the end of the tunnel. Most adults in Oregon are now or will soon be eligible for vaccination, and there are signs of normalcy as kids return to school and the various pandemic-related restrictions are slowly lifted. As our industries and communities enter this new stage of what is hopefully recovery and resurrection from the pandemic, the time is right to look back at lessons learned over the past 12 months.

Contracting considerations

Prior to March 2020, I cannot remember spending more than five minutes negotiating force majeure language in a construction or design contract. When advising owners, I often recommended a handful of modifications to the force majeure provisions of the various industry standard forms, which were typically accepted without comment or revision by the other party.

Post-March 2020, the force majeure provision is easily the one that is most closely scrutinized – at least in terms of time and red ink. And for parties negotiating new agreements, the range of solutions has run a broad spectrum as contracting parties have looked for fair – and sometimes creative – ways to allocate the numerous risks that the ever-changing pandemic presented (and still presents).

Of course, for contracts negotiated over the past year, the parties have been in the unique position of negotiating during an ongoing force majeure event – or at least force majeure-like circumstances. Because the pandemic is ongoing, contracting parties should – at least to some degree – be able to account in both price and schedule for the known impacts of the pandemic as of the date of contracting.

Thus, the challenge is drafting a provision that is flexible enough to differentiate between those known risks – e.g., the impacts of existing government orders and restrictions – and the unknown risks – e.g., future government orders strengthening restrictions or imposing new lockdowns due to a surge. While the rule traditionally followed in construction contracting is that the occurrence of a force majeure event gives the contractor the right to additional time – but not necessarily money – many owners have agreed to include a remedy for additional costs as part of pandemic-specific force majeure provisions. On the flip side, many such owners also want the opportunity to share in any savings in the event the work becomes less expensive due to, for example, a loosening of government restrictions that comes earlier than anticipated.

But while force majeure has claimed the spotlight, other contract clauses similarly overlooked pre-pandemic are proving equally worthy of scrutiny. One such example is the “change in law” provision. Executive orders and agency-level directives may or may not qualify as a “change in law” depending on, among other things, (a) how “law” is defined by the contract (if at all), and (b) whether the contract permits a remedy for all such changes in the law or for just a certain class of changes.

The other challenge is determining how these provisions and remedies interact within the broader context of the contract. For instance, if a new government order that imposes additional social distancing requirements does not meet the contractual definition of a “change in law,” that may not necessarily mean that the impacted party is without a remedy under another provision.  Thus, contracting parties may want to include language that, for example, clarifies whether they intend that the “change in law” provision is the exclusive remedy for impacts involving government orders. While that conclusion might be inferable from a holistic reading of the contract, including express language ensures that the parties’ intent is honored.

Managing impacts and claims

The flip side of drafting a contract that allocates risk for unexpected events such as a pandemic is how the parties implement that agreement when those risks arise during performance. For instance, most contracts require an impacted party to provide timely notice to the other party of an event or circumstance that triggers a contractual remedy. While a force majeure provision may excuse performance of certain contract obligations, it is unlikely to excuse notice requirements – even in the event of a global pandemic.

And, of course, the occurrence of a force majeure event is not a blank check for the impacted party and does not provide a remedy or excuse performance for obligations not causally impacted by the event. For instance, a contractor submitting a request for an extension of time due to a force majeure event should expect that the owner will want a critical path analysis showing that the claimed event actually caused a delay and that the delayed activity was in fact on the project’s critical path. In my experience, owners who were initially sympathetic to their contractors at the outset of the pandemic – and thus less inclined to strictly enforce their contracts – are far less willing to overlook shortcomings now that both sides have lived through pandemic conditions for more than a year.

As we emerge from a year of lockdown and conducting business in unprecedented conditions, the events of the past year will leave their mark for generations. The construction industry – like society at large – has learned important lessons that will make it better prepared to face future challenges.

Zachary Davis is a member of the construction and design practice group in the Portland office of Stoel Rives LLP. Contact him at 503-294-9191 or zachary.davis@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 OP-ED: Pandemic creates cause to rethink overlooked contract provisions appeared first on Daily Journal of Commerce.

Now that several weeks have passed since Gov. Kate Brown formally ordered all Oregonians to “Stay Home, Stay Lives,” owners, project designers and contractors all have had the opportunity to absorb the initial impacts. And while many stakeholders were initially relieved that construction projects in Oregon could apparently continue – subject to the various social distancing and travel restrictions described in the executive order – that does not mean that proceeding with ongoing or planned construction projects is without impact or risk from COVID-19.

Thus, as we face the apparent likelihood that the executive order will remain in place for several more weeks if not into the summer, it is a good time to revisit the considerations that all project participants should keep in mind when deciding whether to continue a project or start one. These include:

• The executive order requires that “when individuals need to leave their homes or residences, they should at all times maintain social distancing of at least six feet from any person who is not a member of their immediate household, to the greatest extent possible, and comply with the other social distancing requirements guidance issued by the Oregon Health Authority.” This general directive would appear to require social distancing at construction sites. Depending on the nature of the project or the work of a specific construction trade, achieving the required social distancing measures may not always be safe, practical, or even possible. Some states have dispatched enforcement teams to check construction sites for compliance and possibly issue fines or shutdown orders. It is unclear to what extent this may be happening in Oregon thus far.
• The executive order further requires that “when telework and work-from-home options are not available, businesses and nonprofits must designate an employee or officer to establish, implement and enforce social distancing policies, consistent with guidance from the Oregon Health Authority.” While this statement is included in the broader context of discussing work in offices, it may be wise to presume that these additional requirements apply to work performed in non-office settings, such as construction sites, construction trailers, lunch areas, restroom lines, etc.
• The executive order directs individuals to “minimize travel, other than essential travel to or from a home, residence, or workplace; for obtaining or providing food, shelter, essential consumer needs, education, health care, or emergency services; for essential business and government services; for the care of family members, household members, elderly persons, minors, dependents, persons with disabilities, or other vulnerable persons, pets or livestock.” Again, while this language appears to allow travel to a workplace – presumably including a construction site – owners and contractors will again want to consider the restrictions in the context of each specific project.
• If we see a local spike in COVID-19 cases or if there is reason to expect a spike may occur, there is the possibility that Gov. Brown will revise the executive order – either before or after its current expiration – to allow only certain projects deemed essential to move forward. This is the approach taken in several other states, where the question of what is and is not essential is often far from clear.
• Of course, separate and apart from whether construction may continue is the question of whether personnel will remain willing (or able) to work on a construction project. Whether construction employers can or should direct employees to report to work is another tricky question that should be determined on a case-by-case basis with the help of an employment attorney.
• The Oregon executive order currently not expressly prohibiting construction does not necessarily mean that continuing in the current environment is the best choice for all projects. Whether a project should continue – or be suspended for a period of time – is a complex decision that requires discussion with all team members.

Of course, apart from the immediate question of whether construction can and should continue in light of the stay-home order, project participants likely face other contractual or commercial considerations, such as whether the pandemic or related governmental orders trigger force majeure provisions or otherwise excuse delayed performance. Many contractors assume that simply sending notice that COVID-19 is impacting the project is enough. But owners will justifiably require greater explanation of the specific impact and how it affects the critical path of the project. Again, these issues are project and contract specific. They will take time – and collaboration – to resolve.

Zachary Davis is an attorney in Stoel Rives’ construction and design practice group. Contact him at 503-294-9410 or zachary.davis@stoel.com.

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

The post OP-ED: Can (or should) my project continue during the shutdown? appeared first on Daily Journal of Commerce.

It is construction contracting 101: get the contract signed before the shovels hit the dirt. But too frequently the signed agreement becomes secondary to starting work. This is understandable. For both owners and contractors, starting on time is critically important, particularly in the Pacific Northwest where Mother Nature is often the biggest impediment to getting a project completed on time and on budget. Thus, there are times when business reasons dictate starting construction before a final contract is negotiated and signed.

Nonetheless, it is important to revisit the reasons why it is prudent to have an executed contract before work starts. Here are five of them:

1. Negotiation takes time

Oftentimes, parties are willing to set aside negotiation of a contract until after construction starts based on their shared assumption that they will be able to quickly agree on contract terms in the days thereafter. But even when the owner and contractor have an established relationship, this may be an unreasonable expectation. Sophisticated owners and contractors are bound to have significant disagreements. Negotiations that drag on while construction is under way can distract the project team. And both parties may lose leverage on important issues. Meanwhile, the longer that work proceeds without a contract in place, the greater the risk to both parties.

2. Adequate insurance cannot be assumed

Insurance is one of the principal project assets that both the owner and contractor rely on to manage risk that manifests both during construction and in the years after work is completed. But neither the owner nor the contractor should assume that the other party’s insurance is adequate. The owner will want to ensure that the contractor has adequate liability coverage to protect against losses during construction, as well as “completed operations” coverage that takes effect after the contractor’s work is finished (not to mention workers’ compensation, employers’ liability, and commercial auto, among other common coverages). And because subcontractors typically perform the bulk of the work, the owner will also want to require that subcontractors maintain appropriate coverage. Though often the owner provides “builder’s risk” coverage that protects the work during construction, the parties could agree that the contractor is to obtain the builder’s risk policy. When work begins before these responsibilities are contractually established, there is an increased risk that coverage will be inadequate or that there will be gaps.

3. Compensation is more than a number

During the bidding or proposal process, the focus is appropriately on the price for which the contractor will agree to build the project. Generally speaking, it is not until they start negotiating the final contract that the owner and contractor address the specific terms governing the owner’s obligation to make payments to the contractor. These negotiations include issues such as the procedure for submittal and approval of payment applications, the documentation required by the owner as a condition for making payment (e.g., will the owner require lien waivers from the contractor and all subcontractors?), whether retainage will be deducted from progress payments, the amount of interest to be paid on payments that are late, and conditions for final payment. The agreement on an initial contract price does not address the manner for adjusting the price (or schedule) based on changes in the scope of work or problems encountered during construction. Ideally, these issues are settled before work begins.

4. The earlier the prime contract is signed, the easier it is to ensure key requirements flow down to subcontractors

A general contractor’s agreements with its subcontractors typically include standard flow-down language that incorporates the terms of the prime contract. Nonetheless, the prime contract also frequently requires that specific provisions be expressly stated in the subcontracts. For instance, when the owner and general contractor agree that disputes between them are to be resolved by arbitration, they will often also agree that the general contractor’s agreements with its subcontractors and suppliers are to include identical language binding the subcontractors to arbitrate disputes in a consolidated proceeding. If the prime contract is executed after certain subcontracts or supply agreements are executed, then the general contractor may need to amend those agreements to include the required language.

5. The contractor’s bid may include terms that are not acceptable to the owner

The contractor typically prepares a bid that describes a scope of work, sets forth “assumptions” on which the bid is based, and contains other “exclusions” and “clarifications.” The assumptions, exclusions and clarifications frequently contain legal terms and disclaimers that many owners find objectionable (for example, limitations of liability or waivers of consequential damages) and would never accept in the ultimate contract. But if the contractor’s bid is the last writing between the parties before work starts, the contractor may have a basis to later insist that such objectionable terms were a material part of the contractor’s proposal as accepted by the owner – even if the owner orally manifested an objection to such terms before work started. Having a signed agreement before work starts that expressly excludes such objectionable terms obviously avoids such pitfalls.

Of course, there may be instances where the owner and contractor have no choice but to start work before a contract is finalized. In those cases, it may be preferable to execute a letter agreement that contemplates the execution of a superseding formal contract at a later date.

Zachary Davis is an attorney in Stoel Rives’ construction and design practice group. Contact him at 503-294-9410 or zachary.davis@stoel.com.

The post OP-ED: Five reasons to get a contract signed before construction starts appeared first on Daily Journal of Commerce.

Dispute resolution is usually one of the last items addressed during negotiation of a construction or design contract. The reason is obvious: in the rush and excitement of getting a new project started, the last thing on anyone’s mind is the possibility that things will go south.

But as any experienced owner, contractor or designer knows, disputes happen – even when the parties have the best intentions. And while detailed dispute resolution provisions carry the romance of a prenuptial agreement, they can have major benefits down the road if properly tailored to the project, parties and type of dispute most likely to arise.

Concepts like mediation, arbitration and attorney fee shifting are firmly established in the world of construction and design contracting, and are contained in almost every form contract. But with some minor reimagining, the parties can better utilize these boilerplate provisions to save time, heartburn and resources down the line.

Mediation

Many template agreements require mediation as a pre-condition to binding dispute resolution. This is an advisable first step in any dispute resolution protocol. But simply stating that the parties agree to mediate – without addressing particulars – could have the unintended consequence of creating even more issues for disagreement when a dispute does arise. By addressing up front matters such as selection of the mediator, location of the mediation and how the mediator’s costs will be shared, the parties can focus on the substance of their dispute and increase their chances for an early resolution.

Arbitration vs. litigation

One of the biggest decisions that parties make is whether disputes will be resolved through binding arbitration or court litigation. Arbitration can be a quicker, more efficient and cost-effective alternative to court litigation. And because it is often possible to select arbitrators with a construction background, the parties may benefit by having a decision maker familiar with the types of disputes that commonly arise on construction projects. On the other hand, by agreeing to arbitration, parties waive significant rights, including most rights of appeal.

Yet the decision between arbitration and litigation is sometimes left to simply checking a box for one or the other. While this approach may occasionally be acceptable, in almost all other cases the parties will benefit from addressing the specifics of what and how they are agreeing to arbitrate or litigate. For instance:

• If the parties agree to arbitrate, do they also agree that related claims involving other parties will be addressed in a single arbitration? And, if so, what happens if efforts to obtain a consolidated arbitration fail?
• Will arbitration proceed before one arbitrator or three, and how will the arbitrator(s) be selected?
• Will the arbitration be administered by the American Arbitration Association or one of the similar organizations, and what procedural rules will apply? Though formal administration has many benefits, it also comes with a financial cost and organizational philosophy that may not align with the parties’ specific interests.
• What rules will govern discovery and how will discovery disputes be resolved? Will the parties use a specialized discovery master for eDiscovery disputes?
• Where will the arbitration or court litigation be held?
• How will the arbitrator(s) be paid?

Discovery is one area where the parties may particularly benefit from up-front agreement. While limited discovery is a perceived benefit of arbitration, the opposite may be true for disputes that arise from large or complex projects. In those cases, the amount at stake almost always justifies document discovery to the full extent permitted by either the state or federal court. Thus, the parties would likely benefit from an up-front agreement that discovery will be governed by the Federal Rules of Civil Procedure.

Attorney fees

The inclusion or omission of an attorney fees provision is another area often overlooked by parties rushing to strike a deal. There are three ways that attorney fees typically are – or are not – addressed in construction contracts: 1, a “prevailing party” fee provision, in which the party that prevails in any dispute is awarded its attorney fees and costs; 2, a “no attorney fees” provision, in which it is expressly agreed that each party is responsible for its own attorney fees and costs; or 3, silence on the issue of attorney fees, in which case the parties are typically entitled to their attorney fees and costs only if specifically allowed by statute.

Because many statutory remedies available to contractors (or designers) typically allow them to recover their attorney fees – prompt payment statutes for one – it is usually in the owner’s interest to include a variation of either a “prevailing party” provision or a “no attorney fees” provision. This approach tends to place the owner and contractor (or designer) on more equal footing in the event of a dispute.

There is no single approach for dispute resolution that fits every project or even every dispute on an individual project. But by carefully negotiating a dispute resolution provision that is properly tailored to the project and the types of disputes that can be reasonably anticipated, the parties can increase their chances of obtaining an efficient, fair and prompt resolution.

Zachary Davis is an attorney in Stoel Rives’ construction and design practice group. Contact him at 503-294-9410 or zachary.davis@stoel.com.

The post OP-ED: Reimagining the dispute resolution provision in contracts appeared first on Daily Journal of Commerce.