Construction Law Signal - Insights & Information on Current & Emerging Developments affecting the Construction Industry

By: Jennifer M. Horn

As part of an ongoing series, Construction Law Signal will examine basic construction contract clauses and offer tips for navigating the nuanced arena that is the negotiated construction contract.

“No Damage for Delay” Clauses On Public Projects: In the Mid-Atlantic Region, Geography Matters

A “No Damage for Delay” provision is a classic construction clause that, if present in the contract, provides that where a contractor is delayed by an event that is not the contractor’s fault, the contractor’s remedy in that instance is limited to an extension of time – and no additional money is provided. However, more time can be little consolation to the contractor when every dollar counts. A myriad of issues can result in delay on a job site. Unforeseen subsurface site conditions can cause delay. These could include:

• Inclement weather;
• Acts of God;
• Design changes;
• Problems with obtaining access to one’s work site;
• Strikes and/or labor disputes; and
• Failure to have timely delivered material and equipment.

In addition, poor project coordination, the inability to mobilize adequate labor and/or delays caused by the actions or failure of another contractor to act on a project also frequently result in delay.

As a consequence, costs associated with delay may occur. These costs may manifest in the form of wage escalation, extended equipment costs, or inefficiency. Also, increased finance costs, extended job supervision and field overhead costs, and reduced profits are typical costs associated with delay.

In the realm of public contracts, where the contractor can not negotiate the terms of the contract, different states have reached different conclusions about the validity of the “no damage for delay” clauses that limit a contractor’s ability to recover money in addition to being granted an extension of time in which to perform the work. For instance, in New Jersey and Virginia, legislation provides that “no damage for delay” clauses are void against public policy.

In Maryland, Pennsylvania and Delaware, however, the validity of “no damage for delay” clauses has been upheld in various courts of law.In short, one must be cognizant of the controlling contractual jurisdiction before jumping to conclusions regarding the force and effect of “no damage for delay” clauses in a construction contract.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

By: Christopher Soper and Lane Kelman

Recently New Jersey State Senator, Bob Smith (D., Middlesex), chairman of the Senate Environment and Energy Committee, explained that New Jersey has “done such a good job at stimulating solar that the market is now crashing.”

In order to address this problem, Smith sponsored Senate Bill S2371 (Bill S2371) that would accelerate by one year the state requirements for how much renewable energy must be produced and consequently how many Solar Renewable Energy Credits (SRECs) power companies are required to purchase.

The Purpose of Senate Bill S2371

The goal of Bill S2371 is to increase the demand for SRECs in order to stabilize their price – a price that has decreased in past months due to fears of the expected oversupply. With the proposed increase in renewable energy requirements and the consequential increase in renewable energy credits, it is hoped that the SREC market will be able to transition to a balanced supply-demand scenario.

New Jersey had previously established a schedule for the amount of SRECs power companies would be required to purchase for each energy year through 2026. Bill S2371 proposes to remove the requirements previously established for energy year 2013 and instead use the requirements established for energy year 2014. This would result in the requirements for energy year 2013 increasing from 596,000 to 772,000. The balance of the established schedule would remain the same, just moved ahead one year. This would allow the solar industry to continue to grow at a controlled rate through 2025.

Next Steps for Senate Bill S2371

Bill S2371 was passed by the Senate, received in the Assembly, and referred to the Assembly Telecommunications and Utilities Committee on June 29, 2011. It is anticipated that Governor Christie’s administration will not accept Bill S2371 as is, but will agree to a compromise that addresses the cost of solar for ratepayers. Cohen Seglias will continue to monitor the development of Bill S2371.

Lane Kelman is a Partner and Christopher Soper is an associate with Cohen Seglias. Both are members of the Construction Practice Group.

If you are a Contractor performing residential home improvement work in New Jersey, a recent case clarifies that you may be subject to Consumer Fraud Act claims even when your contract is with a homeowner who serves as a “general contractor” on the project. In fact, such a contract is not only subject to the Consumer Fraud Act, but also to the Contractor’s Registration Act, and the Home Improvement Practices regulations adopted by the New Jersey Division of Consumer Affairs.

What Is The Consumer Fraud Act?

In 1960, the New Jersey Legislature enacted the Consumer Fraud Act “CFA”, (N.J.S.A. 52:17B-124; N.J.S.A. 56:8-3 ) to address consumer complaints regarding fraudulent construction practices in the market place. The CFA provides, among other things, that a successful homeowner who proves fraud be allowed to “treble” his damages against unscrupulous contractors and recover attorney’s fees. Since 1960, New Jersey Courts have held that the CFA should be “construed liberally in favor of consumers.”

If You Contract With A Homeowner - Even One Who Acts As The “General Contractor” On A Project – The CFA Applies

This month, the Superior Court of New Jersey rejected a contractor’s argument that a homeowner acting as a “general contractor” could not bring a claim under the CFA. In so doing, the Court pointed to the direct contractual relationship between the parties and concluded that “even if the plaintiff could be viewed as a general contractor with respect to the improvements to his home, he was entitled to the protection of the CFA in his dealings with contractors who performed [home] improvements.” This recent decision means that prudent contractors must assume that the CFA applies whenever a contract is entered into with a homeowner - even sophisticated homeowners who serve as their own general contractors.

Although the recent case focused primarily on the CFA, it addressed other consumer protections and serves as a reminder that New Jersey contractors must comply with all Home Improvement Practices Regulations (Administrative Code at N.J.A.C. 13:45A-16.1 et seq.). Also, as many contractors are aware, compliance with New Jersey’s Contractor’s Registration Act of 2004 is essential. The Contractor’s Registration Act requires every home improvement contractor to register with the Division of Consumer Affairs prior to performing work.

The Court acknowledged “the seriousness with which the legislature approached the perceived problems in [the home improvement] industry” and noted that such seriousness was reflected in the expansive language of the applicable laws as well as in the remedies – such as treble damages – that the consumer protection statutes afford.

The State of New Jersey, in conjunction with the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), is exploring the possibility of leasing portions of the continental shelf to wind power developers and studying the feasibility of large scale, offshore wind farms.

BOEMRE is a federal agency within the Department of the Interior that is charged with the oversight of offshore energy and mineral projects. BOEMRE worked with the New Jersey Department of Environmental Protection (NJDEP) to identify an area that would be suitable for offshore wind development, and concluded that a 418 square nautical mile area between Avalon, New Jersey and Barnegat Light, New Jersey would be appropriate. The boundary of the potential development area runs for a distance of 45 nautical miles between Barnegat Light to Avalon, and begins 7 nautical miles from the coastline and extends 23 nautical miles seaward.

On April 20, 2011, BOEMRE issued a Call for Nominations, which sought responses from companies interested in leasing portions of the identified development area for the purposes of developing and constructing wind farms.

On June 10, 2011, the NJDEP announced that 11 companies responded to the Call for Nominations. The responding companies set forth potential wind farm development projects that ranged in size from 350 megawatts to 3,000 megawatts. The companies responding to the Call for Nominations included Offshore MW, LLC; Neptune Wind, LLC, Garden State Offshore Wind Energy I, LLC; Bluewater Wind New Jersey Energy, LLC; TCI Renewables, Inc.; Mainstream Renewable Power; enXco Development Corp.; US Wind, Inc.; New Jersey Offshore Wind, LLC; Fishermen’s Energy of New Jersey, LLC and Iberdrola Renewables, Inc.

BOEMRE will evaluate the qualifications of the 11 responsive companies and review the proposed wind farm developments in order to reach a final decision as to whether to lease portions of the continental shelf for development. If BOEMRE determines that leasing will go forward, it will employ a competitive bidding system to award the leases.

The potential offshore wind development projects in New Jersey would be large scale and could provide significant work opportunities for local contractors. We will continue to monitor the evaluation process and update you on the decisions.

For an increasing number of contractors, survival in the current economy has resulted in the need to find and secure work in other states. The migration of contractors to neighboring states is apparent throughout the country. Besides the work itself, benefits of an expanded geographic footprint include a broader client base, thereby creating mutually beneficial relationships.

For a complete breakdown on which states are seeing the biggest increases in cross border work, please visit, The Construction Blog, which is a dedicated to construction software technology.

Construction Technology Facilitates an Expanded Geographic Footprint

Recent advances in technology are accelerating the migration of contractors to neighboring states. Such technology includes, but is not limited to:

• Online Plan Rooms - This software aids contractors looking for jobs across state lines. A contractor can browse by project type, trade or location to find upcoming construction projects.
• Bid Management Software – This program acts like a “virtual broker” and assists contractors in the bidding process, by connecting buyers with sellers.
• Web Based Project Management Software – This technology allows for real time monitoring of construction projects.
• Onscreen Takeoff and Cost Estimating - This tool allows contractors to build cost estimates for projects happening in other states.
• Building Information Modeling (BIM) – BIM brings a project to life, through 3D, 4D and 5D models.

Contractors seeking an expanded geographic footprint should be aware of the upgraded technology as a means of facilitating work across borders.

I recently had the opportunity to sit down with Ms. Anne Klein, Senior Vice President of the Office Services Group of Grubb & Ellis’ Southern New Jersey Office, where she serves as a senior broker. With 26 years of experience in the industry, Ms. Klein’s successes include leasing over 6,500,000 square feet of build-to-suit space, and she has completed investment sales of over 1.5 million square feet of office space. During her 13 years with Grubb & Ellis, she has been retained as leasing agent for over 4,000,000 square feet including Teacher’s Insurance Annuity Association’s premier Class A, 170,000 square foot office building and Goldman Sachs real estate arm’s one-story office complex comprised of over 500,000 square feet, both of which she subsequently sold. Ms. Klein’s tenant representation extends across the country, working with local brokers in each market, while exclusively representing each tenant’s specific office leasing and sale requirements.

Most recently lecturing to real estate, construction, and design professionals from throughout the Mid-Atlantic region at a Commercial Real Estate Women (CREW), Philadelphia Chapter event, I asked Ms. Klein to summarize her commercial real estate industry predictions for the remainder of 2011, and in 2012 for New Jersey and beyond:

Jennifer Horn: What is the current state of the real estate industry today?

Anne Klein: I think we have hit close to bottom. Although vacancy increased last year, we are starting to see increased leasing activity, successful subleasing, and even building sales as lenders loosen requirements a bit.

Horn: In terms of economic recovery for the real estate market, what positive indicators are you seeing in the construction industry for the remainder of 2011 and into 2012?

Klein: We need residential sales to stabilize before residential construction will increase. As for commercial construction, architects are getting busier, which should trickle down to contractors later this year.

 Horn: What challenges does your industry still face?

Klein: Rents and rent concessions; these are all over the board right now. This, in turn, affects the building values for future sales. Once landlords get more confidence in the increased activity, things should settle down and price wars should temper.

Horn: Is the residential and commercial real estate foreclosure crisis over?

Klein: No. Residential foreclosure is still climbing at alarming rates, and the stories are so sad. Commercial lenders with buildings underwater are selling notes or taking back the deeds. For the market, it’s still marketable space and the buildings will either be filled and sold, or just sold at discounted rates to buyers who might reposition the buildings and then fill them up in time.

Horn: What advice do you have for clients frustrated by tight restrictions on financing?

Klein: Hang in there. As we are seeing recovery, banks are slowly but surely going to get back into the lending game. Hopefully at responsible levels!

Horn: How has New Jersey fared as a whole compared with the rest of the nation?

Klein: New Jersey is having a tough time encouraging new businesses to join the state. Governor Christie seems to understand that and is trying to make New Jersey a much friendlier state to do business in, which should only help our ability to draw new companies, resulting in a stronger real estate market.

Horn: Where is the work now?

Klein: It has been a year of renewals for tenants who want to stay put until they know what their longer term space needs will be. With little or no tenant improvements, landlords are happy to offer better rent deals for tenants to stay put. As for the companies that know their future needs, they are taking advantage of the market and we are seeing a flight to quality with those companies.

Horn: What continued economic precautions should the industry be taking in the current environment?

Klein: Don’t build any speculative construction!

Horn: Do you see green building playing a large role in the remainder of 2011/begining of 2012?

Klein: Not like you might think in today’s day and age. Thanks to the current administration, there are more incentives than ever, so hopefully that will help encourage more green initiatives by both developers and users.

Horn: What two pieces of advice would you give to the average real estate investor struggling to survive and, in the current environment, may not believe pundits who contend that the recession is over?

Klein: Do every deal you can, within reason, and retain every tenant until we see the light!

Horn: Why should the industry be optimistic about the remainder of 2011 and beyond?

Klein: We ARE in the beginning of a slow recovery. As long as we work hard and smart and have patience, we will be able to head back up the bell curve.

Anne Klein can be reached at 856-334-2110 or anne.klein@grubb-ellis.com. For more information about Grubb & Ellis, please visit www.grubb-ellis.com.

New Jersey Governor Chris Christie recently enacted legislation revising the New Jersey Construction Lien Law, which was last amended in 1994. The amendments are effective immediately, and include changes to critical timing, definitional, and enforcement requirements.

Please note that the changes affect only commercial and private projects and have no bearing on the Municipal Mechanics Lien Law, which pertains to only government projects.

The changes to New Jersey’s construction lien law include, but are not limited to, the following:

The Time You Have for Filing Residential Construction Liens Has Changed

Residential construction claimants must file a Notice of Unpaid Balance (NUB) and Right to File Lien within 60 days from when the claimant last performed work or supplied materials on the project. Within 10 days after filing the NUB, the claimant is required to serve a demand for arbitration for the purpose of determining the amount of the lien claim. This time may only be extended upon consent of the parties and arbitrator. Within 10 days after the arbitrator's determination, but within 120 days from when the claimant last performed work or supplied materials, the claimant must record the lien claim.

Multiple Liens Against the Same Residential Project Are Addressed

Parties aggrieved by lien claims relating to the same construction project may, under the new law, be joined in a single construction lien arbitration proceeding in order to avoid inconsistent arbitration awards. The new law also requires that, if possible, the same arbitrator determine all such claims - even if joinder is not possible. In addition, the arbitrator must consider the outcome of all previous proceedings relating to the same construction project in rendering her determination.

You Must Use New Statutory Forms for the NUB, Lien Claim, and Amended Lien Claim

These new forms clarify the manner in which a claim is calculated. In addition, standard forms of affidavit to summarily discharge a lien claim and standard forms for the bond used to discharge a construction lien claim are provided.

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Update: Christie Signs NJ Power Plant Bill

New Jersey Governor Chris Christie signed into law last Friday the controversial power plant bill (S-2381) that, among other things, is aimed to lower energy rates by increasing the energy generated in-state and create construction jobs.

The new law enables LS Power Systems to build a power plant in West Deptford, NJ, and provides an incentive for companies such as Competitive Power Ventures to build at least three additional plants in the state, with long-term, ratepayer subsidized energy contracts. Proponents of the bill believe that the long term capacity agreements (LCAPP) will reduce the cost of energy for ratepayers, thereby reducing the state’s reliance on out-of-sate generation and will create jobs in the construction and energy industries.

Opposition to the bill remains strong. Critics say that it locks ratepayers into 15 years of subsidies for some power suppliers and that the new bill does not guarantee lower tax rates for the public.

We will continue to monitor the controversial law, and report on its effectiveness.

$261 million tax reimbursement for Revel casino

Governor Chris Christie announced on February 1 that the half finished Revel Casino project can resume construction, beginning as early as next week. Through the Economic Development Authority, and the Atlantic City Rescue Package, Christie has authorized the state to provide $261 million to the casino. With this agreement, Revel will share 20 percent of its profits (up to $261 million) with the state and the state will hold a minority ownership in the casino. Revel lined up an additional $1.5 billion in private financing needed to complete the project. Christie’s administration cited the prospect of thousands of jobs and billions in future tax revenue as an incentive to back the project.

The project is on schedule to be completed in June 2012 and will create about 2,000 construction jobs. When fully operational, Revel will employ 5,500 people. Additionally, the casino plans to build 1,100 hotel rooms, as opposed to the 1,800 rooms originally planned.

Christie commented on the renewed project by saying that, “This is a landmark day for Atlantic City, and the beginning of its transformation”.

On September 6, 2010, President Barack Obama proposed a six-year, $50 billion plan to rebuild the nation’s highways, railways and airport runways. Obama’s plan includes rebuilding 150,000 miles of roads, construction and maintenance of 4,000 miles of railway – enough tracks to span the continent — and rehabilitation or reconstruction of 150 miles of airport runways. He also called for an “infrastructure bank” that would focus on paying for national and regional transportation projects.

It seems that Pennsylvania and New Jersey are heeding Obama’s call by making transportation a priority in the Keystone and Garden States.

New 5-Year Plan for New Jersey

New Jersey Governor Chris Christie announced this past Thursday a 5-year, $8 billion plan to renew the State’s Transportation Trust Fund (TTF) and provide funding for New Jersey road and bridge projects. The annual $1.6 billion program will provide approximately $200 million for local government projects, $672 million for New Jersey Transit (NJ Transit) projects and $728 for New Jersey Department of Transportation (NJ DOT) projects. The plan significantly increases cash contributions to the program, as compared to prior years, and relies less on borrowing bonds. Christie’s proposal will change the type of debt New Jersey will use to fund future transportation projects, and will include no toll or tax increases. In addition to the $1.6 billion program for local government projects, NJ Transit and NJDOT, the plan includes approximately $363 million average per year for projects that will be funded by the New York/New Jersey Port Authority in conjunction with NJDOT.

State projects slated to be funded through the Port Authority monies include a plan to renovate the Pulaski Skyway, the Route 7 Whitpenn Bridge and a new roadway in the Portway District of New Jersey.

Christie said that, “this is a significant commitment from the Port Authority to make our roadways and bridges safer as we travel through the port district.”

Want to Learn More about the TTF Plan?

NJDOT Commissioner James Simpson will review Gov. Christie’s TTF renewal plan at the Utility & Transportation Contractors Association’s (UTCA) upcoming membership meeting. The meeting is scheduled for January 13, 2011 at the Crowne Plaza in Jamesburg, New Jersey. Please contact the UTCA office at (732) 292-4300 for more information.

Smart Transportation Projects in Pennsylvania

The winners of the second round of the Pennsylvania Community Transportation Initiative have been announced, according to Pennsylvania Department of Transportation (PennDOT) secretary Allen D. Biehler, P.E. Forty-one communities across the state will get a portion of a $24.7 million fund to help boost “Smart Transportation” projects.

“Smart Transportation means partnering to build great communities for future generations of Pennsylvanians by linking transpiration investments and land-use planning and decision making,” said Biehler.

Smart Transportation projects are initiatives that support local economic development; encourage walkable, multimodal mixed-use development; improve regional connectivity or enhance the existing transportation network.

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The New Jersey state legislature recently approved A1084, a bill that would require solar panels to be included in the design and construction of all new public schools across the state. The Assembly Appropriations Committee is awaiting assurance from the Legislative Council that A1084 does not violate any New Jersey statutes. New Jersey’s school construction budget is one of the largest in the nation.

Controversy Over Solar Panel Mandate A1084

In addition to the benefits derived from switching to a clean, renewable form of energy, proponents of A1084, most notably Assemblyman Reed Gusciora, a well-known advocate of Green initiatives for New Jersey, argue that the mandate will also help create jobs, and help offset the rising costs of energy. According to the Statement section of A1084:

Installing a solar power system is equivalent to prepaying for 40 years of power at a fraction of the current cost. As energy rates increase this difference will only increase, leading to escalating savings for the school district over the life of the system.

Opponents of A1084 argue that the law would not be practical for all school districts in New Jersey, some of which are still struggling financially. The New Jersey Principals and Supervisors Association supports the legislation, but only as an “incentive based approach, rather than a mandate to meet our state’s school facilities’ needs.”

Pennsylvania School District Positively Impacted By Solar Power

Although Pennsylvania hasn't approved a similar mandate, one school district is reaping the benefits of its investment in solar energy. Soon after A1084 was approved, the Carlisle, Pennsylvania school district began using solar power. The district is now getting about a sixth of its energy from the sun. It is estimated that solar panels will provide 16 percent of the energy that the district needs. The project is also expected to reduce the school system's carbon footprint by offsetting more than 2 million pounds of carbon dioxide emissions annually.

We will continue to monitor mandate A1084 and update you on any developments.

Earlier today, Governor Chris Christie announced his intention to remain steadfast in his earlier decision to cancel the ARC Tunnel project, citing New Jersey’s lack of funding.

Two weeks ago, Christie chose to pull the plug on the ARC Tunnel project, a project 20 years in the works. Just one day after making this fateful decision, Christie elected to take some time to reconsider at the urging of Transportation Secretary Ray LaHood. Since this time, many have been anxiously awaiting this announcement, and just as many are disappointed. In a statement expressing his own dismay at the outcome, LaHood lamented:

I am extremely disappointed in Governor Christie’s decision to abandon the ARC [T]unnel project, which is a devastating blow to thousands of workers, millions of commuters and the state’s economic future. The [G]overnor’s decision to stop work on this project means commuters – who would have saved 45 minutes each day thanks to the ARC tunnel – will instead see no end to traffic congestion and ever-longer wait times on train platforms. Our DOT team has worked hard over the last several weeks to present Governor Christie with workable solutions to bring the ARC tunnel to life. I want to thank Senators Lautenberg and Menendez for their tireless efforts on behalf of this important project.

Christie and LaHood met this past weekend to discuss the future of the ARC Tunnel, and the federal government even offered to pour an additional $378 million into the project. Other funding options, such as loan options of $2.3 billion with the possibility of $1.85 billion in financing from a public-private partnership, were discussed by the pair. However, Christie ultimately determined that it was financially not in the best interest of New Jersey to continue construction, stating that “[w]e are still going to have to pay for the cost of it . . . I cannot place upon the citizens of New Jersey an open-ended letter of credit.” Christie had hoped that some other party, such as the federal government, the State of New York or New York City, would step up to cover the costs of overruns. The estimated cost of the ARC Tunnel Project was $9 billion, with New Jersey and the Port Authority of New York each expected to contribute $3 billion. Had the project continued, the state would have been responsible for overruns of $2.7 billion or more.

President of the Regional Plan Association Bob Yaro stated that Christie’s decision is “a real tragedy for New Jersey, and for the metropolitan area, and for the country,” adding that, “[i]n the end there were no overruns that the federal government, and the Port Authority and the state couldn't manage.”

Construction began on the rail tunnel under the Hudson River last summer. Although Christie’s decision to cancel the ARC Tunnel project could ultimately save the state billions of dollars, New Jersey will be forced to pay back the $350 million it was given to start the project. Until its cancellation, the project was the largest public works project in the country.

Just one day after lifting a suspension for all New Jersey Department of Transportation (NJDOT) construction and design projects, the hold is back on for about 100 design and planning projects.

Late Tuesday, NJDOT Commissioner James Simpson put a hold on projects that are in the early phases of planning and development, stating:

We are taking the prudent step of extending the hold on early planning and design work at least until the bond sale and refinancing plan is executed. We will use this time to conduct a cost-benefit review of each of these proposals.

Impacted by the latest hold are hundreds of engineers, designers and allied workers.

The future of the ARC Tunnel project is still uncertain. Although Governor Chris Christie is on the campaign trail, he is expected to discuss the project with transit officials today, and a decision is expected by the end of this week or next week.

Cohen Seglias remains committed to monitoring and reporting on emerging developments in this story.

The New Jersey Superior Court recently issued an opinion that serves as a cautionary tale for all parties in a construction project who perform work without complete, signed copies of their contracts on hand. In the case of City of Union City v. AC Construction Corp., the Court addresses the dangers to parties who proceed with construction work when the terms of their contract are ambiguous, unidentified, and in draft – not final – form.

In reality, many contractors, eager to meet tight schedules and start a project, proceed with the work without signing their contracts or having complete copies of all of the documents that make up the contract. The danger of this is that if a dispute arises over issues such as the quality or scope of work, the situation is made much worse by the lack of a signed contract that clearly identifies and attaches every document that makes up the agreement.

Background of the Case

The Union City case involved the construction of an amphitheater. During the course of construction, AC Construction Corp. (AC), the contractor, encountered contaminated soil at the project site that required significant remediation. A dispute arose between Union City and AC regarding the excess costs of the soil remediation.

Union City and AC could not agree to the terms of their contract or even what documents comprised their agreement. Specifically, the parties could not agree as to what the dispute resolution procedures in the contract actually provided for – litigation or arbitration. In litigation, Union City’s preference, the parties would appear before a judge or jury in a court of law. In arbitration, AC’s preference, disputes would be resolved by an individual or panel of selected arbitrators, some of whom could be experts in construction. Since the contract was unclear, the parties were forced to litigate the question of which dispute resolution procedure applied – litigation or arbitration – rather than litigate the main dispute – contaminated soil remediation.

The Court concluded that AC not only failed to satisfy its burden of proving that the parties agreed to arbitrate – not litigate – any dispute, but that the contractor also failed to establish what documents actually made up the contract agreement itself. The Court concluded that a “significant factual dispute existed” with regard to the precise terms of the agreement between Union City and AC, and remanded the case for further proceedings, pointing to the absence of a signed contract that attached and incorporated all documents. The Court also found it significant that some of the documents were marked “draft” not final. In the end, the contractor in Union City remains in limbo. AC will be forced to participate in additional proceedings about the dispute resolution issue while the heart of the dispute – soil contamination and remediation – remains unresolved.

Outcome of the Union City Case

This decision illustrates the dangers of sloppy contracting. All parties – owners, contractors and subcontractors – must thoroughly review and understand what documents comprise their contracts and ensure that all parties sign any agreements before work begins. The Union City case makes clear that when a dispute occurs, parties who understand the force and effect of their agreements are much better equipped to defend and ultimately resolve disputed issues than those who fail to sign and retain complete copies of their contracts. Although this case dealt with the dispute resolution clause of the parties’ agreement, a similar, unfortunate outcome could result with many of the other provisions typically contained in a construction contract.

Anthony M. Bottenfield, Esq., associate at Cohen Seglias contributed to this post.

The New Jersey Supreme Court recently issued a unanimous opinion that will impact anyone who eliminates evidence of alleged construction defects before providing an opportunity for contractors or design professionals to inspect those defects, even where such “elimination” occurs accidentally. In Robertet Flavors, Inc. v. Tri-Form Construction, Inc., the Court clarified the New Jersey standard for spoliation with a comprehensive and lengthy opinion that affects owners, contractors and design professionals operating in the state. Spoliation is when a party repairs or makes a material alteration to the work, destroying evidence of the defect.

Disputes often arise regarding the quality of work on construction projects. When these disagreements happen, the normal process is for the owner and contractor to meet to inspect the allegedly defective work. Next, some type of plan is typically agreed upon to correct the defect. Before responsibility for the cost of repair is determined, both parties are entitled to inspect any defects before they are repaired.

The lesson of the Robertet case is that severe penalties - such as a court blocking all of the evidence relating to the removal, inspection, and remediation of the defect - can result when an entity is deprived of the right to investigate allegedly defective work.

Background of the Case

This case involved the construction of a new commercial building that included curtainwall and strip window systems. Once the owner occupied the building, it noticed that substantial leaking occurred around the strip windows, and contacted the glass company that installed them. The glass company investigated and attempted to repair the problems but the leaks continued. After two years, the owner hired a private consultant who recommended that the windows, inside walls, insulation, and carpeting be replaced. The owner agreed with this assessment but unfortunately did not share its plans with the glass company.

The owner filed suit in January 2002, and the glass company served its answer two months later. Even though the suit was underway, the owner’s counsel failed to notify the glass company's counsel about the consultant's investigations, mold discovery, or the owner's plan to replace the strip windows. The owner began the remediation process on December 13, 2002, but did not notify the glass company until three weeks before it was finished. The glass company demanded that the remediation stop and that they be given an opportunity to inspect the allegedly defective work. The owner denied the glass company’s request, claiming that halting the process would be impractical.

During litigation, the glass company filed a motion to stop the owner from testifying about the installation of the strip windows. The glass company claimed it had been unfairly prejudiced because it had no opportunity to inspect the condition that resulted from the leaky windows. In reviewing the case, the Court provided a thorough discussion of the construction industry and spoliation of evidence before concluding that the owner could proceed with its claim, but only in a limited capacity, making its case much more difficult to prove. As a result, the owner was barred from presenting any evidence relating to the removal of the windows, discovery of the mold, and installation of the replacement windows, and was only permitted to present evidence relating to the condition and inspection of the windows prior to remediation.

Outcome of the Robertet Case

This decision serves as a cautionary tale for all parties in construction projects. Owners must make sure that all affected parties are given notice of any alleged defects and/or plans to remediate such defects. Contractors also have an obligation to be proactive during the evidence gathering stages. This case makes it clear that when spoliation occurs, a party may not automatically be blocked from recovering for, or defending against, alleged construction defects; however harsh penalties may apply.