After almost exactly two years, AECforensics.com is back to dissecting the latest issues impacting quality and risk management in the built environment. And what’s more, there’s now a Daily Edition featuring the top curated news for professionals in the architecture, engineering and construction (AEC) industry.
As nerdy as it probably sounds, I can’t even begin to put into words how excited I am for products like this. Back in January of 2014, I wrote about the winners of the 2013 Cradle to Cradle Product Innovation Challenge, including the inventors of self-healing bio-concrete. Cracked concrete is a frequent allegation in construction defect claims. (more…)
So this is satire, just to be clear… John Frank Weaver, writing for the always hilarious McSweeney’s, offers a wonderfully hand-crafted glimpse into the imaginary life of an Artisanal Attorney.
Weaver opens his piece with the question, “Are you tired of large corporate law firms making the same cookie cutter litigation?” (I know that I am not alone in the construction defect industry that immediately thinks of one law firm in particular upon reading that question.
How is an artisanal attorney different from any other attorney? Like other artisans, I pay close attention to my ingredients and process; I am intimately involved in all stages of creation. Other attorneys print their documents on paper they buy in mass-produced boxes, tens of thousands of sheets at a time, using ink that mechanically jets onto the page. I make my own paper by hand, using the traditional methods of 14th-century book publishers, who printed their works on linen and vellum. The flax for the linen grows along the sides of a nearby swimming hole, and the plants’ growth is influenced by the laughter of children in the summer, when I pick it by hand. The vellum comes from the grass-fed cows of an area farm; to give the cows more agency in the vellum-making process, I let them choose the pumice I will treat their hides with after slaughter. I also make my own ink, using the ink of squid I raise myself in a PETA-approved salt-water aquarium in my office. You can meet all my squid during our initial meeting and pick which one you want for the ink on your will or healthcare power of attorney…
Don’t be lulled into a complacent life filled with more cheap, manufactured goods than you’ll ever need and lawsuits that don’t reflect your uniqueness. Insist on a life well-lived with food, experiences, and litigation that reflect people and skills, not factories and automation. The next time you need to settle a boundary dispute with your neighbor, consult with me – I’m your artisanal attorney. You can find me on Bedford Avenue, in between Ruby’s Fluoridation-Free Fire Sprinkler Installation and Otto’s Mustache Groomery.
My wife and I have been lucky to have three kids that (so far) haven’t ever played with fire, or knives, or consumed dangerous cleaning supplies, or anything like that. It didn’t take burning down the house, stitches, or stomach pumping to teach each of them the danger inherent with certain things—a quick touch to a hot oven provides instantaneous feedback.
The Leadenhall Building at 122 Leadenhall Street in London, also known affectionately as the Cheesegrater due to its unique shape, is 47-stories tall and is the UK’s 4th largest building. Featuring a cutting edge high-performance building envelope incorporating passive heating and cooling elements, 85% of its construction took place off-site, making it one of the largest and most complex prefabricated projects to date. (more…)
Tamara Boeck, writing for the Stoel Rives blog, Ahead of Schedule, has written an excellent analysis on a very important appellate decision in the state of California. The case: Regional Steel Corporation v. Liberty Surplus Insurance Corporation (PDF) (May 16, 2014, No. BC464209) Cal.App.2d. [2014 WL 2643242]
The facts of this dispute are not unfamiliar, and could be substituted for many projects by changing the name, location, and nature. Here, the owner/GC of a 14-story mixed-use apartment project hired a subcontractor to erect the steel and another subcontractor to pour concrete.
The owner also retained Quality Assurance, presumably, to do just that. As a part of the construction process, the steel subcontractor (Regional) submitted shop drawings during a four-month period. The owner/GC and the owner’s engineer approved the drawings, which identified two types of seismic hooks. Four months after the last shop drawing approval, the City issued a correction notice requiring the exclusive use of only one type of hook. The owner became aware of the problem four months after the correction notice, and thereafter stopped further concrete pours until the hook issue was resolved.
The City then notified the owner/GC that the first three levels and part of the fourth level of the building had defective hooks and required repairs. The owner/GC withheld $545,000 of Regional’s progress payments as a result. Not surprisingly litigation followed, including a claim against Regional for the defective hooks, the engineer for approving the shop drawings, the concrete subcontractor for not catching Regional’s error, and Quality Assurance for, well, not providing quality assurance.
The owner/GC alleged that it was damaged because completion of the project was delayed, resulting in loss of use, loss of rental income, and other damages. Thereafter, the owner/GC filed a first amended cross-complaint adding claims based upon theories of negligence and negligent interference with economic advantage, and asserted claims against the parties’ performance bonds.
Ultimately, the insurer denied coverage for Regional (the contractor) because there was no evidence established of resultant damage. This is a critical element in construction defect claims in the state of California, and unfortunately, poorly understood in the building industry outside of the realm of construction defect litigation.
The actual workmanship of a contractor is not covered by standard CGL policies, unless it results in damage to another component. According to the Court in this case, “The risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer.”
Lessons Learned; Best Practices
Boeck offers some recommendations for both owners and general contractors, stating that this case highlights some important concepts:
- The importance of good project contract documents
- The importance of good “hands on” project risk management
- The importance of understanding what insurance covers
- The importance of bonds
- Considering coverage in claims
Back to the “Quality Assurance” issue…
I just want to point out that in this project, “the owner also retained Quality Assurance, presumably, to do just that.” I have been involved with a number of cases recently where third-party “quality assurance” had been retained, yet failed to live up to their stated goal of actually assuring quality.
As Boeck says:
[W]hy didn’t anyone catch the hook error until the fourth floor had been built? Paper management is one thing, active and effective quality control is another. Even if the “catch” wasn’t in the shop drawing phase, there were plenty of potential “eyes” that could have caught the error on the first floor and saved substantial time and money. I’m sure everyone is grateful the “catch” wasn’t delayed until the 13th floor, but were there qualified personnel randomly verifying basic work?
Not all QA/QC companies/approaches are created equal. In the ensuing weeks and months, expect much more digital ink on this important topic.
Please take the time to read all of Boeck’s article, as I think it is an outstanding analysis on a crucial issue impacting California’s built environment.
Source: Ahead of Schedule
Image courtesy Wikimedia
My colleagues and I from Xpera Group will manning the booth at the 2014 PCBC show. The event takes place June 25th and 26th at San Francisco’s Moscone Center, and is billed as “The Art, Science + Business of Housing.”
If you are attending this year’s conference, make sure to drop by the Xpera Group’s booth on the main exhibit floor.
We will be showcasing our new Real-Time Quality Assurance Reporting tool called InSpec®. Available for iOS and Android devices, the software is also available as a web application.
The real power of InSpec® isn’t necessarily the technology behind it—what makes the app special is the way in which it facilitates communication. Xpera’s QA team are able to get the right information into the hands of the contractor immediately, so that they can make better informed decisions.
If you are interested in seeing how InSpec® fits in with our comprehensive Quality Assurance offerings, stop by our booth and ask for a demo, or drop me a line and I’ll try to set something up.
To paraphrase Gary Vaynerchuk (who will be the keynote speaker on Thursday morning):
You, with a little bit of me, are going to change the construction industry, whether they like it or not.
I just got done posting my first news update for the Xpera Group website. The title: The Next Wave of Condominiums and Other Updates. The article contains a number of updates which I’d like to highlight here.
The Next Wave of Condominiums
Our resident Economist, Market Research Analyst and Forensic Expert, Alan Nevin wrote an outstanding article on multifamily housing in California. He notes that there is typically a five to eight year delay between when a condo project is constructed and when litigation is likely to occur.
Of the 57 condo projects built in San Diego from 2000 to 2007, 41 ended up in litigation and of those, Xpera was retained for expert services on 32. After 2007, new condos and conversions stopped almost completely. According to Nevin:
My take is that new condominium development and conversions in California most probably will gradually ramp up during the next several years, but most activity will be in the Bay Area and western Los Angeles. I do not anticipate that condominium activity will reach the levels of the past decade. In fact, I project that the levels in the 2010-2020 period will be less than 50% of what we saw in the last round.
From Litigating the Boom to Litigating the Bust
Xpera Group founder and president Ted Bumgardner wrote an article that picks up where Nevin’s article leaves off:
Back in 2011, we discovered an interesting correlation between residential permits issued in California and defects lawsuits filed six years later. Between 1995 and 2006, we saw the number of residential building permits issued in California double in volume. According to Westlaw, the number of construction defect cases filed in California doubled from 2000 to 2011, similar to the growth that occurred in residential construction, just shifted five years.
He notes that in 2005, towards the end of the residential building boom in California, 155,000 permits were issued. That number dropped 86% by 2011 to just 22,000 housing permits. However, there was only a 26% drop in construction defect lawsuits filed from 2012 to 2013.
Why is that? According to Bumgardner, “we have now moved from litigating the boom to litigating the bust. Over the next few years, several factors will affect the number of homes ultimately ending up in defects litigation.”
Source: Xpera Group News
As promised, over the coming weeks and months, we’ll be publishing a series of articles gleaned from West Coast Casualty’s 2014 Construction Defect Seminar. This article focuses on one appellate decision that impacts attorneys and specifically, their relationship with expert witnesses.
Presented by Thomas Halliwell, Esq. and Barry Vaughan, Esq.
Somehow, in less than an hour, Halliwell and Vaughan ran through dozens and dozens of appellate decisions. But they didn’t just read off of a list, they added a great deal of context and some occasional comments.
I couldn’t type fast enough to cover these master orators and their insightful observations, but I was able to gain access to some notes that they published to accompany the presentation. Under the category of decisions impacting attorneys, there was just one case.
DeLuca v. State Fish Co, Inc. (2013) Cal.App.4th 671
In this case, a former corporate officer filed suit against the corporation. The initial filing involved real estate claims. The Defendant filed its own claim to rescind the deed to the property in question, and additional claims over violation of corporate doctrine. The Defendant also retained an expert to offer testimony at trial.
According to Halliwell and Vaughan:
The trial court declared a mistrial on the unlawful detainer action and found in favor of Defendant on the rescission and corporate opportunity doctrine claims. The Court of Appeal reversed on the rescission and corporate opportunity doctrine claims, and remanded for trial of the unlawful detainer claim.
Then things got interesting…
For the retrial, the Plaintiff in this case retained the same expert witness that had testified on behalf of the Defendant. Perhaps somewhat surprisingly, Plaintiff’s counsel was disqualified because of the possibility that the expert gave the attorney confidential information.
The case went to appeal:
The Second District Court of Appeal held that the expert witness did not possess any confidential information because once the expert witness was designated a testifying expert, the attorney- client privilege and work product protection were waived as to information conveyed to him by Defendant’s counsel in the prior trial. The Court then found that Defendant failed to establish the rebuttable presumption that confidential information materially related to the pending proceeding was conveyed to the expert witness. The Court stated that even if the information conveyed prior to the expert’s designation as a testifying witness could potentially be covered under the work product doctrine, Defendant failed to show that confidential information was actually conveyed, and moreover, that it was relevant to the pending proceeding.
For even more background on this case, visit FindLaw.
Image courtesy Wikimedia
Another year, another conference at the Disneyland Hotel in Anaheim, CA with about 1,500 of my colleagues who work in the construction defect litigation industry. Once again, Dave and Coral Stern put on an outstanding event that was jam-packed with information on how construction claims are being handled, as well as new approaches to resolving claims. Below is an overview with some of my general impressions.
One interesting aspect of attending West Coast Casualty’s Construction Defect seminar is that it really shines a light on the business climate surrounding our little cottage industry. Although I was unable to attend last year’s event, I did notice that there seemed to be slightly less attendees, and less vendors from a couple years ago.
If I were to hazard a guess as to why that is, I’d venture that it might have something to do with a prediction from two years ago that there would be a 75% reduction in construction defect cases over a five year period.
As a result, some of the exhibitors at this year’s event seemed to be spending less money than in past years, and looking at the attendee list, it seems that some firms are sending less employees to attend.
Tightening the Belt
One theme that remains consistent over the years—this year’s event is no exception—is the focus on reducing the total cost of construction claims. There were panel discussions on the difficulty of collecting defense costs from additional insureds (AIs, as they are commonly called), bad-faith claims (which seem to be on the rise), and tactics for dealing with bankrupt defendants and insolvent carriers.
Another theme that seemed to be prevalent was exploring claims involving different types of construction projects and expanding into jurisdictions outside of California and Nevada. For example, there was a panel discussion on public works projects, claims associated with product manufacturing, and multiple panels associated with a wide range of states including Florida, Washington, Oregon, Texas and Colorado.
Why “Doing It Like We Always Did It” Won’t Do Anymore
Of course I would be remiss if I didn’t mention the panel discussion that my colleagues at Xpera Group presented. The title: Why “Doing It Like We Always Did It” Won’t Do Anymore.
This panel started off with economist and market researcher, Alan Nevin, explaining major shifts in the types of construction projects currently underway and in the planning stages. According to Nevin, we can expect to see a whole lot less of the massive single-family residential tract developments that were the “bread and butter” for those of us in construction defect litigation for so many years. Instead, expect a lot more in the way of urban infill, high-density, residential and multi-use projects. While there will likely be some condo projects coming online, expect a lot more apartments to meet the changing needs of the marketplace.
The Xpera team also highlighted an area where I personally see a huge potential for growth: Third-Party Quality Assurance and Quality Control. On the plus side, insurance carriers are realizing that demanding third-party QA/QC helps offset risk. However, we are seeing some unfortunate trends in the marketplace. Specifically, the quality of the third-party QA/QC services are going down as the industry races to the bottom as a result of commoditization. (How’s that for irony?)
In the last several months, I have been involved on several construction claims where well-known and established QA/QC companies failed to deliver on their promise. Sadly, two of these third-party entities are also well-known for their work in construction defect litigation.
Clearly, there is a need in the marketplace for better quality in construction quality management services. Conveniently, that also happens to be my mission in life…
The Only Constant is Change
Summing it all up, I had a blast at this year’s event, although I had to leave early for some family obligations. Now that the industry has matured—in San Diego, we are moving into the fourth decade of construction defect litigation—some of the biggest struggles involve coping with changes in the marketplace and changes to the laws and insurance policy language that dictates how the game is played.
Regardless of the changes, there is no end in sight for construction defect litigation.
In the coming weeks and months, expect more posts on insight gleaned from West Coast Casualty’s 2014 Construction Defect Seminar, as well as posts from another construction defect litigation conference I attended in Key West. Until then, take care.