My colleague Alan Nevin provides a much-needed clarity to understanding the development challenges in San Diego in this piece, which originally appeared in the Daily Transcript. There is a study yet to be published that found that up to 39% of the cost of a residential housing unit in the San Diego region is strictly due to regulatory fees.

I recently completed a market study on a property in Placer County, immediately northeast of Sacramento. The property, immediately west of Roseville, contains 5,000 acres and is destined to have 14,000 housing units.

Placer County has been a cheerleader for the development of the property and has worked diligently for its approval as a master-planned community.

Processing on the property started in 2007 and if everything goes right, the first home could break ground in 2017. One wonders why it takes 10 years to approve a project if the local government is in favor of it.

The answer lies in increasing bureaucracy at all levels of the development process.

Source: SDDT

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.

Source: McSweeney’s

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:

  1. The importance of good project contract documents
  2. The importance of good “hands on” project risk management
  3. The importance of understanding what insurance covers
  4. The importance of bonds
  5. 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


Construction_work_on_the_Millennium_Tower_(301_Mission_Street),_SF

Image courtesy Wikimedia

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.


Old and new state office buildings, 350 McAllister St, SF

Image courtesy Wikimedia

Duane Craig, writing for his own Construction Informer, brings some nice insight to FMI’s quarterly non-residential report for the second quarter of 2014. While the report indicates a slight increase in optimism among construction company executives, not all seems so rosy. Craig writes:

Lack of innovation, according to the report’s authors, is troubling, given respondents saw no improvement in the sector’s productivity compared to last quarter’s index, in a time when labor shortages loom large. Tied to that, panelists revealed that lack of training and not finding innovative personnel is a concern for more than half of them. Their confidence in a favorable cost of labor also slipped from Q1 to Q2, dropping more than six points.

Generally, panelists participating in the index thought innovation needs to focus on increasing productivity and solving the shortage of skilled labor. Reducing commoditization of construction and improving safety and quality were also top of the list.

In my humble opinion, the issue of skilled labor shortages goes hand-in-hand with quality issues. With decreasing insurance coverage, combined with increasing complexity to meet higher demands for building performance, there is a lot of risk on the table for non-residential construction and residential construction alike.

Source: FMI, via Construction Informer

Steve Jobs is known for many things. Perhaps most notably, Jobs was an impressive presenter and really understood how to get people excited about what he was doing.

Working with a number of developers over the years, I’ve noticed that deals get done in a variety of ways. Some exercise strong political influence, others use money (sometimes quite unethically), and yet others use a variety of legal strategies to accomplish their goals.

When Steve Jobs was seeking approval from the Cupertino City Council for Apple’s proposed campus development project (some of which was in a former apple grove, some on the site of HP’s former glory…), he simply used words and his (in)famous power of persuasion. Wired has more:

One of his last wins for Apple wasn’t launching a blockbuster product, but helping to cement the company’s future in Cupertino, California, the city where Apple was born and whose name became synonymous with the company. It was a project he nursed for at least five years (see videos below).

In 2006–the year Apple turned 30–he attended a town meeting to tell the city council about Apple’s expansion plan. In typical Steve fashion, he laid on the charm. He told them he wanted to stay in Cupertino, even if it was much more costly than moving. The pitch certainly wooed the council, but for a while, it didn’t look like his mission would succeed. Then Apple found a way: It bought up nine properties totaling 50 acres just down the street from One Infinite Loop.

Source: Wired

Below are the videos. Both are somewhat lower resolution. The second one was too difficult for me personally to watch as it shows Jobs in a seriously deteriorated state at the very end of his life.

2006:

2011:

According to Dawn Killough at Green Building Elements, Andalay Solar is now offering DIY solar energy kits for sale on Amazon.

Andalay Solar offers grid-tied AC solar system kits either with 4 panels or with 1, making it quick and easy for go-getting DIYers to customize the size of their solar power system by simply purchasing then tying together the amount of kits necessary to fit their roofs. Furthermore, Andalay’s kits allow for DIYers to install a renewable energy system at a lower cost than a third-party installer.

A kit with four 250 watt panels sells for about $3,500 on Amazon. A single panel kit sells for $1,188. The kits are also eligible for a 30% federal tax credit, making getting into solar power even more affordable.

I’m not sure if this is a good idea, or a recipe for serious accidents. There is a reason that OSHA has been pushing for increased fall protection for workers that do work on steep-sloped roofing: IT’S DANGEROUS!

For DIY-ers, just getting onto and off of the roof safely is a challenge. To also be schlepping solar PV panels and related equipment is bound to result in some injuries.

Cue the revised homeowners insurance policy language…

Link: Amazon

Source: Green Building Elements