Civil Litigation Basics for Construction Professionals

Civil Litigation for Construction Professionals by Pete Fowler with Contributions by Mikala Glaza. Originally published in JLC’s Builder Guide - November 2023.

As a construction professional, you have probably heard the term “civil litigation.” With the large number of players involved in building projects—including developers/owners, designers, contractors, subcontractors, sub-subcontractors, suppliers, and more—it is nearly impossible to avoid a legal dispute at some point in your career. When two parties just cannot come to terms, they are likely to end up in civil litigation. And with so many parties involved, even the most simple building project can quickly become “complex litigation.”

From Bad to Worse:
An Example of How Construction Litigation Emerges

This is a painful example of a project type we have seen hundreds (seriously, hundreds) of times. A wealthy family wanting to build their dream home is friends with the spouse of a local custom builder. They reach out to the builder and hit it off immediately; on paper, it seems like a perfect match. They quickly reach an “agreement,” and construction begins with excitement. The builder receives the first few progress payments, and the process seems to be humming along.

Then, things take a turn for the worse. It turns out the “contract price” was really a budget. Every choice the owner makes—from roofing and siding to cabinets and flooring—exceeds the budget’s “allowance,” causing the price to rise weekly. The honeymoon is over. The tension is palpable. The owner and builder barely speak. Adding insult to injury, the owners begin to catch mistakes. Requested changes to bathroom three have been forgotten by the builder. The wrong plumbing fixtures are installed by seemingly incompetent subcontractors. Electrical outlets are in wacky places. Concerned about the situation, the owners audit the invoices and discover discrepancies. They hope these issues stem from negligence, but their concern grows as they notice that each “mistake” benefits the builder.

Construction limps toward completion. A certificate of occupancy is finally issued. The owners move in at last, but the home took twice as long to build and ended up costing twice as much as promised. Even worse, more problems emerge. The wood doors, which the owner insisted on placing in direct sunlight despite the builder’s warning that it would result in warping, have now begun to warp. The home automation system never works. Cooling bedroom two to a comfortable temperature turns bedroom four into an icy meat locker. The first rains come, and water pours into the home from the roof and windows.

The owners insist the builder immediately fix everything. As a precaution, the owners withhold final payment. The builder then stops responding to complaints, causing the owners to go ballistic and instruct their personal lawyer—who has no construction law experience—to file a lawsuit. The owner and builder are now engaged in litigation for years. —P.F.

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Over the last 30 years, I have worked on thousands of litigated projects as a contracting and estimating expert witness. But I am not a lawyer, and a little knowledge is dangerous. For most lawyers, though, their depth of knowledge can actually make it difficult for them to explain the process simply. So, I worked with some lawyer friends to write this plain-language “map of the terrain” of civil litigation for non-lawyers who need to understand the process to help make smart business decisions.

Put simply, civil litigation is any noncriminal dispute resolved by a lawsuit using the court system. These cases are commonly settled before they reach the courtroom, but I will walk you through the entire process.

Common Types of Cases

Civil litigation covers a huge variety of cases, but there are common claim types building professionals face.

Construction defect litigation begins with allegations of physical problems and damage that are usually related to leaks or structural deficiencies but that can be related to any workmanship or performance problems on any building element (roofs, windows, walls, foundations, framing, plumbing, electrical, HVAC, and so forth). Defect allegations might be made during construction or not until many years after project completion. In some states, an entire “CD industry” has developed over the last 40 years, with attorneys and expert witnesses who work full time pursuing and defending these claims.

Personal injury (tort claims) is the type of lawsuit filed when an individual or business has been harmed by another. These claims include injury to someone, their reputation, or property due to fraud, negligence, or intentional acts. Common examples of this type of claim would be an auto accident, a premises liability slip, trip, or fall, a product defect, and many others. The goal is to seek compensation for physical, emotional, and financial damages incurred, including medical expenses, lost wages, pain and suffering, and other related losses.

Jobsite accidents are typically covered by workers’ compensation (see “Insurance Basics for Construction Professionals,” May/21) but, in many situations, a civil suit can also be filed against other parties that might have all or a portion of the responsibility due to negligence. In these cases, OSHA’s rules for multiemployer work sites often come into play.

Property claims refer to insurance or legal claims made to seek compensation for damage or loss to property. The damages are often caused by activities covered by insurance, such as fire, theft, vandalism, or natural disasters. Litigation is required only when the parties cannot agree on the extent and cost of the damages. For contractors, this can occur when they cause damage to property via a plumbing leak, a fire, equipment, or vehicles.

Contract claims arise from a party not fulfilling contractual obligations. These can be simple or very complex. When a contractor abandons an incomplete home-improvement project, unprovoked, it is simple. When a four-year renovation of a $10 million home for a television star goes bad, it is very complex. When a general contractor has a dispute with a trade contractor based on a poorly written contract with unclear terms, it is somewhere in between.

Subrogation claims are pursued by insurance companies to recover money for damages or losses caused by another party that the insurer believes is at fault. For example: If a contractor burns a house down sweating a copper pipe, the homeowner’s insurance will usually pay the claim and then seek reimbursement from the contractor. On large claims with unclear origins, this is sometimes contentious litigation requiring intensive work by expert consultants.

Equitable claims involve one party suing another to prevent a future, harmful act rather than suing for money. If there is a dangerous property, one party can ask the court to make the owner fix it. Or, if someone is doing something that could damage someone else’s property, the court can order them to stop. We have worked on many neighbor disputes over property lines or new construction blocking a view.

Peter D. Fowler

Example project organizational chart. When two or more players in a construction project cannot come to terms, they are likely to end up in civil litigation. Litigants will need to be clear on the roles and responsibilities of each player.

Roles and Responsibilities

As with any aspect of our business, a big-picture understanding of the roles and their responsibilities during civil litigation is an important requirement for construction professionals. Here are the basics:

A plaintiff is the person or company that initiates the lawsuit by filing a complaint against another party with the court. A plaintiff is also known as a claimant.

Attorneys represent plaintiffs, defendants, or cross-defendants. They are often referred to as “litigators” or “trial lawyers.” Attorneys generally manage all phases of litigation from beginning to end.

A defendant is a person or business that a lawsuit is filed against. It is important to remember that, in civil litigation, the defendant is accused of a civil wrong, not a criminal offense. These “wrongs” usually involve a failure to carry out legal duties, such as breaches of contract, or doing something they should not have, like causing damage.

Insurance companies sell insurance policies to insureds (in our case, to contractors) that include a “duty to defend” as well as the “duty to indemnify.” The duty to defend provides the insured with legal representation when they are sued, so insurers hire and pay attorneys to represent insureds. Insurers typically do not pay to pursue claims as a plaintiff. The duty to indemnify pays for any legal judgments against insureds or, more often, to settle for damages that might be the insured’s responsibility. This is a complex topic far beyond the scope of this article. Suffice it to say, as soon as a claim is made or an accident happens, all parties should notify their insurance companies immediately.

Insurance professionals, namely claims handlers or “adjusters,” work for insurance companies and will be assigned to figure out what happened and how much the claim is worth. Early in my career, veteran insurance pros taught me that “a closed claim is a happy claim.” The common belief that these professionals are trying to pay less than the reasonable value of the claim is inconsistent with my experience. Their goal is usually to pay only what they believe the insurer owes, no more nor less.

Cross-defendant or third-party defendant is a third party being sued by a direct defendant in litigation, when the defendant believes the third party is partially or entirely responsible for the claims by the plaintiff. For example: A general contractor is sued by an owner for roof leaks. So the general contractor sues the roofing subcontractor. The roofing subcontractor is the cross- or third-party defendant (see chart, page 16).

A judge plays a different part depending on whether the trial is a jury trial or a bench trial (where a judge renders the verdict, not a jury). In both types, however, the judge is responsible for making sure everyone in the courtroom follows procedure, as sort of an all-powerful traffic cop. A judge should provide impartial, fair, and unbiased rulings throughout the case and is required to follow the law.

A jury includes between six and 12 community members selected to hear evidence and arguments during a trial. At the end of hearing evidence and arguments, they meet to deliberate and render a decision based on the “preponderance of the evidence.” This is in contrast to criminal cases, where the standard of proof is “beyond a reasonable doubt.” The jury decides if defendants are “liable” or “not liable” and determines the amount of damages.

A mediator is a neutral third party, often a lawyer, who facilitates communication and negotiation between disputing parties in an effort to reach a voluntary settlement. Unlike a judge or arbitrator, a mediator does not make binding decisions or impose solutions. Mediators in building claims help parties explore possible resolutions to their conflict, often by explaining the law, exposing weaknesses in the case and strengths of opposing parties’ cases, and calculating the costs of further litigation. This helps parties make a “business decision” rather than seek their version of “justice.”

An arbitrator is similar to a judge in that they oversee dispute resolution, but arbitration is private, outside of a courtroom, and less formal. The parties in the claim make arguments and present evidence and the arbitrator makes judgments on liability. The decision can be legally binding or nonbinding, depending on the language of the contract or situation.

Expert witnesses have specific knowledge, education, experience, specialized training, or some combination thereof in a field beyond what a normal person would have, and they can “aid the trier of fact” (judge and jury) in understanding the technical issues. There can be multiple experts on multiple topics in a single case. For example, a simple building litigation might have experts in leak investigation, product manufacturing and installation, repair costs, and contracting standards of care. Complex cases might have dozens of experts.

Litigation Stages

After a lawsuit is filed, civil litigation proceeds in specific stages.

Pre-filing is anything that happens before a party files a complaint to begin litigation. This is the time when the dispute arises and steps are often taken to resolve the dispute, even before lawyers are involved. Many contracts require mediation before a lawsuit can be filed.

Pleadings are the initial step of filing paperwork by each party in a lawsuit. Pleadings explain each party’s side of the dispute. The plaintiff will file a “complaint” with the court and must also deliver, or serve, the defendant with a copy of their complaint. The defendant will file an “answer,” which is a response to the complaint. A defendant might also file a “cross-complaint” against the plaintiff or additional cross-defendants or third-party defendants.

Discovery is a phase that involves gathering and sharing information, both from parties involved in the case and from third-party sources. Discovery can include requests for copies of documents, deposition of witnesses, and written requests for admission. This is often the longest, most complicated, and most expensive phase in the litigation process, so it is best to have a discovery plan. This should entail identifying the primary issues, determining what needs to be proven to win, deciding if the goal is alternative dispute resolution or trial, and strategizing the most time- and cost-effective path forward.

Pre-trial phase involves preparing for trial. This may include getting evidence in order, preparing witnesses for testimony, having settlement discussions, and offering motions to resolve the case or narrow the issues brought to trial. This phase is typically expensive and stressful for everyone involved.

Trial is where evidence and arguments are formally presented to judge and jury. There are a lot of rules and formality. Both parties give opening statements that are a brief overview of their arguments. Witnesses give sworn testimony, and both sides present evidence, first the plaintiff, then defendants. Ultimately, the judge and/or jury will decide the outcome. It is stressful and difficult and therefore expensive. This is why only 1% or fewer civil litigation cases make it to or through trial. In 99% of cases, trial is best avoided.

Jury trials have a judge to make sure the parties follow the law and to decide what evidence and witnesses can be presented. The judge will also provide the jury with instructions about the law to guide their decision on a verdict (outcome) and the award of damages (usually money).

Bench trials have no jury; the judge is responsible for hearing the evidence and arguments, determining liability, and setting the judgment amount.

Post-trial phase usually involves the prevailing party filing a motion to request the court to order the losing party to pay their costs and fees associated with the case, including costs of the trial. These awards may or may not include attorney’s fees. The post-trial phase can also involve appeal of the case. If the losing party does not agree with the court’s decision, it can file an appeal to a higher court for a second look at the case. These appeals are usually granted only if the higher court finds a legal error, not because of factual evidence.

Peter D. Fowler, adapted by JLC

All civil litigation has a plaintiff, plaintiff attorney, defendant, and defense attorney. Building-related claims often have many cross-defendants (commonly trade contractors and suppliers) and their attorneys, as well.

Alternatives To Litigation

For good reason, most civil litigation is settled before trial. This is usually more cost-effective and time-efficient.

Settlement occurs any time plaintiffs and defendants come to terms to end a dispute before a formal verdict by judge or jury. This often happens during the discovery phase after some facts come to light that inspire the parties to settle instead of going to trial.

Mediation involves a neutral third party (mediator) working with plaintiffs and defendants to negotiate a settlement. This is a nonbinding forum. Sometimes, judges are available as mediators but, more often, lawyers with specialized mediation training are used as the neutral party. All parties, sometimes all together, present their information to the mediator but, more often, the mediator meets with each side individually. The entire process is confidential, and the discussions cannot be used in litigation or trial.

Arbitration, like mediation, involves a neutral third party (arbitrator) to resolve the dispute but is more formal than mediation. It is a form of privatized litigation intended to be faster and cheaper than civil litigation. Many contracts contain an arbitration clause requiring disputes to be resolved through binding arbitration, rather than litigation. Arbitration can be binding or nonbinding.

Pete Fowler, Chief Quality Officer, Pete Fowler Construction Consultants

Leading Out Loud: Diversity, Equity, and Inclusion

Published in CLM Magazine

WHY IS DIVERSITY, EQUITY, AND INCLUSION A NECESSARY AND NOBLE GOAL TO PURSUE FOR ORGANIZATIONS? HOW DO DEI INITIATIVES BENEFIT ORGANIZATIONS AND EMPLOYEES? AND FINALLY, HOW CAN YOU INCORPORATE DEI INTO YOUR ORGANIZATION IN A WAY THAT GENERATES INVOLVEMENT AND EXCITEMENT AMONG YOUR STAFF?

WHAT DOES DIVERSITY, EQUITY, AND INCLUSION (DEI) MEAN TO YOU AND YOUR ORGANIZATION? WHY, IN YOUR VIEW, IS IT A NECESSARY AND NOBLE GOAL TO PURSUE?

JENNIFER BRILEY, PETE FOWLER CONSTRUCTION CONSULTANTS: As a company, we understand that a variety of backgrounds and experiences will only strengthen our team and improve our success and longevity. Acting with integrity is one of our core beliefs, and we feel that having a strong DEI awareness and program is a central component to managing our internal operations with integrity. It’s so important that we penned a DEI policy several years ago, and it begins with this statement

“Our company understands that unconscious bias exists in the world, and therefore, in the workplace. In order to ensure that bias does not affect the positive work environment of each and every team member, we strive to evaluate our policies from diverse perspectives, celebrate the mosaic of differences within our team, counteract bias through continuous learning and engagement, ensure the fair treatment of all members of our team, and ensure that there is an equitable, level playing field. Our intent is to focus on solutions, not to shift blame such that the bully becomes the bullied; rather, we desire open communication that encourages equitable treatment for all.”

WHAT ARE SOME DEI INITIATIVES YOU HAVE IMPLEMENTED, AND WHAT HAS BEEN THE BENEFIT TO YOUR ORGANIZATION AND ITS EMPLOYEES?:

JENNIFER BRILEY, PETE FOWLER CONSTRUCTION CONSULTANTS: Workforce diversity—we purposefully recruit from a diverse, qualified group of candidates to increase our diversity of thinking and perspective. One small way that we help ensure diversity, equity, and inclusion in our hiring practices is that our process begins with a oneon-one phone call to help reduce any unintended bias that can result from the first encounter occurring in-person. This allows us to focus on the person’s skills and qualifications in determining whether the candidate will advance for further consideration.

Workplace inclusion—we purposefully foster a culture that encourages collaboration, flexibility, and fairness to enable all employees to achieve their full potential and increase retention.

Sustainability and accountability— we seek to identify and break down systemic barriers to full inclusion via diversity, equity, and inclusion in policies and practices. Further, our intent is to equip leaders with the ability to manage diversity and be accountable for the results via third-party training opportunities and internal mentorship

HOW HAVE YOU GONE ABOUT INCORPORATING THESE DEI INITIATIVES INTO YOUR ORGANIZATION’S CULTURE? HOW HAVE YOU GENERATED INVOLVEMENT AND EXCITEMENT AMONG YOUR ORGANIZATION’S STAFF?

JENNIFER BRILEY, PETE FOWLER CONSTRUCTION CONSULTANTS: Several years ago, a team member was engaged to serve as our internal subject matter expert on DEI. Mikala Glaza did an impressive job of researching common practices and pitfalls that served as the foundation for her recommendations that were incorporated into our DEI policy. She consults with us internally on DEI issues based upon our stated policy. Further, Mikala has worked with both internal team members, clients, and industry colleagues to prepare and present a phenomenal webinar series on DEI topics. She also participated in CLM’s Focus event last year via a panel discussion entitled, “Diversity, Equity & Inclusion: A Beginner’s Guide to Allyship in Law, Construction, and Insurance.”

JENNIFER BRILEY is Director of Operations – People & Brand for Pete Fowler Construction Consultants. jennifer.briley@petefowler.com

Artificial Intelligence: The Good, Bad, and Dangerous for Construction, Claims, and Legal Pros

"Artificial Intelligence: The Good, The Bad, and Dangerous for Construction, Claims, and Legal Pros - by Pete Fowler. Originally published in CLM's Construction Claims Magazine - Fall 2023"

Introduction (by AI)

"It's not the tools that you have faith in - tools are just tools. They work, or they don't work. It's people you have faith in or not." - Steve Jobs

"Write me a 1-2 paragraph magazine article introduction about artificial intelligence being a mind extension tool, as defined by Clark and Chalmers' Extended Mind Theory."

ChatGPT-3.5: In the age of rapid technological advancements, artificial intelligence (AI) has emerged as an unparalleled tool, reshaping our understanding of human cognition and pushing the boundaries of what our minds can achieve. Drawing inspiration from the groundbreaking work of philosophers Andy Clark and David Chalmers, the concept of AI as a mind extension tool has gained momentum, revolutionizing our perception of intelligence. According to the Extended Mind Theory, our cognitive abilities are not confined within the boundaries of our skulls, but rather extend beyond them to include external tools. This article explores the profound implications of AI as a mind extension, highlighting its transformative potential and its capacity to augment and amplify human intelligence to unprecedented heights.

Introduction (By Pete)

"The most important tool of the scientist is not any specific experiment or experimental apparatus, but the ability to think critically and independently." - Isidor Isaac Rabi

ChatGPT, the first Large Language Model (LLM) Artificial Intelligence (AI) chatbot made publicly available, was released on November 30, 2022. It surpassed 1 million users in just 5 days, and now has over 100 million. I am a highly technical person with a Bachelor of Science in Construction Management and minor in Information Systems, but I am not an early adopter of technology. I prefer to wait and see if a tool is useful before I use it. I started using ChatGPT in March 2023, and I am happy to report that it is a useful tool.

What are Mind Extension Tools?

"Man is a tool-using animal. Without tools, he is nothing, with tools he is all." - Thomas Carlyle

Explain extended mind theory at the high school level.

ChatGPT-4: Imagine your mind is like a superhero. Now, superheroes sometimes use gadgets to boost their powers, right? Batman has his utility belt, Iron Man has his suit. These gadgets become a part of who they are, helping them to solve problems and face challenges. The extended mind theory says our minds can work like a superhero with gadgets. It suggests that our minds aren't limited to just our brains. Instead, they can spread out and use tools and objects in the world to help us think.

Take your smartphone, for example. You use it to remember your friends' phone numbers, remind you about appointments, or calculate sums. The extended mind theory suggests that, in these situations, your smartphone is acting as a part of your mind, helping you remember things or solve problems. So, according to this theory, our minds are not just in our heads. They can extend into the world around us, using tools, objects, and even other people to think and solve problems better. It's like each of us is a superhero, using our gadgets to boost our powers.

"Give me a list of common Mind Extension Tools, as defined by Clark and Chalmers' Extended Mind Theory... Can you give me more examples?"

Bing Chat: ... some objects in the external environment can be part of a cognitive process and in that way function as extensions of the mind itself. Examples of such objects are written calculations, a diary, or a PC; in general, it concerns objects that store information. In their paper “The Extended Mind,” Clark and Chalmers present the idea of active externalism, in which objects within the environment function as a part of the mind. They argue that the separation between the mind, the body, and the environment is an unprincipled distinction... Other examples of such objects include smartphones, tablets, and other digital devices that store information. In addition to these devices, other examples include eyeglasses that correct vision, hearing aids that amplify sound, and even prosthetic limbs that become part of the body.

What are the oldest mind extension tools?

ChatGPT-4: Mind extension tools have been used since prehistoric times. Here are a few examples: (1.) Stone Tools... [The response included further discussion, omitted here for brevity.] (2.) Fire... (3.) Cave Paintings... (4.) Writing Systems... (5.) The Abacus... These tools show that the idea behind the extended mind theory is not new; humans have been using objects in their environment to extend their cognitive capabilities for thousands of years. However, modern technology, from pen and paper to smartphones and AI, allows for cognitive extension on a scale never before possible.

It's our company's job to conduct forensic investigations, often for lawyers and/or insurance professionals. These investigations include collecting, organizing, and summarizing lots of project data to transform it into information, and then applying a lifetime of subject matter expertise about building and buildings to decide what we think happened versus what should have happened, and how to solve the problem. It's intellectually difficult work with a mind boggling volume of data to consider and synthesize.

To do my job effectively and efficiently, I use many "mind extension tools" including: (1.) written notes, calculations, and drawings on paper; (2.) organizing files; (3.) typing into my computer; (4.) spreadsheets to organize and analyze data; (5.) finding codes and standards on the internet; (6.) scanning and printing documents, and spreading the pages on the floor to get my mind around complex matters; (7.) my smartphone to take photographs, to have it read out loud while I walk or drive, and to type or dictate notes... and even to make calls; (8.) meetings with team members, coordinated in electronic calendars, where we share our ideas; and (9.) presenting to clients for feedback about what they know and think, that I might not have known or thought of.

One of my most important "tools," that many fail to grasp the importance of, is an organized work place with these tools present, in their "proper home," always available. I use a kanban system to never run out of supplies like pens, paper, stickies, toner, staples, etc. This keeps friction and drama low. On the rare occasion I work in a less efficient environment my productivity decreases, like trying to manufacture complex products such as cars or computers out in the dirt and sunshine, the way we build buildings.

AI is my newest tool and it may soon be the most powerful.

AI as a Mind Extension Tool for Claims & Litigation

"The minute you read something that you can't understand, you can almost be sure that it was drawn up by a lawyer." - Will Rogers

I use AI chatbots for simple things like "Reorganize these into a numbered list in alphabetic order: [And I paste in text]" It's simple, but slick. I also ask: "Make this paragraph sound more professional," "Make this more clear," and "Make this shorter." I used AI to help a business owner friend improve a job description. It's not magic or perfect, but better and faster than interrupting a co-worker. I also asked for "Interview questions for potential Chief Operating Officer." The questions were good, and yes, I hired him.

So far, I find AI most useful for writing clearly about what I already know. I have been writing about building and buildings since the 1990s. In 2016 our company published our "Proving the Obvious Using Google" process because we must sometimes refute opinions of opposing experts that we think are silly. We search Google using the right prompt and save the first 10 sources, which virtually always tell us what we already knew, and use that as support for our expert opinion. The most time consuming part is summarizing the information and writing what it means clearly enough for everyone to understand. AI can often do this in seconds.

I recently testified in a deposition related to a construction site accident. It was clear one of the key players did not have a "safety focused culture." It's well known in construction that the right culture results in far fewer injuries, but how do I "prove" it? In the past, I would spend hours "Proving the Obvious Using Google" by collecting, organizing, reading, summarizing, and drawing conclusions. For this matter, AI saved hours of work and our client a lot of money. In a fraction of the time, I was able to compose a Safety Culture Memo that clearly articulated what I already knew. Of course, I backed it up with authoritative original sources, but I did not need to agonize over writing out my own summary.

On another project I saved time and money by prompting "Describe a Kathabar system in a production facility" and followed up with "Describe a desiccant dehumidifier." This is a formal process in our company called "Explain it to Pete's Mom." Like our clients, my mom is very smart, but she never worked in construction and did not go to engineering school. We have to "explain it to Pete's mom" all the time. AI makes this easier.

In our company, virtually everyone requires "Construction Document Literacy," so we have been delivering this training for close to 20 years. I've intended to write an article explaining these 25 most important documents since we began delivering this training. It was going to take at least 50 hours, and I could never carve out the time. When learning to use ChatGPT, I used it to help me write that article in 5 hours! It blew my mind. AI was not perfect; and sometimes dead-wrong. But it saved 90% of the time.

Our technical consultants needed training in Defining the "Standard of Care" so we used AI to inform the discussion. It was fantastic. The information will become a published article and training module commonly used in our work.

These examples are barely scratching the surface of what AI will do for us, even next year.

Asking Good Questions to Get Good Answers

"Judge a man by his questions rather than his answers." - Voltaire

I am trying to explain the importance of, and how to, ask an AI chatbot questions to get the best responses. Can you help?

Bing Chat: ...

1. Be specific: Try to be as specific as possible when asking your question. This will help the chatbot understand what you’re looking for and provide you with more accurate results.

2. Use natural language: Chatbots are designed to understand natural language, so try to ask your question in a way that feels natural to you.

3. Avoid jargon: If you’re asking a question about a specific topic, try to avoid using jargon or technical terms that the chatbot might not understand.

4. Be patient: Chatbots can take a few seconds to respond, so be patient and wait for the chatbot to provide you with an answer.

5. Ask follow-up questions: If you’re not satisfied with the chatbot’s response, don’t be afraid to ask follow-up questions to get more information.

Since, so far, I am only relying on AI to help me speed the work I already have expertise in, I just keep asking questions until it answers in a way that sounds like me.

The marketing professionals in our office are using AI in amazing and creative ways, engaging in "conversation," including feeding the chatbot information like real client testimonials, and having conversations that sound like two marketing savants brainstorming. It's fascinating and fruitful.

Our technology department have described amazing domain specific tools and capabilities for writing code that are far beyond anything I can use AI for as a building consultant, right now. Like me, some of their tasks are being completed in 10-20% of the time required before AI. They tell me "we exclusively use ChatGPT-4 ($20/month). 3.5 (free) felt like a toy, 4.0 actually feels useful... Even with 4.0, I still get a lot of hallucination." In contrast, I actually prefer many of 3.5's responses, including for use in this article.

Dangers Ahead

"The saddest aspect of life right now is that science gathers knowledge faster than society gathers wisdom." - Isaac Asimov

It may sound like I drank the Cool-Aide after singing AI's praises, but beware!

Explain the concept of AI Chatbots "hallucinating facts."

Bing Chat: AI hallucinations in chatbots refer to incorrect results that are vastly out of alignment with reality or do not make sense in the context of the provided prompt. AI chatbots can respond grammatically or logically incorrectly or mistakenly identify an object due to noise or other structural problems. AI models can be convinced of completely untrue facts, responding to queries with made-up answers. For instance, an AI program like ChatGPT can fabricate a historical figure with a full biography and accomplishments that were never real.

By now, most of us have heard about the New York lawyers who were sanctioned in June 2023 for using fake ChatGPT cases in a legal brief. ChatGPT was "hallucinating facts;" but they sounded so convincing that the lawyers who signed the brief did not think to look up the cited cases. So in our work, we must "inspect what we expect." If we don't know it to be true, then we must verify it.

I asked ChatGPT for the applicable building codes for residential site drainage. It's initial responses were helpful. But after a bit of back and forth to get more specific, a saying my mother taught me came to mind: "Often wrong but never in doubt." AI is dangerous, because it always sounds smart, unless you know it's wrong.

I have asked AI to summarize books I have read: Sometimes it does great. And sometimes it's dumb; grammatically correct, but dumb. AI is a powerful tool... Like a chainsaw. Be very careful asking questions that could have wrong answers that you don't know the answers to. I only rely on it for work where I have domain specific expertise.

Conclusion

“There will be two kinds of companies at the end of this decade. Those who are fully utilizing AI, and those who are out of business.” - Peter Diamandis

I am writing an article, pasted in below. Can you draft a conclusion? [Response was too long.] Can you make that shorter?

ChatGPT-3.5: In today's fast-paced world, artificial intelligence (AI) serves as a game-changing mind extension tool, reshaping our perception of intelligence. Inspired by the Extended Mind Theory, AI can amplify human cognition, aiding professionals in various fields like forensic investigations and claims. By asking precise, natural language questions, users can harness AI's potential effectively. However, prudent evaluation is essential to avoid reliance on AI for critical decisions. Embracing AI is no longer optional; it's a necessity for staying competitive in this technological era. Striking the right balance between human expertise and AI capabilities will lead us to a future of unprecedented possibilities and innovation.

In the late 1700s, steam engines brought a significant change to people's lives. They improved manufacturing and transportation, allowing cities to be built away from rivers, which were previously essential for transport and power. This led to a boost in the economy and better living conditions for many. Today, AI serves as a similar catalyst for the mind, enabling users to become smarter and more productive at an incredible pace. AI holds the potential to revolutionize learning and productivity, ushering in a remarkable era of progress.

Of course, modernity has always had it's detractors; those who pine for the good old days. Complaining won't stop AI's transformative power.

Pete Fowler, Chief Quality Officer, Pete Fowler Construction Consultants

Four Factors to Consider When Taking a Case to Trial

Four Factors to Consider When Taking a Case to Trial - by Pete Fowler, Bob Carlson, Ken Kasdan, Barbara Laskaris-Lorigan, and Ghost Writer Wayne Pollock. CLM's Construction Claims Magazine published this article in the Summer 2023 Issue with the name, Making the Call: Four Factors to Consider When Taking a Case to Trial

Introduction

When a construction-related legal dispute cannot be resolved by the parties themselves or with the help of a mediator, a party may feel they have no choice but to take the case to trial—either to force an adversary to get serious about settlement or because the party believes only a judge or jury could break the deadlock.

Trials are costly affairs, both in terms of the out-of-pocket expenses a party must take on in the lead up to and during trial, and the zero-sum outcomes that often emerge from a trial. To make a smart, informed decision about whether to take a case to trial, a party will need to evaluate several factors affecting their chances of success.

Most of us already know that Trial Evaluation 101 includes considering the strength of the case, potential damages, the costs of litigation, time and resources, and the risks and benefits of settlement.

But we, a plaintiff attorney, defense attorney, insurance executive, and construction expert witness with more than 100 years of experience combined, including many trials each, walk through in this article four additional factors we believe have an outsized impact on a party’s chances of success at trial.

Factor 1: What is the fabric of your team?

The organizational chart below is a graphical representation of what anyone involved in construction-related litigation knows to be true—litigation brings with it a large cast of characters, each of whom has their own loyalties, strengths, and weaknesses. The chart depicts a small construction litigation matter with only one plaintiff, one direct defendant, and three cross-defendant trade contractors, yet requires a minimum of nineteen distinct parties.

A core aspect of construction litigation trial teams, especially on the defense side, is the tripartite relationship between the insurer, the insured, and the attorney hired by the insurer to defend the insured in the lawsuit. The complexity of this relationship is well beyond the scope of this article, but depending on the law of the state that governs the lawsuit, an attorney might have ethical obligations to the insurer that come close to, or are equal to, the obligations they have to the insured as their client.

Knowing the law, understanding the quirks of the pre-trial and trial process, and navigating the complexities of a tri-partite relationship are prerequisites for members of a successful trial team. Naturally, the more experienced an attorney, expert, or insurer’s representative is with going through trials—or resolving disputes during trial—the more likely they are to help a party successfully do either.

But knowledge and understanding are only two pieces of the puzzle. To be successful in construction litigation trials where the size of the cast of characters rivals that of a Hollywood blockbuster, team members must be able to handle the stress that comes with trial. Whether it's an attorney going on little sleep, an expert who was beaten up during cross-examination, or an insurer’s counsel who’s getting fed up with an adversary’s unreasonableness, chances are good that the members of a team will not be operating under optimal conditions.

When that is the case, what is the fabric of the team? Will members of the team maintain their professionalism? Will they stay strong, respectful, and even-keeled? Or will they let their emotions get the best of them, which will prevent them from seeing the situation objectively and using clear, unbiased judgment?

Hopefully, you have sufficient evidence on which to base your predictions about how your team will fare. Years of service do not equal expertise, but the best predictor of future performance is past performance. If you do not have firsthand knowledge of your team members’ past performance, speak with people who have worked with your team members before to inform your predictions.

Your team’s success at trial hinges on both the substantive knowledge and experience its members have, as well as their ability to stay cool under pressure when the trial heats up. In addition, as we discuss below, team members must be willing to speak up and exercise their professional judgment.

Factor 2: What happens when you crunch the numbers?

Your team could be peerless and unflappable under pressure, but if the math of going to trial doesn’t work out, that won’t matter.

Generally—we’ll discuss some exceptions in the next section—plaintiffs and their attorneys will want to take a case to trial when their math looks like this:

(The reasonable and objective value of a claim) *minus* (What it will cost to go to trial (such as attorneys’ fees, expert fees, and other fees and cost)) *minus* (A discount for uncertainty of how a judge or jury might rule given the facts of the case and any unresolved legal questions) *is greater than* (The dollar amount the other side has offered during settlement negotiations).

Defendants and their counsel will crunch the numbers differently and will likely take a case to trial if:

(The reasonable and objective value of a claim) *plus* (What it will cost to go to trial (such as attorneys’ fees, expert fees, and other fees and cost)) *plus* (A premium for uncertainty of how a judge or jury might rule given the facts of the case and any unresolved legal questions) *is less than* (The dollar amount the other side will settle for).

Sometimes, defendants and their counsel might want to tweak their calculations to include a reward of attorneys’ fees and costs, which would lessen their theoretical costs and thus drive down the number on the other side of the equation.

The key to these equations is a set of reasonable assumptions about the value of a claim and the costs and expenses incurred on the road to trial. It would behoove all players to assume worst-case scenarios for valuations and costs so clients and insurance companies are not basing their decisions and guidance on unrealistic expectations.

Factor 3: Are there subjective considerations that override objective math?

Many times, crunching the numbers won’t give the full picture or be the deciding factor in whether to take a case to trial. Instead, the decades of collective knowledge, wisdom, and experience held by the cast of characters depicted in the organizational chart above might guide a litigant toward or away from trial.

In other words, in the professional judgment of a litigant’s counsel, their experts, their insurer’s counsel—and perhaps with defendants, their co-defendants’ counsel, experts, and insurers’ counsel—is there a reason to go or not to go to trial that overrides what the math suggests?

For example, is the trial an opportunity to set a precedent or to send a message to the industry that certain conduct will not be tolerated?

On the other hand, would a settlement avoid a possibly problematic court ruling that could greatly impact industry players, like insurers?

Does one lawyer have the reputation for being a talented litigator, but a horrific trial lawyer, which would motivate the other side to call this lawyer’s bluff, causing them to persuade their client to settle? Or, is the lawyer a well-known lawyer with decades of experience but doesn’t have extensive—or any—trial experience, making them similarly vulnerable to another party calling their bluff?

On the other hand, is one lawyer known to be a clumsy litigator but a skillful presenter who will have the jury eating out of their hands after their opening statement, which might compel the other side to settle before trial?

Even in the absence of these particular factors, is there something about THIS case, THIS judge, or THIS jury pool that might force a party’s hand regarding going to trial? For example, have juries in the jurisdiction recently been willing to hand up generous verdicts against corporations and insurance companies? Or, have juries refused to allow trial lawyers to rile them up and play on their anger with the hopes they’ll return a nuclear verdict?

Additionally, could the case be one where the “winner” could actually lose in the end? For example, perhaps a jury finds a party to have breached a contract, but it zeroes in on a fact that causes it to award the non-breaching party a fraction of the low-end damages the party thought it could secure when it ran the math about taking the case to trial. Or, could a “winning” party face a situation where not only is it awarded a lower dollar amount of damages than forecasted, but then a judge refuses to award that party fees or costs even where it would be common for a judge to do so?

Another consideration is the availability of coverage under the applicable insurance policy with respect to any trial outcome, which the insurer, the insured, and the insured’s counsel should carefully consider, in addition to the costs of trial, when weighing the cost of settlement opportunities. Transparent communication between the insurer and its insured regarding coverage limitations is a must if the insured and their counsel are to properly consider this factor when deciding whether to go to trial.

Money talks, but that doesn’t mean it has to have the last word. Going back to our discussion above about the fabric of a team, team members’ willingness to speak up and exercise their professional judgment, even in the face of math that suggests they do the opposite of what they’re recommending, can be the difference between a mildly unpleasant settlement, and a cataclysmic result at trial.

Factor 4: Have you been managing expectations from the start?

In typical construction litigation, there are two sets of expectations that attorneys and experts must manage in the lead up to trial: clients’ and insurers’.

For clients, their expectations about the probability of success at trial and the cost of going to trial will dictate their willingness to do so. Some attorneys and experts are happy to give their clients ballpark estimates of both, but in our view, the better practice is to break down in plain English and in simple numbers why certain trial outcomes might occur and what exactly the costs of going to trial might look like. Neither analysis needs to be long, but each should be clear.

For example, attorneys should explain why specifically a judge might rule against a client on a question of law, or why a jury might not find the client’s experts as credible as the other side’s experts. Budgets should include both conceivable costs the client will incur and a realistic (if not a bit inflated) estimate of the fees and costs the client might incur if they are on the hook for the other side’s fees and costs.

For insurers, they will probably already know why certain trial outcomes might occur, and will probably provide to a party’s attorney their opinion as to the likelihood of those outcomes happening. But that doesn’t mean they wouldn’t appreciate independent analysis of those outcomes. Additionally, while insurers are well aware of, and honor, their ethical obligation to defend their insured, they’re not big fans of surprises, especially when it comes to trial budgets. They’re going to want to know early and often what the estimated cost is to take a case to trial and why the team wants to incur certain expenses.

But managing expectations isn’t just about providing thoughtful litigation analyses and realistic budgets early on. It is imperative the trial team continually update clients and insurers on the current state of affairs regarding the probability of success at trial and the trial budget. Both frequently change, with scope creep and cost creep coming into play as trial nears. The clearer the line of sight clients and insurers have into the probability of success and the cost to go to trial, the more receptive they’ll be to guidance regarding whether to proceed down that route.

Taking A Measured Approach Through A Messy Process

Construction litigation cases are almost always messy. The messiest ones are often the ones most likely to go to trial; sometimes because one party mismanaged or misjudged earlier, and now they are stuck “rolling the dice.”

Deciding to press on and take a construction litigation case to trial is a decision that requires parties, their attorneys, experts, and their insurers to first consider the obvious, tried-and-true evaluation fundamentals, and then the more complex and nuanced four "professional judgment" factors we discussed above.

Robert C. Carlson is a founding partner of Koeller Nebeker Carlson Haluck, LLP. carlson@knchlaw.com

Pete Fowler is Chief Quality Officer, Pete Fowler Construction Consultants, and a general contracting and estimating expert. pf@petefowler.com

Ken Kasdan is senior and managing partner of Kasdan Turner Thomson Booth LLLC. kkasdan@kasdancdlaw.com

Barbara Laskaris-Lorigan is Vice President – Head of Claims at Golden State Claims Adjusters. barbara@gstateca.com

Allocation of Responsibility in Construction-Defect Litigation

Allocation of Responsibility in Construction-Defect Litigation - by Pete Fowler. An abridged version was published with the title From the Ground-Up: Allocation of Responsibility in Construction-Defect Litigation in CLM's Construction Claims Magazine - Winter 2022

Introduction

Construction defect litigation claims come in all possible project types, sizes, and ownership structures. It does happen that some construction defect (CD) claims are related to a single party, but it’s rare. There are usually multiple parties who share responsibility; sometimes there are dozens. So, the mechanism for allocating responsibility needs to be flexible from a single issue on a small project to more than a hundred allegations, occurring at hundreds of locations, to dozens of parties.

Because allocation is complicated we’ve engineered this process to assign supportable portions of the cost to repair defects and other damages to each responsible party. The process requires thoughtful claims professionals, experienced lawyers with understanding of insurance coverage, experts who understand defect, analysis, and contractual roles & responsibilities, and a detail-oriented team to transform mountains of data into solutions. This article takes the perspective of a key direct defendant team, like a developer or general contractor who was sued by an owner. Our defendant then sues subcontractors, who then sue sub-subcontractors and each other (Figure 1); but the process is applicable for all parties. ”Allocation” is mostly “science,” but critical parts include the “art” of applying professional judgment. This making a sensible list of defects (“issues”) that can be allocated, assigning values to each issue or category, making a list of all possibly involved parties and understanding their role in the project, and assigning justified portions of responsibility for each issue. A real, professional, supportable allocation has a lot of moving parts. There is lots of math, connected spreadsheets, and professional judgment from expert witnesses and lawyers.

Figure 1

Working Backwards

Since most claims settle we won’t address trial or arbitration, although much of the work to support our claims against each party will be used if trial becomes necessary. So we will work backwards from a successful mediation. To succeed in settling a multimillion dollar case with dozens of issues and more than a dozen defendants, the mediator, lawyers, and experts need information that allow them to understand the big-picture, and to drill into details when making their case. (Seeing the forest and the trees.) The culmination of our allocation is a 1 or 2 page, tip of the iceberg, spreadsheet called Allocation Summary with Settlement Ranges (see Figure 2).

Figure 2

This document is typically not shared with other parties. It has a list of all the Players on the left, a column for important Settlement Notes, columns for one or more allocated costs, and two columns on the right for low and high potential settlement amounts. Each column of allocated costs is a separate Allocation Analysis, as described later. 

Figure 3

Analyzing Construction Defects

Expert building investigations include (1.) collecting, organizing, and summarizing a large volume of project data; (2.) preparing for and executing onsite investigations including visual inspections and diagnostic testing that conform with myriad technical consensus standards; and (3.) conducting interviews and reading testimony. The investigation should generate all the data necessary for experts to support their thinking, writing, and presentation of expert opinions that solve the alleged problems. It is conceptually simple, but not easy.

Before allocating responsibility we must analyze each of the issues, considering all alleged locations. Like the Allocation, this is mostly “science,” but some parts include the “art” of applying professional judgment. First, make a 100% list of all issues. Identify where each issue occurs. Consider all locations where they COULD occur, that is, total population vs. allegedly defective population. Decide if issues will be repaired. Answer how defective conditions will be identified. Understand what other parties say about the method of repair. Answer how much the repairs will cost and what other parties say about costs.

(Figure 3) The “Engineered Collection of Deliverables” show Inspection & Testing Data Analysis as a foundation for all further work. It includes detailed inspection and testing photographs, notes, diagrams, and marked-up plans, Inspection Summaries, Testing Summary & Maps, and Testing Analysis Reports. Then experts can compose Reports that range from a couple pages to hundreds. On projects large enough to warrant Allocation, reports typically exceed 100 pages.

The most difficult, lengthy, and important part of a CD report begins with a list of all issues and then the “issue-by-issue analysis” for each. We begin each issue analysis with a plain language summary that everyone can understand. That is followed by a detailed investigation section that summarizes the document reviews, interviews, inspection, testing, and more, that were performed to inform our understanding. Next is the analysis of the Project File. Our analysis often includes composition of images, maps, plans, and other visual aids for communicating this highly technical information. The conclusions for each issue might include a scope of repair, a list of responsible parties (later included in Allocation), or an “allocation by trade” if we do not yet know who did what work and where. Finally, published costs for each issue are summarized.

We sometimes compose Repair Plans & Specifications from the defense perspective. Once we have performed enough work to outline our scope of repair, we begin our Defense Cost Analysis of Defense Scope. Sometimes we have already composed a Defense Cost Analysis of Plaintiff Scope when the plaintiff’s estimate is outrageous.

Allocation Matrix

Figure 4

The Allocation Matrix includes a complete issues list down the left side and the players are across the top (See Figure 4). Each party will have at least two columns: “% Responsible” and “$ Amount.” The $ Amount is a simple calculation of the total cost for that item times the % Responsible. This matrix requires fancy formulas to do the math, including math checks, to make sure there are no errors. This can get complex when there are lots of issues, lots of parties, and is then further complicated when multiple parties work on the same trade in various phases or physical areas.

A simple analysis will have only one Allocation Matrix worksheet. If you want multiple analyses, like when we allocate the plaintiff and defense costs, or to allocate the same costs in two ways as with a joint & several versus a 100% allocation, then the worksheet with issues and players can be copied and populated using the different costs and/or percentage allocation figures. This matrix should be formatted with page breaks to output as Allocation to Party Worksheets, with the total cost and the “%” and “Amounts” columns for each party, usually 1-4 pages. If the issues list is short and can fit on one page, the entire Allocation Party Worksheet can be formatted to print one page for each party. In contrast, we have created Allocations where the issues list was 4 or more pages long; we performed multiple allocation scenarios (plaintiff costs, defense costs of plaintiff scope, and defense costs both joint and several, and 100%); we allocated to dozens of parties, so the Allocation Matrix documents were many hundreds of pages long.

The creator of each Allocation Matrix can create an Allocation Summary sheet: a simplified list of all the parties’ total allocated project amount either linked to the Allocation Matrix worksheet or straight to the Allocation Summary with Settlement Ranges (see Figure 2).

Who - What - Where

For each issue we use the Project File to try to figure out who did what, and where. For example, if the first issue is roof leaks, and there were two phases of construction, do we know who installed the roofs on both phases? For more complex issues like waterproof decks, we might need to dig to figure out the cause of problems and who might be responsible including the architect, engineer, framer, sheet metal fabricator/installer, door installer, waterproofing applicator, tile installer, siding contractor, handrail installer, and the general contractor who was supposed to coordinate all these parties.

As we begin assigning % Responsible in the Allocation Matrix, we often need to make multiple passes across the general and player Project File to prove who did exactly what and where. In some circumstances there will be more than one party that performs work on the same trade, but in different locations. If there are two project phases, one with 2 buildings and the second with 3, all of the same size, then phase 1 is 40% and phase 2 is 60% of the roofing. This is an iterative process. To decide on and support the % Responsible we cycle through the report and the project files multiple times, learning and documenting more and more with each pass. Scope of work and allocation data is often best presented graphically using photographs, diagrams, images, maps, and plans, both in the report and in the individual Allocation-Claim Packages. 

This evidence collected should be memorialized in the issue-by-issue section of the report and/or in the Allocation Claim Package Memo for each player. The organization of this information is important and complex and if it is only saved in the brain of an expert or attorney, then it is a terrible system! Since we are commonly dealing with thousands to hundreds-of-thousands of documents, we rarely have 100% mastery of every piece of data. It is common for other team members or opposing parties to find information that needs to be integrated into our analysis. Some of this new information should change our opinions about the % Responsible; we must remain open to this possibility. 

At this point, we have all of the information we need to complete a Joint & Several Allocation on any of the costs (plaintiff, defense costs of plaintiff scope, or defense scope) since we know who did what work and where. Joint & several liability, to me (a simple construction guy) means that if you are 1% responsible, then you might pay 100%. This is a consumer protection aspect of law that means if there are two responsible parties but only one has the means to make the consumer whole, then the one could end up paying a larger percentage of cost than their percentage of responsibility. We know each state has different laws on this but that’s beyond the scope here. For our roof example, the two roofers would never get more than 100% of the portion of the project they worked on: so 40% and 60% of the total roofing costs, respectively. 

In our deck example we identified 10 parties that could have shared responsibility. If any one of those were the only one with the means to make the consumer whole, then they could end up paying 100%. With this in mind, we could populate the Allocation Matrix with 100% for each of the 10 parties. So yes, this means we have allocated 10 times the cost total for that line item. Depending on the complexity of the issues, the grand total of a Joint & Several Allocation will generally fall between 1.5 and 4 times the total project cost. And yes, that means small players get an out-sized allocation. But, other than the percentage allocation amount (100% to everyone) this output should not get much argument. It’s a supportable analysis of who, what, where, and how much for the entire collection of defect allegations, and does not require much “professional judgement.” 

Professional Judgement

Prior to the Joint & Several Allocation of the Plaintiff Estimate, we usually “normalize” the cost analysis of parties to make the allocation clearer: each defect has a “total burdened” cost that will be allocated across the responsible parties. To allocate all of the costs to all the issues (in the left-most columns of the Allocation Matrix), the Total Cost needs to include direct costs, indirect costs like general conditions, overhead, profit, and other project costs including design, permits, third-party management and inspection, alternative living expenses, etc. Attorney fees and other litigation costs need to be handled somewhere. We prefer them as separate line items outside Total Cost column. This requires professional construction cost estimating expertise, good judgement, coordination with the lawyers to make sure everyone knows what is and what is not included, and a couple decades of CD experience helps. 

After all of the above, we can make “% Responsible” (allocation) judgements for a “100% Allocation” (not 99%, not 101%) for each issue, and feel confident that we have the evidence to argue persuasively. The “science” part of an allocation is figuring out who MIGHT have 1% or more responsibility. The “art” or professional judgement part is where we decide who is more and less responsible, like when we have assemblies like the waterproof deck described previously. 

For the most complex and expensive issues we perform what we call a “Contracting 101 Analysis” of the roles and responsibilities of each party by looking at both the physical construction, performance, and damages, as well as the project specific contractual obligations and industry “standards of care.” From our deck example: architect 5%, engineer 0%, framer 10%, sheet metal fabricator/installer 5%, door installer 10%, waterproofing applicator 25%, tile installer 20%, siding contractor 5%, handrail installer 10%, and the general contractor 10% (Total 100%). When presented to the parties, this is where the wailing and gnashing of teeth gets loud. In mediation, when a party argues that their responsibility on any issue is less than my analysis, I invite them to go discuss it with the other parties allocated on those issues. If they can work out the percentages amongst themselves to redistribute my 100%, then I will consider it (They never like this answer ;-).

When the Allocation Matrix is set up correctly and each of the issues is allocated to the various parties totaling 100%, then the allocation totals to all of the parties should add up to the Total Cost column at each issue and at the total on the bottom line. 

At the conclusion of allocating, by any one or more methods (plaintiff or defense, joint & several or 100%) the totals for each player can be linked to the Allocation Summary with Settlement Ranges worksheet (Figure 2). Then the team can consider, party-by-party, Low and High Settlement Ranges (left most columns) based on the overall project settlement value. This is, in allocating responsibility, the ultimate act of applying professional judgement.

As everyone can imagine, the discussion and arguments of % Responsible for each issue, and for each player being allocated to, can go on for much longer than we have room for here, by attorneys, experts, insurers, and the defendants themselves. And we here have dramatically simplified this work by only touching on the issue of insurance coverage. The resolution is sometimes only concluded by a judge or jury.

Making a Case

We have done a lot of work, but there is little value until we make a compelling argument to the people we expect to help pay for a settlement. Much of the work described here gets compiled, party-by-party in individual Allocation-Claim Packages, that are described in Figure 3. To make big, supportable claims, we need to collect evidence that can be evaluated by the parties. The more plain language and graphic intensive this package is, the better. Small players can have smaller packages but big player packages need heft. Sometimes we compile a package for a major player and realize that in order to help other players make good decisions, we need to dig back into the project and investigation files to add additional information. (This is true for both plaintiffs and defendants.)

When mediation happens, the time to perform has arrived. In a large CD case, there are always surprises. If we have worked the way we have recommended here, the team will be ready. So much so that we often update an Allocation Matrix, Allocation-Claim Packages, and Allocation Summary with Settlement Ranges worksheet from a laptop during mediation.

Conclusion

Connecting all of the moving parts of a complex litigation matter requires organizational skill, technical expertise, and the willingness to apply professional judgment that people from opposing parties will argue with. It’s not for the faint of heart. The bottom line is that Allocation is complicated. The science has been “process engineered” here. The art of professional judgement is always going to be a big part of any complex litigation and can only succeed when smart people do hard work. When we do the science and the art, good information emerges that allows smart people to make smart decisions to help tough cases get resolved.

Leading Out Loud: Construction

Leading Out Loud: Construction- an interview involving Pete Fowler

Published in CLM Magazine

Question 1: We have seen some impressive advances recently in the technologies used in forensic investigations. How have organizations refined these technologies to conduct even more thorough investigations and better serve clients?

Answer 1 (Pete Fowler): This question almost makes my head explode, because in addition to my B.S. in construction management, I have a minor in information systems, and I spent much of the last 25 years building a magical proprietary information system where everything is connected to everything, with the specific intent of making it easier for us to serve clients better, faster, and cheaper. For example, we set up every project in our cloud-based system, conduct onsite investigations using a smart phone application we built, upload high-resolution photos, and make them available to clients via password-protected client access, along with every other document we receive or create. All data integrates into our analysis and reporting seamlessly, and it’s all saved forever, for no additional cost to clients. Along this same line, I recently co-authored an article in Construction Claims Magazine called “Information Overload: In Construction, New Data and Technologies Are Everywhere. How We Use and Process It All Matters.” We address many of the technologies we are seeing in claims, including building information modeling (BIM) and other design tools, proprietary and commercial file and project management applications, and a multitude of imaging technologies, including enhanced PDFs, Matterport, and drones.

Question 2: Have there been any surprises with the investigative tools and technologies developed—perhaps a technology or technique that is yielding unexpected benefits in forensic investigations?

Answer 2 (Pete Fowler): Hands down, Matterport is the surprise winner in construction claims. They say their technology creates “...an immersive digital twin.” It is a proprietary camera+software combination that gained popularity in the real-estate industry for allowing creation of virtual walk-throughs online. For construction, and especially claims, Matterport is a tool to document the conditions of a property at a given point in time. Of course, the camera is expensive, and it requires specialized training and a subscription, so widespread use is not likely. For projects that are halted for some reason, Matterport is perfect, because we can capture almost every inch of a building’s interior at the rate of approximately 1,000 square feet per hour. This is far faster than a thorough forensic investigation can be executed, and the ability to “walk-through” afterward allows us to gain insights that we might miss by only taking photos.

Question 3: Has there been a shift in types of construction lawsuits you are seeing this year, and, if so, what is driving that shift?

Answer 3 (Pete Fowler): Unfortunately, we are seeing a lot more injury claims; in particular, those that have resulted in death. It’s tragic. Often, these claims come from lesssophisticated parties, including unlicensed contractors, and many of the victims are undocumented immigrants. Of course, we never know if our project experience is related to general market trends or to our specific expertise or niche in the marketplace.

Question 4: Given some of the challenges facing the construction industry today, what is the best advice to construction firms for avoiding claims and litigation in today’s landscape?

Answer 4 (Pete Fowler): The ABC’s of risk management: Avoid the most dangerous situations. Be really good at what you do. Cover your assets with excellent contracts by smart lawyers and appropriate insurance coverage from smart brokers. Further, focus on high-risk building elements, especially any system that carries or should manage water in, around, or through the building. Apply tried-and-true quality management and continuous process improvement tools, including Lean.

The Tangled Web of Hybrid Construction Contract/Defect Claims

The Tangled Web of Hybrid Construction Contract/Defect Claims - by Pete Fowler, Robert C. Carlson, Barbara Laskaris-Lorigan, and David C. Veis. Published in CLM's Construction Claims Magazine - Summer 2022

At first, things were going swimmingly.

The new apartment building was well-received by politicians and neighbors. It would add 60 desperately needed apartments to the city’s housing stock, with amenities locals wanted and rents they could actually afford.

Financing was secured fairly easily. The developer, a legend in his own mind and well-known for his bare- knuckled business tactics, chose an up-and-coming, woman-owned general contractor to lead construction. The developer selected her, in part, for publicity purposes—and it worked. The many articles about the project referred to the general contractor being woman-owned, which, of course, made the developer look good.

The general contractor, in turn, hired a diverse group of subcontractors, most of which were minority- owned or woman–owned. Given these subcontractors and their stories, media interest in the construction project was high.

Construction started on time—after, of course, the well-attended “breaking ground” ceremony—and was going according to plan, at least at first. Sure, the construction timeline was aggressive, but it wasn’t the kind of timeline the general contractor and subcontractors hadn’t seen before or couldn’t tackle.

As the project approached completion, the tone of communications from the developer became less friendly, and response time to RFIs (Requests for Information) and Change Order approvals slowed noticeably. This was a problem because everyone knew from the beginning that the plans had been rushed and required continuous clarification. This was all despite nothing but glowing reviews from the developer and his team early in the project as to the quality of the general contractor’s and subcontractors’ craftsmanship.

The subcontractors—many of whom were “mom and pop” operations—complained to the general contractor about the slowed payments and having to perform work out of sequence due to the lack of information from the developer and his designers. The general contractor’s team did all they could to keep the project moving forward toward completion.

Finally, the general contractor began considering options. She carefully read the language of her contract with the developer and it appeared she had a cut-and-dry breach of contract claim; it was clear about the payment application process and requirements for all parties and the contractor had been careful to comply. But still, the payments, as well as needed information and change approvals, were delayed further and further.

With subcontractors slowing their work and threatening to quit for nonpayment, and her colleagues concerned about their company’s cash flow, the general contractor hoped to resolve these issues promptly—and without filing a mechanic’s lien or hiring expensive lawyers. She got advice from a long- time friend and personal lawyer, who had also helped with her divorce, to compose a short but politely stern email to the developer.

The developer's response a day later shocked her. “I’m not paying a cent until you and your subs fix the many defects my team has identified around the building, including issues with the foundation, windows, and decks,” the developer said. The contractor sighed and shook her head.

Little did she know, she had just been sucked into a recently evolved type of construction dispute: the hybrid construction contract/defect case.

Hybrid construction contract/defect cases are complex construction disputes because of the cast of players involved

If you’ve been in the construction industry for longer than five minutes, you or a client have likely been involved in a legal dispute over a general contractor or subcontractors not getting paid by a property owner/developer. Nonpayment claims of this nature are common in the construction industry—from the small artisan level to high-end sophisticated residential and commercial projects. These types of cases, while contentious, are fairly straightforward and predictable breach of contract cases.

Same thing goes for construction defect cases. While slightly more complex than breach of contract cases, most defect cases follow well-worn paths toward resolution.

But when these two kinds of cases intersect in the course of a single legal dispute—typically when a property owner/developer claims there are construction defects and tries to use those defects as leverage against a general contractor’s or subcontractors’ claims of nonpayment against them—they morph into a combined complex case with no clear paths to a fully favorable resolution for any of the parties involved.

You can chalk up the complexity of these hybrid construction contract/defect cases to the parties themselves and the third parties that get pulled into these disputes, such as insurers and surety companies. Not only do these players have divergent interests that occasionally align, but there can be an emotional component to these cases. Owners/developers, general contractors, and subcontractors tend to get worked up when they’re not getting what they want and are convinced the other parties are to blame.

Here are the cast of players involved in these hybrid cases, and how they add to the complexity of resolving the underlying claims.

Owners/Developers

Often, when faced with an accusation of nonpayment, an owner/developer will claim they did not pay the general contractor because the contractor and subcontractors were not hitting construction milestones on time. Their position will be that they would have had no trouble paying the general contractor promptly if they were running on schedule.

But by alleging a construction defect claim, an owner/developer can reposition their nonpayment as justified by defects, and attempt to offset the general contractor’s or subcontractor’s nonpayment claims. And as if their defect claim didn’t shake things up enough, an owner/developer is likely to get emotionally worked up over the fact that, allegedly, the general contractor is ruining their “vision” for what they’re building. Their emotions will also run high if an unpaid general contractor or subcontractor files mechanic’s liens against them. A surety bond might provide some temporary relief from the threat of foreclosure brought about by the liens, but it is still an obligation an owner/developer will be responsible for—and it will not cool off their heated emotions. The owner/developer’s emotions will probably spell trouble for attempts to resolve these claims promptly and reasonably.

General Contractors

General contractors are often stuck between a rock and a hard place with these hybrid claims.

On one hand, they must stay in the good graces of the owner/developer. On the other hand, they will want to stay in the good graces of their subcontractors.

This is a delicate balancing act. For example, their contracts with their subcontractors may provide bases for not paying them, such as when there are potential defects, or the contracts may require the subcontractors to indemnify the general contractors from mechanic’s liens. General contractors have to decide whether it is in their best interests—in both the short term and the long term—to hold their subcontractors’ feet to the fire when it comes to these contract terms or an owner/developer’s questionable defect claims. The general contractor will want to think twice about continuing to not pay their subcontractors or blaming them for the alleged defects. That’s because treating their subcontractors poorly could lead to big problems down the road with future bids.

But at the same time, general contractors will be feeling the heat from an owner/developer who refuses to budge, both about not paying the general contractor and their defect claim. Continued nonpayment will cause serious business problems. And if a mechanic’s lien is filed against them, they may need to secure a surety bond guaranteed by their commercial property or personal residence. At the same time, they could still be on the hook for a defect claim given the particular facts of the dispute.

Subcontractors

Interestingly, in these hybrid cases subcontractors can wield a lot of power. But they also stand to lose big.

In some states, like California, subcontractors have a constitutional right to be paid for their work, and to be paid promptly. In some states, again California being one of them, subcontractors may have a right to payment for their work even when the general contractor who hired them has not been paid. If you combine these legal rights with a subcontractor’s ability to place a mechanic’s lien on the property of an owner/developer or general contractor, it would appear a subcontractor is in a strong bargaining position in these cases.

But upon further review, that position isn’t as strong as it seems. For one, not all states have laws as favorable to subcontractors as California’s are. Second, depending on the nature of a subcontractor’s contract with a general contractor, the subcontractor may not have a legal basis for demanding payment before the general contractor receives payment. Third, many subcontractors are small operations with tight margins and without much money in the bank. They may be forced to represent themselves in these disputes, or hire an attorney whose fees could eat up any payments the attorney secures. Finally, if the alleged defect pertains to their work, they could lose any favorable bargaining position regarding the nonpayment claim. For these reasons, many subcontractors will have to resign themselves to the fact that they may only receive pennies on the dollar in these cases for the work they’ve performed.

Attorneys for the Parties

In construction litigation, there are two types of attorneys: those who practice construction law full time, or at least some of the time, and those who do not. The latter type adds complexity to these hybrid construction contract/defect claims.

It is not unusual for parties to these hybrid claims to be represented by their personal attorneys or their business attorneys. That’s a good thing if those attorneys are well-versed in construction law. But it’s a bad thing if they’re not—and most of the time they’re not.

If attorneys for the parties have litigated construction contract or defect claims before, they’ll be familiar with the construction business, the mindsets and motivations of the players involved, the general fact patterns that give rise to these claims, settlement values, and the reasonable concessions the parties should expect to make in order to resolve these claims. If they haven’t litigated these claims frequently, or ever, not only won’t they be familiar with how these claims are litigated, they’ll likely attempt to pursue common business litigation strategies—such as a drawn-out discovery phase where every email ever sent by any party is meticulously reviewed—that will delay the resolution of the dispute and drive the cost of litigating it through the roof.

Insurers

Like the other players, these hybrid cases put insurers in a tough spot. Normally, insurers would not be involved in construction contract claims. But in these hybrid cases, the insurers and their counsel are pulled into the dispute thanks to the allegations of property damage. Because an insurer’s duty to defend is broader than its duty to indemnify, it will likely be a participant in resolving the dispute no matter how questionable the owner/developer’s defect claims might be.

Knowing that insurers will be involved in settlement discussions, owners/developers may try to play up the alleged property damage knowing that is the only way insurers will contribute to the settlement fund. Insurers and their counsel, wise to this game, will likely focus on the economics of any resolution and make sure they aren’t left holding the bag for what is primarily a breach of contract claim.

Surety Companies

Finally, a surety company and its attorney will be in the background, doing everything it can to avoid exposure to loss and, if it cannot avoid loss, trying to minimize it. The surety will be monitoring the dispute because it will be indemnified by the owner or the general contractor if it has to pay the mechanic’s liens placed on either’s property. That said, sureties typically aren’t heavily involved in the resolution process of these cases. Even so, their mere presence puts pressure on the owner or general contractor because they know they’re on the hook for indemnifying their surety if they cannot come to an agreement about resolving the nonpayment and defect claims.

Easy to initiate, but hard to resolve

In these hybrid cases, an owner/developer could use even the smallest possible construction defect to turn a basic construction contract dispute into a complex hybrid contract/defect dispute. When they do so, they’re transforming a relatively straightforward legal dispute into a more complex one because of the number of players in these cases and their competing and complementary interests.

Unfortunately for the owners/developers, contractors, and subcontractors involved in these hybrid cases, rarely are there any true winners. The nature of these claims often result in the parties taking a bath in one way or another. The owner/developer will need to pay some amount to their general contractor, the general contractor will need to pay some amount to their subcontractors, and the amount the subcontractors receive will likely not be close to 100% of what they’re owed.

But as anyone involved in construction litigation knows, often the most fair settlements are those that none of the parties are thrilled with. And with these hybrid cases, rarely are the parties thrilled with the settlements that end the dispute and resolve the underlying claims.

Robert C. Carlson is a founding partner of Koeller Nebeker Carlson Haluck, LLP. carlson@knchlaw.com Pete Fowler is the founder of Pete Fowler Construction Consultants. pf@petefowler.com

Barbara Laskaris-Lorigan is Vice President – Head of Claims at Golden State Claims Adjusters. barbara@gstateca.com

David C. Veis is a partner at Robins Kaplan LLP. dveis@RobinsKaplan.com

Building Investigation Basics

Building Investigation Basics - by Pete Fowler. Published by The Journal of Light Construction in 2021

For each investigation, the author documents the project location using satellite and street views on Google Maps. These images can be useful communicating the issues and location for other parties involved in the project.

At Pete Fowler Construction, we work on hundreds of projects every year, and most of them have expensive problems. Our work includes sin- gle-family homes, skyscrapers, hospitals, factories, highways, and everything in between. In addition to being hired for our traditional services, which include inspection and testing as well as quality and construction management, we are hired to help clients understand the technical issues and costs of insurance claims and litigated matters related to buildings. We regularly testify as expert witnesses, so our work is scrutinized by lawyers who have an interest in making us look bad. What some people call an “inspection,” we call an “investigation.” Inspection is too passive for what we do; we proactively seek understanding and document this work in a forensic and professional way so it can be presented in a court of law.

THE OBJECTIVE

The following Investigation Checklist is designed to translate what we have learned from 25 years of experience helping building professionals (in- cluding architects, engineers, contractors, and property managers) as well as non-technical peo- ple (such as owners and tenants) conduct an effec- tive investigation and document the observations in a systematic, usable way. If you are composing an RFP for maintenance or repairs, or you have an insurance claim, a catastrophic event (leak, storm damage, and such), a construction dispute, a landlord-tenant dispute, or any other need to document a building, this process can be used as your general investigation procedure.

The investigation documentation, which will include photos, notes, and diagrams, and maybe even material samples, should give an overall feel for the situation. Ideally, the documentation will tell a complete story that is easily understood by all, and upon which opinions can be based.

Naturally, no one article can address every situ- ation that could be encountered. So, as in so many situations related to building problems, you'll have to stop, think, and apply judgment.

An “issues list,” such as this example used on the repair of a condominium with roofing, stucco, and concrete problems, serves as a guide for the investigation team to gather photos and documents on each item.

THE INVESTIGATION CHECKLIST

This checklist is divided into three parts--before the project be- gins, during the project, and after the project has been completed.

BEFORE

• Choose a device to take good quality photos; usually a smart phone, but a digital or even film camera will work just as well.

• Find a way to store and send the photos that memorializes the investigation and preserves the quality of the photos; that is, don't email them in a small file size. Consider Dropbox, Google Drive, or a similar service.

• Gather paper, a pen, and colored pens or markers.

• Have a tape measure and a small measuring device, like a pointer or gauge.

• Collect construction drawings, if available, to mark up during inspection to show where an issue is located.

• Assemble other graphic aids like site plans, floor plans, building elevations), or documents like brochures from the time of sale, an appraisal report, etc. to mark up during the investigation.

• Collect and use images from tools like Google Maps and Google Earth. If possible, print these and mark locations on them. For example: If the problem is with the roof, driveway, or something in the backyard, an aerial image from Google or Bing with an indication of where the investigation is taking place can be an amazing aid in helping others understand the situation (see examples, scroll to the top).

• Collect the information necessary to make a list of people involved and a timeline or a list describing the service history (see example above), or collect the information so someone else can create these lists.

• Prepare an "issues list" (this includes problems, complaints, damages, etc.) and print for use during your investigation to guide your photographs and documentation. Be sure to organize this information in a sensible manner for later review (see example, document below).

• Establish a pattern for how the building will be inspected. When photos and notes are taken, they should follow a logical pattern that someone other than the inspector can understand. For example: front yard and elevation, the right side of the house, back of the house, the left side of the house, etc. and then move to the interior. Begin with the foyer and move in a counterclockwise direction throughout the house.

• Consider creating a list of rooms. Create this list in the order you will be investigating them.

DURING

• Begin your investigation notes by writing your name, the date, street address, city, state, and any other basic information on paper and take a photo of this piece of paper. Make this the first photo of your investigation. If multiple units are being inspected, make sheets for each unit and take a photo of each sheet at the beginning of each unit’s investigation.

• At the beginning, perform an initial walk-through of the property without taking any photos. Update your “issues list” with any additional problems you notice.

• Interview anyone who knows about the situation being documented and take detailed notes including their name, contact information, and a chronological list of important information discussed during the interview. Don’t rely on your memory. Write everything down.

• After your walk-through, take photos of the building’s exterior and surrounding area. Within the first few photos, it should be perfectly clear whether it is out in the country, in the city, or somewhere in between.

• Take an overall photo, a semi-detailed photo, and a detailed photo of each issue (in general, at least three photos per issue). If some areas don’t have issues, take one or two general orientation photos of those as well.

• Include a measuring tape or gauge in photos to give an idea of the size of the issues being documented.

• Take as many photos as necessary to clearly document the building and issues.

• Photos should follow a sequence:

  • Site address and general area.

  • Issue-specific photos (overall, semi-detailed, detailed).

  • Photos of notes, sketches, or marked-up drawings.

• Take notes for every area being investigated. Sometimes the issue is better explained by the notes than the picture. Note dimensions and measurements when necessary or helpful.

• Draw sketches and diagrams even if you’re bad at it. A picture is worth 1,000 words, and a diagram or sketch can be worth 1,000 pictures. Include dimensions of what’s being diagrammed.

• Make marks on any visual aids that were collected before the inspection (like Google Maps images) to identify where issues are occurring. Use colored pens or markers to make notes and markups easy to see.

• Put a page number, date, and the inspector’s name on every page, sketch, and diagram.

•  Inspect like you’re the only investigator who will ever have access to the property. If you don’t document an issue, it will be hard to prove to someone who wasn’t there. Photos may not explain the whole issue, so write notes that will explain the photos.

• At the end, update your “issues list” again to make sure it includes 100% of the problems.

• Go through the “issues list” and use it as a checklist to make 100% sure you didn’t miss anything that needs documenting.

AFTER

• Take a photo of each page of inspection notes, sketches, diagrams, and marked-up visual aids.

• Once the inspection is complete, organize and number the photos, notes, sketches, and diagrams in a sensible manner.

• Make sure photos are oriented properly.

• Suggested organizational scheme:

  • Photo of paper with your name, date, street address, city, state, and any other basic information.

  • General area photos (neighborhood, site, yard, outside of building).

  • Photos of issues (from general to detailed for each respective issue).

  • Photos of notes, diagrams, and sketches.

• Download the photographs from the camera or smart device into a program like Dropbox or Google Drive and number them in the order that they were taken.

• Write a brief summary of what is happening with the

  building. Keep this as fact oriented as possible. It could be as simple as a bullet list of what was observed during the inspection.

• Update the original “issues list” to make sure it includes everything you discovered during the inspection.

If you follow these steps, you will greatly increase your chances of doing a great building investigation. Some of the graphic examples included with this article are from a project that went to trial—and we won! When collecting your examples, keep in mind that other people should be able to understand what is going on from the photos, notes, and diagrams without having to physically visit the property. Too few photos won’t tell the whole story; too many photos will make it hard to identify what the real issues are. Preparation and organization are critical. The better you understand what is going on and the more prepared you are to communicate the issues, the easier it will be for others to understand your investigation data.

Pete Fowler is president of Pete Fowler Construction Services, which provides building inspection and testing, estimating, quality assurance, and construction management, as well as claims and litigation support, for construction professionals throughout the U.S.

Construction and the Supply Chain: A Look at how recent supply chain issues have affected the construction industry

Construction and the Supply Chain - Published by CLM Magazine on December 13, 2021

The Experts:

Lisa Unger, Principal, Unger Consulting and Insurance Services

Pete Fowler, President, Pete Fowler Construction Services; and Construction Consultant

QUESTION: What is the current state of the supply chain disruption?

Lisa Unger: Supply chain issues became apparent during the lockdown and continue to have the attention of many across the globe. Currently, the world is not only grappling with ways to find a “new normal,” but also to find ways to return to its pre-COVID existence. Interestingly, statistics have shown that, even before COVID, homebuilders found themselves facing challenging times.

Since 2008, evidence supports that construction projects across the board began to decline. Unfortunately, just as the industry started to regain momentum, it was faced with the worldwide spread of the COVID pandemic. This modern day challenge has wreaked havoc on all aspects of the construction industry, from initial planning to implementation to ultimate delivery.

Shortages in materials such as wood, steel, copper, and resin have all contributed to the supply chain logjam. Adding further complications, there are multi-dimensional roadblocks worthy of note. The construction industry has been forced to face the skyrocketing cost of materials, plagued with delays in production and unforeseen delivery stagnation, ultimately inflating price and negatively impacting the bottom line.

Pete Fowler: Detailed, advanced planning had always been what separated the best contractors from the rest. Because of the current supply chain issues, planning far in advance has become a make-or-break requirement. From the beginning of my career, we could reliably source virtually any material and product, or their functional equivalent, at relatively stable prices. No longer. Fixed price and completion date guarantees are harder to come by than ever. From a construction cost estimating and planning perspective, projects are now more expensive and taking longer.

Q: How do you see the supply chain bottlenecks being opened?

Fowler: In a word: slowly. The big interconnected machine that the world economy is today, it seems to me, is going to take a long time to get back to normal. My hope is that the additional planning discipline required, due to these trying times, stays with the construction industry as a “new normal.”

Unger: While supply chain issues remain unpredictable and severe, implementation of change—forced or organic—has created opportunities for outside-the-box thinking. With the goal of achieving pre-COVID productivity, economies around the world are still being resuscitated. Many non-conventional solutions are being sought as workarounds for the supply chain chokehold.

Companies have been forced to focus on supply and demand planning, creative inventory optimization, automation, and technology to curt both the short- and long-term effects of COVID-19 and supply chain issues. Furthermore, these issues have provided unforeseen opportunities for the maximization of technology and the advancement of the construction community as a whole. In order to predict success, we cannot just focus our eyes forward, but must also keep a glimpse of the pitfalls by way of a rearview mirror. This will allow construction businesses to build flexibility, lessen disruption, increase responsiveness, and enhance risk management as action plan initiatives. By taking some of the proactive and immediate actions, there is great potential that risk can be decreased, mobility increased, and operations in the construction world returned back to optimized with respect to productivity and results. 

Insurance Basics for Construction Professionals

Insurance Basics for Construction Professionals - by Pete Fowler. Originally published by The Journal of Light Construction in 2021

In Construction, a Good Broker May be More Valuable Than a Lawyer

If you are a construction professional, you are at risk, and every step of every job presents risk that has the potential to bring harm—be it financial or bodily—to yourself, your loved ones, your staff, your clients, and the public. Insurance can cover this risk, but you must not do this alone. If you don’t consider your insurance broker a key advisor, read this article and then go shopping for an insurance broker who can help you understand what you need to do to protect yourself and your business.

For the last 20 years, my company—a construction services firm conducting traditional building inspection and testing, estimating, quality assurance, and construction management services—has worked on hundreds of building claims and litigation matters, including expert witness testimony. We have been hired to analyze the liability of thousands of project players. These are examples of some cases we have worked on: 

• A general contractor performed a whole-house interior and exterior remodel, using more than a dozen subcontractors. The owners were dissatisfied and refused to make the final payment, so the general contractor sued the owners. In response, the owners hired a lawyer and a team of experts to examine the project and find every conceivable variation from perfection, and sued the general contractor for construction defects, claiming a cost to repair of more than 100% of the original contract price. The general contractor, in turn, sued every subcontractor who worked on the elements of work in the defect claim. We have worked on so many of these cases, the sequence of events is like a proverb. 

• A condominium owner hired a general contractor for an interior remodel. The general contractor hired a plumbing subcontractor who was using a torch and lit the building on fire. The condominium association’s insurance company paid to make repairs to the common area, and then pursued both the general contractor and the plumbing subcontractor for reimbursement of the claim paid. 

• An employee of a scaffolding sub-subcontractor, hired by the siding subcontractor, fell and was gravely injured. Since the employer had the required workers’ compensation insurance, the injured worker was unable to sue his employer, but he was not prohibited from suing the siding subcontractor who hired his company and the general contractor. The general contractor’s insurance company hired a lawyer, who hired us to investigate and explain the roles and responsibilities of the various parties, in sworn testimony.

Count yourself lucky if you haven’t been involved in a similar case. But even if you have escaped this misery, you need to ask yourself now, What would I do, if I were a player in one of these scenarios? More importantly, you need to be insured for any of these scenarios. It’s not a matter of “if” anymore, it’s “when.”

In this article, I’ll go over the basics so you have some background to ask the right questions when shopping for an insurance broker, as that’s what you need to do if you don’t already have one who is looking out for your interests.

Toward a Risk Management Plan

As a construction professional, you’re in the business of risk management. Now, let me be clear: Risk management is an enormous topic. It can be an entire profession, so a one-minute summary here won’t begin to explain all that you need to know ... but it’s important that you begin to think about being prepared to do exactly what the term says: manage, not just take, risks.

Risk management is the process for identifying, assessing, and prioritizing risks so they can be understood and addressed proactively. Risks in construction are immense; they range from something like fire, or a fall causing an injury, to a construction defect lawsuit.

Risk management allows businesses to understand and prepare for the unexpected by avoiding problem situations or minimizing risks and planning for extra costs before they happen. Every business faces the risk of unexpected, harmful events that can cost the company money, or even bankrupt the owners and business. There is no way to avoid risk entirely. But being aware and prepared with a thoughtful risk management plan can not only save businesses money, it can protect a company’s public image, while potentially preventing injuries and accidents by keeping safety top of mind. Most risk management strategies include the use of insurance.

Types of Insurance

All professional business owners and managers should know the options and requirements for different types of insurance. Sure, there are people like agents and brokers who will help businesses find and decide on policies, but having a big-picture understanding of these common types of insurance is helpful in making wise decisions. The business owner or manager has to make a judgment about how much insurance to carry based on their “risk tolerance.” Here’s a summary of the most common types of insurance in our industry.

Workers’ compensation insurance, also known as workers’ comp, is a type of business insurance that provides benefits to employees when they suffer from work-related injuries or illnesses. This insurance will help cover missed wages, medical expenses, vocational rehab, and death benefits from a compensable workplace injury to a covered employee. It not only helps employees but also protects businesses from lawsuits and keeps businesses compliant with state regulations. Generally, if an employee is entitled to workers’ comp, they can not make a claim against their employer.

Nearly every type of employer in all states in this country is required to have workers’ compensation insurance. Some states even have laws that require general contractors to actively make sure and document that every person on site, including the employees of subcontractors, are covered by a workers’ comp policy.

Commercial general liability (CGL) insurance provides coverage to a business for bodily injury, personal injury, and property damage caused by the business’ operations, products, or injuries that occur on the business’ premises or work sites. Commercial general liability can help protect a business from losses due to third-party bodily injuries, third-party property damage, reputational harm like libel and slander, and advertising injury (when another business claims your advertising looks too much like theirs). This type of insurance can help cover the cost of legal teams to represent your business, witness fees, evidence costs, judgments, or settlements. These policies are not for professional errors or omissions, only for “resulting or consequential damages” to the property or people, which includes claims like costs for lost profits and revenue. It is not required by law for all businesses to carry this type of insurance, but many administrative rules by state agencies overseeing the construction industry require construction contractors to have CGL insurance.

Builders risk is a special property insurance that covers damage to a construction project during the course of construction. Because every construction project is different, no two builders risk policies are alike. Generally, most builders risk policies cover property losses due to fire, lightning, hail, explosions, hurricanes, theft, vandalism, and many other risks. Exact coverages and limitations can vary greatly depending on the provider, and additional coverages can be added for extra expense, such as delay in opening, soft costs, extra expense, and loss of rents.

Umbrella coverage is a form of supplemental liability insurance. It protects the insured against claims that go beyond the existing limits of their other insurance policies, in particular CGL, auto liability, and employers’ liability section of a workers’ compensation policy. These policies usually do not pay until all other policies have been exhausted. An umbrella policy is not the same as an excess policy, but the differences are far beyond the scope of this article.

Errors & omissions (E&O) insurance is professional liability insurance. This coverage is to protect companies and workers from lawsuits that claim mistakes were made in delivering professional services or inadequate work. It is designed to help protect businesses from negligence, errors, omissions, misrepresentation, violations of good faith, inaccurate advice, and injuries like libel and slander. It can help cover court costs, attorney fees, administrative costs to build a defense, and settlements. Architects, engineers, doctors, lawyers, and other licensed or registered professionals can buy these policies. In general, these policies are not available to construction contractors unless they are doing design work, in which case they can purchase contractor’s professional liability insurance to cover professional services such as value engineering, schedule coordination, and design-build services.

Wrap up insurance is a method of insuring multiple parties (typically, owner, contractor, and all subcontractors) participating in multimillion dollar projects to ensure they all have the same broad coverage, limits, and claim response. There are two types of wrap up insurance: owner controlled and contractor controlled.

The owner-controlled variety is set up by the owner of a project to benefit the builder or contractor and covers all listed contractors. Contractor controlled is set up by a general contractor to extend coverage to all contractors and subcontractors. The structures of wrap up programs vary widely, but they almost always cover general liability and umbrella liability for all contractors participating at the project site. They can also include workers’ compensation, builders risk, pollution liability, and professional liability. While wrap up insurance programs are most frequently used for large, single-site projects, a blanket or rolling wrap up can be used to insure multiple projects under one program. These policies have become popular in development projects, in part because common CGL policies typically exclude work on certain types of projects, including multifamily, that are common targets for construction defect litigation.

Conflict during construction defect claims is quite common, so successful wrap up policies are possible only when the insurers, sponsors, and participants recognize the value of a group approach and commitment from all concerned. This often requires a more cooperative approach to claims than the parties may be used to. Without such cooperation, the parties involved are back to only individual policies and adversarial claims.

Self insurance is a system in which a person or business sets aside an amount of money to cover any losses that may occur. When people or businesses consider losses they can afford to cover, self insurance may save money since they won’t be paying a premium. This route requires retention at their own cost instead of having it insured.

No insurance is when a business refrains entirely from insuring against risks.

Roles and Responsibilities

Making an informed decision with the help of a trusted and super- knowledgeable advisor is the right thing to do; making your own decision based on your own knowledge and experience is unwise. Everyone has a role to play when it comes to insurance. Here are the basics.

Insured. The insured is the person or company (contractor, designer, and such) covered by the insurance policy and is usually the one who paid “the premium” (the cost of the insurance). The insured’s responsibilities begin with choosing and securing the right advisors. There is plenty of variation in coverage and policies, each of which may have its own definition of the insured’s duties. These should be thoughtfully reviewed, as a breach of these duties is a breach of contract. A thorough understanding of the policy and what is expected is a critical first step. Most of these duties will include notifying the insurer of a loss or claim, or even a situation that may result in a claim. Responsibilities can also include honesty and cooperation with the insurer throughout the investigation process and proof of loss. In the same way that construction professionals should read work contracts they sign, they should sit down and read the insurance contract. If the insured is also the policyholder, it is their duty to pay the policy premium.

Agent. Agents act as the go-between for the insured and insurance companies. Agents specifically act as representatives of insurance companies. They sell policies on behalf of insurers and may work for a single company, or they may be independent and represent multiple companies.

Broker. Brokers represent the insured. They do not work for insurers directly; rather, they solicit quotes or policies from insurers on behalf of the insured. Construction is a risky business and a good argument could be made that a great insurance broker is more important than a great lawyer.

Underwriter. Underwriters approve or renew applications for insurance coverage for individuals and businesses. They evaluate and assume the risk of future events and charge premiums in return for a promise to reimburse the insured party in the event damage occurs. Underwriters typically work for the insurance company.

Insurance company. Insurance companies offer risk management in the form of insurance contracts. When they receive an application for a policy, they look at the perceived risk and decide whether the policy will be issued or denied. If the policy is issued, the insurance company or insurer guarantees payment for an uncertain future event.

Attorney. Finding a great attorney using basic due diligence is a must for business success. They are like a priest to whom you confess your sins, and they are like a wonderful mentor you can call when you’re not sure of yourself. A lawyer experienced in your type of business should be on retainer, and you should call and ask them questions at least a couple of times a year.

Coverage Basics

There are few hard and fast rules, so anyone who thinks they know what is covered and what is not without reading the text of the policy is foolish. Even when you have read the policy, you still don’t know for sure. The arguments are so nuanced and the language so arcane that we sometimes don’t know for sure until a judge or jury tells us what’s covered.

Contractual risk transfer. Contractual risk transfer is a non-insurance contract or agreement between two parties where one agrees to hold another party harmless for specific actions, inactions, injuries, or damages. The ideal use of contractual risk transfer is to place the financial burden of a loss on the party best able to control or prevent the incident leading to injury or damage. These contracts should be as specific as possible, detailing scope of work and any financial burden should loss occur. They are accomplished using indemnity agreements, additional insured endorsements, and subrogation waivers (refer back to “Types of Coverage,” above). The most common example of a contractual risk transfer in construction is an indemnity agreement as a clause in prime subcontracts.

Indemnity agreements. Indemnity is a contractual agreement between two parties where one party agrees to pay for potential losses or damages suffered by the other party that arise from the first party’s performance of work as required by the contract. These can be seen in many insurance contracts where the insurer (or the indemnitor) agrees to pay the insured (or the indemnitee) for any damages or losses in return for premiums paid by the insured. When the term indemnity is used in the legal sense, it may also refer to an exemption from liability for damages. These agreements have what is called a period of indemnity, which is a specific length of time for which the payment is valid. Many contracts also include a letter of indemnity, which guarantees that both parties will meet the contract stipulations or an indemnity must be paid. All of the most sophisticated construction contracting businesses have well-defined standards around the issue of indemnity agreements. In general, lower-tier contractors, like subcontractors, indemnify the general contractor for any harm the subcontractor might cause.

Certificate of insurance (COI). A certificate of insurance is nothing more than a piece of paper showing proof of insurance, policy limits, and a coverage period at that point in time. Simply put, it is a contractor’s way of showing an owner or another party they have insurance. The policyholder has their agent issue a certificate of insurance to prove they have an active policy at the time the certificate is created. For example, the general contractor on a project may ask for proof of insurance from the subcontractor. The subcontractor would obtain a certificate of insurance. This certificate might name the general contractor as the “Certificate Holder,” but that does not mean they are included in the policy. All that means is they are the one receiving the document.

Additional insured (AI) endorsements. Many contracts require the policyholder to extend their coverage to other entities. Anyone who benefits from this extension of coverage is an “Additional Insured.” If you are the general contractor, having your company become an additional insured means the subcontractor’s policy also has your company covered. If they cause a loss, their insurance policy will be the first to pay for the claim.

Certificate and additional insured best practices include the following steps:

Step 1. Determine who manages certificates and how records are maintained.

Step 2. Develop an internal waiver process when accepting noncompliance for lower-risk trades.

Step 3. Develop clear insurance requirements in contract and subcontract agreements.

Step 4. Make compliance mandatory for high-risk sub-trades, like waterproofing or roofing, with a waiver process for lower-risk trades.

Step 5. Keep copies of all documents in a subcontract file. Make sure to get renewal certificates and additional insured (AI) endorsements.

Step 6. Consider specialized certificate or management software to make 100% sure that 100% of the certificates you care about are correct.

Waiver of subrogation. When an insurance company pays a claim, it often investigates the possibility of recouping what was paid if the loss was caused by someone else. The recouping of insurance claims paid is called “subrogation.” If there is another party directly involved in the claim, or that the insurance company can prove shares responsibility for the loss, the insurance company will initiate subrogation against that other party to recover what was paid to the insured. The most common type of claim that can be subrogated is property damage.

A waiver of subrogation is when two parties contractually agree to waive rights of subrogation either against one of them or against each other (mutual waiver). Insurance companies do not automatically follow contractual subrogation waivers but will usually agree to follow the contractual waiver for an additional premium. For example, say the owner of a building has hired a contractor. Property damage to the building occurs during a storm and the owner’s insurer pays the claim to make repairs. If no waiver of subrogation was included in the policy, the insurer is free to pursue the contractor. If the insurer can provide enough evidence, the contractor may become responsible for the financial burden of the property damage. The addition of these waivers generally results in a premium increase, but they can save the time and cost of lawsuits, cross-suits, or countersuits.

“Your Work” exclusion. Most CGL policies will include a “Your Work” exclusion. This type of exclusion, in its most basic form, means that the policy will not cover damages to a structure built by an insured contractor. Since a contractor controls the quality of their own work, it has been determined that it is fair to hold them accountable if the work is faulty. Faulty work can include parts, materials, equipment, or any type of operation performed that is done incorrectly as part of the work. This could be repairs or maintenance that doesn’t meet the standards of quality, representations, or warranties. Faulty work can also include a lack of warnings or instructions. While the policy will cover most damages as a result of faulty work if they occur during the policy period, it will not cover the loss of correcting the work or repairs to fix the problem that caused the damage. For example, a roofing contractor does bad work. The contractor’s insurance company will pay for resulting damages of a roof leak, like drywall or carpet, but won’t pay for the cost to repair the roof. There can be many specific scenarios included in a “Your Work” exclusion, so paying careful attention to details is important.

Consequential damages are indirect damages associated with a breach of contract. Direct damages from a roof leak, for example, would be drywall and paint. Indirect damages can include lost profits, loss of the use of a building, loss of rent, increasing financing costs, damage to a business’s reputation, or loss of opportunities.

Dangerous Business

Regardless of who you are in the construction industry, you are at risk of a claim. It’s a dangerous business. That is part of what makes it interesting, but you need to be ready to survive whatever is likely to come your way.

In the three scenarios I presented in the introduction, none of the general contractors was forced out of business, because they were insured. In two out of three, the legal and expert fees alone were hundreds of thousands of dollars, and the settlements were many times that. In the third situation, legal and expert fees were more modest, but the cost to repair the physical damage was hundreds of thousands of dollars.

Hopefully, those are convincing outcomes to inspire you to go find a good insurance broker and use this article as a checklist to have them explain how all of this applies to you, your work, and your business specifically.

Pete Fowler is president of Pete Fowler Construction Services (www.petefowler.com), which provides building inspection and testing, estimating, quality assurance, and construction management, as well as claims and litigation support, throughout the U.S.

High-End Headaches: Why High-End Home Construction Litigation Is So Difficult To Resolve

High-End Headaches - by Pete Fowler, Robert C. Carlson, Barbara Laskaris-Lorigan, and Craig S. Meredith. Published in June 2021 in CLM's Construction Claims Magazine.

On paper, it was a perfect match. A wealthy family wants to build their dream home. The owner’s spouse knows the spouse of a small local builder. The owner and builder meet after their spouses connect them. They hit it off.
They quickly reach an “agreement.” The construction begins with excitement. The builder receives the first few progress payments. The process seems to be humming along.

But then things take a turn for the worse.

It turns out the “contract price” was really a budget. Each selection the owner makes, including roofing, siding, windows, doors, cabinets, and flooring, is more expensive than the “allowance” in the budget, so the price increases weekly. 

The honeymoon is over. There is palpable tension. The owner and builder barely speak.

Adding insult to injury, the owners catch mistakes. They ask for changes to bathroom six, but the builder forgets. The subcontractors seem incompetent: Wrong plumbing fixtures are installed. Electrical outlets are in wacky places.

The owners are so worried that they audit the invoices. They find discrepancies. They hope it’s negligence but are concerned because each “mistake” benefits the builder.

Construction limps toward completion. A certificate of occupancy is issued.

The owners finally move in, but the home took twice as long to build and cost twice as much as promised. Even worse, more problems emerge.

Those wood doors facing the sun that the owner insisted on, despite the builder’s warning they would warp, begin to warp. The home automation system never works. Cooling bedroom four to a comfortable temperature turns bedroom five into a meat locker.

The first rains come, and the roof and windows allow water to pour into the home.

The owners insist the builder immediately fix everything. As a precaution, the owners withhold final payment. The builder then stops responding to complaints. That causes the owners to go ballistic and instruct their personal lawyer—who has no construction law experience—to file a lawsuit.

The owner and builder are now engaged in a kind of litigation—high-end home construction litigation—that is notoriously difficult to resolve. Here are four reasons why.

Emotions run high. The parties to a high-end home construction lawsuit tend to be emotional. These emotions will cloud their judgment and trump logic.

Owners will be emotional because they will feel betrayed. For one, owners often believe their builders violated the trust the owners put in them by hiring them to build a home. Additionally, when owners build custom homes, they’re building their dream homes. They’ve invested time and money in developing a concept that feels personal to them. After all, it is where they will live with their families and where they’ll entertain their extended family, friends, and business associates. When builders get something wrong, owners may feel like the defect is an affront to them personally because of the close connection we as humans have to our homes. No matter how unrealistic their expectations may have been, owners are likely to feel defrauded if their builders do not give them exactly what they wanted.

For these reasons, experienced mediators and lawyers for builders and insurers know that giving owners an opportunity to vent, to feel heard, and to release pent-up anger and frustration is a necessary first step toward resolving this kind of litigation.

Builders will be emotional, too. Their work is a reflection of who they are. When that work is attacked, their sense of worth suffers. They’ll likely feel as though they’re being unfairly criticized. Most builders have never been sued. When they are, they’re worried about their reputations, their ability to continue in business, and their ability to feed their families. Because builders often have close relationships with owners, they, too, will feel betrayed when owners file lawsuits because they’ll feel the nature of their relationship with an owner should have led them to resolve their differences without turning to the court system.

The lack of formalized agreements means no one thinks they’re wrong. Contracting negligence is common in high-end single-family home construction. Many small builders do not have the time, interest, or sophistication to formalize their agreements with their clients. Deals get done on handshakes, specifications are hastily jotted down on random pieces of paper, and formal budgets are never agreed to. When things go awry, this lack of contractual formalities—which may have been a factor in why things went awry in the first place—allows the parties to double down on their positions.

With no formal, centralized agreement between a builder and an owner memorializing, in detail, what they both agreed to regarding dimensions, finishes, hardware, paint, etc.; there is no objective standard that either party can be held to. 
Both the builder and the owner can point to the absence of any documents contradicting their stance as proof they’re not wrong when insisting something was or was not done correctly. This ambiguity allows both parties to further dig their heels in and make resolving their legal dispute that much more difficult.

The lawyers involved may not know how to litigate construction lawsuits. It might sound like marketing hyperbole, but it is not: When the lawyers who are involved in construction litigation understand how the process will play out, because they’ve been through it before, that process tends to go smoother than when lawyers without that knowledge and experience are involved. Most lawyers representing builders and insurance companies in construction litigation tend to have experience litigating such cases. But frequently, the lawyers representing owners do not. That can be a problem.

As we alluded to in our introduction, the lawyers representing owners in these cases are often hired because of their relationship with an owner and not because of their experience with construction litigation. Because of this, they’re in a tough spot. They do not know the dynamics of construction litigation, but they’re representing emotional clients who are used to getting whatever they want in life and in business. So, in an effort to be the zealous advocate their clients want them to be, owners’ lawyers will likely make a number of irrational demands that prolong the resolution process and show their lack of knowledge about how construction litigation tends to play out.

This lack of knowledge can be helped by experienced lawyers for the builder and the insurer in a lawsuit educating the owner’s lawyer in a collegial way that benefits all parties. By dropping the inflammatory rhetoric and explaining to an owner’s lawyer that a breach of warranty claim may not be available in their particular situation, or that no homeowners in their state get 100 cents on the dollar in connection with a claim like the one their client lodged, experienced counsel can help an owner’s lawyer get the owner in line so that settlement discussions can be more rational and productive.

Sometimes, lawyers for a builder or an insurer may not be in a position to educate an owner’s lawyer. In that case, a mediator with construction law experience could play that role—and more. In addition to educating a lawyer or two, a strong, assertive, and experienced mediator can bring the owner into line and credibly make clear that if they want to resolve the dispute, they’ll need to come to the table ready to give in on some of their demands.

The insurance situation can present challenges. Insurance will be a driving factor in the settlement of high-end construction litigation. Restrictions or limitations with builders’ insurance coverage, combined with the challenges of maintaining appropriate documentation of risk transfer avenues, can lead to roadblocks on the path to resolution.

Small builders building high-end homes may potentially have restrictive insurance coverage. Securing expansive coverage can be cost prohibitive. Additionally, the insurance marketplace can be challenging for small builders to navigate without a risk manager or lawyer on staff. More restrictive coverage can present challenges in the resolution of construction litigation due to limitations or exclusions present in a small builder’s insurance policy, which was likely bargained for at a cheaper rate.

Further complicating the situation, small builders can lack sophistication in understanding what coverage is available to them under their insurance policies or what they must do to comply with their policies’ requirements. For example, even though small builders likely have contractor’s warranty endorsements in their policies requiring their subcontractors to provide them with indemnity and other protections, many small builders may not understand what those endorsements require of them or may simply choose not to comply with them. The penalties for noncompliance can range from applications of additional deductibles all the way to coverage limitations or denials. This can further impact the availability of insurance proceeds to resolve a claim. Adding to an already complex situation can be the presence of policy restrictions or exclusions that larger builders may have the purchasing power to negotiate away.

Insurance funds may further be limited by builders failing to contract with their subcontractors with appropriate indemnification and additional insured requirements. This would provide the kind of risk transfer, commonplace in large construction jobs between sophisticated general contractors and their subcontractors, that expands the pool of available insurance funds. However, some builders do not want their subcontractors to be sued or pulled into litigation because they want to protect those business relationships. In these situations, when builders are willing to bite the financial bullet for the sake of preserving a relationship, they end up both further reducing the amount of insurance money available and potentially causing a rift between them and their insurers.

On top of all this, high-end home litigation can present many challenges to insurers—both from an investigation and resolution standpoint. Naturally, claims representatives want to make sure they’re making reasonable payments for legitimate claims that are covered under an insurance policy. The assigned claims representatives will want to see reports from the owner and the builder, reports from their experts, a comprehensive case analysis, site inspection/visit reports, destructive testing reports, and any other materials that support a claim.

Construction litigation is always a drawn-out process, but high-end home construction litigation can seem even more so when coupled with the hurdles outlined in this article. The fact that this kind of litigation can take years to resolve, which can boost the parties’ expectations and tenacity, does not help.

But there are proven strategies parties to high-end home construction litigation can use to surmount those hurdles and resolve their disputes.

Trials: Tribulations, Triumphs, or Both - Making Smart Decisions About Taking Cases to Trial

Trials: Tribulations, Triumphs, or Both - Making Smart Decisions About Taking Cases to Trial by Pete Fowler. Published 12/2019 in CLM’s Construction Claims Magazine.

Taking a construction-related case to trial should not be “rolling the dice.” Regardless of whether you are defending or pursuing a claim, the decision to take a case to trial should, theoretically, be simple once you have realistically analyzed the value of the claim, plus or minus the cost of a trial. The cases that proceed to trial are usually complicated by something, or a hundred somethings.

This article should help you to create a decision-making framework for deciding who is on your trial team, analyzing and evaluating individual claims, planning and managing the process, making sure the team is in sync and communicating in a simple and compelling way, and thinking through what winning and losing look like, before making an expensive decision to proceed.

The Team

“Who is on the team?” is the most important question, because we all know that the only reasonable predictor of future per- formance is past performance. I once listened to a motivational speaker ask, “What comes out when you squeeze an orange? Juice, of course! And why is that? Because that’s what’s inside!” What comes out of the people on your team when they get squeezed? Is it confidence, professionalism, kindness, strength, and determination for the cause?” Because trials are stressful, and some people, when put under stress, fold like a lawn chair.

The stars in a trial are the attorneys and those offering testimony, including expert witnesses. So evaluating these folks, as well as the support teams that will help them prepare, is critical. Is there sufficient evidence, from past performance, to bet that they will not flounder when push comes to shove?

In short: Define what good performance looks like, make sure the prospect has on-topic experience in successfully doing what you need done, and verify that experience with calls to references. The discipline to perform due diligence is often the difference between success and failure.

The Math

Making smart decisions about taking construction claims to trial is a combination of math and professional judgment. First, do some math.

There are lots of things humans do well, and some things not so well. Humans are great pattern-recognition machines. We readily spot things that are contrary to the pattern. We are not as good at decision-making when facts are a jumbled mess. So the more structure, sense, and consistency that we bring to complex decision-making, the better.

Here is a simple ABC=D decision-making framework you can apply:

A. The first variable is a realistic assessment of the value of the claim.

B. Then determine a realistic budget through trial, including attorneys, experts, and any other costs and fees.

C. Then apply some value judgment about what should be added (or subtracted) for the risk of uncertainty.

D. If you are defending a claim, and you ignore the complication of recuperating attorney fees and costs, then A + B + C = D, where D is your theoretical maximum settlement value. If we are pursuing a claim, it’s simply A - B - C = D.

If we are defending a claim that has been:

A. Thoughtfully evaluated at $100,000.

B. The total trial budget is $50,000.

C. We decided to add 20 percent ($150,000 x .2 = $30,000).

D. The baseline, then, is $100,000 + $50,000 + $30,000 = $180,000. If the other side won’t settle for less, then trial should be considered.

If we are pursuing that same claim:

A. $100,000 claim value from a defendant or cross defendant.

B. Subtract the $50,000 in costs.

C. Subtract 20 percent of the investment ($50,000 x .2 = $10,000)

D. Sadly, the baseline is down to $40,000 (= $100,000 - $50,000 - $10,000). This is a tough business decision to have to make, and possibly a key reason we do not see more insurance companies subrogating claims against smaller players that refuse to pay their fair share, even when they are clearly responsible.

Professional Judgement

Of course, the math gets complicated when we factor in all of the real-life messiness that every case has, including attorneys’ fees and costs. Our experience with fee and cost awards is very mixed, even for the best of lawyers with which we have done business. For the sake of brevity, we won’t address it further, but you’ll need to consider it.

A detailed discussion of calculating the $100,000 claim value in our example is beyond the scope of this article. Typically, you have to evaluate the property, and then design, contract for, and execute a repair. We consider all costs from A to Z. If we have done this analysis well, it is exactly what we present in trial.

It’s our experience that easy cases almost never go to trial. For the cases that do go to trial, sometimes you are trying to set a precedent, like standing up to bullies who will sue you again if you overpay this time. The national homebuilders, and many others, face these decisions every day. You need to consider the worth and the potential downside. Sometimes, not giving a bully your lunch money hurts in the short term, but is worth it in the long run.

Ultimately, you need to apply some philosophy to your decision-making. I like the idea of being kind and strong: We pay when we should pay, but we don’t get bullied. You’ll have to apply whatever philosophy you see fit. After all of this thinking, you might need to reconsider the math.

Planning and Cost Control

Like the decision to have a child, going to trial is fun to conceive, but the delivery can be very painful. To manage, you must measure. You should plan your work in quantifiable chunks; estimate the costs to accomplish those milestones, in writing; and then compare performance to plan, also in writing, throughout the journey. My experience is that many attorneys, even great ones, are not great managers. Many struggle at realistic budgeting. Let this serve as a framework for your plans and controls.

We have never seen an opposing attorney, in response to a compelling argument from us, say, “OK, you’re right. Let’s just do whatever you think.” So change, and sometimes dramatic change, is the rule in litigation, and your planning tools must accommodate.

It helps to create a simple budget spreadsheet, like a construction contractor’s schedule of values. Columns would include line number, description, original budget, current budget, spent dollars to date, and cost to complete. Rows could include mediation, discovery, trial preparation, trial, and post-trial. Each row entry would have the following subsections: attorneys, experts, and fees and costs. For example, for “mediation,” values could be entered for attorneys, experts, and fees and costs as they relate to the original budget, the current budget, how much has been spent to date, and the cost to complete. This process would then be repeated for each row item.

Remember the Ken Blanchard quote: “Feedback is the breakfast of champions.” If you arrange to have this budget updat- ed monthly (or quarterly, at least) and meet with the team, using the budget as the primary agenda, then you’ll see where you stand and be able to course-correct if necessary. If you add to this budget update a narrative memo, discussing the case status and plans going forward, you’ll create a thoughtful feedback loop that will keep the team on track.

Explain it to My Mom

In our office, when a technical expert is not explaining himself well, we often say “I don’t think my mom would understand what you’re saying.” It is code for, “If you can’t explain it simply, then you don’t understand it well enough,” which is often attributed to Einstein.

My mom is a smart, but non-technical person; she knows nothing about construction or cost estimating other than the painting and decorating she has done to her homes and businesses. We know that someone like her is going to have to use the information we give them to make a smart, informed decision. This is also what juries need to do. In the case of a jury, it is even more extreme. We really need to work hard to explain ourselves.

The famed 60 Minutes producer Don Hewitt would say to the best journalists in the world, “Tell me a story.” We need to explain, in story form, what the case is about and why we are right. A firm grasp of the case’s theme is a must.

It’s not easy to communicate simply and concisely. It takes time and hard work. Our trial communication should be thoughtfully considered and practiced. Recognize that the general public’s learning styles are widely varied, and attorneys’ learning styles are much less varied. Multimedia is best: visual, auditory; kinesthetic. When we think about communicating in this varied way, it brings the facts to life in a more interesting presentation for the judge, jury, or arbitrator. Don’t commit the “Death by PowerPoint” sin—just because you have created a presentation does not mean it is going to be interesting. Consider having witnesses get up and explain complex subjects to the jury using a flip chart or physical samples.

Naturally, the communication styles we use for a jury are going to be different if it is a bench trial, or to a highly technical arbitrator. A jury requires a story with bells and whistles due to limited attention spans and boring material, so a “sexy” story keeps their attention (making drywall sexy is not an easy task). For a bench trial, where the judge is deciding, you should focus more on the legal issues. In arbitration, the rules of evidence are looser, and they are often very technical, so we can go deeper into the weeds in a way that would lose most jurors.

No current discussion of trial-communication strategy these days is complete without considering the reptile brain strategy that is so widely discussed in legal circles. CLM has handled the subject so well elsewhere, we will not consider it here, but you should seek out those resources.

When Winning is Losing

“The only thing I’m addicted to right now is winning.”—Charlie Sheen.

Sometimes you can “win” and still lose. Sometimes you can “lose” and still win.

We recently “won but lost” on a case of a commercial building that was purchased from a city and leased back to that same city for 10 years. The city had a contractual obligation to maintain the property, but failed to do so and refused to make or pay for repairs at the termination of the lease. My client was the owner who “won,” but was only awarded $40,000 after we asked the jury for $250,000. It was a bummer, but the amount was above a statutory offer to compromise and there was an attorneys’-fee clause, so we assumed the client would be made whole for the cost of pursuing the matter through trial. But the judge, in violation of any prece- dent, awarded no fees or costs. The case remains on appeal. Therefore, this was a terrible economic loss for my client.

We worked on another case where a simple private school building was constructed using a slab-on-grade and site-cast concrete tilt-up walls (just like a “big box” store). I worked for the concrete subcontractor. It was a typical construction-defect litigation, so there were lots of claims against the general contractor and other trade contractors related to poor-quality construction. Our client sub-subcontracted the sealant work to another contractor and that work was defective, leading to leakage and property damage. The sealant sub-subcontractor would not participate in the settlement, so my client settled the claim with the owner and general contractor, and sued the sub sub, ultimately winning 100 percent of the settlement, plus attorneys’ fees and costs for the trial. Obviously, our side was happy with the results. I have come to know the defense attorney who was brought in late in the game and who “lost” at trial. He assures me that his insurance-company client expected the result, was entirely pleased with his work, and continues to send him new cases.

Being willing and able to go to trial is an important factor in being able to negotiate from a position of strength. Remember that, as with most of life, who is on the team is the most important thing. The math is pretty simple, but the judgment calls often are not. Good planning and cost controls are not inherently difficult to structure, but the discipline to regularly re-direct the entire team back to the plan for a comparison to actual performance can be. Success is worth it. In trial, you have to explain things simply, and that takes elbow grease. And finally, sometimes you might win but still lose, and other times you can lose but still win.

This article was inspired and informed by a 2019 CLM Webinar, “Trial and Arbitration Strategies for Winning Your Construction Case.”

Pete Fowler is the founder of Pete Fowler Construction Services, Inc. pf@petefowler.com

SB 800 Introduction and Summary: CA Builders Right To Repair Law

SB 800 Introduction and Summary: CA Builders Right To Repair Law - A 5-page whitepaper by Pete Fowler Construction Services, Inc., copyright Dec. 2, 2011

Introduction

Senate Bill (SB) 800, the ‘Builders Right To Repair’ bill was signed into law September 20, 2002, and took effect for every living unit sold in California after January 1, 2003. Printed, the bill is 12 pages, and specifies the rights and requirements of a homeowner to bring a construction defect action, contains building standards and functionality requirements for new residential units, and gives a detailed pre-litigation procedure. SB 800 was developed as a compromise of various factions of the building and legal communities to address the problems of the home building industry. The 9,000 word bill states the intent of the legislature is to improve the procedure for the administration of civil justice in construction defect cases.

Problems that led to the development and passage of the bill into law include:

• Issues of quality in home building and consumer protection

• Pervasive construction defect litigation

• A lack of insurance coverage for builders, subcontractors, and suppliers

Important components of SB 800:

• Pre-litigation procedure requires the owner to notify and allows ‘Builders Right To

  Repair’ before being sued

• Immunity for ‘qualified’ third party quality inspectors. This is meant to encourage the

  practice of third-party quality control.

• Allows recovery for damages previously excluded under Aas

• Builders must notify owners of maintenance requirements and SB 800 protections at

  time of sale

• Builders now have a document retention requirement, by statute

• Specific statute of limitations, less than the blanket 10 years, for many components in

  residential construction

• Builders cannot demand a ‘release’ for performing repairs. Builders can get a full

  release if they offer cash or upgrades in return for release.

• The pre-litigation process does toll the statute of limitations

• Conduct during the pre-litigation procedure is admissible in a subsequent suit. Bill does

  apply to subcontractors, suppliers, manufacturers and designers, except pre-litigation procedure

Actionable Defects

Water Issues

(1) A door shall not allow unintended water to pass beyond moisture barriers.
(2) Windows, patio doors, deck doors, and their systems shall not allow water to pass beyond moisture barriers.
(3) Windows, patio doors, deck doors, and their systems shall not allow excessive condensation.
(4) Roofs, roofing systems, chimney caps, and ventilation components shall not allow water beyond moisture barriers.
(5) Decks, deck systems, balconies, balcony systems, exterior stairs, and stair systems shall not allow water to pass into the adjacent structure.
(6) Decks, deck systems, balconies, balcony systems, exterior stairs, and stair systems shall not allow unintended water to pass within the systems themselves and cause damage.
(7) Foundations and slabs shall not allow water or vapor to enter into the structure so as to cause damage.
(8) Foundations and slabs shall not allow water or vapor to enter into the structure so as to limit the installation of the type of flooring materials.
(9) Hardscape, irrigation systems, landscaping systems, and drainage systems, shall not cause water or soil erosion or come in contact with the structure so as to cause damage to another building component.
(10) Stucco, siding, exterior walls, exterior framing, exterior wall finishes and fixtures, pot shelves, horizontal surfaces, columns, and plant-ons, shall be installed in such a way so as not to allow unintended water to pass into the structure or beyond moisture barriers.
(11) Stucco, siding, and exterior walls shall not allow excessive condensation to cause damage to another component.
(12) Retaining and site walls and their drainage systems shall not allow unintended water to pass beyond moisture barriers so as to cause damage.
(13) Retaining walls and site walls, and their drainage systems, shall only allow water to flow beyond, around, or through the areas designated by design.
(14) The plumbing system, sewer system, and utility systems shall not leak.
(15) Plumbing, sewer, and utility lines shall not corrode so as to impede the useful life of the systems.
(16) Sewer systems shall allow the designated amount of sewage to flow through the system. (17) Shower and bath enclosures shall not leak water into the interior of walls, flooring systems, or the interior of other components.
(18) Ceramic tile and tile countertops shall not allow water into the interior of walls, flooring systems, or other components so as to cause damage.

Structural Issues

(1) Foundations shall not contain significant cracks or vertical displacement.
(2) Foundations shall not cause the structure to be structurally unsafe.
(3) Foundations and soils shall comply with the design criteria for chemical deterioration or corrosion resistance in effect at the time of construction.
(4) A structure shall comply with the design criteria for earthquake and wind load resistance.

Soil Issues

(1) Soils and retaining walls shall not cause damage to the structure.
(2) Soils and retaining walls shall not cause the structure to be unsafe.
(3) Soils shall not cause the land upon which no structure is built to become unusable.

Fire Protection

(1) A structure shall comply with the design criteria and codes.
(2) Fireplaces, chimneys, chimney structures, and chimney termination caps shall not cause unreasonable risk of fire.
(3) Electrical and mechanical systems shall not cause unreasonable risk of fire.

Plumbing and Sewer Issues

Plumbing and sewer systems shall operate properly and not impair use of the structure. Four year statute.

Electrical System Issues

Electrical systems shall operate properly and not impair the use of the structure. Four-year statute.

Other Areas of Construction

(1) Exterior hardscape (driveways, sidewalls, etc.) shall not have excessive cracks or vertical displacement. Four-year statute.
(2) Stucco, siding, and exterior wall finishes shall not contain significant cracks or separations. (3) (A) To the extent not otherwise covered by these standards, manufactured products, shall be installed so as not to interfere with the products' useful life.

(3) (B) "useful life" means a representation of how long a product is warranted or represented, through its limited warranty or any written representations, to last by its manufacturer, including recommended or required maintenance. If there is no representation by a manufacturer, a builder shall install manufactured products so as not to interfere with the product's utility.

(3) (C) "manufactured product" is completely manufactured offsite.
(3) (D) If no useful life representation is made, the period shall be no less than one year. This subparagraph does not limit recovery if there has been damage to another building component caused by a manufactured product during the manufactured product's useful life.
(3) (E) This title does not apply in any action seeking recovery solely for a defect in a manufactured product located within or adjacent to a structure.
(4) Heating, shall be capable of maintaining a temperature of 70 degrees Fahrenheit three feet above the floor in any living space.
(5) Air-conditioning, shall be consistent with the size and efficiency design criteria in Title 24 of the California Code of Regulations.
(6) Attached structures shall comply with interunit noise transmission standards. One-year statute.
(7) Irrigation and drainage shall operate properly. One-year statute.
(8) Wood posts shall not be installed so as to cause decay. Two year statute.
(9) Steel fences shall be installed so as to prevent corrosion. Four year statute.
(10) Paint and stains shall be applied so as not to cause deterioration of the building. Five year statute.
(11) Roofing materials shall be installed so as to avoid materials falling from the roof.
(12) Landscaping shall be installed so as to survive for not less than one year. Two year statute.
(13) Ceramic tile and backing shall be installed so it does not detach.
(14) Dryer ducts shall be installed pursuant to manufacturer requirements. Two year statute. (15) Structures shall be constructed so as not to impair the occupants' safety.

The standards set forth in this chapter are intended to address every function or component of a structure. To the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damage.

‘Builders Right to Repair’ Calendar

‘Builders Right to Repair’ Calendar

Dangers of Mold Lie in Ambiguity

Dangers of Mold - by Pete Fowler. Published by Window and Door Magazine in 2003

Lack of accepted standards and a large number of variables mean costs can escalate quickly

You’ve probably seen it on TV, and read about it in newspapers and magazines. You can find more information about it on the Internet than you could ever read, even if you quit your job to do it. For window and door manufacturers, distributors, dealers and installers, or for a business that is related in any way to building construction, real estate or insurance, mold is a scary subject.

In 1999, mold claims only came along with a small percentage of the projects I worked on as a construction consultant involved with insurance claims and litigation issues. Now claims without allegations of mold are equally rare, in Southern California at least. Have the natural or built environments changed, causing a spike in the amount of mold growing in California, or is the interest in mold due to changes in the insurance and legal environments?

The health issues that have been widely reported in the media are a real concern, but the problems do not stop there. The “dangers of mold” also include: expenses for expert inspection and testing; remediation; alternative living expenses; legal costs; business interruption; insurance coverage with skyrocketing costs or a lack of availability; bad publicity; the ambiguity in all of the above due to a lack of standards; and more.

There is an enormous volume of confusing and contradictory information available on the topic of mold and a rapidly growing population of folks claiming to be “mold experts.” We’ve all heard the horror stories, but what do you need to know as a window or door manufacturer, distributor, dealer or installer suddenly drawn into a mold-related problem? This article is designed to help you cut through the haze, give you an idea of who you should have on your team, and tell you where to find reliable information. With a little background, you’ll be able to tell if the “experts” you encounter are giving you the straight story or using the complexity and media hype as scare tactics.

WHAT IS MOLD?

Let’s start with the basics: mold is any form of multi-cellular fungi that live on plant or animal (organic) matter. There are more than a million different fungal species in the world. To grow, mold requires food, moisture and time, and can flourish in temperatures between 40 and 100 degrees Fahrenheit. Even in the absence of ideal conditions, mold can lie dormant for years and “re-activate” if living conditions improve.

“Toxic molds,” a term that has been rejected by the American Industrial Hygiene Association and many experts, are those that can produce mycotoxins, and include aspergillus, penicillium, stachybotrys and others. These are the molds that you hear about on television, where some experts say they can cause severe and permanent damage to humans.

HOW DOES IT AFFECT US?

Health effects of mold are at the heart of the debate. It is agreed that all molds can cause “allergic-type” reactions in humans, such as coughing, wheezing, sneezing, irritated eyes and throat, and runny nose. More severe effects may include flu-like symptoms such as fever, fatigue, respiratory dysfunction, excessive regular nosebleeds, dizziness, headaches, diarrhea, vomiting and impaired or altered immune function. Reports of these more severe symptoms are very rare, and they only occur in a small percentage of the population. Other frightening claims include a loss of balance, cognitive impairment, memory loss, pulmonary hemorrhage, liver damage and near blindness, some of which are claimed to be permanent.

Various scientific groups and agencies are in the midst of research to identify any possible link between mold exposure and permanent damage to humans, but there is no certainty widely agreed upon at this time. Most recently, the American College of Occupational and Environmental Medicine published a position statement concluding that current evidence does not support the proposition that human health has been adversely affected by inhaled mycotoxins in home, school or office environments.

There are risks, but we don’t even know how much mold is too much. There are no standards yet for acceptable exposure. There are also no tests for verifying human exposure to mold, in contrast to, for example, lead and asbestos, where physically testing the victim can prove exposure. There is, however, agreement as to who among us is most vulnerable to the effects of mold exposure: infants, children six years and younger, pregnant women, the elderly, asthmatics, allergic individuals and immunecompromised individuals, including those with HIV.

While the health effects are not fully understood, one of the clear dangers of mold for companies in the building industry is the ambiguity due to a lack of definitive standards. The ambiguity is reduced when a genuinely qualified professional assesses a contaminated site and makes recommendations based on professional judgment. But it can get ugly when another party disagrees with that assessment, because the differences in remediation costs can vary wildly and there is often a question of who pays the bills. These differences of opinion occur more often now that attorneys and “Johnny-come-lately” mold experts are an increasingly common part of the equation.

The experts who are brought into a mold case may point to a wide variety of sources for their claims, but the most commonly used guidelines come from the New York City Department of Health and Mental Hygiene, hereafter called “NYC,” the U.S. Environmental Protection Agency, the federal Centers for Disease Control and Prevention, Texas Department of Health and Texas Department of Insurance, the American Industrial Hygiene Association and the American Conference of Governmental Industrial Hygienists. The information provided in this article comes from one or more of these sources. To provide some background for companies that may face mold issues, we’ll look at some of the processes used to determine whether mold is a problem, and if so, what needs to be done to address it.

INSPECTION AND TESTING

Visual inspection is the most important initial step in assessing a situation. The amount of mold observed determines the extent of the remediation, the level of containment and the type of personal protective equipment required for workers. There are two reasons for the inspection and testing:

➣ To determine the source of the moisture and collect enough information so a repair plan can be developed to make sure the problem does not recur

➣ To determine the extent of contamination so a method of containment and remediation can be developed to safely rid the building of mold.

Bulk or surface sampling is performed by using cellophane tape or a cotton swab to collect the mold. The sample is later analyzed in a laboratory by microscopic (visual) observation. Various authorities note that identification of the spores or colonies requires considerable expertise. The NYC standard maintains that bulk or surface sampling is not required to undertake remediation, and that visual observation is adequate for assessment.

When the quantitative analysis of “how much mold is here” begins, the heart of the difficulty is found: Unlike lead or asbestos, the existence of mold does not have a “yes” or “no” answer. There are always some molds in the indoor environment. We can easily understand that, all things being equal, mold counts in a well-kept home could be less than mold counts of inferior housekeepers. This is just one of the many possible examples of an issue that has nothing to do with building construction, but could be an important variable.

Air sampling is usually performed with the use of a small pump to draw a known volume of air through a collection device that catches mold spores. This sample is analyzed in the lab to determine what types of mold are airborne. It is important to also collect samples of outdoor air to serve as a comparison to the indoor samples. As mentioned previously, there are no standards for determining how much mold is too much, so comparisons to the outdoor and to the non-affected indoor environment are critical to assessing the effects of the building and the environment on the indoor air quality. As you can imagine, the interpretation of this data is inherently complex and problematic, so much so, in fact, that NYC officials say air sampling for fungi should not be part of a routine assessment, since air sampling methods for some fungi are prone to false negative results and cannot be used to rule out contamination. According to the American Industrial Hygiene Association, microbial problems in buildings have shown that perhaps 50 percent of microbial problems are not visible. Thus, destructive testing, such as tearing into the walls to see what is happening, can be warranted, if there is other evidence suggesting hidden problems.

It is my opinion that if enough mold is found to warrant negative air containment or relocation of the occupants, or when an occupant has complained of health susceptibility to mold, an independent Certified Industrial Hygienist or similarly qualified individual should be hired, that is, a professional who is not associated with the business of the contractor performing remediation, and who is paid by or on behalf of the building owner, but not by the contractor. This professional should perform inspections before work begins, write remediation specifications and observe the remediation at defined hold points, including clearance inspections after the work is complete. This serves as a check-and-balance mechanism that experience tells me is always worth the expense.

Many professionals who commonly investigate moisture problems in buildings, including myself, say that projects suffering distress often have many sources contributing to the situation. Be warned that, just because you found a problem, it doesn’t mean you found the problem. Since mold claims often end up in the hands of insurance agents and attorneys, documentation of all observations, conclusions, recommendations and work performed is crucial.

REMEDIATION

For the builder or contractor, remediation means getting rid of mold. There is no definitive authority or standard, and the sources of information are the same as previously noted: NYC, EPA, CDC, AIHA and ACGIH. Some of the information sources refer to the U.S. Department of Labor’s Occupational Safety and Health Administration hazardous work standards, which mandate the level of protection and qualification of workers, and hazard-communication requirements. These OSHA standards traditionally relate to hazardous cleanup for chemicals or asbestos. Another source that is frequently referred to is California’s OSHA and its new sanitation-linked mold requirements (CCR, Title 8 3362).

All authorities on mold stress the importance of repairing the source of the moisture before beginning remediation. A lack of attention to this critical activity may cause many current mold claims to return in the future. If the only professional hired is a CIH or other mold expert, he or she might not know enough about leak and moisture detection and repair to specify and oversee an effective, durable fix. For this reason, it is often necessary to have a building consultant on the team who can find the moisture source, specify a repair and make sure that repairs are performed correctly.

The professional who writes the remediation specification should indicate the level of containment required. Containment means keeping the moldy areas separated from those not affected, and is often accomplished by sealing doors, ducts and other means of escape for contaminated air, or by encapsulating the area with sheet plastic and sealing all of the seams. Most standards call for increasing levels of protection based on the surface area of mold that is found.

The table on p. 83 shows NYC requirements for containment and personal protective equipment. At Level I, no containment is required. Compare this to Level IV, where a complete isolation of the work area from occupied spaces, use of negative air equipment with high-efficiency particulate air filtration, inclusion of air locks and a decontamination chamber in the containment structure are required.

The referenced standards do not take into consideration the hidden mold often found in the course of remediation. When additional mold is found, it is important for the contractor or specifier to re-evaluate the level of protection required.

When containment is required, it is important to notify those who might be affected by the contamination, including building occupants and remediation workers. In the worst of situations, evacuation of buildings might be required. The NYC standards recommend that people who experience adverse health effects associated with exposure to fungal materials should be evacuated immediately from a building undergoing remediation, and they should remain out until the work has been completed. Other criteria for evacuation decisions include the size of the contaminated area, extent of health effects reported by building occupants and the amount of disruption likely to be caused by the remediation activities.

Remediation workers and anyone entering the remediation area may require personal protective equipment based on the corresponding level of contamination. At Level I, workers should wear rubber gloves and wear N- 95-rated masks (less than $5 each). At Level IV, this equipment could include a full-face respirator with twin HEPA-filter cartridges, mold-impervious head and foot coverings and a body suit made of a breathable material, with all gaps, such as those at wrists and ankles, sealed.

Treatment of damaged building components is different for various material types. Nonporous hard surfaces can be wiped clean. Soft materials that suffer contamination, such as wallpaper, wallboard, carpet and padding, are often removed and discarded. Wood framing requires evaluation based on the condition and extent of the mold or deterioration, and the ease or difficulty of replacement. Remediation can require removal of the mold with power tools such as grinders and sanders, then thorough cleaning with scouring pads and HEPA vacuum cleaners.

This is a very labor-intensive process, especially when the workers are wearing “moon suits.” If building contents are analyzed and found contaminated, they need to be meticulously cleaned or discarded. The value of the contents should be considered when making these recommendations, as it is sometimes found that cleaning will cost more than the items are worth.

Not long ago, contractors simply filled the old Hudson sprayer with a mild bleach solution and sprayed away if they found mold. In this use, the bleach solution is technically called a biocide. There are other biocides that were specifically formulated for the same purpose, but most authorities are no longer calling for their use, as repair of the moisture source and removal of the mold will suffice for remediation, and the odors and residual toxicity of biocides is thereby avoided. If there is mold floating around in the air, it stands to reason there might be some in the HVAC system. Guidance on remediation of contaminated HVAC systems is sparse. NYC recommends that the HVAC system be shut down during remediation activities. For Level Vb (see table on p. 83), air monitoring with the HVAC system in operation is recommended prior to re-occupancy. EPA and ACGIH refer to the EPA guide Should You Have the Air Ducts in Your Home Cleaned? The guide suggests having the air ducts in a home cleaned if there is substantial visible mold growth inside hard-surface ducts or on other components of the heating and cooling system. The service provider should agree to clean all components of the system and should be qualified to do so. Improper duct cleaning can cause indoor air problems or damaged ducts.

Clearance Criteria, the standards used for “final inspection” by the mold experts, as you might now expect, have no hard-and-fast rules. AIHA, ACGIH and EPA officials say that a remediation may be judged successful when two criteria are met:

➣ The problem that led to the mold contamination has been fixed

➣ Affected areas have been inspected and visible mold and molddamaged materials have been removed.

If air sampling is performed, the types and concentrations of molds measured indoors should be similar to those measured outdoors or in non-affected areas of the building.

ACGIH researchers add that concentrations of biological agents in any surface samples taken should be similar to those observed in well-maintained buildings or on construction and building finishing materials.

The training and qualifications of contractors and remediation workers is another hazy subject where the authorities refer to existing OSHA standards that deal with toxic cleanup work and hazard communication (again see Cal-OSHA CCR, Title 8, 3362). The OSHA references are mentioned only briefly, probably because there are no national standards specific to mold. These OSHA standards call for workers in heavy contamination areas to be trained to protect themselves and to be fitted with respiratory protection by a trained professional. Unfortunately, the type of “trained professional” is not specified.

PREVENTION

Given the dangers of mold, the necessity of preventing problems in the first place should be fairly evident. Build it right. But how, you ask? Training is the answer. Sources of information are abundant, but a single source that pulls the information together remains absent. I know of several groups that are trying to help, but they are probably a couple of years from seeing their visions complete, especially for residential construction (see Whole Building Design Guide, www.wbdg.org). For now, start your training program by contacting the National Association of Home Builders Research Center at www.nahbrc.org, reviewing its materials with your staff, making a list of the biggest risks you face, and starting to document and share your company’s best practices with your entire organization. Be sure to save this knowledge base in a structured way so that as new people join the organization, they too can share the accumulated wisdom.

Who needs training? Designers, builders—supervisors as well as workmen—suppliers, manufacturers and all building industry personnel. For window and door industry personnel, good training on proper installation methods and the prevention of problems can begin with ASTM International’s E 2112, the Standard Guide for the Installation of Doors, Windows and Skylights (www.astm.org). The American Architectural Manufacturers Association InstallationMasters training and certification program offers classroom instruction based on the ASTM standard (www.aamanet.org).

Also of interest is the upcoming ASTM standard, Design and Construction of Low-Rise Frame Building Wall Systems To Resist Damage Caused by Intrusion of Water Originating as Precipitation. The American Society of Heating, Refrigerating and Air-Conditioning Engineers, at www.ashrae.org, also has a wealth of information; you might start with the Handbook of Fundamentals sections on moisture in buildings.

Another aspect of building construction, often overlooked by residential builders, is testing. Assemblies that are not time-tested need to be thoughtfully designed, carefully installed and rigorously tested.

CONSUMER EDUCATION

Finally, education of consumers on what to expect from homes, and how to maintain them is crucial; in fact, it has now been legislated in California. A state Senate bill requires all builders to notify new homeowners of their maintenance obligations in writing. If the builder does not tell the owner that maintenance of an assembly is required, then that assembly had better last past the statute of limitations, or the builder could be on the hook. Owners also need to be taught to keep houses dry, identify leaks immediately and only allow qualified professionals to make repairs. Keeping relative humidity in a home or other building well below 65 percent is important. Builders need to make this easier with the design of the assemblies and training of the owners.

Pete Fowler is a general contractor, certified professional cost estimator, certified inspector and construction consultant based in San Clemente, CA. He has analyzed damage, performed testing, specified and overseen repairs, performed repairs as a contractor, and testified on a variety of construction issues. More information is available by contacting him at 949/240-9971 or www.petefowler.com.

How to Estimate the Cost of Structural Repairs to Light Frame Construction Required Due to Catastrophic Events

How to Estimate the Cost of Structural Repairs to Light Frame Construction Required Due to Catastrophic Events by Peter D. Fowler.

Common Construction Defects

Common Construction Defects - by Pete Fowler. Published by The Journal of Light Construction in 1998