Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

In the recent case of TC MidAtlantic Development, Inc. v. Commonwealth of Virginia, Record No. 091271, the Virginia Supreme Court was faced with the issue of properly pleading compliance with conditions precedent in a public contract. Despite the tongue-twisting nature of this issue, the crux of the case came down to simple timing.

In May 2004, TC MidAtlantic and the Virginia Department of General Services (“DGS”) entered into a contract to perform work on the Washington and Finance Buildings in Richmond, Virginia. Irreconcilable differences arose between TC MidAtlantic and DGS, with DGS ultimately sending TC MidAtlantic a letter dated February 16, 2007 terminating the contract. That letter also informed TC MidAtlantic that it was entitled to file any claims pursuant to Section 47 of the contract. Section 47 stated:

Contractual claims…shall be submitted, in writing, no later than sixty (60) days after final payment; however, written notice of the Contractor’s intent to file such claim must be given at the time of the occurrence or beginning of the Work upon which the claim is based. The filing of a timely notice is a prerequisite to recovery under this Section…. All claims shall be submitted along with all practically available supporting evidence and documentation.

TC MidAtlantic filed a complaint in the Circuit Court for the City of Richmond on April 24, 2007. The trial court concluded that DGS’s February 16, 2007 letter initiated the sixty-day period for TC MidAtlantic to submit a written claim, and that its April 24, 2007 complaint came too late to comply with Section 47.

On appeal, TC MidAtlantic argued that it sufficiently pled compliance with Section 47, pointing to paragraphs in its complaint alleging that it made written demands on DGS for payment and performance. The Virginia Supreme Court pointed out that the complaint never specifically alleged that TC MidAtlantic submitted a claim within the 60-day window or in a timely fashion, as required by Section 47. TC MidAtlantic also tried to escape the 60-day requirement by unsuccessfully characterizing the February 16, 2007 letter as a “final written decision” on its claim, arguing that it then had six months from February 16, 2007 to file suit. The Court likewise rejected that argument, and went out of its way in a footnote to say that TC MidAtlantic did not appeal the trial court's conclusion that the letter initated the claim procedure.

Most frustrating of all, TC MidAtlantic had filed a motion to reconsider with the trial court, attaching March 23, 2007 letters and supporting schedules showing amounts owed under its claim. But the Virginia Supreme Court concluded that TC MidAtlantic forgot to ask leave to amend its complaint to allege that the March 23, 2007 letters complied with the condition precedent of Section 47’s notice requirement. The Court instead held TC MidAtlantic to the original wording of its complaint, including the argument that the February 16, 2007 letter was a “final written decision” rather than the initiation of Section 47’s claim procedure.

The lessons to take from this case are:

1. If you are confronted with a party who insists on including a contractual provision that will shorten the time frame in which you must give notice of a claim or file suit, be realistic about the deadlines you agree to, and stick to them.
2. The second a dispute arises, get the contract out and read it carefully to ensure that you comply with all notice and claim provisions.
3. And if your case involves a condition precedent with notice or claim provisions, don’t forget to acknowledge the condition precedent in your pleadings, assert that you complied, and attach exhibits demonstrating exactly how you complied. 

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Here is a new sampling of cases in which the Virginia Supreme Court has recently granted appeals.

In April, the Court granted the petition for appeal in Studio Center Corporation v. WKW Construction, LLC, Record No. 092257, challenging the ruling of Judge Shockley from the Circuit Court of the City of Virginia Beach. Studio Center is contesting Judge Shockley’s holding that Virginia Code Section 54.1-1115(C) applied when the unlicensed contractor admitted it knew Virginia law required a license, but did not realize that it could not use someone else’s license. This case should give us some much needed guidance on Section 54.1-1115(C)’s requirement of “good faith” and “actual knowledge.”

What “Case Watch” would be complete without an appeal involving one of my favorite topics – BPOL tax! In March, the Court accepted the petition for appeal in Ford Motor Credit Company v. Chesterfield County, Record No. 092158. This case will delve into, among other issues, when a tax payer can take a deduction for out-of-state gross receipts under Virginia Code Section 58.1-3732(B)(2), and when it is appropriate to use the default apportionment method in Virginia Code Section 58.1-3703.1(A)(3)(b) to measure the tax payer's gross receipts.

In January, the Court also granted the petition for appeal in AMEC Civil, LLC v. Commonwealth of Virginia, et al., Record No. 091662. AMEC Civil designated no less than twenty-two assignments of error, with the Commonwealth designating seven assignments of cross-error. Much of the debate revolves around whether AMEC was required to give VDOT written notice of its claims at the “beginning of the work,” or whether AMEC could have given notice at the “time of the occurrence” under Virginia Code Section 33.1-386, whether that notice requirement could be satisfied by VDOT’s actual notice, and whether VDOT must show prejudice by any delay in providing notice. Some of the other issues involve whether sustained elevated lake levels constituted a differing site condition, and whether VDOT had a reciprocal duty to provide AMEC notice of that condition under the contract.

As always, stay posted!
 

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Today we tip our toe, quite gingerly we might add, into the ugly place where preliminary statistics and politics meet. In the last week, print news and the internet have been awash with reports on stimulus spending today and estimates of the impact that spending has had a jobs created or saved. In particular, Chris Thorman and Don Fornes of Construction Software Advice have culled through the quarterly reports which are publicly available at www.recovery.gov and provided a detailed state-by-state breakdown of construction stimulus spending amounts awarded, amounts "received", jobs created and the cost per job (this article was also posted to ENR's blog and both have separate comments).

In general, the "cost per job" analysis of stimulus funding has triggered political ugliness reaching internet meme proportions. The "Usual Suspects" have regularly weighed in to the debate. In January, Rep. John Boehner (R-OH) ripped into the stimulus spending arguing that "the plan would spend a whopping $275,000 in taxpayer dollars for every new job it aims to create". In reply, economist Paul Krugman called Boehner's approach a "bogus talking point" that "involves taking the cost of a plan that will extend over several years, creating millions of jobs each year, and dividing it by the jobs created in just one of those years." With the latest quarterly numbers, the political machines for both sides have cranked up and marched out the latest updated versions of the talking points. We will leave it to our individual readers to decide whether the "Usual Suspects" refers to the motley line-up crew from Casablanca or Keyser Soze.

On a regional level, the data from Construction Software Advice provides some real points of interest. First, comparing amounts awarded to amounts received, there is a huge divergence amongst Maryland, Virginia and the District of Columbia in the flow of money. Maryland has "received" close to half the awarded funding. Virginia has received only 34%. The District has only received 5.5% of the $1,900,000,000 awarded (the most regionally). This tells us that in terms of the DC region, a huge amount of the money has not even been "received" yet and we can expect continuing economic impact, particularly from the DC projects. The underlying data may also face significant adjustment over time as corrections and changes are made, a reality that even the Recovery.gov site recognizes on-going data correction impacts the analysis. The precise measurement of jobs "created or saved", especially indirect jobs, appears to very difficult if not impossible.

It strikes us that at some point, a post mortem on cost per job will be appropriate and necessary, but at this stage it is difficult if not impossible for that exercise to be meaningful. Construction jobs in particular involve significant ramp up and as such stimulus funding that may have initiated the project will likely not see full employment fruition of jobs created or saved for some time. The Construction Software Advice report expressly recognizes these limitations stating, "With 76,214 jobs created/saved during this reporting period, the number will undoubtedly go up in future months as more projects begin and as more projects enter more labor-intensive phases." What we take from this information is that there are a lot of stimulus dollars, in particular construction stimulus dollars, in particular in this region, that have yet to be spent.  (Hat tip to our friend Rob Geedra from Geedra.com for passing along this link).

Image by Ereneta

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As announced previously, we were very happy to participate in a recent seminar on government contracting in connection with the Associated Builders and Contractors - Metro Washington Chapter.  The seminar, which took place last week, was a great success with a room that was filled to capacity, some great speakers and information, and very enjoyable and educational experience for me as a participant and speaker.  The response is certainly indicative of the interest in government contracting topics right now.

For those interested, here is a copy of our presentation materials which addressed different contract vehicles and bidding methods, common procurement issues, and the process of bid protests in particular.

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We are pleased to invite our readers to a seminar on October 29, 2009, The “Other” Kind of Contracting: Best Practices for Government Sales Success. As active members of Associated Builders and Contractors – Metro Washington Chapter, we are very pleased to have the opportunity to speak at this ABC-Metro Washington event.

The seminar is geared towards providing information and an overview on the front end acquisition and procurement process for government contracts. In addition to my speaking on contract procurement, bids and bid protests, and other related legal matters, other speakers will include the accounting firm of Aronson & Company and the insurance brokerage firm of Rutherfoord speaking on acquisition, applicable federal regulations, bonding and small business programs in addition to accounting, insurance and bonding practices relative to government contracts.

When:  October 29, 2009
              Registration 8:00 am - 8:30 am
              Seminar 8:30 am - 10:30 am

Where: Aronson & Company
              805 King Farm Boulevard
              Suite 300
              Rockville, MD 20850

Price:    Complimentary

You can register for the seminar here. Please feel free to contact me if you have any other questions.

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The construction industry is receiving somewhat mixed economic signals lately. On the good news front, the home building industry which has been mired in recession far longer than the rest of the economy is showing signs of life. Bloomberg reported that sales of new homes climbed in August to a high for the year. The news was tinged with some contrary news that pricing reflected competition from large numbers of foreclosures of existing homes in the marketplace. Bloomberg also reportedly separately that estimates of new home sales for 2010 may increase substantially as well, particularly if Congress extends the tax credit for first-time buyers.

On the other hand, reports on pricing and cost figures in the commercial and government sectors do not appear as rosy. Engineering News Record recently described (subscription only) the “sharp and prolonged decline in construction costs” in our current economy as unparalleled since the Great Depression. In particular, the article by Tim Grogan and Tom Nicholson pointed to year-to-year decreases in construction pricing of 10.8% in the Turner Construction building cost index. Karl Almstead, the vice president of Turner who is responsible for their building index, is quoted in ENR as stating:

This is the largest drop in costs for a given year that we have seen in our index since the Great Depression of the 1930s. Materials prices recently have been fairly level, and labor costs are pretty flat too. It is market conditions that are driving costs down.

In the absence of much activity in the commercial markets, many firms are flocking towards the government contracting arena. Initial reports over the summer indicated that GSA was receiving bids that were as much as 15% lower than expected on projects funded with stimulus dollars. The official GSA press release couched the level at costs 8-10% lower than expected. We are anecdotally hearing of some players bidding jobs below their actual costs simply to try to generate modest cash flow in the short term.

The availability of some increased government funding in a tight market, a highly aggressive bidding environment, and the nature of competitive government low bidding delivery methods collectively appear to create the perfect storm for claims and litigation. This environment leads to a number of conclusions:

• Unreasonably low bids translate to far more change order claims.
• Subcontractors or contractors who cannot profit based on their bids are more likely to fail
• This translates to terminations, defective workmanship, takeovers and claims
• The smart money will sit and wait rather than chase unreasonable numbers
• Our prediction is that we see a huge increase in delay claims, change order claims, and general litigation chaos over the next 2-4 years in the construction industry.

Image by TopTechWriter.US

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