How to Avoid Disputes During Construction
We now hear from Mary DeVuono Englund, a Senior Deputy in the Civil Division of the King County Prosecuting Attorneys’ Office, who represents the Department of Natural Resources Wastewater Treatment Division on their capital programme issues. We also hear from David Goodnight, a litigation partner at Stoel Rives, LLP.
“When a construction contract dispute occurs that is likely to result in a large case, I engage outside counsel such as Stoel Rives LLP to work with the County,” explains Mary.
“One such case, King County v. Vinci Construction Grands Projects et al. was litigated to a $155 million jury verdict in favour of King County. The net judgment and attorneys’ fee award have now been upheld by the Washington Supreme Court.”
Both Mary and David use their expertise to discuss key areas in construction, including the fees covering litigation, assessing contractual risks and avoiding disputes in relation to project delays.
What are the typical contractual issues that clients need assistance with?
Mary: In the public works contracting arena, clients most often need assistance with contractor requests for additional money, which are referred to as requests for change order in King County’s contract. The other frequent issue is project delay.
What do you think could be done to ensure disputes are avoided regarding delays in the project schedule?
David: In the contract under administration relationships, it is helpful to build into the claims process a bias toward open dialogue, to avoid confusion and obfuscation.
Mary: As in-house counsel, working closely with the client, you have the opportunity to guide the project manager in using contract provisions to reserve the owner’s rights while encouraging project delay recovery. Although project delay cannot usually be fully recouped, the owner and the contractor have a mutual interest in minimising further project delay.
This approach was successful on the King County Ballard Siphon Replacement. The project involved a new 7-foot-diameter sewer pipe tunnelled under the Lake Washington Ship Canal. The new pipe is more than 120 feet under the surface and will carry Combined Sewer Overflows during storms. For several reasons, the tunnelling progress under the canal was much slower than planned and seriously impacted the project’s critical path.
By the time it is acknowledged that a major delay is occurring, the owner and the contractor probably have strong opinions about the cause of the delay: a differing site condition, defective specifications, a lack of specialised expertise, or bad management. The owner and the prime contractor may continue to disagree about the cause of the delay and those issues will be addressed under the contract provisions, but they need to change their focus from who is at fault to recovery from the delay.
On the Ballard Siphon project, the owner’s project design was revised to move a structure out of the tunnel shaft and the contractor re-sequenced its baseline schedule so that work could be performed concurrently with tunnelling. By re-sequencing activities in collaboration with the owner’s re-design, the contractor ‘found time’ which mitigated the cumulative project delay and extra cost. Cost liability is then resolved under contract claims provisions.
What strategies do you implement when assessing contractual risks for your clients?
Mary: Engaging an expert construction claims analyst is a useful strategy, especially in conjunction with a strong audit clause in the construction contract. You can deploy your expert to perform an audit of the contractor’s project cost records, which allows you to inform your client about how much money the contractor has either made or lost on the job and assess the real value of the cost requests the contractor is making. Likewise, an expert schedule analyst can determine when and why the delays on the project actually occurred as opposed to the claims rationale the contractor may be presenting. With this information I am much better prepared to assess the client’s risks of any action under the contract, such as a denial of a request for change order.
David: If litigation occurs, we ask our lawyers to place an economic value on the claims. This is what we refer to as a Litigation Risk Analysis, which calculates the value of a claim by multiplying the claim amount (e.g., $25 million) times the likelihood of success (e.g., 60-80%) to provide a risk adjusted value of a claim (here, a range of $15 – $20 million). This is helpful to our executives in assessing settlement offers and in making reasonable demands.
How do you go about considering the costs of litigation?
Mary: We request that our lawyers provide us with budgets, which we update at least quarterly against actual spend.
If a contractor defaults or breaches a contract, does an owner like King County have contractual or statutory remedies?
David: Yes, an owner may sue for breach of contract or even “default” if a contractor fails to perform as promised. Default termination is appropriate if the breach is material and the contractor fails to cure. King County’s contract provides a process for a corrective action plan. If the contractor fails to provide such a plan, an owner can then hold the contractor in default and terminate the contract.
Is it possible in your experience to recover the costs and fees associated with litigation?
David: Yes, for instance, costs and attorneys’ fees may be awarded when a surety or insurer is a defendant. In Washington, a recent Supreme Court decision holds that while there are many differences between an insurer and a surety, an award of attorneys’ fees is proper when the surety, or insurer, wrongfully denies coverage. In other words, if the insurer or surety forces the insured or beneficiary of the bond to initiate litigation to enforce its rights, then all costs, fees and expenses can be recovered against the surety or insurer. In a recent case, King County recovered $14.6 million against a surety defendant following a contractor’s breach, when the surety refused to fulfil its obligations under a surety bond to step in and cure the contractor’s breach. The Washington Supreme Court held that a full award of all costs and fees, including expert expenses, was justified where the surety compelled King County to assume the burden of legal action to obtain the benefit of the performance bond. King County v. Vinci Construction Grands Projets, 188 Wash.2d 618 (2017).
Can such costs and fees be sought even where there is a separate statutory remedy?
David: Yes, in the King County case, the Court held that the statutory remedy for fees and costs provided in Washington law, RCW 4.84.250, is not the exclusive remedy available to the County.
Do you have any practice tips for public or private parties seeking to enforce their contractual rights?
David: Of course, several. First, if you are forced to litigate disputes, request a risk analysis that provides your executives with the economic value of the case. They can then make any adjustments up or down based on their tolerance for risk. Second, if there is either insurance or a performance or payment bond that applies to the contract, keep track of all costs and expenses incurred in enforcing your client’s rights. Finally, if you are forced to sue either an insurer or a surety to compel them to fulfil their obligations, carefully evaluate the potential recovery of all costs and attorneys’ fees.
As a thought leader, how are you helping to develop and implement construction legislation?
Mary: Much of what I do in addressing legislative proposals is preventative, because the contractors’ and subcontractors’ industry groups are very active in pushing for legislative remedies to principles established by case law in Washington State. King County construction contracts contain standard general terms and conditions, which require contractors to submit claim notices and documentation within specified timeframes. King County, like all owners, needs clear and enforceable rules that provide reasonable certainty in order to manage public projects effectively and efficiently. The Washington courts have supported this principle in cases such as Mike M. Johnson Inc. v. Spokane County, 2003 WL 22410697, which has triggered repeated legislative efforts by contractor groups interested in eliminating claim documentation requirements. Public owners need to be aware of legislative efforts that may disrupt reasonable contract requirements that provide for the orderly administration of construction contracts.
Mary DeVuono Englund | King County Prosecuting Attorney’s Office| Civil Division
500 4th Avenue, 9th Fl Seattle, Washington 98104 | (206) 477-9521
David R. Goodnight
Partner
www.stoel.com
P – (001) 206 386 7586
Mary DeVuono Englund is a Senior Deputy in the Civil Division of the King County Prosecuting Attorney’s Office. Her practice involves representing County clients with large infrastructure capital programs. She advises County agencies on construction law and related insurance coverage issues, and represents King County in alternative dispute resolution forums and litigation. Prior to joining the Prosecutor’s Office, her private sector practice involved representing contractors and subcontractors on government and private projects. Ms. DeVuono Englund is admitted to United States Court of Federal Claims and has served on the Construction Law Council of the Washington State Bar Association.
David Goodnight is in his 31st year of law practice and thoroughly enjoys it. He is a trusted adviser to public and private clients in major disputes. His work includes commercial, intellectual property, land use, partnership, construction, and tax and telecommunications litigation. David has tried cases to juries and judges in various state and federal courts throughout the U.S. Before joining Stoel Rives, David was a law clerk for the Tenth Circuit of the United States Court of Appeals (1988‑1989) and in the United States District Court for the Northern District of Indiana (1986‑1988).
