Presentation created by Elliot Fus to teach segment on Construction Law to engineering students at UNC-Charlotte

1. Construction Law
Elliot Fus
Kilpatrick Stockton LLP

2. Topic Range
 Construction Contracting
 Construction Regulation
 Construction Disputes

3. Construction Contracting
 AIA Forms commonly used
 Can be used without change,
except for project specific
additions, or with selective
modifications; topics changed
most frequently are arbitration,
indemnification, payment, and
the responsibilities of the
architect.
 Changes must be done carefully.
A change in one clause may
create confusion.

4. Construction Contracting
 Large-scale industrial construction, such as
fertilizer plants or nuclear facilities, are not
likely to use AIA documents.
 The organizational systems used in those
projects do not fit the fundamental
assumptions of the AIA system.
 Also, amounts at stake in such projects are
sufficient to justify a tailor-made contract or
form created by one of the contracting
parties.

5. Construction Contracting
 AIA documents most useful for small and
middle-priced projects; large-scale
residential or commercial projects in which
design and construction are separated, and in
which the architect plays a central
administrative role.
 Less likely to be used by public owners who
face many more legal constraints than private
owners.

6. Construction Regulations
 Multiple Levels (State, local,
etc.)
 Numerous areas of
government regulation (e.g.,
from codes providing building
standards to regulations
governing the practice of
contracting)

7. Construction Disputes
 Cast of characters can vary (contractor v.
owner; subcontractor v. contractor; claims
involving architects, suppliers, etc.)
 May involve counterclaims /cross-claims
 Forum may vary (liens, litigation, arbitration,
mediation)
 Claims typically contractual; sometimes tort
(e.g., negligence)
 Several typical scenarios; overview, then
focus on experts

8. Change Orders/ Extra Work
 Because it is virtually impossible for an
owner, architect, engineer or contractor to
foresee every design or construction problem
that will encountered on a project, most
construction contracts contain a “changes”
clause.
 The purpose of the “changes” clause is to
account for changes in design, to correct
errors in plans and specifications and to avail
the parties of flexibility in adapting their
contract so that it mirrors the conditions of
the site, the events that transpire and the
parties’ conduct.

9. Change Orders/ Extra Work
 Was the original scope of
work changed?
 Was the person who
changed the scope of the
work authorized to order
changes?
 Was a written change
order required?
 Was a written notice of a
claim for additional
compensation required?

10. Constructive Change
 A “constructive change” occurs when the
contractor is required to perform work
different from that prescribed by the original
contract, which should have been covered by
a change order.
 A contractor becomes entitled to additional
compensation for a “constructive change”
just as if the work had been performed
pursuant to a formal change order.

11. Constructive Change
 Site conditions different from what
reasonably expected
 Owner dictates different method of
performance
 Impossibility

12. Warranties
 Warranties are generally defined in the
construction industry as promises, assurances
or guarantees of the quality, quantity or
duration of a product or of certain work
performed.
 Express warranties
 Implied warranties
• of plans and specifications
• of workmanship
• of livability

13. PERFORMANCE/ BREACH ISSUES
 2 types of performance: substantial and
complete
• The “substantial performance doctrine” entitles a
contractor who has substantially (but not fully)
performed the work required under a contract to
be paid for the work performed, less the cost to
fully perform.
• This rule of “substantial compliance” is only
applied when a builder has undesignedly violated
the strict terms of this contract, and the owner
has received and retained the benefit of the
builder’s labor and material, and the builder is
ready to remedy. The defects must be trivial and
slight…

14. PERFORMANCE/ BREACH ISSUES
• This issue arises most
commonly at the end of
the job where the cost
of correcting an item on
the punchlist is greatly
in excess of the value
the owner will receive
for the correction.

15. PERFORMANCE/ BREACH ISSUES
 2 types of breach: material and immaterial
• A material breach of a construction contract
occurs when either the owner or the contractor
fails to perform (1) a substantial part of the
contract documents, (2) one or more of the
essential terms or conditions of such, or (3) the
breach substantially defeats the purpose of the
contract. For example, if the owner’s failure to
pay the contractor on time involves only a
reasonable delay or involves a disputed amount, it
will be deemed an immaterial breach.

16. PERFORMANCE/ BREACH ISSUES
• In administering a construction contract, the
distinction between a material and an immaterial
breach of contract can be quite important. For
example, courts generally require a material
breach to justify suspension or termination of the
contract by the non-breaching party. Not only
must the party seeking to terminate a construction
contract show that the other party materially
breached the contract but also the terminating
party must not (a) have breached the contract him
or herself, or (b) waived the other party’s material
breach.

17. DELAY/ DISRUPTION/ ACCELERATION
 In general terms, a party to a contract who delays,
hinders or wrongfully prevents performance by the
other party is liable to the other party for the costs
incurred as the result of a delay.
 An excusable delay is a delay for which neither party
(contractor or owner) is responsible. Excusable
delays are generally (1) unforeseeable (2) involve
outside forces over which neither the owner or the
contractor have any control and (3) not due to the
contractor’s fault of negligence, e.g. unusually
severe weather.

18. DELAY/ DISRUPTION/ ACCELERATION
 “Acceleration” or “escalation” is generally
the result of a previous delay. Under certain
circumstances a contractor is entitled to
recover the additional costs associated with
acceleration.

19. ACCEPTANCE
 It is a well-recognized rule of contract law
that strict performance may be waived by the
party entitled to performance. In the context
of construction contracts, this means that the
owner may acquiesce in the contractor’s
failure to perform according to the strict
terms of the agreement if the owner accepts
the contractor’s work.

20. CONTRACTS IMPLIED IN LAW
 Quantum meruit /unjust enrichment

21. DAMAGES
 When a person seeks to recover damages for breach of a
contract, the applicable rule of law is that the non-
breaching party should be put in the same position he or
she would have been had the contract been performed
according to its terms and conditions. As in non-
construction cases, a contractor has the burden of proving
that he or she has been injured and is entitled to damages
as a result of the breaching party’s actions or inactions in
violation of the construction contract. If the contractor
has fully completed his work, he or she is entitled to
recover the contract price. On the other hand, if the
contractor has only “substantially completed” the work,
he or she will be entitled to recover the contract price,
less the amount of damages sustained by the other
contracting party as a result of the contractor’s failure to
fully perform.

22. DAMAGES
 If the owner’s breach occurred prior to the
contractor’s completion of the work and prevented
the contractor from completing the work, the
contractor will be entitled to recover from the owner
that portion of the contract balance earned by the
contractor plus the contractor’s lost or anticipated
profits. Lost of anticipated profits are calculated by
subtracting from the contract price the contractor’s
costs of completion. The contractor must prove the
lost profits by reasonable, factual evidence showing
that lost profits were “anticipated” by the contractor
both at the time of contracting and at the time the
contractor was prevented from continuing
performance. Otherwise, lost profits will not be
recoverable.

23. DAMAGES
 Where there is an implied rather than an
express contract, the contractor’s recovery of
damages against an owner is based on
quantum meruit, i.e., the reasonable value
of the services rendered. The measure of
these damages is usually determined by such
things as the type of work performed and the
prevailing rate of pay for such work at the
time and in the place performed.
 Liquidated damages
 Exemplary damages

24. EXPERTS IN CONSTRUCTION CASES
 Details regarding
quality of performance,
reasons for delay,
damages, etc. may be
complicated and
technical
 Expert may be needed

25. Federal Rule Of Evidence 701
 OPINION TESTIMONY BY LAY WITNESSES - If the
witness is not testifying as an expert, the
witness’ testimony in the form of opinions or
inferences is limited to those opinions or
inferences which are:
• rationally based on the perception of the witness,
• helpful to a clear understanding of the witness’
testimony or the determination of a fact in issue,
and
• not based on scientific, technical, or other
specialized knowledge within the scope of Rule 702.

26. FEDERAL RULE OF EVIDENCE 702
 TESTIMONY BY EXPERTS – If scientific, technical, or
other specialized knowledge will assist the trier of
fact to understand the evidence or to determine a
fact in issue, a witness qualified as an expert by
knowledge, skill, experience, training, or education,
may testify thereto in the form of an opinion or
otherwise, if:
• the testimony is based upon sufficient facts or date,
• the testimony is the product of reliable principles and
methods, and
• the witness has applied the principles and methods reliably
to the facts of the case.

27. FEDERAL RULE OF EVIDENCE 703
 BASES OF OPINION TESTIMONY BY EXPERTS – The facts
or data in the particular case upon which an expert bases
an opinion or inference may be those perceived by or
made known to the expert at or before the hearing.
 If of a type reasonable relied upon by experts in the
particular field in forming opinions or inferences upon the
subject, the facts or data need not be admissible in
evidence in order for the opinion or inference to be
admitted.
 Facts or data that are otherwise admissible shall not be
disclosed to the jury by the proponent of the opinion or
inference unless the court determines that their probative
value in assisting the jury to evaluate the expert’s opinion
substantially outweigh their prejudicial effect.

28. Stephen J. Peklenk
Corporate Construction Services

29. The Effective Use of Experts in
Construction Cases

30. For More Information…
 NCBA North Carolina Construction
Law Deskbook
 Justin Sweet, Sweet on Construction
Law
 Smith, Currie & Hancock’s Common
Sense Construction Law

31. Elliot Fus
Kilpatrick Stockton LLP
efus@kilpatrickstockton.com