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Construction defects: How designers, contractors can avoid the blame game

Things are rarely perfect, and construction projects are no exception. For the most part, if there is a leak, a squeak or any other condition with which the owner isn't happy, the responsible contractor, subcontractor or supplier can remedy the situation quickly. However, every so often, situations arise that can lead to finger-pointing and questions about who is actually responsible.

Contact design professionals throughout the project

The most serious problems on a project, said Justin Mihalik, president of the American Institute of Architects-New Jersey, tend to occur when responsibilities for all of the project players aren't outlined at the very beginning. Often the architect is left out of critical aspects of the construction process, he said, and not consulted on minor changes that could turn into big problems at the end by the end of the job. One essential contract clause, therefore, should stipulate that if changes are made during the construction process without the approval of the architect, then the owner and the contractor are acting on their own and taking all responsibility. The same goes for the other project stakeholders.

"These days," Mihalik said, "many developers and clients don't take advantage of using the architect through the construction process because of fees." They feel like once the architect or design professional hands over the drawings and specifications, he said, they have everything they need when, in actuality, that work product represents a set of guidelines that might need adjustment or clarification as the project unfolds.  

This is especially true, he said, with renovation projects, which can reveal myriad unanticipated conditions that necessitate changes in design or materials. "When you can't see through walls," Mihalik said, "you have to do your best to take the best, educated guess as to how it's built." Mihalik said he always adds notes to his drawings requiring that the contractor notify him when such a wall, like in a renovation, is opened up so that he can determine what the exact condition is and put together a revised sketch or design.

When it comes to new projects, Mihalik said, the owner also has a responsibility to provide the design professional and contractor with certain information necessary to complete the project correctly, and that should be in the contract as well. For example, he said, the owner usually provides soil samples so that the appropriate foundation design can be used. "If the owner opts not to do that, they're taking on that liability because, as the architect, we have to go with a standard approach that the soil can support this much load."

Obtain a waiver of consequential damages

With an eye ahead to potential future defects, one item that is important for contractors to secure is a waiver of consequential damages to prevent being held responsible for the cost of delays in addition to the potential defect, said Ralf Rodriguez with Foley & Lardner in Miami.  

"If the project is not finished on time, the consequential damages – finance costs, loss of rent, loss of market value – associated with delays can sometimes be higher and greater than any claim associated with remedying a construction defect." In the case of, for example, a hotel with leaking windows, Rodriguez said if the leaks are preventing the rooms from being rented, not only could the contractor be held responsible for the cost of repairing the windows but for lost revenue and other delay-related charges as well.

In lieu of a waiver of consequential damages, Rodriguez said, a contractor should at least try to negotiate a maximum liquidated damages figure, even if that fails to put the contractor in the optimal position. "It's kind of a tradeoff," he said.

Document everything

If there is some apparent defect, like a crack in a wall or water leaking, and if the architect wasn't involved during the construction period, Mihalik said, it's very likely that the parties are going to be short on project documentation – progress reports, photographs, videos – necessary to identify the responsible party. He said photos of open walls and other project conditions that could very likely be covered up and not visible by the end of the project are vital in determining who is at fault. "If you don't have that information," he said, "because the owner didn't want to pay you to make periodic site visits, now it's a he-said-she-said situation."

Without clear proof of who's responsible, Mihalik said, the owner could bring in a third-party engineer or architect to review the project and associated documentation. This can be a drawn-out process that even involves cutting open walls in an effort to gather clues about who should be ultimately responsible to pay for the repairs. "At that point, (a third-party professional) will write a report, and they will have their findings in that report, and they're either going to find there was fault as to the way the architect designed the detail or in the way that the contractor installed the material. " The irony, Mihalik said, is that the owner will probably spend more money in trying to determine who is at fault than he would have spent having the architect come out to the project and document the conditions in the first place.

"It's shortsightedness because today everybody – builders, developers – are trying to save money everywhere, and they start off on the wrong foot by cutting the architect out of the process," Mihalik said. The architect is supposed to be the neutral party on the project, he said, intended to safeguard its integrity and make sure that all parties live up to their end of the contract but also to ensure that the contractor and subcontractors are treated fairly.

The “come back clause”

When there is an obvious defect, like windows leaking water, the contractor, whether it's his fault or not, will be the owner's first point of contact in the quest to get the situation resolved, said Thomas Baylis, partner at Cullen and Dykman LLP.  

There is the "come back clause" of a contract," Baylis said, which requires a contractor to return to fix any defects for a yearlong warranty period after substantial completion. However, the contractor also is typically held to a general warranty as well in which he affirms that he is providing a quality product that will perform as long as that of the industry standard. So, for example, a stucco contractor guarantees that the stucco will last as long as a typical, quality stucco application normally lasts. His "come back" period might only last a year, but he's still obligated to make good on defective work, even if that means the owner has to hire someone else and then back-charge the contractor.

There are other parts of the work, Baylis said, that don't have a very long life expectancy like paint on the exterior of a building. The question is, he said, "How long would a reasonable person expect that (item) to last?"

Mediation provisions should be in place

If the parties just can't agree on who is at fault or on the nature of the defect, Baylis said, contracts normally have mediation and arbitration provisions.  

"Typically they have a mandatory, nonbinding mediation, so that's the first step," he said. If the parties can't come up with a solution via mediation, binding arbitration is usually next.  The arbitrator, or panel of arbitrators if the project is large, is familiar with construction processes and will make a decision as to who must pay for the defects.

Piling onto an already difficult process, Baylis said, is the fact that in almost all of these cases, the project is often long completed. "You've made whatever profit you've made," he said. "You're onto your next job … and then you get these calls to come back. Every hour they spend fixing old mistakes is an hour that (they) can't work on new matters."

"The short-term view," Baylis said, is 'I'm not going to do it because I'm not getting paid for it.' The long-term view is it's unfortunately part of the cost of doing business."

 

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Filed Under: Commercial Building Residential Building
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