California “Constructor” / Volume 35 / Number 3 / March 2006 Click on any heading to view text

Chief Executive Officer … AGC’s LAC Going Strong 2006 Constructor Awards Finalists Announced In Memoriam Stan Harris: 1922 – 2006

Government Relations AGC Supports Initiative Effort To Protect Prop 42 Guest Commentary Major Legal Issues Impacting California Contractors

Important Considerations When Using 'Virtual Building Models' on Construction Projects

Wide Range of Legal Issues Impact the Industry

How New California Laws Impact The Construction Industry

Liability Insurance: Subsidence, Earth Movement Exclusions Still Problematic

Overaa Decision Increases General Contractors' Liability

Will It Float?

California “Constructor” / Volume 35 / Number 3 / March 2006 Chief Executive Officer …

AGC’s LAC Going Strong

As many of our leaders are aware, AGC is active on many different fronts. Whether it is supporting the state’s politicians to pass a bond measure, fix Proposition 42, modify onerous regulatory provisions, negotiate collective bargaining agreements or train members on how to comply with the state’s laws, AGC’s effectiveness comes from its members. No truer words could be spoken than when applied to our Legal Advisory Committee (LAC).

Over the years, members, non-members and public agencies have requested AGC’s support in Amicus Briefs that would benefit the entire construction industry. Two such examples occurred in 2005. In one case, AGC was asked to file an Amicus in support of Overaa, which provided in part that under the multi-employer work site rules Cal/OSHA could hold the general contractor liable for any citations/violations found on the construction jobsite. AGC supported Overaa in their defense that they should not be held liable for the actions of their subcontractors when they have taken all reasonable efforts to ensure compliance by that subcontractor. This case continues today and is headed for the California State Supreme Court. AGC remains engaged and will support Overaa in their defense. As some of you may be aware, the implications of this lawsuit are significant to the construction industry.

In a similar vein, the lawsuit filed by CELSOC against PECG continues through appeal after appeal by PECG. In summary, CELSOC sued PECG several years back to allow state agencies to contract out for engineering services. The importance to the construction industry was significant in that contracting out would allow expedited project delivery. AGC rose to support CELSOC in their case. In the most recent appeal AGC will support CELSOC’s arguments before the California Supreme Court. The importance to the construction marketplace is apparent in both these cases; however, the team effort of the LAC and their recommendations to AGC may not be apparent. Hours of volunteer work went into reviewing the merits of the cases (and others like them) to ensure that the best interests of AGC and the construction industry are represented.

The work of the LAC does not end at the gates of the legal system, and it often times extends to the preventive arena as well. Faced with reviewing more than 3,000 bills annually, the AGC Legislative Committee relies heavily on the aid of the LAC in reviewing the bills applicable to the industry. These representatives from the LAC are invaluable to the contractors and service suppliers who serve on this appointed committee by providing background on California and federal laws. Their efforts allow our advocates to provide comprehensive responses to legislators and the Governor. Often times AGC’s veto requests are crafted in part by members of the LAC, which have allowed our Governor to establish a legal benchmark from which to work when follow-

on legislation is recommended and in the veto message. The LAC’s efforts and preventive activity is often overlooked and overshadowed by the vast negative press.

While members of the LAC provide significant added value to AGC members and the industry, they too benefit from their membership. LAC members are eligible for continuing education credits (MCLE) by way of meetings and the LAC's annual seminar. These continuing education credits became possible through a special certification granted to AGC by the California State Bar.

To the 150-plus members and member firms of the LAC we say thank you for your support, involvement and your contributions to the construction industry. To those legal firms and members who have yet to take advantage of the Committee and the LAC -- we encourage you to take advantage of AGC services.

-- Thomas T. Holsman

California “Constructor” / Volume 35 / Number 3 / March 2006 2006 Constructor Awards Finalists Announced AGC of California's Awards Committee has announced the selection of 15 projects as finalists in the Nineteenth Annual Constructor Awards program.

Final judging will be conducted April 1, 2006, at The Fairmont San Francisco, just prior to the 2006 Awards Banquet that evening. One winner will be selected in each of six categories. The 15 finalists selected and the categories of their achievement are:

Excellence In Project Management – Projects $5 Million Or Below

douglas e. barnhart, inc.: Copley Symphony Hall Administrative Offices Remodel – San Diego

Frank Schipper Construction Co.: Brooks Institute of Photography, Cota Street Campus – Santa Barbara

Excellence In Project Management – Projects Over $5 Million

Dynalectric: Hoag Hospital Presbyterian, Sue and Bill Gross Women's Pavilion – Newport Beach

Harbison-Mahony-Higgins Builders, Inc.: Cathedral of the Blessed Sacrament – Sacramento

Hensel Phelps Construction Co.: Coalinga State Hospital, Secure Treatment Facility – Coalinga

Innovation In Construction Techniques Or Materials

Swinerton Builders: de Young Museum – San Francisco

Frank Schipper Construction Co.: El Montecito Presbyterian Church, Sanctuary – Montecito

Contribution To The Community

Duran & Venables, Inc.: Los Gatos Streetscape Project – Los Gatos

Turner Construction Company: Make A Wish – Fort Joshua – Los Angeles

Meeting The Challenge Of The Difficult Job – Builder

Hensel Phelps Construction Co.: Sacramento City Hall – Sacramento

McCarthy Building Companies, Inc.: Sue and Bill Gross Women's Pavilion at Hoag Hospital – Newport Beach

Swinerton Builders: UCSD Hillcrest Hospital Renovation and Systems Upgrade – San Diego

Meeting The Challenge Of The Difficult Job – Heavy Engineering

C.C. Myers, Inc.: Carquinez Southern Approach Project – Crockett

FCI Constructors, Inc. - Northern Division: I-680 Toll Plaza Approach – Martinez

Shimmick Construction Co., Inc./Obayashi Corporation, JV: Metro Orange Line – Los Angeles

To register to attend the prestigious Awards Banquet, please call AGC at (916) 371-2422 or visit AGC online at www.agc-ca.org.

California “Constructor” / Volume 35 / Number 3 / March 2006 In Memoriam Stan Harris: 1922 - 2006 AGC and the California construction industry lost a strong supporter with the passing of J. Stanley Harris, a Past President of AGC of California. Harris died on February 25, 2006 at the age of 83.

Born in Sacramento on November 22, 1922, Harris attended local schools and the University of California at Davis. He was a Navy aviator in WWII, serving in the South Pacific. In 1945 he went to work as a civil engineer for A. Teichert & Sons and retired from the firm in 1971 as Vice President and General Manager of Construction. He later purchased an interest in Claude C. Wood Construction Company of Lodi, retiring from that company as president in 1993.

Long active in the Associated General Contractors of California, Harris served as President of the chapter in 1977. During his term he helped set the wheels in motion to form a Political Action Committee to help increase the association clout in the political arena. AGC's PAC continues to be active today.

Harris is survived by his wife, Marilyn; his children, Sally Barline and Marc Harris; son-in-law John Barline; stepchildren Catherine MacMillan, Newton Cope Jr. and John Cope; and four grandchildren. Donations in Stan Harris' memory may be made to the Sutter VNA & Hospice Foundation or a charity of choice.

California “Constructor” / Volume 35 / Number 3 / March 2006 Government Relations AGC Supports Initiative Effort To Protect Prop 42 Signature Gathering Off to a Strong Start In just a few weeks, the coalition formed to protect Proposition 42 has been able to collect more than 450,000 signatures for a constitutional amendment to close the Prop 42 loophole and ensure once-and-for-all that the gas taxes we pay at the pump go to fund our vital transportation needs. The word on the street is that voters are jumping at the opportunity to sign the petitions to put this measure on the ballot. In order to qualify for the November 2006 ballot, approximately 1.1 million signatures must be gathered by the end of April. See the “get involved” section below to find out how you can help! Sacramento News Conference Kicks off Campaign On Thursday, February 16, Sacramento Mayor Heather Fargo, Sac County Supervisor Roger Dickinson, the California Alliance for Jobs, Associated General Contractors, California Chamber of Commerce, and dozens of local elected officials, labor and business representatives joined together to hold a kickoff news conference to announce the beginning of the campaign and the official launch of signature gathering. Diverse Coalition Backing Efforts. In a matter of weeks, a diverse coalition of business, labor, transportation, local government and public safety representatives have all come together to support this initiative. You can download the latest coalition list from the website at www.Close42Loophole.com What You Can Do To Get Involved! Fixing Proposition 42 is a major undertaking that will require a broad-based coalition and financial assistance. � Make an Endorsement. Go online and sign up so that you or your company can be listed as a formal supporter of this measure. � Make a monetary contribution. The cost of qualifying the initiative for the ballot will exceed $2.3 million. Your support is critical. Please make contributions out to: Californians to Improve Traffic Now, 591 Redwood Highway, #4000, Mill Valley, CA 94941; FPPC ID# 1282482. For more information, you can contact the Committee chairman Jim Earp at 916-446-2259. � Help Circulate Petitions. Contact Rachel Seaborn at 916-492-6335 to order the official petitions to help us qualify this measure for the ballot.

� Tell a Friend or Colleague. Download materials and distribute them widely to all supporters who you think will be interested in our efforts. � Link to the campaign Website. Instructions available at www.Close42Loophole.com

California “Constructor” / Volume 35 / Number 3 / March 2006 Guest Commentary Major Legal Issues Impacting California Contractors By Aaron P. Silberman There were many important legal developments impacting contractors over the past year and in the year ahead. Here are some of the most significant:

Licensing

The “substantial compliance” doctrine for state contractor’s licensing requirements took another hit in MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (see Legal Brief 06-02). In that case, the court ruled that a contractor that started a job without a required license and obtained that license a few weeks later cannot recover for any of the work it performed, even that done while licensed.

Health & Safety

General contractor liability for injuries to subcontractor employees caused by Cal/OSHA safety violations were expanded by a trial court in a non-precedential decision in Overaa Constr. v. Cal. Occupational Safety & Health Board. How much that liability has been expanded remains to be seen. In Overaa, the court ruled that Cal/OSHA does not need to prove lack of diligence by the general contractor to establish “controlling employer” liability for safety violations causing subcontractor employee injuries. It is unclear whether this ruling would preclude general contractors from proving they acted diligently as an affirmative defense. The case is now on appeal, and the AGC of California filed an amicus brief in support of the contractor.

Indemnification

In residential construction, significant limits have been imposed on developer-contractors’ ability to obtain indemnification through their subcontracts. California Civil Code Section 2782 (AB 758), enacted in 2005, will preclude developer-affiliated contractors on residential projects from recovering indemnification from their subcontractors for construction defects caused by the contractors’ negligence. The AGC of California’s form subcontracts have been revised to account for this new law.

The courts have also weighed in on general contractors’ ability to recover indemnification from their subcontractors. In McCrary Constr. v. Metal Deck Specialists, a court ruled that an actively negligent general contractor cannot recover indemnity from its subcontractors under a general indemnity clause.

Construction Defects

The Legislature was not alone in increasing general contractors’ exposure to potential liability for construction defects. In Acosta v. Glenfed Dev. Corp., a court increased that exposure by eroding the protections afforded contractors by the ten-year statute of repose for construction defects. The statute of repose generally meant that, with limited exceptions, contractors could have no liability for construction defects more than ten years after the work was done. In Acosta, the court expanded the fraud exception to this general rule to include situations where a general contractor was reckless regarding its subcontractors’ willful acts to create or conceal the defects.

Pre-Construction

Contractors with substantial pre-construction work on a project beware. In D’Orsay Int’l Partners v. Superior Court, a court held that contractors have no lien rights when a project stalls before construction begins, even if they have performed substantial pre-construction work. And in City of Long Beach v. Dept. of Industrial Relations, the court left open the question of whether prevailing wage requirements apply to publicly funded pre-construction.

Public Contracting

In the ever-troubling area of false claims, the news for contractors was mixed. On the one hand, a federal court ruled in United States ex rel. Bettis v. Odebrecht Contractors of California, Inc. that underbidding on a job, by itself, is not a violation of the federal False Claims Act. (Underbidding was one of the primary allegations in the false claims lawsuits against Tutor-Saliba concerning the Los Angeles subway and the San Francisco International Airport projects.) On the other hand, a court ruled in State of Cal. ex rel. Harris v. PriceWaterhouseCoopers LLP that cities can sue as whistleblowers under state False Claims Act, which would allow them to sue even if none of their funds were involved and to recover their attorneys’ fees if they prevail.

The news was also mixed regarding contractor recoveries when public projects go bad. The results were devastating to the contractor in Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist., in which the court ruled that a wrongfully terminated public contractor can only recover its lost profits on the terminated job, even if that termination diminished the contractor’s bonding capability and so caused it to lose profits on many other public jobs. The results were better for the contractor in N.V. Heathorn v. County of San Mateo. That case held that a public owner that fails to require that prime contractor obtain a payment bond required by statute may be liable to subcontractors for the resulting damages.

Conclusion

2006 promises to be another year filled with big construction law developments. Stay tuned!

Aaron P. Silberman (asilberman@rjop.com) is a shareholder at Rogers Joseph O’Donnell & Phillips (www.rjop.com). He is the 2006 chair of the Legal Advisory Committee and a member of the Executive Committee for the AGC of California.

California “Constructor” / Volume 35 / Number 3 / March 2006 Important Considerations When Using 'Virtual Building Models' on Construction Projects By Michele McKee “Virtual Building Models” (VBMs) are revolutionizing construction. This article discusses the practical and legal effects of this “revolution” and how VBMs may benefit and impact the construction process.

HOW IS 4D/5D MODELING USED ON CONSTRUCTION PROJECTS?

“4D” modeling extends 3D modeling techniques by incorporating the construction schedule and sequencing into the model. “5D” modeling incorporates costs from initial estimates through final construction and maintenance costs. 4D/5D VBMs may ultimately be used over the entire life of a building – from conception through final construction and facilities maintenance.

Design Phase:

Design professionals regularly use VBMs to provide owners with early visualization of the final building “product,” affording more realistic expectations of the design and more informed perspectives to suggest changes. 5D modeling allows more efficient integration of design and estimating, making them a parallel, rather than sequential, process and providing earlier ability to respond to budgeting concerns. 4D modeling extends the benefits 3D modeling provides in pre-construction design conflict resolution into constructability analysis, sequencing and scheduling.

Construction Phase:

VBMs provide benefits, especially in the MEPF design and coordination process, by enabling the owner to bring on contractors and coordinate their work during the design phase.

Potential benefits continue during construction by streamlining field conflict resolution and assessment of cost and schedule impacts from scope or schedule changes. Field verification of as-built construction and schedule progress may earlier identify defects or delays. Similarly, synchronized design, cost and schedule data from the VBM improves the ability to analyze delay and cost impacts for post-contract negotiations

Facilities Maintenance:

VBMs programmed with building maintenance, material and warranty data enable facilities maintenance personnel to integrate the model into a comprehensive systems management process. VBMs may also be utilized for future building renovations.

AREAS OF POTENTIAL CONFLICT ON VBM PROJECTS:

Who will be the “provider” of the project’s construction modeling services?

Clearly defining each participant’s VBM responsibilities at the outset is key to success.

Most commonly the owner obtains construction modeling services by (a) contracting with an independent construction modeler, (b) including construction modeling in the scope of work in its contract(s) with the design professional and/or general contractor, or (c) including that work in its contract with a construction manager.

Each approach has its advantages and disadvantages. Hiring an independent modeler introduces another project participant but may mitigate problems due to other parties’ lack of technology expertise and may provide the owner with readily available operations and maintenance assistance. Using the project’s design professionals or contractors or, especially, both for modeling requires significant coordination, may increase scope conflicts, and, due to varying technology experience among the parties, may be harder to manage. Where the construction manager has sufficient expertise to do so, using it for modeling will usually make the most sense; where the owner uses this approach, it should bring on the manager at the beginning of the design phase during integration into the model of design, estimating, and schedule.

Who "owns" the VBM after project completion? Is it a deliverable to the owner? Who is responsible for delivery?

If the owner purchases the VBM for use in facilities maintenance and management, it will own the model for those purposes, but what about the parties that created the model? Contract documents should address whether the model is treated like design drawings and who will have what rights to use it on future projects.

Who is responsible for the input and accuracy of information in the VBM at each stage of the project?

Contract documents should address this, ideally designating a central inputting "entity" for consistency and clearly identifying who will be responsible for fixing any "errors" or "bugs" and for any damages they cause.

Who will have access to information in the VBM at each stage of the project and after project completion?

The parties should consider whether restrictions on access or modification rights during design and construction are necessary for security purposes as they will exclude project participants from the process. Access to information after project completion becomes important when disputes arise over contract claims or construction defects. Having the right to obtain a copy of the VBM at the completion of the project may save a contractor from having to spend a lot of money to obtain the same information through litigation.

How will the owner evaluate whether bidders are qualified to participate in the project VBM? What happens to the VBM if a contractor defaults?

Contract requirements should address what qualifications any party with VBM responsibilities must possess. Contracts should identify who has take-over responsibilities if a party with VBM duties defaults and how the take-over will be accomplished.

Conclusion

4D and 5D modeling is here to stay, and its use will only increase as the costs of this technology decreases. VBMs pose special challenges that should be addressed as thoroughly and clearly as possible in all contract documents for projects that utilize them.

Michele McKee is an attorney at Rogers Joseph O’Donnell & Phillips and is also a civil and structural engineer and a member of the American Society of Civil Engineers. Special thanks to Aaron Silberman for his help editing this article.

California “Constructor” / Volume 35 / Number 3 / March 2006 Wide Range of Legal Issues Impact the Industry The California Constructor gives special thanks to the AGC Legal Advisory Committee, whose members prepared articles on a host of legal issues that are impacting the construction industry and your business. Due to space restrictions, several articles prepared for this issue will be featured in upcoming months in our Legal News column.

Look for in-depth, informative articles on the following topics among others in the months ahead:

• Indemnity Arrangements Best Left to the Market Place, by Roland Nikles, Bell, Rosenberg & Hughes

• When is a Construction Manager’s “Service” Contract Subject to Competitive Bidding Rules?, by Roger M. Hughes & Roland Nikles, Bell, Rosenberg & Hughes

• A Red Alert For Contractors: The Importance Of Maintaining A Valid Contractor’s License At All Times, by Jack W. Fleming, Esq., Musick, Peeler & Garrett Llp

• Competitive Bidding vs. Social Policy: A Look at Council of City of New York v. Bloomberg, by Michaelbrent Collings, Kamine Ungerer LLP

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California “Constructor” / Volume 35 / Number 3 / March 2006

How New California Laws Impact The Construction Industry By Lynn E. Hall

Several new state laws that became effective in California on January 1, 2006 affect the construction industry. Some of these statutes offer new opportunities to knowledgeable contractors and owners; others impose new requirements and restrictions. The new California state laws most relevant to the construction industry are summarized below.

STOP NOTICES

A stop notice claimant can now reduce the amount of a stop notice already served on the owner (or release it entirely) without necessarily waiving all rights to serve subsequent notices. The reduction or release must be in writing and served on the owner, but need NOT use the statutory forms for unconditional waiver and release on final payment.

Service of a reduction or release of a stop notice DOES release the owner from the obligation to withhold money on account of the stop notice, to the extent of the reduction or release, and prevents the claimant from enforcing its prior notice, to the extent of the reduction or release. It does NOT prevent the claimant from serving a subsequent stop notice that is timely and proper.

This allows served stop notices to be reduced or released pursuant to a negotiated payment arrangement but preserves the claimant’s right to file subsequent stop notices when appropriate (for example, when the payment arrangement has not been followed and a second stop notice is still timely). Civil Code §3262 (amended)

PUBLIC WORKS – DESIGN-BUILD CONTRACTS

Los Angeles, Orange, San Diego, San Luis Obispo, Butte, Del Norte, El Dorado, Fresno, Humboldt, Kings, Madera, Mariposa, Mendocino, Merced, Monterey, Napa, Placer, San Joaquin, Shasta, Siskiyou, Stanislaus, Yolo, and Yuba Counties can now award construction contracts with costs over $2.5 million either to the lowest responsible bidder or by “best value” as defined in the statute. Likewise, “design-build contracts” can be awarded by these counties on building construction projects with costs over $2.5 million (except that design-build contracts are NOT authorized for construction of transportation facilities, including roads, bridges and public rail transit).

The statute requires counties to follow a detailed four-step process to award design-build contracts, including pre-qualification of “design-build entities” and utilization of specified evaluation and selection factors. If a board of supervisors elects to proceed on a design-build basis, a labor compliance program must be established for design-build contracts (unless a collective bargaining agreement applies). Subcontractors that are not part of the original design team must be obtained in accordance with existing subcontractor listing laws.

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Cities in Solano and Yolo counties (with approval of their city councils) may also enter into design-build contracts, subject to requirements similar to those applying to the counties listed above, except that the city construction contracts may be for any amount. Public Contract Code §§20133 (amended) and 20175.2 (new)

PUBLIC WORKS – WAGE RECORDS

The law continues to require contractors and subcontractors performing a public work contract to pay “generally prevailing wages” and to keep verified payroll records containing specified information regarding their employees. Now, however, verified printouts of computer records containing the same payroll information can fulfill these statutory record-keeping requirements. Labor Code §1776 (amended)

INSURANCE ON STATE CONSTRUCTION PROJECTS

The law has generally prohibited insuring property belonging to the state against the risk of fire damage. However, the California Director of General Services is now authorized to establish a master builders’ risk insurance program for all state construction projects during construction. Government Code §11007 (amended)

CRUMB RUBBER REQUIREMENT

The California Department of Transportation must now require that specified percentages of total asphalt paving materials used on state highway projects be crumb rubber, as defined by statute. Public Resource Code §42703

INDEMNITY PROVISIONS IN SUBCONTRACTS

This amendment ONLY applies to subcontracts or amendments to subcontracts entered into after January 1, 2006 relating to residential (not commercial) construction. Provisions requiring a subcontractor to indemnify or defend a builder for liability for construction defects are unenforceable to the extent the claims relate to design defects by the builder or by contractors directly responsible to the builder, or relate to work outside the scope of the subcontract. In other words, in residential subcontracts signed after January 1, a subcontractor cannot be required to indemnify the contractor for damages due to construction defects that are the contractor’s fault. Civil Code §2782 (amended)

HOME IMPROVEMENT CONTRACTS

All “home improvement contracts” and “service and repair contracts” (and amendments to them) entered into after January 1, 2006, must be in writing and provide detailed specified notices and disclosures. Contractors should obtain new contract forms that include the additional required language before entering into contracts (or amending contracts) for these projects. This statute does NOT apply to construction of new residential units, or to contracts with persons who do not reside in the home or unit being improved.

EXCAVATION

Vacuum excavation devices and power-operated or power-driven tools (rather than hand tools) may be used in excavation, even before the precise location of subsurface installations is determined, if there is an express written mutual agreement between the excavator and the utility

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operating the subsurface installation that may be affected. Government Code §§4216.3 and 4216.4 (amended)

RECYCLED CONCRETE

“Recycled concrete” (as defined by statute) may be used if the user has been “fully informed” that the concrete used may contain recycled concrete materials. However, no recycled concrete shall be offered or sold to the California Department of Transportation or Department of General Services unless specifically requested and approved by the department. Public Resource Code §§16000-16004.

FINAL NOTE

This article provides brief summaries of complex statutes for general informational purposes only. It is not intended to be a substitute for hiring your own lawyer. If any of the provisions discussed directly affects your business, you should contact a lawyer to learn the precise requirements of the statute and to discuss its application to your business. By becoming fully familiar with changes in the law you will better serve your clients and customers, protect your business, and take advantage of profitable new opportunities in 2006.

Lynn E. Hall is of counsel at Kamine Ungerer LLP in Los Angeles.

California “Constructor” / Volume 35 / Number 3 / March 2006

Liability Insurance: Subsidence, Earth Movement Exclusions Still Problematic By Robert G. Mahan, Esq.

As originally reported in “the Constructor” four years ago, the construction defect fiasco in California led to the creation of the subsidence exclusion for attachment by endorsement to the commercial general liability policies of homebuilders. Originally the exclusion applied only to completed operations property damage and was limited to subsidence generally caused by foundation failures. It has potentially evolved into the contractor's worst nightmare.

Many construction carriers have extended the subsidence exclusion into an "absolute earth movement exclusion" including earthquake. Most no longer limit the exclusion to either property damage or completed operations. The courts in California have been of no help in mitigating the negative effects. (See Blackhawk Corp. v Gotham Ins. Co., 54 Cal App 4th 1090.)

Why the big concern for most contractors?

• Any earthquake induced bodily injury or property damage is excluded. If structural failure occurs arising our of construction defects, there is no coverage.

• No coverage for bodily injury arising out of a trench collapse on an ongoing job. • Possible coverage problems arising out of equipment upset. • Subcontractors may have this exclusion on their policies.

What can you do to eliminate or mitigate the problem?

• Use a different insurer - several A-rated insurers cover subsidence • Request the exclusion be deleted -- especially for premiums over $50K. • Require your subs to disclose all exclusionary endorsements. • Obtain a side letter from the insurer limiting the areas where the

exclusion applies.

Large general contractors and public entities, such as Caltrans, are becoming more and more sensitive to the use of exclusionary endorsements on policies issued to their contractors. There is a requirement in both the Caltrans insurance specifications and the AGC of California standard form subcontract that exclusionary endorsements must be set forth in the insurance certificates.

Robert G. Mahan Esq. is Managing Member of Mahan Insurance LLC, with offices in Irvine CA. He can be reached by email at bob@mahaninsurance.com.

California “Constructor” / Volume 35 / Number 3 / March 2006

Overaa Decision Increases General Contractors' Liability By Eugene F. McMenamin Until promulgation of Cal/OSHA’s multi-employer work site rules, the test for determining employer liability for safety infractions was whether an employee of that employer was exposed to an unsafe condition -- exposure being defined in the case law as where the employee might reasonably come within the zone of danger. Prior to the multi-employer rules, general contractors were not held liable for unsafe work site conditions, whether under their control or not, unless the general contractor’s own work force also came within the zone of danger and thereby became an “exposing employer.” Those days are long gone.

Under the multi-employer work site rules, general contractors risk being charged with liability under the three other classifications subject to Cal/OSHA citations, including:

• the employer who actually created the hazard -- creating employer,

• the employer who was responsible, by contract or through actual practice, for safety and health conditions on the work site, such as the employer who had the authority for insuring that the hazardous condition is corrected -- controlling employer, and

• the employer who had responsibility for actually correcting the hazard -- correcting employer.

Under the Fed/OSHA enforcement scheme, it has become policy that a general contractor can be deemed responsible for hazardous conditions that it could reasonably have been expected to prevent or abate by reason of its supervisory capacity unless it can demonstrate that it could not reasonably have been expected to detect the hazard..

Unfortunately, Cal/OSHA has abandoned all pretense at basing controlling employer liability upon failure to exercise reasonable care. Instead, it now claims that general contractors are strictly liable for subcontractor violations. In C. Overaa & Co. the Cal/OSHA Appeals Board affirmed a serious citation against a contractor for a trench shoring violation by a subcontractor despite no showing that the general contractor was aware of the violation or failed to exercise reasonable diligence in discovering the violative condition. The facts are extreme. Overaa was constructing a waste treatment plant for the Dublin San Ramon’s Services District. Overaa subcontracted the electrical work to Cra-Tek. During a Cal/OSHA walk around inspection, the compliance officer observed a Cra-Tek employee in a trench being dug by Cra-Tek for an electrical vault. The inspector measured the trench depth at 5’ 6”. The trench was not shored. The actual depth of the trench was disputed but the Appeals Board sided with the Division of Occupational Safety and Health (“DOSH”) that it measured over 5’ at which depth trenches must be shored.

Overaa claimed that it was wrongly cited because it was unaware of this condition. Overaa argued that, at a minimum, it could not be held liable unless it, as general contractor, had knowledge that the subcontractor’s employee was exposed to a hazard. Overaa further argued

that it could only be held liable if it failed to exercise due diligence in discovering the violative condition. Overaa argued by analogy to Fed/OSHA case law that places the burden on the government to establish that the employer’s failure to discover the violative condition was due to a lack of due diligence.

In a breathtaking departure from fairness and common sense, the Cal/OSHA Appeals Board sided with DOSH and affirmed the citation against Overaa. The Appeals Board rejected the concept that controlling employer liability hinges upon the failure to exercise reasonable diligence by the general contractor. Without utilizing the term, the Cal/OSHA’s Appeals Board has endorsed the concept of strict liability for controlling employers.

How the Appeals Board got here is particularly troublesome. The Appeals Board cited boilerplate language in the general contract by which the owner delegated to the general contractor control of job site safety and health. Manifestly, this boilerplate language in general contracts, including the AIA 201 and the AGC standard long form, are intended to simply constitute a risk allocation mechanism. They are not intended to be an adoption by the general contractor of statutory and regulatory obligations not otherwise mandated by law.

Overaa is now on its way up through the appellate courts. AGC is filing an amicus brief on behalf of Overaa.

AGC members report that DOSH enforcement personnel have become increasing emboldened in issuing citations to general contractors for isolated instances of subcontractor employee violations of safety rules. For instance, the Los Angeles office of DOSH issued a general contractor a citation after observing a roofing subcontractor employee utilize a ladder while holding a bucket in one hand. No evidence was offered that any general contractor personnel saw or could have anticipated this isolated act of fleeting duration. Indeed, no claim was made that this was the case. Instead, DOSH simply pointed to boilerplate language in the general contract.

DOSH publishes various Policy and Procedures Manuals for its enforcement staff. They are available on the DOSH website. The Multi-Employer Work Site Inspections Policy and Procedures Manual lists a series of examples where controlling employers, such as general contractors, may or may not have liability. Throughout that Policy and Procedures Manual are references to the concept of forseeability and reasonableness. Unfortunately, DOSH has thrown its own enforcement policy to the wind and is issuing citations to unsuspecting general contractors based solely upon a unfair reading of general contract boilerplate delegating job site safety and health issues to the general contractor.

Until this issue sorts itself out through more legal challenges and corrective legislation, general contractors should appeal any Cal/OSHA citation alleging controlling employer liability. By the time the matter comes to hearing, a year or two later, the environment may be more employer friendly.

Eugene F. McMenamin is with Atkinson, Andelson, Loya, Ruud & Romo, Cerritos

California “Constructor” / Volume 35 / Number 3 / March 2006

Will It Float? By Gordon Hunt

One of the aspects of CPM scheduling is the concept of float. Float is that period of time that an activity can be delayed without causing a delay to the project. It is often times designated in the CPM schedule as the difference between the early and late start date of an activity or the early finish and late finish of an activity. Those activities can be delayed by those number of days without causing a delay to the project.

In the case of Construction Enterprises and Contractors, Inc. v. Orting School District No. 344, 2004 Wash.App. Lexis 681; 121 Wn.App.1012; 2004 Wash.App.Lexis 1494; review denied 2004 Wash Lexis 905 (unpublished opinion), the Court had an occasion to determine whether or not a particular provision in a construction contract relating to "float time" would "float" as a defense to a disruption claim. In that case, the Orting School District retained CE&C as the contractor. Orting employed Erickson as its architect. Erickson employed Warner to design the paving, grading, water, sewer and storm drain plans. Orting provided CE&C with the design plans prepared by Erickson and Warner. CE&C encountered problems during the job relating to the water, sewer and storm drain plans as well as the road grading and paving plans. Because of those problems, CE&C frequently had to stop work and incurred over $700,000 in disruption damages. Notwithstanding the disruption claimed by CE&C, it was able to complete the project within the contract time.

CE&C sued Orting for damages resulting from the continuing disruption, loss of productivity, inefficiencies and extended performance costs based upon the inadequate design and the failure to provide timely fixes for the design deficiencies. CE&C entered into a settlement with Orting and Erickson. The terms of that settlement were not discussed by the Court; however, as a part of the settlement, Orting assigned its claims against Erickson and Warner to CE&C and Erickson assigned its claims against Warner to CE&C.

In regard to the loss of efficiency claim, Warner filed a Motion for Summary Judgment claiming that those damages were barred by a provision in the contract which assigned all float time to the owner. Specifically, the provision read as follows:

"FLOAT TIME: The inclusion of float time in the activity listing of the Contractor's Construction Schedule shall be owned entirely by the Owner. The Contractor shall not be entitled to any adjustment in the Contract Time, the Contractor's Construction Schedule, or the Contract Sum, or to any additional payment of any sort by reason of the loss or use of any float time, including time between the Contractor's anticipated completion date and the actual completion date."

Warner argued that said provision barred any recovery by CE&C against Orting because CE&C finished the project on time. Warner reasoned that CE&C's claims are keyed to its frustrated plan to finish the project before the contract completion date, and any claim for this time loss is precluded by the language in the above quotation, to-wit, "including time between the contractor's anticipated completion date and the actual completion date." CE&C contended that it suffered increased

performance costs due to disruption, inefficiency and loss of productivity caused by the design defects and that these were disruption damages and not delay damages and the above-mentioned clause regarding float time relates only to delay damages, not disruption damages. CE&C defined "float time" as "the excess time scheduled on various side path activities which are not on the critical path and thus will not delay the entire project." CE&C claimed that its claim was not for lost float time, but for disruption of the productivity of the individual work items, some of which had float and some of which did not.

CE&C contended that unlike a delay claim, which redresses losses from being unable to work, a disruption claim compensates for damages suffered from actions that make the work more difficult and expensive than anticipated, citing U.S. Indus., Inc. v. Blake Constr. Co., 217 U.S.App. D.C. 671 F.2d 539 (D.C. Cir. 1982). The Court noted that CE&C does not claim delay damages, but is claiming disruption damages. The Court concluded that Warner had failed to show "as a matter of law" that the float time language barred CE&C's disruption claim. The Court made the following statement with regard to float time:

"Float time is not defined in the contract. It is not a commonly understood term, and CE&C presented evidence of its meaning in the construction industry. Gregg Warter, CE&C's president, testified that the time between CE&C's anticipated early completion date and the contract completion date is not float time. Warner offered no evidence of what the parties intended by the float time provision other than the language of the contract itself. We conclude that an issue of material fact exists as to the meaning of float time in the contract and whether the float time language bars some or all of CE&C's claims."

The Court never really finally addressed the underlying issue as to whether or not the clause in question (allocating float time to the owner) would, in fact, bar a disruption claim by the contractor. The Court merely concluded that there was an issue of material fact as to the meaning of float time in the contract and whether the float time language would bar some or all of CE&C's claims. It seems strange that the parties did not present expert testimony as to the meaning of float since expert CPM consultants regularly deal with the meaning of float and how it is used on construction projects.

Some owners will insert provisions in their contracts with the contractor allocating all the float time to the owner. That may or may not be a good idea from a strategy standpoint. Where such a provision is contained in the scheduling specifications, the contractor may merely make more items critical without float time in order to contend that any delay by the owner will delay the project. That strategy can backfire on the contractor if the contractor delays an activity with no float. As to whether or not it would bar a disruption claim as distinguished from a delay claim, remains yet to be determined, at least according to the opinion in this particular Court. It would seem to the author that the float time clause would not defeat a disruption claim since float time relates to time and delay issues. The author knows of no other court decision that has addressed this precise issue.

Gordon Hunt is with Hunt Ortmann Blasco Palffy & Rossell, Inc., Pasadena, CA.