Construction Law Insights

With the COVID-19 virus (Coronavirus) impacting everyday life, you may have heard people in the construction industry asking “has anyone reviewed the force majeure provision in our contract?” But what does “force majeure” mean and what impact does it have on your contract?

Fluor Fed. Sols., LLC v. PAE Applied Techs., LLC, 2018 U.S. App. LEXIS 9148 (4th Cir. Apr. 12, 2018)

In 2000, PAE Applied Technologies, LLC (“PAE”) prepared a bid for an Air Force contract. To make its bid competitive, PAE requested that Fluor Federal Solutions, LLC (“Fluor”) and other subcontractors cap the rate of their General and Administration (“G&A”) costs at 2.3 percent of direct costs. PAE contended that Fluor agreed to do so, but Fluor asserted that it never agreed the 2.3 percent cap. Regardless, PAE submitted its final bid to the Air Force, using the reduced 2.3 percent G&A rate, and won the Air Force contract. Thereafter, PAE and Fluor entered into a subcontract (the “Subcontract”), which required Fluor to submit invoices every two weeks and for PAE to pay Fluor’s invoices within 30 days. In October of 2002, Fluor began billing PAE for work completed under the Subcontract. In January of 2004, Fluor began submitting invoices to PAE with G&A costs exceeding the 2.3 percent cap. PAE rejected the increased rate and continued to pay Fluor the amount due under the Subcontract rate. Intermittently over the years, Fluor complained about the G&A cap, but PAE continued to pay, and Fluor continued to accept, payment at the Subcontract G&A rate.

Allegheny Cas. Co. v. River City Roofing, LLC, 2018 U.S. Dist. LEXIS 63142, 2018 WL 1785478 (E.D. Va. Apr. 13, 2018)

In 2014, Allegheny Casualty Company (“Allegheny”) issued performance and payment bonds (“P&P Bonds”) on behalf of River City Roofing, LLC, (“River City Roofing”), as principal, for three construction projects that River City Roofing, Rodney G. Young, Karen R. Young, and Sterling Young (the “Defendants”) subcontracted with Branch & Associates, Inc. (“Branch”) to perform. In November of 2014, Allegheny and the Defendants entered into a general indemnity agreement (“GIA”) in which the Defendants agreed to be jointly and severally liable to Allegheny in the event of any loss on the P&P Bonds. Rodney G. Young, Karen R. Young, and Sterling Young executed the GIA as individual indemnitors and Rodney G. Young executed the GIA on behalf of River City Roofing. In February of 2017, Allegheny received a $27,312.01 payment bond claim from American Builders & Contractors Supply Co. (“ABC Supply”), which is supplier of River City Roofing. Allegheny paid $16,440.17 to ABC Supply. In May of 2017, Allegheny received a $105,333.47 performance bond claim from Branch, which Allegheny expended $13,388.94 investigating. In September of 2017, Allegheny received a $5,189.40 payment bond claim from Brock Associates, LLC (“Brock”), which is another supplier of River City Roofing. Thereafter, Allegheny demanded that the Defendants post collateral sufficient to protect Allegheny as required by the GIA. On October 3, 2017, Allegheny filed a complaint against the Defendants to enforce the GIA, and then filed a Motion for Summary Judgment. 

United States ex rel. Harbor Constr. Co. v. T.H.R. Enters., 2018 U.S. Dist. LEXIS 72502 (E.D. Va. Apr. 26, 2018)

The United States government awarded T.H.R. Enterprises, Inc. (“THR”) a contract for construction and building repairs at the Langley Air Force Base (the “Project”). The Hanover Insurance Co. (“Hanover”) issued a Miller Act payment bond for the Project. On October 19, 2011, THR and Harbor Construction Company, Inc. (“Harbor”) entered into a subcontract regarding the Project (the “Subcontract”). Harbor last performed work under the Subcontract in September of 2017. Harbor made a demand for payment, but THR failed to pay $269,056.86 allegedly owed to Harbor under the Subcontract. On December 15, 2017, Harbor filed a complaint against THR and Hanover, asserting causes of action on the Miller Act payment bond, breach of contract, and unjust enrichment. On April 12, 2018, with the leave of the court, THR filed a Motion to Compel Arbitration and a Motion to Stay.

Comm’r of Hwys v. Karverly, Inc., 813 S.E.2d 322 (Va. 2018)

In 2014, the Commissioner of Highways (“Commissioner”) filed a certificate of take and later a petition for condemnation to acquire a 0.115 acre strip of property owned in fee simple by Kaverly, Inc. (“Kaverly”) to create a multi-use trail and for the reconstruction of Route 5 in Henrico County. Kaverly operates a child daycare center on the remainder of the property, which is approximately 5.17 acres. The strip of property taken includes a buffer between a fence and Route 5. Kaverly argued that it would need to move the fence inward in order to create a new buffer for privacy and security. Both of these changes, Kaverly concluded, would in turn require the relocation of the “playscapes” within the playground area. The new buffer and relocation of the fence and playscapes were the basis for Kaverly’s claim for damages to the fair market value of the remainder. On appeal, the Commission argued that the trial court abused its discretion by excluding its expert’s testimony on the ground that it offended settled valuation law governing damages to the remainder. The Supreme Court of Virginia agreed. 

Basham v. Jenks, 2018 U.S. Dist. LEXIS 79763 (W.D. Va. May 10, 2018)

Timothy Basham (“Basham”), a South Carolina resident, and Timothy L. Jenks (“Jenks”), a Virginia resident, formed Waterstone Development Company, LLC (“Waterstone”) in 2007 to develop homes in Roanoke County, Virginia. Basham and Jenks each owned 50 percent of Waterstone and both were required to make contributions to ensure liquidity and viability of the company. During its existence, Waterstone entered into multiple promissory note arrangements, at least one of which was with Franklin Community Bank (“Bank”). In December of 2013, Waterstone became insolvent, with outstanding obligations to Bank and other creditors in excess of $280,000.00. Basham alleged that he paid $274,000.00 to creditors, while Jenks only paid $6,000.00. Basham filed a breach of contract claim against Jenks, who removed the case to federal court.

Faneuil Inc. v. 3M Co., 2018 Va. Cir. LEXIS 74 (Cir. Ct. City of Richmond May 14, 2018)

In 2011, the Virginia Department of Transporation (“VDOT”) hired Elizabeth River Crossing Opco, LLC (“Elizabeth River”) to develop, design, construct, manage, operate, and maintain a tolling project in the Hampton Roads region of Virginia (the “Project”). Elizabeth River contracted 3M Company (“3M”) to design, implement, and operate the electronic tolling system (the “Tolling System”) for the Project. On October 9, 2013, 3M engaged Faneuil Inc. (“Faneuil”) to, among other tasks, run the customer service center and identify, invoice, and accept payment from the non-E-Z Pass drivers under a subcontract that contained a flat monthly rate (the “Tolling Subcontract”). Section 14.05(a) of the Tolling Subcontract required the parties to execute a “Scope Change” in the event of any “material addition to, deletion from, suspension of or other modification to” or a “material change to the requirements of the” Tolling Subcontract. Section 25.18 of the Tolling Subcontract further required the parties to memorialize in writing any alteration, amendment, or revocation to the matters covered in the Tolling Subcontract.

LAM Enters., LLC v. Roofing Sols., Inc., 2018 Va. Cir. LEXIS 80 (Cir. Ct. City of Roanoke May 30, 2018)

In September of 2012, LAM Enterprises, LLC (“LAM”) contracted with Roofing Solutions, Inc. (“Roofing Solutions”) for Roofing Solutions to replace a portion of a roof on a commercial property owned by LAM (the “Contract”). The Contract price was $44,900.00. In February of 2014, LAM filed a lawsuit against Roofing Solutions, alleging it breached the Contract’s indemnity and warranty provisions. In May of 2017, Roofing Solutions moved for partial summary judgment on whether the Contract’s limitation of liability provision capped Roofing Solutions’ liability at the Contract price of $44,900.00. Paragraph 6 of the Contract stated, “[i]t is agreed that in no event shall the liability of the Contractor exceed the contract price.” The Court granted Roofing Solutions’ motion for partial summary judgment on the limitation of damages issue. 

CGI Fed. Inc. v. FCi Fed., Inc., 2018 Va. LEXIS 74, 2018 WL 2728726 (Va. June 7, 2018)

In 2012, the State Department solicited bids for a visa processing contract. CGI Federal, Inc. (“CGI”), as a large contractor, was ineligible to bid because the State Department reserved the contract for small businesses. Although FCi Federal, Inc. (“FCI”), as a smaller contractor, was eligible to bid for the contract, it did not have the capabilities to perform the work alone. Therefore, CGI and FCI agreed to cooperate in submitting a proposal for the contract and entered into a teaming agreement on September 19, 2012 (the “Teaming Agreement”) to prepare a proposal. Under Section 2.0 of the Teaming Agreement, FCI “retain[ed] express and exclusive control over all prime proposal activities . . . as well as negotiation of any resulting prime contract.”  From the outset, CGI wanted at least 40% of the work available under the contract or its participation in the Teaming Agreement would not be worthwhile. The Teaming Agreement’s Statement of Work provided “Subject to the final solicitation requirements, [CGI] will receive forty-five percent (45%) work share of the total contract value . . . but the work share commitment may not be exactly 45% each year.”

Knox Energy, LLC v. Gasco Drilling, Inc., 2018 U.S. App. LEXIS 15646, 2018 WL 2944408 (4th Cir. June 11, 2018)

Knox Energy, LLC and Consol Energy, Inc. (collectively, “Consol”) filed a declaratory judgment action against Gasco Drilling, Inc. (“Gasco”), seeking a declaration that a drilling contract between Consol and Gasco was unenforceable because there was no meeting of the minds. Gasco filed a counterclaim, alleging that the contract was valid and enforceable. A jury returned a verdict in favor of Consol, finding there was no meeting of the minds. On appeal, Gasco argued: (1) the district court erred in instructing the jury on mutual assent; (2) Consol engaged in discovery misconduct, which warranted a new trial; and (3) the district court abused its discretion in excluding a document that Gasco sought to introduce during trial, which Gasco claimed also warranted a new trial. The Fourth Circuit Court of Appeals affirmed the district court’s decisions.

Travelers Indem. Co. v. Lessard Design, Inc., 2018 U.S. Dist. LEXIS 98937, 2018 WL 2939014 (E.D. Va. June 12, 2018)

In a previous lawsuit, Humphreys & Parnters Architects, LP (“Humphreys) sued Lessard Design, Inc. (“Lessard Design”), PDT Builders, LLC (“PDT”), and other Penrose Group entities (the “Penrose Group”) for copyright infringement. PDT tendered its defense to Lessard Design. After Lessard Design declined to defend PDT, the Penrose Group and PDT tendered their own defense to Travelers Indemnity Company of Connecticut (“Travelers”) pursuant to the Penrose Group’s Commercial General Liability policy (“CGL Policy”). Travelers accepted the tender of defense and paid the attorneys’ fees and costs associated with the defense in the Humphreys litigation. As such, Travelers was subrogated to the rights of its insureds, PDT and the Penrose Group. After granting summary judgment, the district court awarded $792,765.00 in attorneys’ fees to the defendants in the Humphreys litigation, which the parties later settled for $745,000.00. Travelers, as subrogee, then requested that Lessard Design indemnify Travelers for the outstanding attorneys’ fees and costs, which Lessard Design declined. Travelers then filed suit against Lessard.

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