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Executive Insights In Construction Law

Executive insights asked three of the leading minds in Construction Law to share their opinions on challenges that contractors face. The experts chimed in on topics related to the False Claims Act, the economic loss rule, and contract disputes.

What False Claims Act violations are under heightened scrutiny by the government?
MICHAEL D. GERMAIN
Partner
Watt, Tieder, Hoffar & Fitzgerald, LLP
The increased scrutiny of government contractors for instances of false pricing and fraudulent underbidding is the “new normal.”
Government pricing data audits examine bids, proposals and change orders for extra work. Contractors can avoid scrutiny by knowing the internal costs for all bid items, allowing for real-time updating of rates and available rebates from outside vendors, keeping apprised of ongoing changes to the government’s pricing provisions and establishing a due diligence program for claims development and submission.
Accidental underbidding (bid bust) typically is sourced to human error during the final preparation of the bid. Liability for underbidding comes into play when the government has evidence that the contractor knowingly underestimated the job, usually with a motive to increase its chance of winning the contract. Claiming that inputs used to compute a final bid were based on “bad guesses,” but were not false, may not hold up
in court.

What should contractors know about potential changes to the economic loss rule?

BRIAN A. WOLF
Partner
Smith, Currie & Hancock LLP
The economic loss rule is a court doctrine restricting negligence lawsuits by a party who could not file a lawsuit for breach of contract. For example, if a company’s contract has an enforceable “no damages for delay clause,” a court will not allow a breach of contract lawsuit for delay damages under the economic loss rule. Changes in the law may allow an owner or subcontractor that claims delay damages to file suit for damages under a negligence theory even though the contract states no damages for delay.
On one side of the debate is the argument that the economic loss rule has always been misapplied and that time-tested concepts of contract law versus tort law have always prevented a party from seeking negligence damages based on a breach of contract. On the other side of the debate is the argument that the lines are blurred without the economic loss rule.
As the debate plays out in the courts, companies should carefully review and regularly update the limitations of damages, dispute resolution, indemnity and insurance provisions in their contracts.

How can contractors minimize the potential for contract disputes?

DEBORAH DeBERNARD
Vice President and General Manager of Contract Documents
The American Institute of Architects
In a 2013 survey, most professional liability insurance experts agreed that miscommunication is a leading cause of claims. Avoiding miscommunication begins with a well-written and coordinated contract.
The importance of using written contracts in construction projects cannot be overstated, even for the smallest and most straightforward projects. To help protect contractors from conflict and potential litigation, a standard contract should always include a detailed project description, scope of work, payment terms and conditions, a project timeline, insurance considerations, and terms associated with correction of work, changes in scope and settling disputes. These contract provisions help provide basic protection from risk in even the simplest type of project. As projects become larger and more complicated, there is the potential for additional types of risk and greater exposure. Agreements must be sufficiently detailed to adequately address those issues.

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