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Alleged Construction Defects: Be Consistent, Pick Your Battles and Document Carefully

The Silver Spring Transit Center (SSTC) in Silver Spring, Md., is a local transportation facility, but became a nationally known project because of alleged defective design and construction.

This led to “bet the company” litigation when the owners Montgomery County and the Washington Metropolitan Area Transit Authority (WMATA) sued the project’s designer, Parsons Brinckerhoff, Inc., inspector, The Robert B. Balter Company, and general contractor, Foulger-Pratt Contracting, LLC (FPC) for more than $75 million.

In addition to the owner’s claims, there were various counterclaims and cross–claims, and FPC filed a third-party complaint against its concrete subcontractor Facchina Construction Company, Inc. The litigation was large and complex and proceeded to a jury trial in May 2017 in the Circuit Court for Montgomery County, Md.

After several weeks of trial, the county settled with all defendants (WMATA settled with all defendants on the eve of trial). As part of the settlement, the county paid FPC $3 million. Many factors contributed to FPC’s favorable result, including the following four (of many) take-away lessons.

1. Build the Team, Keep it Together and Maintain Consistency

One important factor in any dispute is the strength and consistency of the team. Building a strong team early and keeping it together throughout the dispute helps bolster positions and allows for consistent and realistic analysis of issues.

FPC retained outside counsel, a consulting engineer, a schedule and claim consultant, and an accountant, early. This team remained consistent throughout the five-year process. This proved invaluable because FPC presented consistent and well-developed positions, first developed during the project, and then transitioning into dispute resolution and litigation. Although it is not always necessary to retain outside counsel and/or consultants early, associated costs must be considered. When significant issues arise and appear likely to proceed to significant dispute resolution procedures, putting the right multi-disciplined team together early strengthens the company’s overall position and significantly increases the likelihood of favorable results.

It is also critical to keep key project personnel together. Disputes take time to resolve. It is not unusual for project personnel to move on to other projects or seek other employment. Keeping key project personnel on the team is absolutely essential because they know the facts better than any consultant hired after the fact.

2. Protect the Company’s Rights, But Pick its Battles

When an owner alleges construction defects, general contractors often find themselves between the proverbial rock and hard place. On the one hand, a claim is asserted against the general contractor alleging defective work and, on the other, the general contractor has a potential claim against the subcontractor that performed the work.

Often a general contractor tries to walk a tightrope and defend against the owner’s claim of defective work while simultaneously pursuing a claim against its subcontractor for performing defective work. But this will likely force the general contractor to take inconsistent positions and can be a recipe for disaster.

In the SSTC case, FPC was sued for alleged defective work. The work was performed by Facchina and FPC asserted a claim for indemnification against Facchina. While technically adverse, FPC and Facchina entered into a joint defense agreement early and worked together to defend against the owner’s claims. This strategy proved effective and improved the strength of the defense.

To successfully navigate this, FPC had to determine what positions to present and what claims to actively pursue—picking its battle. When the owner first notified FPC of allegedly defective work, FPC assembled its own team and assessed the owner’s claims, Facchina’s responses and the work. FPC determined that the work was largely acceptable and that, in its view, the owner’s claims lacked merit. Based on this, FPC, rather than actively pursue claims against Facchina, preserved potential claims for the future and aligned itself with Facchina to defend against the owner’s claims.

This was a critical decision. If FPC’s assessment had been different—if FPC had determined that the owner’s positions were meritorious—FPC likely would have proceeded differently. In order to avoid problems later, it is important for the general contractor to assess the claims early and determine whether to focus its efforts on defending against the owner’s claims or pursuing a claim against its subcontractor.

It is also important for a general contractor to actively protect its interests and not waive any of its rights. FPC aligned itself with Facchina, but formally notified Facchina of the owner’s claims and of FPC’s claim against Facchina. And, FPC filed its claim for indemnification against Facchina in the litigation. Careful drafting of notices and pleadings to affirmatively state that the general contractor disputes the owner’s claims, while asserting a claim against its subcontractor “in the event that the owner’s claim is successful,” allows a general contractor to protect its rights without forcing the general contractor to actively pursue a claim against its subcontractor after it decides to align itself with the subcontractor in defending against the owner’s claims.

Document Important Facts, But Remember that Documentation Becomes Evidence

Documentation is crucial to winning. A contractor must comply with all notice and other documentation requirements applicable to all claims, or risk waiving its rights. The project team must document relevant events contemporaneously, so that an evidentiary record can be established—including, for example, documentation of proposed change orders, notices of delays, notices of disputes, requests for information and documentation of discussions between the project participants. And, directives received from the owner or any of its representatives, including the design team, must be documented.

Although documentation will be critical, it is equally important that the project team be instructed regarding appropriate limits on documentation. When disputes arise, all participants should assume that all of their email, correspondence, and other documents and electronic data, will be discovered by their opponents if the dispute proceeds to litigation. This means that this information can and will be used to undermine the company’s positions or strengthen the positions of its opponents.

It is important that the project team take care in what and how information is documented to, for example, avoid documenting positons or arguments before they are fully developed and adopted by the leadership team, and avoid using sarcasm, short-hand or other types of language that might be misinterpreted later.

To drive this point home: In the SSTC litigation, more than three terabytes of electronic data was produced by the parties. This resulted in over 60 depositions, more than 900 deposition exhibits and more than 300 trial exhibits before settlement was reached mid-trial. These exhibits included many emails which were intended by their authors to be “internal only” communications.

4. Preserve Privileges

The project team also must understand the concept and scope of the attorney-client privilege and work-product protection to avoid inadvertent waivers of these privileges. Project personnel should be instructed regarding what matters should be discussed with attorneys and, importantly, who may and may not be included in such communications in order to preserve privilege. This issue is particularly important where project personnel are communicating with consultants who may later become testifying experts. It is important to instruct project personnel that all communications with consultants may later become discoverable and to keep that in mind and use caution when communicating with consultants in writing.

Complex, large-scale construction projects can give rise to complex, large-scale disputes involving multiple parties with divergent and competing interests. Navigating these disputes and achieving a successful result is difficult. Many factors impact the outcome of any such dispute, but heeding these basic take-away lessons from the SSTC litigation should significantly increase the chances of a successful result.

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