Construction in the Age of COVID-19: Contract Provisions that Merit Review in these Uncertain Times.

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The nature and extent of COVID-19’s impacts  on Arizona’s construction industry are currently unknown.  It is, however, certain that there will be impacts.  At the very least, many projects may be delayed.  Thus, in order to prepare for what lies ahead, delay-related provisions in existing construction contracts and contemplated future contracts merit review and consideration. These include, but are not limited to, clauses covering the following:

Contract Time

The starting point for any delay claim is the contract provision specifying the performance period for the subject work.  Typically, construction contracts will establish the performance period by: (1) specifying commencement and completion dates; or (2) setting forth a number of days within which the work must be completed after a notice to proceed is given. read more

Time May Not be on Your Side: Understanding “Time is of the Essence” Clauses

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It is typical for construction contracts to provide that “time is of the essence.”  And while these clauses clearly signify that time is important, their practical impact on parties to an agreement may be less clear.   Luckily, the Arizona Supreme Court addressed the effect of “time of the essence” provisions in this state in Foundation Development Corp., v. Loehmann’s, Inc., 163 Ariz. 438 (1990).

Time as a material element of a contract.

Before addressing the holding in Loehmann’s, it should be noted that the general aim of “time of the essence” clauses is to make time a material requirement of the parties’ performance under an agreement.  Of course, even in the absence of a “time of the essence” provision, time can be rendered a material requirement of a contract if it is implied by the type of obligations assumed. read more

Arizona Legislature Further Limits Scope of Indemnification Provisions Relating to Certain Residential Construction Projects

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Many construction contracts contain indemnification provisions.  Generally speaking, these provisions attempt to shift the risk of certain potential losses between the parties.  Among other things, indemnification provisions can address the manner in which parties allocate the risks of losses, costs, and expenses resulting from:  (a) bodily injury; (b) property damage; (c) lien claims; (d) hazardous materials; and (e) copyright or patent infringements.

Like many other states, Arizona has long had a statute on the books that limits the parties’ ability to shift particular risks through indemnification provisions in a construction setting.  Specifically (as explained in this post from 2016), A.R.S. § 32-1159(A) provides that indemnification provisions “that purport to indemnify, to hold harmless or to defend the promisee from or against liability for loss or damage resulting from the sole negligence of the promisee or the promisee’s agents, employees or indemnity [are] against the public policy of this state and [are] void” in all private construction contracts and architect-engineer professional services contracts. (Emphasis added). read more

Not So Fast: Arizona Supreme Court Rolls Back Recent Expansion of Common Law Indemnification Claims

Just over a year ago, I authored a post on the Arizona Court of Appeals decision in Hatch Development, LLC, et al. v. Sol’s Construction Co., Inc., 240 Ariz. 171 (App. 2016), which addressed the concept of common law indemnification.  Just recently, however, the decision in Hatch Development was abrogated by the Arizona Supreme Court’s opinion in KnightBrook Ins. Co., v. Payless Car Rental System, Inc., 243 Ariz. 422 (2018).

The Abrogated Hatch Development Decision

In Hatch Development, homeowners sought indemnification from their contractor for damages suffered by a neighbor due to a defectively installed  sewer system.   The court ultimately ruled in the homeowners’ favor, holding that a common law “duty to indemnify may arise in at least two alternative circumstances:  First, when the party seeking indemnity has ‘extinguished an obligation owed by the party from whom it seeks indemnification,’ or second, when the indemnity defendant is ‘at fault.’”  The court noted that the first circumstance was grounded in Restatement (First) of Restitution § 76.  Conversely, the second circumstance, on which the Court’s decision turned, was predicated on Restatement (First) of Restitution § 78(b)(ii), which provides, in pertinent part, that a party is entitled to indemnification where: (1) he or she makes a payment on an obligation; (2) the obligation arises because of the fault of the indemnity defendant; and (3) the payment is made with the justifiable belief that the obligation was owed. read more

They’re Here: AIA Rolls Out 2017 Updates to Contract Documents

The American Institute of Architect’s (“AIA”) Contract Documents are among the most widely used form agreements in construction.  For purposes of keeping up with critical court decisions and industry trends, the AIA reviews and amends its core documents every ten years.  2017 marked a decade since the last updates, and like clockwork the AIA has released revised versions of its documents over the course of this year.    Several months ago, the AIA released new versions of 14 documents, including its flagship agreements for the design-bid-build delivery model.  And just recently, the AIA has released 20 additional new documents relating primarily to the scope of architects’ services. read more