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The AOD Monitor The Newsletter for Associated Owners & Developers
A Message from the President The Voice for Owners and Developers in the Construction Industry The Associated Owners & Developers' Construction Industry Monitor, discusses construction industry issues important to building owners and real estate developers. For those of you that have not yet joined AOD, this may be your intial contact with our organization. For that reason, we thought that we would go over the goals of AOD and the purpose of the Monitor in this edition. Associated Owners & Developers For many years, architects, engineers, contractors and others have had organizations to represent their interests in the construction process. Conspicuously absent from established organizations has been a group that solely represents owners and developers the true catalysts for all construction projects. AOD has been formed to represent owners' and developers' interests. Owners and developers now have a consolidated, influential voice with respect to issues and policies that affect the construction industry, and an organization to which they can turn for information. AOD is a national association enrolling only private and public sector owners and developers in its main membership. By unifying owners and developers under a single association, AOD provides a unique opportunity for accomplishing a number of important goals. These goals are: Providing effective communication between owners and developers and the many other construction industry participants. AOD is the owners' mechanism for dealing responsibly with organizations such as the American Institute of Architects, the Engineers Joint Council Documents Committee, the Associated Builders and Contractors, and the Associated General Contractors, among others. In this way, AOD hopes to promote cooperation among all players in the construction industry, so that there will be a greater likelihood that everyone can work together to produce quality projects on time and within budget. AOD is forming a Coalition/Council, comprised of representatives from other construction industry associations, through which the interests and concerns of AOD's members may be expressed to other construction industry disciplines. Moreover, AOD will present positions consistent with owners' and developers' interests when "form documents" are developed by other associations, and when policy decisions affecting the construction industry are made in or out of government. Providing a forum for owners to raise and discuss design and construction issues and concerns without the sponsorship or influence of the AIA, AGC, or other interest groups. Because AOD has members from across the country and from both private and public sectors, the interests of owners and developers in all areas and types of ownership are represented. AOD provides a unique opportunity to obtain all ownership perspectives on the issues of the day in the industry. The Monitor will also discuss issues of interest to owners and developers in an effort to keep AOD membership apprised of current construction industry developments and issues. Providing a means by which AOD members can receive information on issues that specifically concern their situations, buildings, or developments. AOD is accepting a limited number of Affiliated Members, drawn from the fields of architecture, banking, construction management consulting, engineering, general contracting, insurance, law, speciality contracting, surety bonding and others, to serve on AOD's Research and Speakers' Bureaus. AOD accepts only recognized experts in the construction field who will agree to provide current and reliable information on issues of interest to AOD and its individual members on a limited, free, and no-obligation basis. All AOD members need do is contact the AOD Research speakers Bureau Hotline. AOD will thenput a local Affiliated Member having the relevant expertise in contact with the member. AOD provides its members with a unique opportunity to influence the construction process and improve their own industry knowledge. The Monitor AOD plans to publish the Monitor on a quarterly basis and intends the Monitor to be a brief summary of some of the current issues important to owners and developers. For example, the Monitor will contain regular features describing recent legal developments, insurance industry topics, financing issues, environmental concerns, contracting ideas, and other similar subjects. The Monitor will also have a Question and Answer Forum, in which AOD members can pose questions and receive answers from other members, a member of the Research and Speakers' Bureaus, or other persons whom AOD will contact to respond to the question. The Monitor will keep members informed of upcoming AOD events and other events of interest to AOD members. Of course, we at AOD are interested in your suggestions and comments on issues facing owners and developers, actions that AOD should take, and topics for future issues of the Monitor. We are excited about the future of the construction industry and the growing voice that owners and developers will have in it. Again, to our members welcome to the Monitor. To our readers who wish to join AOD and take advantage of the owners' and developers' voice in the construction industry please contact us at (703) 734-2397 (Fax (703) 734-2908) or contact us by email at aod@cbrmag.com President/Executive Director Proving Owners' Damages When the owner's contract has been breached by the contractor, and the owner has sustained damages, the owner must prove damages to the jury based on the weight of the evidence; otherwise, the owner will recover nothing. The general principle governing the law of damages in a breach-of-contract action is that the damages awarded should be sufficient to put the owner in the position in which the owner would have been if the contract had been fully, timely and properly performed. If the contractor has breached the contract by failing to complete the project, or has completed the work in a nonconforming fashion, then the owner's damages are usually equal to the costs incurred by the owner in having the work completed or corrected, minus any unpaid portion of the initial contract. Under this rule, known as the "cost rule," the owner may also recover incidental costs such as any additional architectural and engineering fees necessitated by the defective work performed by the breaching contractor. However, if application of the cost rule would result in economic waste, that is, where the cost of remedying the contractor's defective work is grossly disproportionate to the loss in value sustained by the owner, then the court will instead apply the "value rule" for the calculation of damages. Under this rule, the owner's damages are the difference between the fair market value of the project as incompletely or defectively performed by the contractor, and what the fair market value of the project would have been if it had been properly completed by the contractor. If the contractor's breach is in the form of a delay, and there is no enforceable liquidated damages provision in the contract, then the owner may recover for loss of use of the property, which is typically quantified as the profits lost by the owner due to inability to put the property to its intended use during the period of delay. The owner may also recover from the contractor any additional financing costs incurred as a result of the delay. It is not necessary that the owner prove damages with pinpoint precision; rather, it is generally sufficient for damages to be proven with a reasonable degree of certainty. This may be more difficult than it sounds. An owner may claim to have lost profits because of a delay caused by the contractor's failure to complete the project in a timely fashion. However, if the owner's business is a new business, estimated lost profits are generally not recoverable. A new business has no proven track record by which profits can be estimated with a reasonable degree of certainty. Profits lost by a new business are generally deemed too speculative to support recovery by the owner. An award of damages may include not only those damages directly attributable to the contractor's breach, but also more remote damages caused by the breach. These damages are sometimes referred to as "consequential" damages. If the owner can prove consequential damages were caused by the breach and were reasonably foreseeable at the time the contract was made, the owner should be able to recover them. Two additional rules generally apply in ascertaining what damages are recoverable in the breach-of-contract setting. First, the owner will be responsible for "mitigating" or reducing damages to the extent reasonably possible. Second, punitive damages, or damages assessed to punish the wrongdoer rather than to compensate the complainant, generally are not recoverable in a breach of contract action. In some circumstances, the owner's ability to recover damages will be limited by specific provisions of the project contract. Such provisions may include the following.
Armed with an understanding of the nature and extent of the contractor's breach and the recognition of possible contractual limitations on recovery, the owner should have a good sense of the amount of recoverable damages attributable to the contractor's breach and should be able to determine with reasonable accuracy the likelihood of successfully recovering such damages. . . . . . . . . . . Ira Genberg, Esq. is AOD -Counsel and a partner in the law firm of Smith Gambrell & Russell, LLP, Atlanta, Georgia. Smith, Gambrell & Russell, LLP
Question & Answer Forum Q I have heard it is advisable to include routinely releases in change orders, receipts and final payment documents executed by the contractor. Will releases in such documents effectively extinguish claims of a contractor? A Owners can effectively bar a contractor's claims under any of a variety of legal doctrines, all of which relate to the interrelation between the terms of the construction contract, the actions of the contractor, and the papers signed by the contractor during performance of the work. Accordingly, properly drafted releases contained in any document or correspondence to be signed by the contractor may well provide language which will later destroy an anticipated claim by the contractor. A release is a written instrument terminating rights under a contract, including the right to further compensation. For example, the following excerpt from a change order illustrates the type of release language that will bar a contractor's future claims arising out of changed work: This modification constitutes compensation in full on behalf of the contractor and its subcontractors and suppliers for all costs and markups directly and indirectly attributable to the changes ordered herein, for all delays related thereto and for performance of the changes within the time stated. Such language included in a change order, which would be referred to as a specific release, can act as a bar to any claim by the contractor related to the change. However, because release language included in a change order is usually construed liberally in favor of the contractor, the effectiveness of the release will turn on whether it can be shown that the intent of all the parties was to include within the release all claims arising out of the change. Broad language designed to discharge the owner from any further liability under the contract is usually referred to as a general release. General releases and exceptions to them are, for the most part, governed by rules similar to those governing specific releases. General releases are liberally construed in favor of the contractor, and any ambiguity is construed against the owner. The scope of a general release is basically an issue of contract interpretation. If a contractor signs a general release at the end of the project and excepts no claims, it may lose any pending claims. But, if the contractor can demonstrate that the intent of the parties at the time of the execution of the general release was to except a particular claim, a court may allow the contractor's other claims. The interpretation of the release language, like any other contract, typically turns on the language of the release itself. Extrinsic evidence (evidence not contained in the body of an agreement, contract, or other document) is not generally considered if the language of the contract is unambiguous; however, if the ordinary meaning of the words used in the release does create an ambiguity, the parties may then be allowed to introduce extrinsic evidence to demonstrate their intent that aspects of a claim are or are not covered by the release. Various factors are generally considered in determining the intent of the parties: whether a "meeting of the minds" can be gleaned from the relevant contract documents, correspondence or memoranda; whether the owner considered the merits of the claim after the execution of a release; whether the contracting officer issued a final decision on the merits of a claim without making reference to the release; or whether any change order funds were withheld from the contractor. Let us hear from you Please address all articles, comments, questions and suggestions concerning this newsletter to:
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Copyright 2018, Associated Owners & Developers - All Rights Reserved
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