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The Construction Advantage

Time Limits on Actions Against New Hampshire Construction Professionals: A Closer Look at the Statutes of Limitation and Repose

By Kelly Gagliuso

It is common for those of us representing construction professionals to be asked how long they are exposed to claims on any particular project. In New Hampshire, determining the relevant time frame can be complex, but there are relatively simple rules to apply in arriving at the answer.

New Hampshire has enacted a 3-year statute of limitations for actions arising out of contracts and torts. See NHRSA 508:4. The statute provides that all such actions must be brought within 3 years following the act or omission giving rise to the claim, or in the case of a contractual dispute, 3 years following the date the contract was breached.

Unfortunately, the analysis does not end there. The statute contains a caveat known as the “discovery rule” which provides that the 3-year limitations period will not begin to run until the aggrieved party discovers the injury and its causal connection to the wrongful act or breach. A showing that 1) the injured party did not discover the injury and its connection to the breach or wrongful act, and 2) could not reasonably have discovered it at the time it occurred, will delay the accrual of the limitations period until such knowledge does exist or reasonably should exist.  As a result, in the not so distant past, the discovery rule subjected construction industry players to almost infinite liability for latent defects or damage discovered years or decades after the work was complete.

In response to these liability concerns, New Hampshire enacted a “Statute of Repose” which overlays the limitations period and establishes an overall time limit on actions for damages arising from improvements to property. See NHRSA 508:4-b. The statute provides that any action for such damages must be brought within 8 years following substantial completion of the improvement, regardless of when the damages were discovered.[1]

Recently, the New Hampshire Supreme Court extended the application of the Statute of Repose to include third-party actions for indemnity and contribution. See, Rankin v. South Street Downtown Holdings, Inc. (2019 WL 3562167). The Court ruled that the statutory language banning “all actions to recover damages for injury to property, injury to the person, wrongful death or economic loss arising out of any deficiency in the creation of an improvement to real property” was sufficiently broad to encompass third-party indemnity and contribution actions, as well as direct actions by the injured parties.

In the final analysis, the effect of the Statute of Repose is to sunset the injured party’s right to bring a claim 8 years after substantial completion of the improvements, even if the claim and its causal connection to the injury or breach have not yet been discovered. The parties protected by the statute include designers, contractors and consultants involved in completing the improvements.

[1] There are exceptions to the 8-year limit where a binding contract contains express warranties or written guarantees running longer than 8-years, as well as for actions involving fraudulent misrepresentations or concealment of facts and claims associated with the construction of nuclear power generation facilities or related storage of nuclear waste or hazmats.

 

It’s Not Just About You (And Your Contract): Are There Gaps and Conflicts Among the Project Contracts?

By George F. Burns

You are a general contractor. You are about to sign a construction contract. You think you have assessed all the risks and obligations and priced the job right. So why not just sign it?

The poet John Donne famously said: “No man is an island, entire of itself. Every man is a piece of the continent, a part of the main.” The same is true of construction contracts. No single contract stands alone in the project “ocean,” separate and apart from every other. The project is not just about you. It is human nature to focus only on the particular contract you are signing, but you cannot safely isolate your contract from other project contracts.

Step One: What Makes Up My Contract?

First, what makes up your contract, your “island”? The problem goes deeper than simply not thinking about other project contracts. You might not realize how big your own contract “island“ is. In fact, your contract may not be an island at all. More likely, it is a peninsula, by its own terms connected with other contracts. Your contract might look harmless and brief, but it might incorporate by reference massive documents that broaden your liability and risk. You should assume that documents expressly incorporated by reference will be enforced, even though in some cases they may not be.

Step Two: Ask Two Basic Questions

Step One is not enough. Before signing your own contract, you should ask these two basic questions:

  1. Are there gaps in the other project contracts that pose risks to the project outcome?
  2. Are there conflicts among the project contracts?

Why are answers to these questions important?

First, if there are gaps in the contracts needed to achieve a successful project outcome the odds that something will go wrong spike dramatically. If that happens the owner may blame you for failing to fill those gaps, even if they are not really in your scope. Think of gaps as black holes that may expand your obligations under your contract.

Second, if there are conflicts among the project contracts you may have difficulty enforcing your rights, including the right to timely owner decisions, prompt payment, and efficient dispute resolution.

Question 1: Are There Any Risky Gaps?

Even a garden variety light commercial building will typically require at least four or five contracts: a geotechnical contract (to ensure the site is suitable), an architect contract (including or in addition to a structural engineering contract), a prime construction contract, one or more subcontracts, and agreements with equipment and material suppliers. In an ideal world the design and construction needs will be entirely met by those contracts, especially if each one is comprehensive in scope.

But this is not an ideal world. One of those key contracts might be missing entirely, or there may be critical gaps within a contract. To save money owners often cut corners on site evaluation, project design, or construction administration. Here are a few common gap risks:

GAP   RISK
  • No geotechnical survey
  • Owner blames general contractor for not detecting site discrepancies
  • Owner hires architect for design only, with no contract administration
  • You have no one to review shop drawings, and no one to inspect work
  • Owner hires a separate contractor directly but leaves necessary work out of that scope
  • Owner may argue that you have to fill the resulting gap for a portion of the construction scope
  • Owner uses design documents from another project to avoid hiring a designer at all for your project
  • Liability for building on illegal plans

How Do Gaps Expand Your Risk Exposure? 

Most construction contracts contain clauses that impose on the contractor a number of seemingly reasonable and manageable obligations that reach beyond the contractor’s specific scope. But in the face of “gaps” these apparently routine obligations can pose extraordinary risks. These “gap-vulnerable” obligations include the obligations to (1) review the contract documents and note discrepancies, (2) inspect the site and notify the owner of any problems that the contractor knows about; (3) submit shop drawings for review by the architect; (4) coordinate construction activities with owner forces and other prime contractors hired directly by the owner; (5) coordinate activities of subcontractors; and (6) report known non-compliance with applicable statutes, codes, and regulations. These clauses become “risk-expanders” when there are gaps in project contracts other than yours.

One of the most common construction contract documents is the American Institute of Architects General Conditions AIA 201-2017, often incorporated by reference because of its length. This document contains many potential “risk expanders,” including the following (this is a non-exhaustive list):

  • Section 3.2 imposes on the contractor the duty to build the project in accordance with the contract documents and to carry out whatever is required by reasonable inference from the contract documents to achieve “the intended results.” Subsection 3.2.3 requires contractors to report known non-conformity of the contract documents with laws and regulations.
  • Section 3.3 requires coordination of subcontractors.
  • Section 3.7.4 requires contractors to report site conditions that are “materially different” from those shown in the contract documents.
  • Section 3.12 calls for submission of shop drawings for architect review.
  • Section 4.2 assumes administration of the contract by the architect, including (under subsection 4.29) inspection of the work to determine progress for payment.
  • Section 5.3 requires “cooperation” with the owner’s own forces in the field, and other prime contractors.
  • Article 12 requires contractors to correct defective work.
  • Article, Section 15.2, appoints the architect as the initial decision-maker in the event of claims.

It is remarkable how many obligations contractors unwittingly take on by reference to the contracts of other parties and how little scrutiny contractors devote to the quality of design. Indeed, many builders and contractors appear to assume that the design is adequate if a building permit has been issued. This ignores the reality that many municipalities simply do not have the resources to adequately police the legality and sufficiency of design documents.

How Do You Find Out What the Other Contracts Say?

It might seem awkward for you to ask the owner to circulate all the project contracts to all of the construction players so that every player knows what every other player is supposed to do. But it is better than flying blind. Admittedly, circulating all of the contracts is not the custom, but it is hard to understand why more owners do not make that their general practice (see “Owners” below).

If your contract contains specific references to other contracts, such as a clause providing for contract administration by an architect, you have every right to press the owner for at least a written description of the scope of the architect agreement, if not the entire architect agreement.

Similarly, if the owner has hired another prime contractor directly for some of the project scope, and then requires you to coordinate with that other prime contractor, you have the right to a written delineation of the other prime contractor’s scope, if not the whole contract.

Unless you are satisfied that there are no dangerous gaps, make sure not only that your contract delineates your scope clearly (you should make sure that is clear in all cases), but also expressly excludes responsibility for any gaps that you do not know have been filled.

Question 2: Are the Project Contracts in Harmony with Each Other?

So, you have now gathered all the contracts related to the job, or at least as many as the other players are willing and able to give you. Read them to see if they dovetail with one another, both on substantive scope and on procedural matters, including perhaps most importantly construction administration, payment, and dispute resolution.

The odds are slim that the documents will mesh well. The documents are typically not drafted all at the same time. Often the owner’s agreement with the designer will be the first document signed, before the construction contract comes into existence. By the time you are presented with the construction contract the owner may have forgotten to harmonize the design and construction contracts or will have reduced the designer’s scope of duties. If you have enough bargaining power, try to use your leverage to recast all of the contracts to make sure they are in harmony with one another. Take the initiative and present the first draft of the construction contract to the owner with that goal in mind.

Construction Administration and Payment

A common problem is a disconnect between contract administration, or not, by the architect and the construction contract, with potential complications regarding the requisition and payment process. If an architect is not involved during the contract administration, you may be happy in the short term to be relieved of day-to-day scrutiny of your work, but you may suffer in the long run; there is no one there to deliver requests for information, no one there to prevent you from installing work incorrectly before you cover it all up, and no one there as the initial decision-maker on work progress and payment disputes. These problems arise when the owner cuts construction administration out of the budget at the beginning or, worse yet, in the middle of the job.

Dispute Resolution

Another common conflict is dispute resolution. The designer’s contract might call for a court to decide disputes, while your contract calls for arbitration. This dooms you to an inefficient two-forum process that risks yielding conflicting outcomes. It would be far better to have a single forum decide all common issues of fact and law.

The Same Advice Applies to Owners, Designers, and Subcontractors

The suggestions above have assumed that you are a general contractor, but attention to gaps and conflicts is important for all construction players. Owners, designers, and subcontractors should also look for gaps and conflicts.

Owners

Owners are in the best position to prevent gaps and conflicts. One way to do this is to enter into a “turnkey” contract with a design-builder. Simply stated, the owner specifies the desired construction result and leaves it to the design-builder to arrange contracts to achieve that result. This shifts the burden of gap and conflict avoidance onto the design-builder.

Any arrangement short of a complete turnkey deal means that the owner has to worry about gaps and conflicts. Owners too often leave this to chance. The most thorough approach, though rare, is to show all the construction participants all of the contracts, or at least the provisions relevant to each player (though usually without pricing). The owner then obtains from each player, in writing: (1) an acknowledgement that the player has reviewed all project contracts (or pertinent provisions thereof) to determine the impact on the player’s contract; (2) a certification that the player has disclosed to the owner all gaps and conflicts that the review has revealed; and (3) an agreement to a single forum with other players for dispute resolution, binding where possible on all other players, including subcontractors.

Designers

Designers should always keep in mind that under the law of many states an owner gives its contractor an implied warranty of sound design, namely that the design is buildable. This is called the Spearin doctrine, named after a United States Supreme Court case, U.S, v. Spearin, 248 U.S. 132 (1918). This means that any disagreement about the cause of a problem (design versus construction) will necessarily involve both the owner and the designer. This alone is justification for attentiveness regarding gaps and conflicts, and is a good reason for consolidated, single-forum dispute resolution.

Every day designers are pushed to sell their skills in segments, for example, design only with no contract administration. This makes it important for the designer to delineate scope and to state in the owner-designer agreement that the designer cannot be expected to predict gaps or conflicts that a design-only scope would not reveal.

Subcontractors

Finally, subcontracts pose their own special traps for the unwary. A subcontractor’s agreement with the general contractor will often provide that the subcontractor will be liable to the general within the subcontractor’s scope to the same degree that the general is liable to the owner. If that is true, then the subcontractor must insist on seeing the prime contract.

A general contractor who wishes to impose certain obligations or restrictions on a subcontractor in some cases must pass on the prime contract (or relevant portions) to the subcontractor in order for those obligations to be binding on the subcontractor. This is true in some jurisdictions regarding payment clauses. Under the Maine Prompt Pay Act, for example, the contractor must disclose the prime contract payment provisions to avoid more stringent payment obligations under that Act. 10 M.R.S.A. Section 1114(2).

Fuller disclosure may also be required regarding dispute resolution. Some courts have held that incorporation by reference regarding dispute resolution is not sufficient, and that the full text of the clause must appear in the contract to be binding. e.g., G&G Builders, Inc. v. Lawson, 794 S.E. 2d 1 (W.Va. 2016).

The best advice: do not rely only on incorporation by reference; instead send the applicable clauses, if not the whole contract, to the other party. If you are on the receiving end, however, do not assume that you are not bound if you do not receive the contract. On many issues incorporation by reference alone is sufficient to bind you.

Conclusion

You do not know your contract without knowing at least the basic elements of all contracts related to the project. Never assume you can assess your risk without that context. Make sure you understand your own contract, but at the same time find out all you can about all of the other project contracts. Then price the job to reflect known and unknown gaps and conflicts—and hope for the best.