The Construction Advantage
In this new edition of The Construction Advantage, Mike Bosse reports on OSHA’s final rule on silicia, Asha Echeverria reviews an ongoing case in Canadian courts, and Conor Shankman covers contract price enforcement after a nine year suspension of the project work.
OSHA Provides Final Rule on Silicia – Major Changes Likely Ahead for the Construction Industry
On March 24, 2016, the Occupational Safety and Health Administration issued its final rule on crystalline silica. As many know, everyone has been waiting for this OSHA final rule on silica to come out, and now major portions of the construction industry will have to grapple with it. The new rule will have consequences for the construction industry going forward, and measures that will have to be put in place during the next year for construction companies. The construction attorneys at Bernstein Shur are studying the rule and its implications and will assist clients through the upcoming compliance process.
Crystalline silica is a common mineral that is found in materials that we see every days in roads, buildings and sidewalks. It is a common component of sand, stone, concrete, brick, block and mortar. Silica exposure can occur from construction activities such as cutting, sawing, drilling, and crushing of concrete, brick, block, rock and stone products and operations that use sand products such as sand blasting and hydraulic fracturing. Silica also is carcinogenic and has been linked to silicosis, lung cancer and kidney disease.
OSHA acted to change silica exposure limits that had been in place for over 40 years and were based on research from the 1960s. OSHA estimated that currently, more than 840,000 construction workers are exposed annually to unreasonable levels of silica. The new rule sets a permissible exposure limit that exposure to airborne crystalline silica cannot exceed 50 micrograms per cubic meter of air for an average eight hour day. The new rule could impact between half a million and a million workplaces and will require employers in a broad range of industries, including construction, to put in place new procedures to reduce the possible exposure of workers to silica.
Employers also are going to have additional obligations in complying with the final rule. For instance, they will have to implement procedures so that the silica amounts can be measured to determine if the 50 PEL limit is being hit. Companies will have to ensure that work practices exist such that silica dust is wetted down or vacuumed up before workers can breathe it in. Additionally, companies will have to develop a written exposure control plan, train workers on silica’s dangers and how to limit exposure to silica. Under certain circumstances, employers may have to offer continuing medical exams, such as chest x-rays and lung function tests, to those workers who are exposed to silica. Each company will have to have a competent person who implements the written exposure control plan. Finally, employers may also have to provide workers with respirators or limit work areas where there is a potential high exposure of silica. OSHA’s estimate is that the new rule will cost $511 million each year on the implementation cost just for the construction industry. Employers, of course, believe that the cost may be much greater than OSHA’s estimate.
Construction employers must comply with the requirements of the final rule by June 23, 2017, except for requirements for laboratory evaluation of samples, which begin on June 23, 2018. That means that only one construction season exists before implementation must occur.
Ledcor v. Northbridge Indemnity Co.: A Battle in Canada Over Builders’ Risk Coverage
In late March, the Supreme Court of Canada heard arguments on a case that will draw the line on insurance coverage between “faulty workmanship” and “resulting damage” under a comprehensive builder’s risk policy. In the case Ledcor v. Northbridge Indemnity Co., the construction manager, Ledcor Construction Ltd., procured an insurance policy naming both the construction manager and owner, Station Lands, Ltd., as insureds to cover “direct physical loss or damage” subject to stated exclusions. Toward the completion of the project, the owner hired a contractor, Bristol Cleaning, to clean the windows of all construction waste and debris. During the cleaning process, Bristol Cleaning damaged a number of windows that required replacement. The insurer denied coverage for the claim related to the windows because the policy “does not insure . . . the cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage.”
The issue before the Court is whether the excluded cost for “making good faulty workmanship” was limited to the cost for someone to re-perform Bristol’s scope of work, as advanced by the insureds, or excluded the cost to repair all damage done by the faulty cleaning, as argued by the insurer. The trial court ruled that both interpretations are reasonable and therefore ruled that any ambiguity would be interpreted in favor of the insured, under contra proferentem.
The Canadian Court of Appeals disagreed, finding that the intent of the policy was to provide coverage for unexpected events, not to provide a warranty to insure the work of contractors. The Court of Appeals held that if the workmanship itself directly causes the damage, then the policy excludes not only the re-performance of the work but also related damage if such damage is within reasonable expectations of resulting from defective work. The Court of Appeals would limit coverage for “resulting damage” to unexpected and fortuitous collateral damage resulting from the defective work.
So now insurers and construction industry insureds await the final word on the issue from the Canadian Supreme Court.
Contract Price Enforced After Nine Year Suspension in Work & 332% Increase in Material Costs
A recent case from Tennessee, Avery Place, LLC, et al. v. Highways, Inc., preaches caution when entering into multiphase construction contracts, because obligations may last longer than expected. There, a paving contractor was held in breach of contract for refusing to complete the second phase of a job, where there had been a nine year suspension of work between phases and a 332% increase in the cost of materials.
The issue began when Avery Place LLC, a residential subdivision developer contracted with Highways, Inc., a paving and excavation contractor, for a $46,000 two-phase paving project. In phase one, Highways was to provide a layer of base and binder material, and in phase two a top coat of asphalt. Highways completed the first phase in 2003 for a cost of $37,200. Avery then waited nine years before contacting Highways to complete the second phase. By that time, the cost to complete the $8,800 asphalt job had skyrocketed to almost $38,000. Upon receiving an updated quote Avery refused to pay this increased amount and demanded that Highways complete the job for the original price. Highways refused and Avery brought suit for breach of contract.
In its defense, Highways asserted that phase one and phase two were separate contracts, and that Avery had failed to accept Highways’ offer to complete phase two in a reasonable amount of time. Therefore, the contract to complete phase two was unenforceable. Highways also claimed that Avery’s action for breach of contract was barred by the applicable statute of limitations and the doctrine of laches.
In the end, the Tennessee court held Highways in breach and ordered it to pay Avery $29,200 in damages – the difference between the two estimates. In making this determination, the court looked to the plain language of the contract and to the intent of the parties and held that they had entered into one contract for both phases. Highways’ statute of limitations and laches defenses were similarly unsuccessful. The court gave special consideration to the fact that:
- The contract was silent as to time of completion/performance
- Both parties agreed they knew that there would be at least one year between phases
- Both phases were described and itemized together (“Item No. 1 – Base and Paving is fixed at $46,000”)
- The cost for the work was not apportioned between time and materials
- The breach of contract did not occur until Highways’ 2012 refusal to complete the paving
Ultimately, this outcome could have easily been avoided had Highways presented Avery with separate contracts for each phase of the project, if the contract(s) had included an explicit time period in which phase two had to commence, and/or if the contract had provided for reimbursement for any inflation in the cost of materials.
On April 30, 2016, Asha Echeverria will be speaking at the ABA Forum on Construction Law’s Annual Meeting in Nashville, Tennessee. It is the Forum’s 40th Anniversary, at which they are presenting some of the greatest hits from the past 40 years. In our next edition, Asha will give her Top Five Lessons Learned from those last 40 years of Construction Law.