In some states, courts allow contractors to sue design professionals for negligence even in the absence of a contract. In others, like Maryland, courts apply a rule known as the Economic Loss Rule (ELR) to bar such claims. Courts apply the ELR when, without a contract in place, someone sues another for purely financial losses (i.e., not for personal injuries or property damage). The ELR is very important in the construction world because contractors who sustain losses that they attribute to substandard design documents often sue the design professional who prepared the plans and specifications, even though they rarely have a contract with the designer.

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In a recent case – Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP – the Maryland Court of Special Appeals (“Court”) reaffirmed the ELR and rejected various claims brought by a contractor against a design professional. The Balfour Beatty Infrastructure case involved a public works project for the City of Baltimore (“City”). The City entered into contracts with the design and engineering firm Rummel Klepper & Kahl, LLP (“RK & K”) to upgrade a water treatment plant. The City also entered into a contract with Balfour Beatty Infrastructure, Inc. (“Balfour”) to build the upgrades. Balfour did not have a contract with RK & K. Due to a series of design errors, Balfour suffered delays during construction and performed additional work that it attributed to the design errors. Based on these facts, Balfour sued RK & K for professional negligence and negligent misrepresentation, alleging that RK & K supplied false information to prospective bidders and failed to establish a  reasonable contract duration.

Continue Reading Can a Contractor Sue a Design Professional Without a Contract? Not in Maryland

Having designated legal counsel is critical to any comprehensive crisis management strategy. Whether you are in pre-crisis, crisis or post-crisis—having an attorney involved in your decision-making process can be the difference between surviving or even thriving in a crisis and having a crisis disrupt your business or derail your career permanently. How can your attorney help you be ready for a crisis? For starters, counsel can assess your document retention and storage policies and recommend best practices. Your counsel should also review your readiness procedures with a dedicated crisis management team of public relations and marketing professionals as well as a company spokesperson. Being prepared for a crisis requires strategic planning. Crisis flow chart

Be ready for the BIG surprise or bombshell that may be lurking in your future. Please join me and my team of crisis management experts for a half-day program of invaluable crisis management training, February 17th in Bethlehem, PA hosted by the American Subcontractors Association of Central PA. Our all-star panel will feature David Blain, Principal, of McKonly & Asbury, Doug Dvorchak, Sales/Account Executive & Risk Control Consultant, with Murray Securus and Lydia Mantle, Bond Account Executive, also with Murray Securus. Using real-world examples, we will provide tips on risk management, protecting your credit and assets, among other topics. We will answer your questions in a live Q&A. The best crisis management response takes planning, a holistic effort and a range of expertise. Take this opportunity to learn from the best and start planning now for your own synchronized response. Make the best of what will surely be a stressful situation.

Tuesday, February 17th
Event Center at Blue
4431 Easton Avenue, Bethlehem, PA

Registration & Breakfast – 7:30 a.m. – 8:00 a.m.
Program: 8:00 a.m. – 11:30 a.m.

Register here.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate. 

New Proposed Legislation Would Require Bond: If House Bill 1488 becomes law in Maryland, bid protesters of state contracts appealing a decision to the Maryland Board of Contract Appeals would be required to simultaneously submit a “protest appeal bond or other form of acceptable security” along with their bid protest appeal. For mid-sized and large businesses, the bond would be required to be in an amount equal to 5 percent of the estimated value of the contract being protested – including base term and options. For small businesses, the proposed legislation would require a protest appeal bond in an amount equal to 1 percent of the estimated value of the contract being protested (including base term and options).

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If You Lose, The State Keeps The Cash: HB 1488 provides that if the Appeals Board affirms the unit’s procurement decision (or if the appeal is dismissed) the appeal bond (or other form of acceptable security) “shall be deposited into the General Fund of the State.” In other words, if you lose, your bond is forfeit to the State. If the protest appeal is successful, the appeal bond or other form of acceptable security would be returned to the protestor.

Chilling Effect: If House Bill 1488 becomes law, it will likely have a dramatic effect on the number of appeals filed. Indeed, the number of legitimate protests filed would most assuredly decline.

House Bill 1488 was first introduced and read for the first time on February 24, 2014. Cohen Seglias will continue to monitor the status of House Bill 1488.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Jennifer Horn, Partner in the Construction group of Cohen Seglias is speaking on Comparative Analysis of Critical Construction and Design Provisions Between Mid-Atlantic States at Providence Engineering in Lancaster, PA, on Tuesday, January 14th.

For an increasing number of construction related entities – including design professionals – survival in the current economy has meant expansion of both geographic and substantive work area comfort zones. Those who cross geographic borders; however, must understand how different construction laws change with the State.

This program will analyze how state law changes throughout the Mid-Atlantic region, with a focus on payment statutes. In particular, we will analyze the differences in private prompt payment acts, the enforceability of pay-if-paid and pay-when-paid clauses, mechanics’ liens issues, statutes of limitations, and the enforceability of notice provisions in construction contracts. This audience directed map based program simplifies the important construction contract provisions that make a difference.

The lunch & learn seminar will cover topics including:

  • Recognition of Critical Provisions Common to Most Construction/Design Contract Regardless of Applicable State/Federal Law
  • Understanding of Several Industry Construction Contracting Trends
  • Understanding Differences and Similarities Between Other Critical Construction Provisions For PA, NJ, VA, DE and NY
  • Understanding Key Bonding Principals and Comparing State Bond Acts

Cal Beyer, Vice President of Construction Solutions at  Murray Securus, will also address industry trends and hot topics for the design professional.

For more information on this AIA accredited program, contact Kerstin Isaacs at kisaacs@cohenseglias.com.

Owning a home can be an immensely rewarding experience, the keystone of the American Dream. Buying a home, however, can be an immensely complicated experience fraught with risks. Before taking the plunge into homeownership, it is important for a prospective home owner to engage a qualified home inspector. When done right, a home inspection can arm the home buyer with important information including knowledge of construction defects that may mean the difference between buying a perfect home and buying a house of construction horrors. Of course, home inspections can be done the wrong way. Thus, it is important that home buyers, and home inspectors alike, understand the extent of a home inspector’s liability for defective work and what requirements the law imposes regarding the home inspection process.

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Law Governing Home Inspections in Pennsylvania 

The Pennsylvania Home Inspection Law, passed in 2001, imposes certain requirements on individuals performing home inspections. Chief among the requirements is that any home inspection be performed by a home inspector who is a “full member in good standing of a national home inspection association in accordance with the ethical standards and code of conduct or practice of that association.” Additionally, the Law requires home inspection reports to include and exclude certain information. For instance, inspection reports must include a description of the scope of the inspection and a description of any material defects discovered during the course of the inspection. Inspection reports must exclude any repair estimates. Any provision in a home inspection contract that disclaims liability for gross negligence or willful misconduct, is void. Home inspectors must also maintain insurance policies for errors and omissions and general liability (failure to do so can subject inspectors to criminal and civil penalties).

Home Buyers Should Inspect Their Inspectors

Before hiring a home inspector, a buyer should determine whether the inspector is compliant with the national home inspection association membership requirements set forth in the Home Inspection Law. To aid buyers in this respect, the Pennsylvania Association of Realtors, among others, has developed a compliance form that home buyers can ask home inspectors to fill out and demonstrate his or her compliance with this requirement of the Home Inspection Law.

Prior to signing any home inspection contract, home buyers should also review the contract to determine whether it includes any provision limiting the home inspector’s liability for ordinary negligence. While the home inspection law voids any provision purporting to limit the inspector’s liability for gross negligence or willful misconduct, it does not void provisions limiting ordinary negligence. Disclaimers of ordinary negligence are enforceable against buyers and can restrict them from recovering from a negligent inspector.

What Home Inspectors Should Look For When Drafting Their Contracts

As discussed, violation of the Home Inspection Law may give rise to both criminal and civil liability. Given that risk, home inspectors, like home buyers, should carefully ensure compliance with the Law. As a general matter, home inspectors should be sure to maintain membership and good standing in a national home inspection association and maintain the required E&O liability insurance and general liability insurance. Additionally, home inspectors may wish to insert permissible language limiting liability in their contracts with home buyers. At a minimum, inspectors should be familiar with the law and its consequences.

In sum, while buying a home can be risky, an understanding of the Home Inspection Law and its requirements can reduce these risks for both the home buyer and the home inspector.

Please feel free to contact us for additional information on the Home Inspection Law and home inspector liability.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Matthew G. Tom is an Associate at Cohen Seglias and a member of the Construction Group.

Unfortunately, dealing with the serious and often financially debilitating issues related to defective stucco is nothing new to many Pennsylvania homeowners. In addition to repairing defective work, a homeowner’s status as a first purchaser of the home, as opposed to a subsequent purchaser, impacts his or her case against the builder. Recently, the Pennsylvania Supreme Court decided to rule on this issue – a ruling that will surely be impactful to homeowners and builders alike.

Recent History

Back in late 2012, the Pennsylvania Superior Court, in Conway v. Cutler Group, Inc., sharply altered the law governing the implied warranty of habitability (the “Warranty”) as it pertains to subsequent purchasers’ right to sue a homebuilder. There, the Superior Court extended the protection of the Warranty to subsequent home buyers, thereby altering the decades-old rule that limited standing to bring a claim against the homebuilder for breach of the Warranty to the original home buyer. This was good news for the numerous Pennsylvania homeowners impacted by defective construction involving stucco and who did not purchase their home from the homebuilder as an original owner. While the Superior Court’s decision still stands as the law in Pennsylvania, the Pennsylvania Supreme Court has decided to take up the issue for itself having granted a petition for appeal in the case.

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Generally, the Warranty requires that homebuilders construct homes in a reasonably workmanlike manner, and that the homes be reasonably fit for living. A builder’s failure to meet these two fundamental requirements may make the builder liable to the homeowner for breach of the Warranty. Under the current law, subsequent home buyers who discover defects in the construction of their homes may bring suit against the homebuilder for a breach of the Warranty despite having had no contract or direct relationship with the builder.

Potential Impact of the Supreme Court’s Decision to Hear the Issue

Last month, the Supreme Court granted the Cutler Group, Inc.’s petition for appeal framing the issue to be decided as whether “the Superior Court wrongly decide[d] an important question of first impression in Pennsylvania when it held that any subsequent purchaser of a used residence may recover contract damages for breach of the builder’s implied warranty of habitability to new home purchasers?” The Court’s answer to this question may mean that the decades-old rule of limiting the scope of the Warranty is definitively dead, or it may mean a return to the restriction on the Warranty limiting its protection to original home purchasers. Whatever the outcome, homebuilders and homeowners alike should stay tuned for the Court’s decision. We will continue to monitor the case and will update the blog as news develops.

For questions or concerns about defective construction, including stucco, please feel free to contact us.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She devotes her practice to the areas of construction litigation and real estate.

Matthew G. Tom is an Associate at Cohen Seglias and a member of the Construction Group.

The phrase “knowledge is power,” like most clichés, proves true more often than not – especially on construction projects where the status and amount of payments, terms of written agreements, and the content of project documents are key. On public construction projects in Pennsylvania, the Pennsylvania Right to Know Law (“RTKL”) provides an effective – and often overlooked – way of obtaining construction project documents. Significantly, any legal resident of the United States can request public records from a public body under the RTKL. This can be an extremely effective way for contractors to obtain payment, bidding, and construction documents – even where the parties’ contract restricts such discovery.

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The power of the RTKL was reinforced in a recent decision involving an elementary school construction project: Mid Valley School District v. Warshawer. School districts, as public entities, are subject to the public disclosure mandates of the RTKL.

In Mid Valley School District, the attorney of a contractor made a RTKL request that included 26 categories of construction documents including requests for written construction agreements, project schedules, emails, certificate of substantial completion, and accounting records. In addition, the RTKL request sought the production of construction documents and payment records that the District contended were in the custody of the project architect, construction manager, and certain contractors.

The Court upheld the RTKL request and gave the District 30 days to turn over the materials, including those materials in the possession of the third party entities. In so holding, the Court reasoned that records about the construction of a public school were subject to the RTKL. In addition, when independent entities like architects or construction managers assist a public District in the performance of its governmental function of constructing and providing suitable school facilities – and the requested records directly relate to the performance of that governmental function – such documents are discoverable “public records” under Section 506(d)(1) of the RTKL.

For any entity involved in public construction projects in Pennsylvania, the RTKL can be a potent weapon for information gathering.

Cohen Seglias will continue to monitor and report on RTKL issues in Pennsylvania as cases emerge.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Risk is unavoidable. It doesn’t matter what part of a project you are involved in or if you are the architect, engineer or contractor. What does matter is having a plan because risk management brings value to your company’s work and the project as a whole. Join our Senior Counsel, Jennifer M. Horn, on Tuesday, October 1st for a seminar to discover how you can manage the technical, legal and financial risks when collaborating on a BIM project. Attendees will have the opportunity to network with panelists and other AEC professionals. Event Details: BIM.jpg Date: Tuesday, October 1, 2013 Time: 3:30 p.m. – 7:30 p.m. Location: The Grand Lodge of Maryland 304 International Circle Cockeysville, MD 21030 Cost: $60.00 per person Registration: To register for the event please click here. Earn Education Credits: Earn (2) AIA Health Safety and Welfare Education Credits Earn (2) Engineering RCEP Education Credits

In just a few days, a new law (Local Law No. 1 of the City of New York for the Year 2013) will take effect in New York City aimed towards increasing participation of Minority-Owned Business Enterprises (MBEs), Women-Owned Business Enterprises (WBEs) and Emerging Business Enterprises (EBEs) in City procurement.  Some of the major changes include:

  • Elimination of the $1 million cap on program-eligible contracts;
  • Stronger enforcement mechanisms to ensure that increased participation goals are met; and
  • Enhanced government oversight to ensure that M/W/EBEs are targeted for higher value contracts with the City of New York.

While the City’s various departments and agencies will be subject to increased accountability, participating contractors will also be subject to more onerous recordkeeping and reporting requirements.  Contractors interested in utilizing M/W/EBEs should monitor the website of the Small Business Services (SBS) for prospective solicitations, access the City’s Online Directory of Certified Businesses and avail themselves of the SBS’s other resources for companies doing business with the City.

For a more detailed account of the new law, read New York City’s New Law to Enhance Participation by M/W/EBEs (pages 4-5).

Law360, an on-line publication, has reported that two Pennsylvania  Democrats, Rep. Brendon Newman (D – Washington) and  Rep. Anthony DeLuca (D – Allegheny), are preparing to introduce legislation that may bring the False Claims Act (FCA) to the Commonwealth.  Twenty-nine  (29) states currently have their own version of the FCA, which has been used with much vigor by the federal government since 2007 to root out government fraud.  While the version that is slated for introduction in Pennsylvania is focused on “medicaid fraud,” don’t be fooled.  Medicaid fraud was also the focus of the federal government’s push for a stronger FCA back in 2007 and the impact has been felt far beyond medicaid.

The federal government has used allegations of fraud against contractors in all sorts of cases where federal money is being sought, or has been paid.

Here’s how it works:

If you are a contractor for the federal government, you must make certifications of all kinds.  When you wish to obtain payment for work performed, you must certify that you are entitled to it.  If you have a claim against the government for additional money, generally speaking, you have to certify that you’re owed what you are claiming.  If, at some point along the way, the government suspects that you’re not actually entitled to money claimed, or received, it can pursue an action against you, both civilly and criminally, and the penalties can be severe.  Monetary penalties can far exceed the value of your contract and incarceration is certainly possible.

The intention of the FCA is not to punish someone who has made an honest mistake.  However, the federal government has gotten very aggressive in its pursuit of “potential” fraud.  That means that federal government contractors have had to be increasingly careful when asking government agencies for money.  If Pennsylvania does pass its own version of the FCA, those that do business with the Commonwealth will have to be equally vigilant.  Once the bill is introduced, we will report back to you with its content.

Edward T. DeLisle is a Partner in the Construction and Federal Contracting Groups of Cohen Seglias Pallas Greenhall & Furman PC. He concentrates his practice in the areas of construction law, construction litigation and small business procurement and litigation. In addition, he is a frequent contributor to the Federal Construction Contracting Blog.