On April 3, 2018, Oregon Governor Kate Brown signed into law HB 4144, which eases licensing requirements for construction contractors, especially those in rural areas. Under the new Construction Contractors Board rules, an individual with at least eight years of experience in the construction industry may apply for a new residential contractor’s license without having to complete the previously required training. Applicants under the new rules must still pass the CCB licensing exam, and must also form a sole proprietorship through the Oregon Secretary of State. The CCB will waive the initial license fee for certain application types.

So, why the change? As is often the case when the State and the construction industry mix, the answer lies in the economy. According to the CCB, the Governer requested HB 4144 “to help turn wage earners into job creators/employers.” According to Governor Brown, the demand for rural jobs and affordable housing also warranted the changes. With increasing construction demand in rural areas, the state decided to loosen the requirements for new license holders to spur business ownership.

Notably, important changes to the rules are actually designed to encourage contractors to own their own companies. Under the new rules, an existing fund at Business Oregon (Oregon’s economic development agency) will be used to help first-time applicants with up-front costs such as insurance, bonding, and equipment purchases. The funds will be available only for use by contractors working on affordable, low, and moderate-income housing in rural Oregon. HB 4144 also directs the Oregon Higher Education Coordinating Commission to give grant funding to new, small contractors so as to recruit and hire Oregonians new to the construction workforce.

With the new rules going into effect January 1, 2019, contractors have time to consult with attorneys to discuss licensing and business formation issues. As always, and in light of the fact that contractor training requirements are being reduced, project owners should do their homework before hiring a contractor. A contractor’s license, bond, insurance, and complaint history can be accessed 24 hours a day through the CCB’s website: http://www.oregon.gov/CCB.

Property owners and contractors alike dread at least one phase of the building process more than others: permitting. For many, obtaining a building permit or getting a set of building plans approved by the local building department can seem more like a trip to the dentist than a step toward a new house or commercial building. Long lines, complicated forms, and expenses can be enough to take a toll on even the most seasoned permit puller.

But now, for many Oregonians, the process is about to become murkier. For years, smaller Oregon towns have contracted with private companies to handle the day-to-day operations typically handled by a city-run building department. That’s about to change.

The Oregon Department of Justice and the Office of Legislative Counsel recently issued opinion memoranda stating that private third-party inspections programs violate the Oregon Constitution. Because private companies shouldn’t make government decisions, private building inspection programs are unlawful, according to the State. While the opinion letters are long and complex, the major takeaway is that private companies cannot take over the operations of an entire building department, for two reasons: (1) the Constitution prohibits delegating discretionary governmental powers to private companies; and (2) such wholesale delegations to the private sector does not afford for the necessary amount of government accountability. The DOJ drew a distinction between “ministerial” aspects of building inspections—which may be delegated to third-parties—and “discretionary” functions—which may not be delegated. Full-scale delegation of entire inspection programs, such as electrical or whole-building inspections, cannot be delegated to private companies, according to the DOJ.

The State has recommended that the Oregon Building Code’s Division (itself a division within the Oregon Department of Consumer and Business Services) cease approval of any new private delegations and discontinue all delegations currently in place.

The new rules are expected to take effect on July 1, with about three dozen Oregon communities expected to be impacted. This will likely throw a wrench into any construction plans for those towns as they try to figure out who should be approving plans, issuing permits, and inspecting work. Smaller Oregon towns are now scrambling to evaluate their options. Towns that can afford it may create their own building departments. Others are expected to form small groups, with two or three cities or towns sharing a joint department.

Regardless of how cities react to the new system, delays will be inevitable. Contractors, homeowners, or anyone looking to construct a building this summer would be wise to plan ahead, and expect delays and backups in permitting as communities adapt to the new rules.

A contractor often enters into a contract negotiation or bid process where there is little to no ability to negotiate the terms of the contract. It is for all practical purposes a “take it or leave it” deal.  Sometimes, this is a result of the owner’s or prime contractor’s unwillingness to negotiate. Sometimes, this is a result of flow-down provisions that the contractor has no ability to negotiate.  Sometimes, the job opportunity is so great it is worth signing on the dotted line despite less than desirable terms. With that said, a contractor can successfully navigate unfavorable terms that may exist in the contract.  The key is to identify the pitfalls and train your management and field personnel to avoid them. This is where an attorney can help to review a contract to provide a road map on what to look for to avoid potential dangers.

Knowing the requirements set out in the contract and educating personnel on the procedures are the first steps. If there is a detailed change order process set out, with specific deadlines, the appropriate personnel need to know the requirements up front. Your standard internal practices may not align with the procedure required by your contract or the prime contract. If the prime contract requires a flow-down of terms to all subcontractors, the internal team needs to understand what requirements are non-negotiable and apply to subcontracts. You don’t want to breach the contract before ground is even broken. If the prime contract requires subcontractors to add the owner as an additional insured, then the internal team needs to ensure this is done and include any additional cost in the bid. Identifying these procedures for both accounting and the project managers to follow is half the battle.

Some of the provisions you have agreed to in the contract may have unintended or unforeseen consequences. If the addition of time to the schedule is the result or part of a change order, what does the contract require be provided with the change order? Do you now need to submit certified payroll or is a summary enough documentation? Does the changes clause presume that the change order includes all costs, including unidentified or unknown impacts and delays? No contractor wants a change order to be denied for lack of documentation, poor timing, or a failure to reserve future claim rights. A lawyer’s review of the contract documents can often help your company manage the risks and allow for effective planning.

In the end, the best defense is often a good offense, and following the process set out in the contract to avoid a conflict can be your best move. This is where your legal team can help. These contracts can be large, foreboding, and confusing documents. On the right project, spending time with your lawyer at the beginning of the project to properly understand your contract and to identify potential landmines is far better than spending even more time with your lawyer during or after a project trying to put the pieces back together after stepping on that mine.

The federal Fair Housing Act (“FHA”) and Americans with Disabilities Act (“ADA”) require property developers to provide reasonable accommodations for disabled individuals. In turn, property owners rely on their architect and engineer to design compliant projects. If a project is not compliant, it is typical thinking that the property owner will seek indemnification and defense from the architect or engineer who was paid and insured to make it compliant.

The federal courts prohibit this, however. That is because the national consensus is that the FHA and ADA preempt state contractual law. The courts have looked at the statutes for an express private right of indemnification by an owner against a negligent designer, and they have not found one. As such, they hold that the requirements of the FHA and ADA on property owners are “non-delegable,” and that the liability for their breach cannot be shifted on to any other party.

The recent case of The Chicago Housing Authority v. Destefano and Partners, Ltd., 45 N.E.3d 767, 2015 IL App (1st) 142870 (2016) is illustrative. There, a review by the United States Department of Housing and Urban Development (“HUD”) revealed a range of noncompliance issues at seven properties, necessitating over $4 Million in renovations and new work. The Housing Authority had worked with the architects and engineers expressly to achieve compliance, requiring compliance in the design contracts. The Housing Authority therefore sued the architect and engineer to recover the cost of achieving compliance, under both breach of contract and indemnity theories.

The Illinois Court reviewed a lead case on the matter, Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010), noting that the federal trend has been consistent that property owners cannot contractually delegate their duty to comply with the federal accessibility standards. The Illinois Court ultimately held that the Housing Authority had no recourse against its designers whose negligence had caused the noncompliance, because no recourse was provided for in the governing federal standards. Recently, contractors have also been taking advantage of this caselaw to further isolate developers when claims arise. Continue Reading Property Developers Need to Take Extra Steps to Protect Themselves from ADA and FHA Liabilities

  1. Educate Yourself About the Project. If you are working with an owner that is new to you or if you are a subcontractor working with a general contractor with whom you have not worked previously, ask others about their reputation. Before venturing into a relationship, investigate the project’s financing and the reputation of those holding the purse strings.
  2. Condition Your Bid. Condition your bid on fair contract terms. This need not be limited to boilerplate exclusions and clarifications. Instead use the bid process as an opportunity to set the stage for contract negotiating.
  3. Read Your Contract Before Signing It. Even if the contract appears to be a standard AIA or Consensus Doc, read it. Scrutinize it. Make sure you understand it and make efforts to negotiate those terms that ask you to take on unbalanced risk.
  4. This Means Read All of the Contract Documents. Read all exhibits as closely – if not more closely – than the contract itself. Exhibits can include lien waiver forms, broad indemnity agreements and change order forms that release various rights otherwise set forth in the contract. If you are a subcontractor, ask for and review the prime contract as most subcontracts incorporate the prime contract, plans, specifications and all addenda thereto.
  5. Be on the Lookout for Risk-Shifting Clauses. As part of your risk management practice, develop a list of contract provisions that have caused you problems on past projects. Examples include: pay-if-paid vs. pay-when-paid clauses, overbroad indemnity clauses that ask you to indemnify against the indemnitee’s own negligence or to indemnify direct rather than third-party claims, no damages for delay clauses where the delay was caused by the owner, etc.

Continue Reading 10 Ways to Improve Your Company’s Chances of Getting Paid

In a recent case, the Oregon District Court adopted a liberal interpretation of “property damage.” The Oregon Shakespeare Festival Association (OSF) suffered a loss during its season: nearby wildfires caused smoke to infiltrate a partially outdoor theater where performances were being held, necessitating cancellations. Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247 at 1-3 (D. Or. June 7, 2016).

OSF’s insurance policy covered “direct physical loss or damage” to its property and the “actual loss of Business Income” caused by such loss or damage. Id. at 4. Thus, to get coverage for the business losses it sustained by cancelling performances, OSF had to show that the smoke infiltration, the undisputed reason for the cancellations, was “direct physical loss or damage” to property.

OSF argued that “physical loss or damage” means “any injury or harm to a natural or material thing.” Id. at 5. Great American Insurance, OSF’s insurer, argued that air is not “property,” and that covered damage must be “physical”—not just smoky air. Id. at 5-6. The court agreed with OSF, holding that Great American’s definition was too restrictive: there was nothing in the policy, the court said, to suggest contaminated indoor air is not covered, nor could Great American explain why air is not “physical.” Id. The court explained: Continue Reading Oregon Court Endorses Broad Definition of “Property Damage”

The breathless growth of Portland’s housing market has nurtured a growing income opportunity to developers who purchase homes for renovation and resale; so-called “house flippers.” Such homes not only provide potential profit for developers, but also provide turnkey renovations for home purchasers and improved aesthetics for surrounding neighborhoods. However, misconceptions about the flipping and sale process can spark disputes between developers and their eventual purchasers. Most of these troubles can be avoided through better contracting and more candid communication on both sides. The following are recommended steps toward reducing the risk of future problems, from the perspectives of purchasers and developers.

  1. Purchasers

Recently flipped homes offer the best of both worlds: old-home charm with new-home fit and finish. But that blessing is also a curse, because new renovations can mask undiscovered problems. Too many purchasers see beautiful finishes and promptly neglect the potential for hidden old-home problems. The purchase process – when done right – is more complicated for a flipped home than a new home. Several pieces of advice will help.

The first and best piece of advice is to know your contract. In the recent case of Shell v. The Schollander Companies, Inc., 358 OR 552 (2016), discussed below in a post by David Delmar, an owner sued for construction defects in a home she purchased when new. However, because hers was a contract for sale rather than a contract for construction, a different time limit applied. This distinction between a construction contract and a sale contract is far more critical with a flipped home. Purchasers tend to perceive the seller’s renovations as something akin to new construction and believe that new construction standards should apply. This is not necessarily true; a typical sale contract contains no obligation to perform construction services according to any particular standard. Moreover, the “as-is” clause could prevent a purchaser from asserting certain claims later. Continue Reading Don’t Fret Your Flip: Mitigating Risks Particular to Homes Renovated for Resale

A client recently asked me to confirm when a joint venture must be licensed to bid and perform construction work. I explained that the answer depends on the name of the joint venture, where the work will be performed, and – depending on the state in which work is to be performed – the stage of construction.

Both Washington and Oregon generally require contractors to be registered or licensed to perform construction work in their respective states. RCW 18.27.020 requires every contractor to be registered with Washington’s Department of Labor and Industries to advertise, offer, bid, or perform any construction services in Washington. Similarly, ORS 701.021 requires every contractor to be licensed with Oregon’s Construction Contractor’s Board to offer, bid, or perform any construction services in Oregon.

In Washington, RCW 18.27.065 further provides: Continue Reading Joint Ventures and Contractor Licensing Requirements in Oregon and Washington

Last week, the Oregon Supreme Court held in Goodwin v. Kingsmen Plastering (June 16, 2016), that a property owner must sue a contractor for negligent construction, if at all, within two years of when the property owner “knew or should have known of the injuries or damage that form the basis of their claims” under ORS 12.110(1). The ruling highlights the issue of “discovery,” and appears to be at odds with the Supreme Court’s ruling in Rice v. Rabb, 354 Or 721 (2014), which held that a claim for conversion or replevin must be brought within six years of the time “plaintiff knows or reasonably should know of the elements of such claims[.]” What does it take for a property owner to “discover” its claim?

Historically, the Supreme Court has written that claims accrue only after the potential plaintiff discovers “harm (i.e., injury), causation, and tortious conduct.” Gaston v. Parsons, 318 Or 247, 255-256 (1994). The Oregon Supreme Court has held that such language requires not only knowledge of “injury” in a vacuum, but also knowledge of tortious conduct and causation for that damage. Gaston. Continue Reading The Focus is on “Discovery” of Claims after Goodwin v. Kingsmen Plastering, Inc.

A recent Illinois State Court of Appeals decision has highlighted the distinction between providing a product for sale to the public on the one hand, and providing a service under a contract on the other. Many design firms are now branching out to market and deliver their own products, satisfying a growing market for prefabricated structures, substructures, and building systems while taking advantage of developments in manufacturing coordination. Historically, architects involved solely with design have enjoyed immunity from expanding breach of warranty doctrines. But, as designers enter the stream of commerce to deliver fully manufactured products, that protection may disappear. When they do, design firms may subject themselves to liability for implied warranties and strict liability, concerns typically reserved for manufacturers and builder-sellers. Design firms need to make sure their products are priced to account for this risk and that they are insured for it. Sophisticated customers ordering prefabricated structures, substructures, and building systems from design firms or their subsidiaries should seek proof of the same.

In Board of Managers of Park Point at Wheeling Condominium Ass’n v. Park Point at Wheeling, LLC, 2015 IL App (1st) No. 123452, ___N.E.3d___, 2015 WL 9589615 (December 31, 2015), a condominium homeowners association sued an architecture firm for defective design leading to water and air infiltration. The architecture firm had designed the 128-unit complex in 2000, and construction had commenced from 2001 to 2004. The architecture firm did not take part in the construction or sale of the units. Continue Reading Design Professional Firms Selling Prefabricated Accessory Dwelling Units, Building Substructures, or Micro Homes May Be Liable for Breach of Implied Warranty, or Strict Product Liability.