Construction Law Alert: COVID-19’s Impacts on Construction Projects

This article was originally published by Nexsen Pruet and has been reposted with permission.

By Eric H. Biesecker

COVID-19 and the ensuing shutdown of much of the economy will affect construction projects dramatically. Projects have become more difficult to perform as industry participants juggle their obligations to their customers, employees, and the public. The impacts will get worse before they get better. This article identifies some construction law issues facing owners, contractors, subcontractors, and suppliers grappling with the impacts of the virus.

When a contractor or subcontractor cannot meet the project schedule, does COVID-19 excuse the delay and warrant a time extension? It depends on the language of the contract. As discussed by my colleague, David Robinson, in his March 3 Insight, in most US jurisdictions, epidemics, pandemics, and other unforeseeable Acts of God do not automatically excuse breaches of contract. In order to determine whether COVID 19 provides an excuse, begin by looking at the terms of the relevant contract.

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Beware of the Risks! No Ownership, No Lien

Republished with permission from Smith Anderson.

A recent North Carolina Court of Appeals decision reiterates the importance of knowing who you are dealing with when undertaking work or selling materials in connection with any construction or development project in our state. In a recent decision the Court of Appeals found that the design firm that performed design services for a prospective property purchaser could not properly assert a lien on the property, given the design services were never actually used to improve the property.  While this case involved a design firm, the lesson of this case extends to any party providing labor or materials on any type of construction or development project in the state. Read more here.

Written by:

Andrew Atkins
Peter Marino 
Patrick Wilson


The Mid-Winter CLE is Just Around the Corner!

By Jonathan Massell

As the robot in Lost in Space would say, “Danger, Will Robinson.” However, this alert is not about a warning to a pioneering family of space colonists.  Rather, it is a warning to you, as a member of the Construction Law Section, that the deadline for this year’s Mid-Winter CLE is fast approaching and you are in danger if you have not registered. Here is the rest of the story . . .

This year’s Mid-Winter CLE will take place on Thursday, February 20, 2020 at the NC Bar Center in Cary. The program is titled: Construction Law Potpourri: An Assortment of “Trends and Changes” Topics Requested by Our Members. Designed to address a variety of topics, this program addresses an assortment of trends and changes in the field. These topics, chosen by the section members, include basic lien law at the forefront of a dispute, the bankruptcy considerations at the tail end of a dispute and everything in between. Each session provides practical information for the everyday practice of construction law. Don’t hesitate to register if you wish to attend as those who register by January 30, 2020 will receive a 10% discount. Pasted below is a link to the online brochure containing the detailed agenda and list of speakers.

On a final note, a networking reception will be held the night before the CLE between 5:00-6:30 p.m. at Whiskey Kitchen, 201 West Martin Street, Raleigh. Even if you are unable to attend the CLE, please try to swing by the networking reception to enjoy drinks and appetizers with your fellow Section members.

Link to brochure:

Construction Law Section Nominations

To all Section members:

As chair of the Section’s Nominations Committee, I am pleased to invite your nominations for the next class of at-large members of the Section’s Council as well as for the Evelyn M. Coman Award for Distinguished Service in the Field of Construction Law.

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Fair Housing for Construction Lawyers

By Luke J. Farley Sr.

When you think about the statutes and codes that govern the construction and design process in North Carolina, does the N.C. Fair Housing Act come to mind? Probably not—but it should, or your clients may be needlessly exposing themselves to an expensive risk. According to Lawyers Weekly, in 2016 one of the largest settlements in North Carolina resulted from a construction and design dispute under the N.C. Fair Housing Act (NCFHA). The developers, builders, and architects of the SkyHouse high rise apartments in Raleigh and Charlotte agreed to pay $1.8M to correct sliding door thresholds which were inaccessible to people with disabilities. This wasn’t an isolated case. Owners, contractors, and designers around the country have paid out millions of dollars to resolve fair housing construction disputes. You and your clients can’t afford to be unaware of the Fair Housing Act.

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Exceptions to the Economic Loss Rule in North and South Carolina

In North Carolina, the economic loss rule will not bar recovery on a negligence claim when there is no contract between the parties. In Lord v. Customized Consulting Specialty, Inc., a general contractor contracted with the plaintiff owners to construct a home. The owners subsequently sued the general contractor for alleged defects in the home’s construction. The general contractor named as defendants the subcontractors with whom the general contractor had contracted with to provide the trusses for the home. These subcontractor defendants asserted that the economic loss rule should apply to bar the plaintiffs’ negligence claim against them. The court acknowledged that, “simply stated, the economic loss rule prohibits recovery for purely economic loss in tort, as such claims are instead governed by contract law.” However, the court recognized the economic loss rule is not fair to those plaintiffs who have suffered economic loss or damage from improper construction but “who have no basis for recovery in contract” in the absence of a contract between the parties. Therefore, the court held “that the [subcontractor defendants] had a duty to use reasonable care in performing its promise to provide reliable trusses to [the general contractor] for use in the construction of the [plaintiffs’] residence, and it further held that because there was no contract between the plaintiffs and the subcontractor defendants, the economic loss rule did not apply and therefore did “not operate to bar the plaintiffs’ negligence claims.”

The North Carolina Court of Appeals recently acknowledged in the 2016 case Buffa v. Cygnature Constr. & Dev., Inc., 796 S.E.2d 64 (unpublished) Lord’s holding that the economic loss rule does not bar a negligence claim where there is no contract between parties in a home construction case. However, the court qualified this holding by stating that “where a basis for recovery is available by warranty,” the economic loss rule will apply to prevent recovery for purely economic loss under a negligence claim. In this case, the plaintiffs sustained damage to their home as a result of defective windows. The seller of the windows did not have a contract with the plaintiffs, as the windows were purchased by the subcontractor who installed the windows. These windows were covered by the manufacturer’s express warranty. Because a basis for recovery was available by warranty, the court held that it was appropriate to apply the economic loss rule to bar negligence claims seeking to recover for purely economic loss.

However, it may be important to note that the Buffa case concerned an express warranty. A more detailed analysis may be required as to the issue of whether an implied warranty would bar a negligence claim per the economic loss rule, but the general rule in North Carolina is that a contract “is required to assert a claim for breach of an implied warranty involving only economic loss.” Energy Inv’rs Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 338, 525 S.E.2d 441, 446 (2000). Therefore, the economic loss rule will likely bar negligence claims if a court has recognized the existence of an implied warranty, because an implied warranty typically only exists when there is a contract between parties.

South Carolina law is complicated in that there are a number of uncoordinated opinions touching on the subject. However, similar to the Lord case above, the South Carolina Supreme Court has ruled that the economic loss rule will not bar a negligence action against a builder when a legal duty has been violated, “no matter the type of resulting damage. . . . But the economic loss rule will apply [to bar negligence actions] where duties are created solely by contract.” Kennedy v. Columbia Lumber & Mfg. Co. This case further emphasized that “privity of contract as a defense to an implied warranty action” has been abolished in South Carolina. So, unlike in North Carolina, the existence of an implied warranty is not likely to bar a negligence claim for economic loss in South Carolina where there is no contract between the parties. Further, in Beachwalk Villas Condo. Ass’n, Inc. v. Martin, the holding in Kennedy was expanded to architects in addition to builders, as the court stated that “architects may be held liable to home buyers for negligence in connection with home construction projects and breach of implied warranty where no contractual privity exists between the architect and the home buyer.” However, the South Carolina Supreme Court has since held that the principle set forth in Kennedy is limited to the residential real estate construction context. Sapp v. Ford Motor Co.

In sum, in both North and South Carolina the economic loss rule will not apply in certain instances to bar recovery for purely economic loss in tort, although the justification for such an exception may differ somewhat between the two states. Therefore, if a party seeks to recover for pure economic loss and does not have adequate recourse via typical contract law, it would be wise to explore the various exceptions in North and South Carolina regarding the economic loss rule when bringing a claim.

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Collaborative Training In Asheville June 19-20

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The NCBA has offered six basic training courses in Collaborative Law Practice in the past, and is offering the next one June 19-20  in Asheville. Click here to view the brochure with all the details and to register.

Collaborative Practice Training
Wednesday-Thursday, June 19-20, 2019
Renaissance Asheville Hotel

This 14-hour training is for any lawyer who wishes to add the collaborative approach to their practice, whether they are family lawyers or other civil lawyers, including those practicing in the areas of construction, employment, small business, probate, as well as general litigation. Because collaborative law is practiced entirely out of court, it is not necessary to have training or experience as a litigator to become a collaborative lawyer.

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How To Handle Construction Cost Escalations Due To Tariffs and Other Market Forces

By Jeffrey M. Reichard

Over the past year, the imposition of tariffs on foreign goods and potential trade wars have caused prices for various construction materials to increase dramatically. Current tariffs affecting the construction industry include tariffs on steel, aluminum, Canadian lumber and a plethora of Chinese imports, while the threat of a trade war and potential sanctions have wreaked havoc on materials such as asphalt, copper, quartz and other building materials. In fact, absent a deal between the United States and China before March 1, 2019, a large number of US tariffs on Chinese imports could increase to 25%. This begs the question: Who in the contracting chain bears the risk of these price increases? Is it the owner, the general contractor, subcontractors or material suppliers? The answers to these questions usually are determined by contractual terms between the parties and the stage of contract formation on a particular project at the time of the price increase. For example, after the parties have signed a binding fixed-price contract, it may be more difficult to obtain additional compensation for price escalations than before a contract is signed. A contracting party, however, may mitigate its risks associated with price escalations at any stage in the construction project.

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Section Happenings: February CLE, Electronic Deskbook, Diversity Initiative, YLD Committee

By Jason Herndon

Friends –

Ready or not, 2019 is upon us. As we enter this new calendar year (and the midway point of our 2018-209 Bar year), I wanted to take the opportunity to highlight a few important Section issues and happenings.

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Are Public Payment Bond Rights Assignable Under NC Law? Maybe.

By Jonathan Massell

Contractors, like other businesses, often find it advantageous to assign their accounts in exchange for some other form of consideration from the assignee.  What is different about a contractor’s accounts, as compared to most other businesses, is that the amounts owed might be secured by payment bonds.

It should not be disputed that a contractor can assign its accounts to a third party so long as the proper procedures are followed.  However, if the accounts relate to a project where the contractor would have a valid claim on a public payment bond, can this right be assigned along with the accounts?  Practically, the ability of a third party purchaser to make a bond claim would make the assignment of accounts more lucrative for the assignee and would provide some bargaining power for the contractor who wants to assign the accounts.  However, once the accounts are assigned and the third party assignee goes to make a claim on the bond and enforce that claim in court, will a court dismiss the action right off the bat for lack of standing of this new claimant?  In North Carolina, maybe.

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