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DECEMBER 200 2

T h e n e w sle t te r o f t h e A B A Fo r u m on the Cons truction Industr y

U N D E R CO N ST RU CT I O N
FORUM AND TIPS JOINT MIDWINTER PROGRAM:
GETTING TO THE BOTTOM OF
CONSTRUCTION CLAIMS
By: Theodore M. Baum
NOMINATING

T COMMITTEE ANNOUNCED
here is a curse widely attributed to the
Chinese, although in actuality, it is

P
probably of Western origin and more ursuant to Article 6 of the Bylaws, Deborah S.
Ballati has appointed the following people to
recent vintage: “May he live in in teresting
serve on the Nominating Committee for the
times.” Thirty-six years ago, Robert F.
annual election of the Chair-Elect and three
Kennedy, speaking to an audience in Cape Governing Committee Members-at-Large:
Town, South Africa, invoked the “Chinese
CHAIR
curse” and observed, “Like it or not, we live in
John R. Heisse II
interesting times…” Thelen Reid & Priest LLP
Flash forward to the turn of the millennium - 101 Second Street
Suite 1800
the tech-stock bust; the tragedies of San Francisco, CA 94105
September 11, 2001; the Enron collapse and the Tel: (415) 371-1200
related accounting and corporate scandals; Fax: (415) 371-1211
troubling political and diplomatic develop- e-mail: jrheisse@thelenreid.com
ments around the globe. These are interesting MEMBERS:
times indeed. Were these calamities predicted Lynn R. Axelroth
IN THIS ISSUE by zealots, or simply a strange series of coinci- Ballard Spahr Andrews & Ingersoll, LLP
dences justifying the ravings of madmen? 1735 Market St., 51st Floor
Philadelphia, PA 19103
Message from
Whatever the cause, the trip down from the Adrian L. Bastianelli III
the Chair-Elect . . . . 2
dizzying economic heights of the boom years Bastianelli, Brown & Kelly, Chartered
Negotiating Payment of the mid- to late 1990s was not a gradual 1133 21st St. N.W., Suite 500
Terms In Private slow-down, but a rapid descent ending with a Washington, D.C. 20036
Contracts Under Anne E. Gorham
The Limits Set By jarring jolt. The construction industry has
Stites & Harbison PLLC
Prompt Pay Acts . . 4 already felt the impact of these events. The
250 W. Main St., Suite 2300
hardening of the insurance and surety Lexington, KY 40507
Announcement
markets conspired with the weakened econ- Michael S. Zetlin
Corner . . . . . . . . . . . 7
omy to hasten the demise of many in the Zetlin & Dechiara LLP
Next Forum construction industry. 801 2nd Avenue
Meeting . . . . . . . . . . 8 New York, NY 10017
The ripple effects of such events are many.
One effect is an increase in construction The election will be held on Friday, May 9, 2003 in
claims. When economic times get tough, or Boston at the Forum’s Town Hall Meeting during its
“interesting,” claims become more prominent. Annual Meeting. Please forward your nominations
or expressions of interest, along with a curriculum
And so, the focus of the January 30, 2003
vitae including details of the nominee’s activities in
joint meeting of the ABA’s Forum on the
the Forum, the ABA and its Sections and Divisions,
Construction Industry and the TIPS Fidelity & and in the legal profession generally, to John Heisse
Surety Law Committee will be construction by January 20, 2003.
(continued on page 3)
MESSAGE FROM THE
U N D E RCO N ST RU CT I O N
The newsletter of the ABA Forum
on the Construction Industry
Vol. 5, No. 1 • December 2002

Newsletter Editor
CHAIR John R. Heisse II,
Chair-Elect
ELECT
Cathleen S. Bumb
The Premcor Refining Group Inc.

I
8182 Maryland, Ste. 600 n this issue addition to this group of nine are our
Clayton, MO of Under Chair, Chair-Elect, and Immediate
314/854-9829
fax 314/854-1455 Construction, Past Chair. Also, the editors of Under
cathy.bumb@premcor.com we announce Construction and The Construction
the Nominating Lawyer, our liaison to the ABA Young
2002-2003
Committee, which Lawyers Division, and our
OFFICERS AND GOVERNING COMMITTEE
CHAIR will select the Technology and Publications Chairs
Deborah S. Ballati nominees for my are typically invited to attend
415/954-4400
dballati@fbm.com successor as Chair-Elect and for Governing Committee meetings as
CHAIR-ELECT three members of the Governing non-voting participants.
John R. Heisse II Committee. These nominations will
415/371-1200 Individuals are appointed to positions
jrheisse@thelenreid.com be announced next Spring, with the
on Division Steering Committees by
IMMEDIATE PAST CHAIR elections to follow at our Annual
the Governing Committee. Each year
C. Allen Gibson, Jr. Meeting in Boston on May 8 and 9,
843/720-4613 its Division Selection Subcommittee
agibson@bmsmlaw.com 2003. With nominations due in
canvasses the current Division Chairs
GOVERNING COMMITTEE MEMBERS early January, this is a good time
and considers self-nominations
Lynn R. Axelroth to discuss Forum leadership and
215/864-8707 before recommending a slate of
axelroth@ballardspahr.com how one gets involved.
Division appointments. Often we
Douglas C. Green
651/699-2037 Our twelve Divisions are the have only one or two openings per
dglakeside@attbicom lifeblood of this organization. It is Division per year since individuals
Kimberly A. Hurtado our Divisions that produce many of typically serve on the Steering
262/783-1705
khurtado@hurtadosc.com the articles in the Construction Committees for several years. The
Kenneth R. Kupchak Lawyer and Under Construction, current members of the Division
808/531-8031
krk@hawaiilawyer.com develop program ideas for our meet- Selection Subcommittee are
Ty D. Laurie ings, and foster e-mail exchanges Governing Committee members Kim
312/258-5511 among Division members on topics Hurtado (Chair), Lynn Axelroth, Doug
tlaurie@schiffhardin.com
of interest. The Divisions have also Green, and Mike Tarullo. Those inter-
W. Alexander Moseley
251/694-6291 been the driving force behind many ested in serving on a Division
alecm@handarendall.com Steering Committee should make
of our book publishing efforts and
Douglas S. Oles
206/623-3427 our membership recruitment and their interest known to both their
oles@oles.com retention program. Each of these Division Chair, and one or more
Michael D. Tarullo Divisions is led by a Chair and a members of the Division Selection
614/462-2304
mtarullo@szd.com Steering Committee of five to nine Subcommittee, as appointments are
Fred D. Wilshusen members. Chairs typically serve a made at our Annual Meeting.
214/369-3008
fwilshusen@tfandw.com two-year term. Although Steering
Unlike Division appointments, our
Committee members are appointed
Under Construction is published by the American Bar Chair-Elect and Governing
Association Forum on the Construction Industry, 750 for one-year terms, most serve
North Lake Shore Drive, Chicago, IL 60611. Requests Committee members are elected by
for permission to reprint and manuscripts submitted several terms.
the membership at large at our
for consideration should be sent to the attention of
the Editor, Cathleen S. Bumb. Address corrections The Chairs of each Division report Annual Meeting. Consistent with the
should be sent to the ABA Service Center at the
address above. to the Governing Committee—the announcement of the Nominating
The opinions expressed in the articles presented in
Forum’s nine member “board of Committee on the cover of this
Under Construction are those of the authors and shall directors.” The Governing Committee issue, a slate of candidates is
not be construed to represent the policies of the
American Bar Association or the Forum on the members serve three-year terms. selected by the Nominating
Construction Industry. Copyright ©2002 American Committee and announced in
Bar Association
These terms are staggered, with
three new members joining the advance of the Annual Meeting.
Governing Committee each year. In (continued on page 6)

2
Forum’s Midwinter Program
(continued from page 1)

claims in our rapidly changing from cradle to grave, beginning through the issues which provide
world. We will discuss techniques with compliance with notice pitfalls for the unwary in every
to prevent construction claims requirements and other contrac- jurisdiction.
from arising, as well as strategies tual limitations on claims, moving
No discussion of construction
to deal with such claims once they through claim preservation issues
claim issues in hard times would
have arisen. while physical construction contin-
be complete without a section on
ues, and finishing with special
Now is the time to take a fresh bankruptcy, and so John Sebastian
litigation or other dispute resolu-
look at the process of asserting, of Leo & Weber, PC, Chicago will
tion problems.
evaluating and resolving claims be joined by DeWitte Thompson, a
and disputes. The many new devel- In a departure from the ordinary, member of Thompson & Slagle, PC
opments, new case decisions, new and a particularly interesting facet based near Atlanta, to discuss the
contract language, and better liti- of the midwinter program, the impact of bankruptcy on construc-
gation assessment techniques second segment will examine the tion claims. In an interesting twist,
combine to add new wrinkles to application of the decision tree John and DeWitte will not only
the already complex world of analysis to construction claims. discuss contractor bankruptcy, but
construction claims and disputes. Using a hypothetical case, litigators owner bankruptcy as well, which
This year’s joint program will Barbara Werther of the Washington, seems just as likely in these “inter-
concentrate on such new thinking, DC office of Thelen Reid & Priest, esting” times.
and highlight new techniques in LLP and Robert Crewdson of A discussion of surety issues will
the drafting, claims and dispute Atlanta’s Alston & Bird, LLP will complete the program. Specifically,
resolution processes. You will hear examine, support and criticize the moderator Donna McCaffrey of
about the use of formal litigation decision tree analysis process, which Amtrak will keep things on track
risk assessment techniques, includ- will be presented by noted consul- while two Florida litigators discuss
ing mathematical formulae for tant Craig Miller of the Miller Group, the surety’s assertion of construc-
weighing the many paths in the headquartered in Savannah, GA. tion claims. Issues from the esoteric
“decision tree,” and look at the The discussion of this process will to the practical will be the focus of
recent evolution of key contract provoke analytical thought of presentations by Patricia Thompson
clauses that affect claim rights. construction claims in every of the Miami office of Carlton Fields
The complexities presented when member of the audience, from the and Edward Etcheverry of
one party to a claim declares bank- construction law neophytes to the Etcheverry, Kouri & Harrison, LLP,
ruptcy will be examined, and an old construction claim warrior. The located in Fort Lauderdale.
in-depth discussion of the hard presentation will give you a new way
The luncheon speaker for the
decisions faced by owners and of evaluating construction claims
Program will be John H. Beyer of
sureties when the issue of default and making go/no go decisions.
the New York based Beyer Blinder
termination arises.
Not to be forgotten are the owners. Belle, Architects & Planners. Mr.
The midwinter program will start John E. Menechino, Jr. of Smith, Beyer leads the team of architects
with an examination of the claims Currie & Hancock LLP, Atlanta, GA engaged by the Port Authority of
“lifecycle.” Moderated by noted will take the stage for the third New York and New Jersey and the
construction law veteran Louis segment along with Robert F. Lower Manhattan Development
Pepe of Pepe & Hazard, LLP, Miller, counsel with Union Oil Corporation, evaluating and plan-
Hartford, CT, the panel will be Company of California, El Segundo, ning the reuse of the World Trade
rounded out by Michael Libor of CA. This segment will review the Center site. He will provide some
Philadelphia’s Morgan, Lewis & many quandaries presented to insights into the planning
Bockius, LLP and Carol Patterson owners when they are faced with complexities for this highly
of Zetlin & De Chiaria of New York. the possibility of default termina- emotional project.
This segment of the program will tion. Never an easy row to hoe,
examine the construction claim Menechino and Miller will guide us (continued on page 6)

3
NEGOTIATING PAYMENT TERMS IN PRIVATE
CONTRACTS UNDER THE LIMITS SET BY
PROMPT PAY ACTS
By Thomas D. Czik, Esq. and Jayne Czik, Esq.

C
ontracting parties typically subcontractors after it has been with funds that it receives from the
may include whatever paid. If the general contractor does owner. For example, if, as in New
payment terms they agree not pay within the time allotted, York, the owner is not required to
the subcontractor generally is enti- pay the general contractor until it
on in their contracts. Today,
tled to statutory interest and the receives payment from the lender,
however, state courts and legisla-
general contractor may be subject the general contractor needs to
tures are becoming more involved
to penalties. make sure that its subcontracts do
where it appears that a party,
particularly one that provides not include any language that
Subcontractors’ attorneys should
services or materials to a construc- would require it to pay a subcon-
take steps to ensure that the
tractor before the owner pays the
tion project, may not be paid subcontract does not include terms
general contractor. However, in
through no fault of its own. that seek to sidestep payment
provisions found in their state’s negotiating contingency payment
Accordingly, many states have
prompt pay act. For example, in New language, contractors must be
voided pay-if-paid contract clauses.
York’s recently enacted statute (N.Y. aware of whether their state legis-
In addition, legislatures continue to
Gen. Bus. Law Chapter 20, Article latures have legislated against, or
enact prompt pay acts for both
35-E, effective Jan. 14, 2003), the their state courts have refused to
public and private contracts. See
provisions that require notice and enforce, “pay when paid” or “pay if
John W. Hays, Prompt Payment
information to be given to the paid” clauses. See William M. Hill
Acts: Recent Developments and
subcontractor regarding payments and Donna M. Evans, Pay When
Trends, Vol. 22 The Const. Lawyer
made by the private owner are only Paid Provisions: Still a Conundrum ,
No. 3, at 29 (2002). These prompt
default provisions. The subcontrac- Vol. 18 The Const. Lawyer No. 2,
pay acts set limits on the time
tor, therefore, should not allow its at 16 (1998).
allowed for payment and conse-
quences for the failure to comply. subcontract to include language REPRESENTING OWNERS
that says the subcontractor is not OR LENDERS
Rather than rely on the courts for entitled to these notices or to this
enforcement, careful construction type of information. Otherwise, the Prompt pay acts that include a
practitioners should take steps to subcontractor will lose the benefit payment cycle benefit owners and
protect their clients within the of having knowledge of the general lenders by providing fixed time
framework of these prompt pay contractor’s payment status with periods within which the general
acts. The following are points that the owner. contractor, its subcontractors and
the construction lawyer should be suppliers must get paid. The owner
aware of when negotiating the REPRESENTING GENERAL should expect that the work will
CONTRACTORS progress better if those involved
payment terms of a construction
contract or in representing a The general contractor’s attorney with the work are getting timely
lender or surety. should make certain that its payments. Owners should not be
client’s contracts with the owner afraid to share payment informa-
REPRESENTING
and its subcontractors are consis- tion with subcontractors and
SUBCONTRACTORS
tent. Otherwise, the general suppliers when this information is
Subcontractors are the major contractor may wind up financially sought. Owners will benefit by
beneficiaries of prompt pay acts. In squeezed between the owner and being aware early on in the
fact, subcontractor lobbying the subcontractor. The general payment cycle whether the general
frequently leads to the enactment contractor must negotiate with contractor is complying with its
of these statutes. Prompt pay acts both the owner and its subcontrac- payment obligations. This type of
limit the general contractor’s abil- tors to ensure that it is only information should help prevent
ity to withhold payment from its required to pay the subcontractors the filing of mechanic’s liens and

4
the assertion of claims against the claim against a payment bond, that someone who has provided
owner’s property by those working sureties may see fewer payment materials and/or labor on a
under the general contractor. bond claims. Additionally, where construction project should be paid
prompt pay acts require owners at the whim of the owner or the
The owner’s attorney should
and general contractors to give general contractor rings hollow.
include a provision in its construc-
subcontractors payment informa-
tion contracts that requires the Everyone involved in the construc-
general contractor to give the tion, subcontractors will be able to
register their payment claims tion process benefits from payment
owner documentation of the
directly to the owner and have the within reasonable time periods.
general contractor’s compliance
information ready to back up those There is the obvious benefit for all
with the prompt pay act. The owner
claims. Again, this gives owners and the parties of regular and
should use this information as a
subcontractors the opportunity to predictable cash flow. In addition,
tool to ensure subcontractors and
suppliers are being paid, even if its deal with payment problems at an lenders and sureties may be unin-
state has no prompt payment act. earlier stage in the payment cycle. tended beneficiaries of these
Requiring the owner and the prompt pay acts - they can rely on
CONCLUSION
general contractor to notify the more consistent payment cycles and
subcontractor when payment has At the risk of sounding naïve, it is may learn of and be able to resolve
been made will help prevent shameful that construction payment problems sooner.
payment problems early. payment practices have deterio-
rated to the point that legislatures Thomas D. Czik of Thomas D.
REPRESENTING SURETIES Czik & Associates in Garden City,
must now step in to establish
Sureties can also benefit from payment periods. Some owners and NY, is a member of Division 5 of
making certain that their contrac- general contractors have lobbied the Forum. Jayne Czik, Tom’s
tors comply with prompt pay laws. against prompt pay acts on the sister, is an associate at Thomas
First, by giving subcontractors ground that they interfere with D. Czik & Associates and a
another alternative to making a their right to contract. Yet, arguing member of Divisions 4 and 12.

The Forum on the Construction Industry

CALENDAR O F
MEETINGS
Forum on Forum on Construction Forum on Construction
Construction/TIPS Annual Meeting Fall Meeting
Joint Midwinter Meeting May 8-9, 2003 October 2-3, 2003
January 30, 2003 Sheraton Copley Plaza The Mayflower Hotel,
The Waldorf-Astoria Hotel Boston, MA Washington, D.C.
New York, NY

See you
there!

5
Message Forum’s
(continued from page 2)
Midwinter
Program
According to our by-laws, candidates Anne Gorham, and Mike Zetlin. (continued from page 3)
for Chair Elect must have served at
I have found involvement in Forum
least one year on the Governing
leadership at both the Division and
Committee at the time of the elec- Please join us for a lively day of
Governing Committee levels to be
tion. Although Governing Committee insight and learning on these issues
stimulating, enlightening, and fun.
nominees are At-Large, and are of considerable significance to
It has deepened my knowledge and
subject to no prequalification crite- construction and surety lawyers
understanding of our industry, and
ria, the Nominating Committee alike. We look forward to seeing
introduced me to a wonderful
typically considers each candidate’s you in New York at the always
network of practitioners and
past service to the Forum and graceful and elegant Waldorf-
professionals. If you have the time
potential for future service. All inter- Astoria Hotel.
and inclination to become more
ested in being considered for these
involved, please let us know. Theodore M. Baum is a partner
nominations should contact me or
one or more of my fellow John Heisse is the managing part - with Ernstrom & Dreste, LLP
Nominating Committee members – ner of the San Francisco office of in its Rochester, NY office and
Lynn Axelroth, Adrian Bastianelli, Thelen Reid & Priest LLP. Co-Chair of the Program.

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6
Announcement Corner
20 YEAR MEMBERS John Horne, Atlanta, GA Stuart Sobel, Coral Gables, FL
Gary Humes, Washington, DC Paul Stano, Cleveland, OH
The Forum is pleased to honor the Kathryn Humphrey, Detroit, MI Walter Starck, Chicago, IL
following members who are cele- Michael Humphrey, Boise, ID George Stiffler, Washington, DC
Jerome Janzer, Milwaukee, WI Roger Stone, Cedar Rapids, IA
brating their twentieth year with David Joslyn, Chicago, IL Walter Stringfellow, Los Angeles, CA
the Forum: Thomas Justice, Orlando, FL Stephen Sutton, Shawnee Mission, KS
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Raymond Buddie, San Francisco, CA Danny O’Connor, Frederick, MD someone from your firm to attend all
Morton Bunis, Newark, NJ John O’Connor, New York, NY three Forum programs held in 2003
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Theodore Daniel, Dallas, TX Joseph Perillo, New York, NY the upcoming year include:
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Scott Denman, Philadelphia, PA Ernest Reddick, San Francisco, CA 2003 in New York, NY.
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7
Don’t Miss the Next Forum Meeting!
WHEN: January 30, 2003 When economic times get tough, claims
become more prominent in the construc-
WHERE: Waldorf-Astoria, 301 Park Avenue, New York, NY
tion industry. Our next meeting will take
TITLE: Getting To The Bottom Of Construction Claims a fresh look at the process of asserting,
evaluating and resolving claims and
TELL ME disputes. The many new developments,
new case decisions, new contract
MORE: Sessions include: language, and better litigation assessment
• A look at the legal landscape from three techniques combine to add new wrinkles
key points in the claims lifecycle to the already complex world of construc-
tion claims and disputes. This year’s joint
• Use of the decision tree analysis method
program by the Forum and the TIPS
to evaluate construction claims Fidelity & Surety Law Committee will
• The owner’s perspective on contract focus on such new thinking and tech-
termination niques in drafting, and the claims and
dispute resolution processes. You will hear
• The effects of bankruptcy on construction about the use of formal litigation risk
claims assessment and look at the recent evolu-
• The surety’s assertion of construction claims tion of key contract clauses that affect
claim rights. The complexities presented
LUNCHEON when one party to a claim declares bank-
ruptcy will be examined, and an in-depth
SPEAKER: John H. Beyer
discussion of the hard decisions faced by
Beyer Blinder Belle, Architects & Planners, LLP owners and sureties when the issue of
New York, NY default termination arises. Please join us
for a lively day of insight and learning on
To register for the program, call the ABA at 312-988-5666 to these issues of considerable significance
request a brochure or download a registration form from the to construction and surety lawyers alike.
We look forward to seeing you in New York
Forum’s website at www.abanet.org/forums/construction/html/ at the always graceful and elegant
registration.html. Waldorf-Astoria Hotel.

U N D E RCO N ST RU CT I O N Non-Profit
Organization
U.S. Postage
The news l etter of the PAID
A BA Forum on the American Bar
Co n struction Indust ry Association
Lawyers Serving
D e cember 20 02
the Construction Industry
through Education and Leadership

American Bar Association


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Chicago, IL 60611

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