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vi Contents
I. Dissolution and Winding Up 24 C h a p te r five

J. Limited Partnership 24
3.04 Profit Corporations 24
Contracts: From Formation to Breach 42
A. Use 24 5.00 Chapter Overview 42
B. General Attributes 24 5.01 Relevance 42
C. Preincorporation Problems: Promoters 24 5.02 The Function of Enforcing Contracts: Freedom of
D. Share Ownership 24 Contract 43
E. Piercing the Corporate Veil 25 5.03 Contract Formation 43
F. Activities, Management, and Control: Insider A. Definitions 43
Misconduct 25 B. Mutual Assent 43
G. Profits and Losses 26 Objective Theory of Contracts 43
H. Life of the Corporation 26 Offer and Acceptance 44
3.05 Nonprofit Corporations 27 C. Consideration and Its Substitute 46
3.06 Professional Corporations, Limited Liability Definition of Consideration 46
Companies (LLC), and Limited Liability Reliance: Promissory Estoppel 47
Partnerships (LLP) 27 D. Reasonable Certainty of Terms 47
3.07 Joint Ventures 27 5.04 Defects in Contract Formation Affecting Mutual
3.08 Unincorporated Associations 28 Assent 47
3.09 Loose Associations: Share-Office A. Fraud and Misrepresentation: Duty to
Arrangement 28 Disclose 47
3.10 Professional Associations 29 B. Economic Duress 48
C. Mistake 48
D. Unconscionability 48
C h a p te r four 5.05 Defects in Contract Formation: Writing
Agency and Employment 30 Requirement 49
A. Intent of Parties 49
4.00 Chapter Overview 30 B. Statute of Frauds 49
4.01 Relevance 30 History 49
4.02 Introduction to the Agency Relationship 31 Transactions Subject to Statute of Frauds 49
4.03 Policies Behind Agency Concept 31 Sufficiency of Memorandum 49
A. Commercial Efficiency and Protection of Avoiding the Writing Requirement 50
Reasonable Expectations 31 C. Homeowner Contracts 50
B. Relationships Between Principal and Agent 32 5.06 Contract Classifications 51
4.04 Creation of Agency Relationship 32 A. Express and Implied 51
4.05 Actual Authority 32 B. Subject Matter 51
4.06 Apparent Authority 33 C. Bargain and Adhesion 52
4.07 Termination of Agency 34 5.07 Other Forms of Agreement 52
4.08 Disputes Between Principal and Third Party 34 A. Agreements to Agree 52
4.09 Disputes Between Agent and Third Party 34 B. Agreements to Negotiate in Good
4.10 Nontraditional Project Delivery Systems 35 Faith 53
4.11 The Employment Relationship 35 C. Memorandum of Understanding 53
A. Workers’ Compensation 35 D. Letter of Intent 53
B. Dual Employers: Employee Leasing Companies 5.08 What Is the Contract? Two Legal Rules 54
and the Special Employment Doctrine 37 A. Interpretation 54
C. Unions and Labor Disruptions: The Picket B. Contract Completeness and the Parol
Line and Project Labor Agreements 37 Evidence Rule 55
4.12 Independent Contractors 40 5.09 Contract Breach: Protected Interests 57
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents vii
5.10 Remedies for Contract Breach 57 F. Duty and the Restatement (Third)
A. Overview 57 of Torts 76
B. Specific Decrees and Declaratory G. Protected Interests and Emotional
Judgments 58 Distress 77
C. Compensatory Damages 58 H. Defenses: Assumption of Risk and
D. Interest 59 Contributory Negligence 78
E. Attorneys’ Fees 60 Assumption of Risk 78
F. Punitive Damages 60 Contributory Negligence 78
5.11 Limits on Recovery 61 I. Claims Against Government Defendants 79
A. Causation 61 6.04 Intentional Torts 80
B. Certainty 61 A. Misrepresentation 80
C. Foreseeability: Freak Events and Scope of Discussion 80
Disproportionate Losses 62 Representation or Opinion 80
D. Mitigation (Avoidable Consequences) 62 Conduct Classified 80
E. Lost Profits 62 Person Suffering the Loss 80
F. Contract-Specified Remedies 63 Type of Loss 80
G. Noneconomic Losses: Emotional Distress 63 Reliance 80
5.12 Formation Defects and Restitution 63 Generalizations 80
B. Interference With Contract or Prospective
Advantage 81
C h a p te r six
6.05 Premises Liability: Duty of the Possessor of
Torts: Legal Relations Not Arising Land 81
Relevance 81
from Contract 65 To Passersby 82
6.00 Chapter Overview 65 To Trespassing Adults 82
6.01 Relevance to the Construction Process 65 To Trespassing Children 83
6.02 Tort Law: Introduction 66 To Licensees 83
A. Definition 66 To Invitees 83
B. Function 66 Movement Toward General Standard of Care 84
C. Threshold Classifications 67 Defenses to Premises Liability 84
D. A Short History of Torts 67 6.06 Employment of Independent Contractor 85
6.03 Negligence: The Societal Concept of 6.07 Products Liability 86
Reasonable Conduct 69 A. Relevance 86
A. Emergence of the Negligence Concept 69 B. History: From Near Immunity to Strict
B. Elements of Negligence 69 Liability 86
C. Standard of Conduct: The Reasonable C. Restatement (Second) of Torts Section 402A
Person 70 and Restatement (Third) of Torts: Products
The Objective Standard and Some Exceptions 70 Liability Section 2 87
Unreasonable Risk of Harm: Some Formulas 70 D. Product Misuse 88
Common Practice: Custom 71 E. Parties 89
Violations of or Compliance with Statutes 71 F. Defenses 90
Res Ipsa Loquitur 72 G. Economic Losses 91
D. Legal Cause: Cause in Fact and Proximate H. Disclaimers 91
Cause 73 I. Design Defects and Duty to Warn: Two
Cause in Fact 73 Restatements 91
Proximate Cause 74 J. Government-Furnished Design 92
E. Duty 75 K. Beyond Products: Sellers of Services 93
viii Contents
6.08 Remedies 93 Overview of Statute 118

A. Compensation 93 Construction Industry Participants 119
B. Collateral Source Rule 94 Insurance Coverage 119
C. Punitive Damages 94 Brownfields 120
D. Attorneys’ Fees: Cost of Litigation 95 C. Resource Conservation and Recovery Act
E. Interest 95 (RCRA) 121
6.09 Limits on Tort Liability for Pecuniary Losses: The D. Clean Water Act 121
Economic Loss Rule 96 E. Clean Air Act 122
A. Introduction 96 F. State Law 122
B. Permutations of the Economic Loss Rule 96 G. Environmentally Friendly Design
and Construction 122
C h a p te r s e v en
Restrictions on Ownership: Land Use Part B: The Main Actors: The

Controls and Environmental Law 101 Prime Contractor and Design
Professional 123
7.00 Chapter Overview 101
7.01 Relevance to the Construction Process 101 C h a p te r ei g ht
7.02 Limits by Private Action: Restrictive Covenants 101
7.03 Private Restrictions Versus Public Regulation: Introduction to the Construction Process:
A Comparison 104 Focus on the Owner, Prime Contractor
7.04 Protection of Neighboring Landowners 104
A. Nuisance: Unreasonable Land Use 104
and Regulatory Framework 125
B. Soil Support 106 8.00 Chapter Overview 125
C. Drainage and Surface Waters 106 8.01 The Basic Contracts: Private Ordering of
D. Easements for Light, Air, and View 106 the Parties’ Relationships 125
7.05 Zoning: The Mechanism for Land Use Control 107 8.02 The Owner 126
A. Euclidean Zoning: The Premise of Local A. Public Versus Private Owners 126
Control 107 B. Experience 128
B. Residential Districts: Exclusionary and C. Authority Problems: Private Owners 129
Inclusionary Zoning 108 Sole Proprietors 130
C. Phased Growth 109 Partnerships 130
D. Aesthetics and Control 110 Corporations 130
E. Historic and Landmark Preservation 111 Unincorporated Associations 130
F. Open Space and Environmental Spouses or Unmarried Cohabitants 131
Restrictions 112 D. Authority Problems: Public Owners 131
G. Developers and Zoning 112 8.03 The Design Professional 131
H. Limitations on Land Use Controls: 8.04 The Prime Contractor 132
Constitutionality 113 A. An Industry Overview 132
I. Smart Growth: A New Paradigm 116 B. Independent Contractor Status 133
7.06 The Environmental Movement and C. Soil Conditions: The Common Law Rule 133
Owner Liability 117 D. Responsibility for Subcontractors 135
A. National Environmental Policy Act E. Project Safety 136
(NEPA) 118 F. Acceptance Doctrine 137
B. Comprehensive Environmental Response, 8.05 The Lender 138
Compensation, and Liability Act 8.06 Insurers 139
(CERCLA) 118 8.07 Sureties 139
Contents ix
8.08 Regulation of the Design and Construction B. Mechanics of Contractor Licensing 166
Process 140 C. Contractor Licensing: Harmful Effects or
A. Permits 140 Forum for Consumer Complaints? 167
B. Building Codes 140 9.07 The Unlicensed Contractor 168
C. Building Inspections 141 A. Criminal and Quasi-Criminal
8.09 Safety Legislation 142 Sanctions 168
A. State Safe Workplace Statutes 142 B. Recovery for Work Performed and Payment
B. Occupational Safety and Health Laws 143 Reimbursement 169
C. Tort Law/OSH Act Interface 144 Statute Silent on Contractor’s Right to
8.10 International Transactions 144 Compensation 169
Statute Bars Contractor’s Right to Compensation 171
Sophisticated Parties 172
C h a p te r nine Payment Reimbursement 172
Licensing of the Design Professional Summary 173
C. Substantial Compliance 174
and Contractor 145 D. Exceptions to Contractor Licensing 175
9.00 Chapter Overview 145 9.08 The Trained but Unregistered Design Professional:
9.01 Introduction 145 Moonlighting 176
9.02 Public Regulation: A Controversial A. Unlicensed Persons: A Differentiation 176
Policy 146 B. Ethical and Legal Questions 176
A. Justification for Regulation 146 C. Recovery for Services Performed 176
B. Criticism of Licensing Laws 147 D. Liability Problems 177
C. Importance of Attitude Toward the
Regulatory Process 148
C h a p te r T en
D. Judicial Attitudes Toward
Registration Laws 148 The Design Professional–Client
9.03 Administration of Licensing Laws 149
9.04 The Licensing Process 149
Relationship 179
A. Admission to Practice 149 10.00 Overview 179
B. Postadmission Discipline: Duncan v. Missouri 10.01 Traditional Roles of Design Professional:
Board for Architects, Professional Engineers and AIA B101-2007 180
Land Surveyors 150 10.02 Professional Service Contracts:
C. Variations on the Traditional Some Remarks 180
Contracting System 159 A. The Expanding Range of
9.05 Design Professional Licensing 159 Possible Professional Services 180
A. Preliminary Issue: Constitutionality 159 B. Profits and Risk 181
B. Holding Out 159 C. Good Faith, Fair Dealing, and Fiduciary
C. Practicing 160 Relationships: Confidentiality 181
D. Architecture and Engineering D. Variety of Contracts: Purchase Orders 184
Compared 161 10.03 Compensation of the Design Professional:
E. Architect or Engineer Applying Seal to Methods of Compensation 184
Work of Another 163 A. Introduction 184
F. Statutory Exemptions 164 B. Percentage of Construction Costs:
G. Possessor of License 164 Basic versus Additional Services 185
H. Out-of-State Practice 165 C. Multiple of Direct Personnel Expense:
9.06 Contractor Licensing Laws 165 Daily or Hourly Rates 189
A. Overview 165 D. Professional Fee Plus Expenses 190
x Contents
E. Fixed Fee 190 J. Failure of Cost Prediction caused by

F. Reasonable Value of Services or a Architect’s Consultant 212
Fee to Be Agreed On 191 K. Making the Design Professional Responsible
G. Reimbursables 191 for Cost Overruns 212
H. Fee Ceilings 191 L. Advice to Design Professionals 213
I. Adjustment of Fee 192 10.09 Site Services: Observing the Contractor’s
J. Deductions from the Fee: Work 213
Deductive Changes 192 A. Introduction 213
K. Project Risks 193 B. From Supervision to Observation: Watson,
L. The Fee as a Limitation of Liability 193 Watson, Rutland/Architects v. Montgomery
10.04 Compensation of the Design Professional: County Board of Education 213
Timing of Payment 193 C. Site Inspections: Statutory and Administrative
A. Service Contracts and the Right to Regulations 224
Be Paid as One Performs 193 D. Site Inspections: Certification of the
B. Interim Fee Payments 194 Contractor’s Progress Payments 225
C. Monthly Billings 194 10.10 Review of Contractor Submittals 225
D. Late Payments 194 10.11 Hazardous Materials 230
E. Suggestions Regarding 10.12 Who Actually Performs Services: Use of and
Interim Fee Payments 195 Responsibility for Consultants 230
10.05 Payment Despite Nonperformance 195 A. Within Design Professional’s
10.06 Client Obligations to the Design Professional Organization 230
Not Involving Compensation 196 B. Outside Design Professional’s Organization:
10.07 Professional Services: Prior to Consultants 231
Receipt of Bids 196 10.13 Ownership of Drawings and Specifications 233
A. Assistance in Obtaining Financing 197 10.14 Time 236
B. Economic Feasibility of Project 197 10.15 Suspension or Cessation of Services: Special
C. Approval of Public Authorities: Dispute Problems of the Client–Design Professional
Resolution 198 Relationship 237
D. Services of a Legal Nature 199 A. Introduction 237
10.08 Cost Predictions 199 B. Specific Contract Provision as to Term 237
A. Inaccurate Cost Prediction: A Source of C. Conditions 237
Misunderstanding 199 D. Suspension 238
B. Two Models of Cost Predictions 200 E. Abandonment 239
C. Creation of a Cost Condition: F. Termination Clauses 239
Griswold & Rauma v. Aesculapius 201 G. Subsequent Events: Death of Design
D. Cost Predictions: A Contract Law Analysis 205 Professional 240
E. Cost Predictions: A Negligence H. The Lender’s Perspective 241
Law Analysis 206 10.16 Judicial Remedy for Breach of the Design
F. Standard Contracts and Disclaimers: Agreement 242
A Look at AIA Standard Contracts 207 A. Introduction 242
G. Cost Predictions: Breach of Fiduciary Duty or B. Client Claims and the “Betterment”
Misrepresentation? 209 Rule Defense 242
H. Dispensing with the Cost Condition 209 C. Design Professional Claims 244
I. Nonperformance as a Breach: D. Out-of-State Practice 245
Recovery of Damages 210
Contents xi
C h a p te r E l e v en Standard Form Contracts 275

Definition of Terms 276
Design Professional Liability 246 Government Embrace of “Green” Design 276
11.00 Overview 246 Green Building Claims 278
11.01 Claims Against Design Professionals: 11.08 Third-Party Claims Against Design
On the Increase 246 Professionals 279
Changes in Substantive Law 247 A. Potential Third Parties 279
Access to Legal System 247 B. Contract Duty: Contracts for Benefit of
Societal changes: Consumerism 247 Third Parties 279
Design and Social Policy 247 C. Tort Law: Privity and Duty 281
Codes 248 D. Negligence, Negligent Misrepresentation, and
11.02 Claims Against Design Professionals: the Economic Loss Rule: Bilt-Rite Contractors,
Some Illustrations 248 Inc. v. The Architectural Studio and SME
11.03 Design Professional Liability: Industries, Inc. v. Thompson, Ventulett,
The Negligence Standard 251 Stainback & Assocs., Inc. 282
A. Relation to Sections 11.04, 11.05, and 11.06 251 Negligence versus Negligent Misrepresentation 282
B. The Professional Standard as the Measure of Negligent Misrepresentation and the Economic
Reasonable Care: City of Mounds Loss Rule 283
View v. Walijarvi 251 E. Interference with Contract or Prospective
C. The Professional Standard and Compliance Advantage—The Adviser’s Privilege 291
with Legal Requirements: Building and F. Safety and the Design Professional: Pfenninger
Housing Codes: The Americans with v. Hunterdon Central Regional School District
Disabilities Act 254 and CH2M Hill, Inc. v. Herman 292
D. The Professional Standard and Compliance Common Law Liability 293
with Industry or Professional Liability under Occupational Safety and Health Act 298
Ethics Standards 257 G. Duty to Warn 303
11.04 Proving the Professional Standard: Expert 11.09 Current Controversies: Some Observations 304
Testimony 258 A. The Professional Standard: Should
A. Purpose and Exceptions to General Rule 258 Professionals Be Treated Differently? 304
B. Admissibility of Testimony: National Cash B. The Design Professional’s Duty to Workers 306
Register Co. v. Haak 260 C. Injection of Tort Law into the Commercial
C. Critique of System 264 World: A Wild Card 307
D. Advice to Expert Witnesses 266 D. The Effect of Expanded Professional
11.05 Contract Standard as Measure of Conduct 266 Liability 308
A. Likelihood of Specific Standard 266
B. Client Satisfaction 267
C h a p te r t w e lv e
C. Fitness Standard 268
D. Quantitative or Qualitative Defenses to Claims of Design
Performance Standards 269 Professional Liability 310
E. Indemnification 269
F. Contractual Diminution of Standard: 12.00 Overview 310
Informed Consent 270 12.01 Legal Defenses to Claims of
11.06 Implied Warranty: An Outcome Standard 271 Design Professional Liability 310
11.07 Client Claims Against Design Professionals 273 A. Approval by Client 310
A. Suing in Contract, Tort or Both? 273 B. Acceptance of the Project 311
B. “Green” or Sustainable Design 274 C. Passage of Time: Statutes of Limitations 311
Introduction 274 D. Design Professional Decisions
Historical Background 275 and Immunity 313
xii Contents
E. Recent Legislative Activities 315 13.04 Moral Rights of Artists 339

F. Apportionment for Fault of Others 316 13.05 Patents: Some Observations and
12.02 Contractual Risk Control 317 Comparisons 339
A. Scope of Services 317 A. Scope of Coverage 339
B. Standard of Performance 317 B. Patent and Copyright Compared 340
C. Exclusion of Consequential Damages 317 13.06 Trade Secrets 340
D. Limiting Liability to Client 318 A. Definition 340
E. Immunity: Decision Making 321 B. Context of Trade Secret Litigation 341
F. Contractual Statute of Limitations 321 C. Contrast to Patents: Disclosure vs.
G. Third-Party Claims 322 Secrecy 341
H. Dispute Resolution 322 D. Adjusting Competing Social Values 341
I. The Residue 322 E. Availability of Legal Protection 342
J. Some Suggestions 322 Duty Not to Disclose or Use: Confidential Relationship
and Contract 342
Chapter thirteen Nature of Information 343
Employee Cases 343
Intellectual Property: Ideas, Copyrights,
F. Scope of Remedy 344
Patents, and Trade Secrets 323 G. Duration of Protection 344
13.00 Overview 323 H. Advice to Design Professionals 344
13.01 Intellectual Property: Introduction and Relevance
to the Design Professional 323 Part C: Project Delivery Methods 345
A. Purpose of Protecting Intellectual Property 323
B. Exclusions from Discussion: Trademarks and Chapter fourteen
Shop Rights 324
C. Relevance to Design Professional 324 Project Organization, Pricing, and
13.02 The Copyright Law of 1976 324 Delivery Methods 347
A. Common Law Copyright Abolished 324
14.00 Overview 347
B. Statutory Copyright 325
14.01 Project Planning: Focus on the Owner 347
Classification of Copyrightable Works 325
A. Owner’s Objectives 347
Copyright Duration: More Protection 325
B. Blending Business and Legal Judgments 348
Codification of Fair Use Doctrine 325
C. Public vs. Private Projects 348
Obtaining a Copyright 325
14.02 Pricing Variations 349
Remedies for Infringement 326
A. Fixed-Price or Lump-Sum Contracts:
Works Commissioned by U.S. Government 327
Some Variations 349
13.03 Special Copyright Problems of Design
B. Cost Contracts 350
Professionals 327
C. Value Engineering Change Proposal
A. Attitude of Design Professionals
(VECP) 353
Toward Copyright Protection 327
D. Unit Pricing 354
B. What Might Be Copied? 328
E. Cash Allowance 357
C. Common Law Copyright and Publication 328
F. Contingencies 357
D. Statutory Copyright 328
14.03 Traditional Organization:
Architectural Works Copyright Protection
Design–Bid–Build (DBB) 357
Act of 1990 329
A. Traditional System Reviewed 357
Copyright Owner: Work for Hire Doctrine 329
B. Weaknesses 358
Ownership of Documents and Copyright:
14.04 Modern Variations in Project Delivery:
License to Use 330
Introductory Remarks 359
Infringement: Sturdza v. United Arab Emirates 333
14.05 Phased Construction (Fast-Tracking) 360
E. Advice to Design Professionals 336
Contents xiii
14.06 Separate Contracts (Multiple Primes): 15.05 The Competitive Bidding Process 397
Broadway Maintenance Corp. v. Rutgers, A. Overview 397
State University 361 B. Invitation for Bids (IFB) 397
14.07 Construction Management (CM) 368 C. Alternates 398
A. Reasons for Construction Management 368 D. Prequalification of Bidders 398
B. Types of Construction Management 369 E. Bid Opening 399
C. Construction Management: Legal Issues 370 F. Bid Proposal: Binding the Bidder 399
The Owner/CM Relationship 370 G. The Formal Contract 400
Rights and Liabilities of the CM 371 Timing of Contract Formation 400
D. Impact on Project Organization 372 Role of Bidding Documents 401
14.08 Turnkey Contracts 373 15.06 Bid Protests 402
14.09 Design–Build: Combining Design and A. Overview and Standing 402
Construction 374 B. Standing of Disappointed Bidders:
A. Reasons for Design–Build 374 Federal Procurement 402
B. Nature of Design-Build 375 C. Evaluation of the Bid and the Bidder 402
C. Design–Build and Public Contracts 376 D. Judicial Response to Bid Protests 403
D. Design–Build on Private Contracts 378 15.07 Mistaken Bids: Sulzer Bingham Pumps, Inc. v.
E. Advantages and Disadvantages Lockheed Missiles & Space Company, Inc. 407
to Design–Build 378 15.08 Bid Deposit: Remedy for the Public
14.10 Partnering 379 Entity? 414
14.11 Teaming Agreements 380 15.09 Procurement Reform 415
14.12 Lean Project Delivery 381 15.10 Public Entity’s Duty to Disclose 416
14.13 Project Alliance 382 15.11 Illegal Contracts 417
14.14 Program Management(PM) 382 15.12 Sovereign Immunity: Federal and State 419
14.15 Public-Private Collaboration: Public-Private 15.13 Claims Against Public Entities:
Partnerships (PPP) and Build-Operate- Federal False Claims Act 420
Transfer (BOT) 383
Public-Private Partnerships 383
Build-Operate-Transfer (BOT) 384
Part D: Performance Disputes: From
14.16 Building Information Modeling (BIM) 385
14.17 Summary 387 Design to Termination 423
14.18 Administrative Problems 387
C h a p te r s i x teen
A. Overview 387
B. Authority: Special Problems of Construction Performance Disputes Overview: Claims
Projects 387
C. Communications 390 and Defenses to Liability for the Owner
and Prime Contractor 425
C h a p te r f i f teen 16.00 Overview 425
16.01 Claims: Theories of Legal Liability 426
Public Contracts 392 A. Introduction 426
15.00 Overview 392 B. Categorizing Claims 426
15.01 Public Contracts: Social and Economic Contract Law Claims Generally 426
Objectives 392 Contract Law Claims—Express Warranty 426
15.02 What Is a “Public Work”? 394 Contract Law Claims—Implied Warranty 426
15.03 Design Contracts: The Brooks Act 395 Contract Law Defenses 426
15.04 Competitive Bidding: Objectives and Tort Law Claims 427
the Pitfall of Corruption 396 Statutory Claims 427
xiv Contents
16.02 Principles Underlying Claims 427 D. Impossibility: Commercial

A. Basic Principle: Responsibility Impracticability 452
Follows Control 427 E. “Impossible” Specifications 453
B. Supplemental Principle: Good Faith and F. Frustration 454
Fair Dealing—Contractor Cognizant of G. Unconscionability 455
Design Defects 429 H. Contractor’s Destruction of Project
16.03 Contractor Claims 430 Covered by Owner’s Insurance: Subrogation
A. Introduction 430 Waivers 457
B. Misrepresentation Through Defective I. Governmental Acts 459
Specifications: United States v. Spearin 430 J. Acceptance of Project 460
Design Specifications 432 K. Change of Ownership: Who Then
Misrepresentation and Defect 432 Owns a Cause of Action for Defective
Injury 435 Construction? 460
C. Owner Nonpayment 436 L. Passage of Time: Statutes of
16.04 Owner Claims: Design, Execution, and Limitation and Repose 462
Blurred Roles 436 16.13 A Suggestion: Defect Response Agreements 464
A. Introduction 436
B. Owner Claims: Divided Responsibility for C h a p te r s e v enteen
Construction Defects 437
Stating the Problem 437 Construction Contracts and
Defect Traced to Owner and Contractor 437 Rules of Contract Interpretation 466
Shared Design Responsibilities 438
16.05 Warranty (Guarantee) Clauses 439 17.00 Overview 466
A. Introduction 439 17.01 The Contract Documents 466
B. Relationship to Project Acceptance 439 A. Basic Agreement 466
C. Purposes: St. Andrew’s Episcopal Day School v. B. Drawings (Plans) 467
Walsh Plumbing Co. 440 C. Specifications—Fruin-Colnon v. Niagara
D. Warranty and Correction of Frontier and Blake v. United States 467
Work Under A201 444 Design and Performance Specifications 467
16.06 Contractor’s Implied Warranty of Proprietary Specifications 472
Workmanship 445 D. Conditions: General and Supplementary 474
16.07 Homeowner Claims: Implied Warranties in the E. Prior Negotiations and
Sale of Homes 446 the Parol Evidence Rule 475
A. Home Buyers and Their Legal Problems 446 F. Modifications 476
B. The Implied Warranty G. Contracts in an Electronic Age 477
Explosion of the 1960s 446 17.02 Judicially Determined Terms 477
C. Current Problems 446 A. Implied Terms 477
16.08 Homeowner Claims: Consumer Protection B. Custom 480
Legislation 447 C. Building Codes and Permits 480
16.09 Homeowner Claims: Residential Construction D. Good Faith and Fair Dealing 481
Defects Legislation 448 E. Unconscionability:
16.10 Financial Problems 449 Judicial Elimination of Terms 483
16.11 Asbestos and Other Hazardous Materials 450 17.03 Contract Interpretation: Basic Objectives 483
16.12 Contractor Defenses to Claims 451 17.04 Language Interpretation: Two Fundamental
A. Introduction: Causation and Fault 451 Approaches 484
B. Contractor Followed the Design 452 A. Plain Meaning Rule 484
C. Mutual Mistake 452 B. Illustrative Federal Cases: TEG-Paradigm
Environmental, Inc. v. United States 485
Contents xv
C. Extrinsic Evidence 489 F. Formal Requirements 521

D. Practical Interpretation 489 G. Intention to Claim a Change 522
E. Canons of Interpretation 490 H. Excusing Formal Requirements 522
Expressio Rule 490 I. Pricing Changed Work 524
Ejusdem Generis 490 18.05 Effect of Changes on Performance Bonds 525
Reasonableness 490
Fairness 490 C h a p te r nineteen
Contra Proferentem 490
F. Industry Contracts 491 Payment: Money Flow as Lifeline, and the
G. One-Sided Clauses 493 Complexity of Project Completion 526
17.05 Bidding Process—Patent Ambiguity:
19.00 Overview 526
Newsom v. United States 494
19.01 The Doctrine of Conditions 526
17.06 Resolving Conflicts and Inconsistencies 496
19.02 Progress Payments 527
A. Within the Written Agreement 496
A. Function 527
B. Between Documents: Unicon Management
B. Schedule of Values 527
Corp. v. United States; Hensel Phelps
C. Progress Payment Application Process 527
Construction Co. v. United States 497
D. Design Professional’s Certification of Payment
17.07 Reformation of Contracts 503
Applications 528
Observation of Work 528
C h a p te r ei g hteen Certification of Payment 529
Design Professional Liability 530
Changes: Complex Construction E. Progress Payments on Public Contracts 531
Centerpiece 504 F. Payment for Subcontractor Work:
Joint Checks 532
18.00 Overview 504
G. Payment as Waiver of Defects 533
18.01 Definitions and Functions of a Changes Clause:
19.03 Legal Interests in Progress Payments 534
Watson Lumber Co. v. Guennewig 504
A. Contractor’s Assignment of
Function of Changes 504
Terminology 505
Payments to Lender 534
AIA Documents 505
B. Lender Involvement 534
Pricing Changes 506
C. Surety Requests to Owner That
The Parties’ Perspectives 506
Payment Be Withheld 535
19.04 Retainage 536
18.02 Shifts in Bargaining Power 510
19.05 Late Payment or Nonpayment During
18.03 Types of Changes 510
Performance 539
A. Cardinal Change 510
Prompt Payment Acts 539
B. Constructive Change 513
AIA Documents and Common Law Rights 539
C. Deductive Change (Deletion) 513
19.06 The Completion Process and Payment 541
D. Minor Change 514
A. Substantial versus Final Completion 541
E. Tentative Change 514
B. Final Payment: Release of Future
18.04 Change Order Mechanisms 514
Contractor Claims 541
A. Judicial Attitude Toward Changes
19.07 Uncompleted Work and the Substantial
Mechanisms 514
Performance Doctrine 543
B. Limitation on Power to Order Changes 515
A. The Doctrine of Conditions 543
C. Authority to Order Change 517
B. Substantial Performance: Plante v. Jacobs 544
D. Misrepresentation of Authority 519
19.08 Work Not Substantially Complete: Recovery in
E. Duty to Order Change from Contractor 520
Quantum Meruit 550
xvi Contents
C h a p te r T w ent y B. The Critical Path Method (CPM) and

Float 576
Subsurface Problems: Predictable C. Other Legal Issues 580
Uncertainty 552 D. Forensic Scheduling:
20.00 Overview 552 Proving Delay Claims 580
20.01 Discovery of Unforeseen Conditions 552 21.06 Causation: Concurrent Causes 581
A. Effect on Performance 552 21.07 Time Extensions 582
B. Causes 553 A. Role of Design Professional 582
C. Two Models 553 B. Duration of Extension 582
D. Enforceability of a Promise to C. Notices 582
Pay More Money 554 21.08 Contractor-Caused Delay: Owner Remedies 583
E. Supervening Geotechnical Conditions and A. Actual Damages 583
Mistake Claims 554 B. Liquidated Damages: Carrothers Constr. Co.,
20.02 Common Law Rule 555 L.L.C. v. City of South Hutchinson 583
20.03 Information Furnished by Owner 555 21.09 Owner-Caused Delay 592
20.04 Risk Allocation Plans 556 A. Sources of Owner Delays and
20.05 Disclaimers—Putting Risk on Contractor 558 Some Contract Defenses 592
20.06 Contractual Protection to Contractor 559 B. No-Damages Clauses: Triple R Paving,
A. Public Contracts: The Federal Approach 559 Inc. v. Broward County 593
B. AIA Approach: Concealed Conditions 564 C. Subcontractor Claims 599
C. EJCDC Approach 565 D. Records 599
D. The FIDIC Approach 566 21.10 Owner Acceleration of Contractor
20.07 Some Advice to Courts 567 Performance 599
A. Specific: The Changes Clause 599
B. Constructive Acceleration 599
C h a p te r t w ent y - one C. Voluntary: Early Completion 600
21.11 Bonus/Penalty Clauses: An Owner Carrot 601
Time: A Different but Important
Dimension 568
C h a p te r T w ent y - t w o
21.00 Overview 568
21.01 Introduction 568 Owner–Contractor Disputes: Damages
21.02 Commencement 569 and Settlement 603
21.03 Completion 570
21.04 Allocation of Delay Risks 570 22.00 Overview 603
A. Categorization of Delays and 22.01 Introduction 603
Remedies for Delay 570 22.02 Measurement: Contractor versus Owner 604
B. Common Law 571 A. Illustrations 604
C. Fault 571 B. Cost Contracts 604
D. Force Majeure Clauses 571 C. Project Never Commenced 604
E. Weather 573 D. Project Partially Completed: Damages 605
F. Subcontractor-Caused Delay 573 E. Project Partially Completed: Restitution 606
G. “Time Is of the Essence” Clauses 574 F. Project Completed: Complete General
21.05 Measuring the Impact of Delay: Construction Co. v. Ohio Department
Project Schedules 574 of Transportation and New Pueblo Constructors
A. Approaches to Scheduling: v. State of Arizona 609
AIA and EJCDC 575 Denial of Restitution 609
Site Chaos and Productivity 609
Contents xvii
Extended Home Office Overhead: C. Bargaining Situation: Shopping and

Eichleay Formula 611 Peddling 652
Productivity Loss Preferred Formulas: Measured Mile D. Avoiding Drennan 653
and Industry Productivity Studies 615 E. Uniform Commercial Code 654
Total Cost 616 F. A Suggestion 654
Jury Verdict 617 23.04 Subcontractor Selection and Approval: The
22.03 Measurement: Owner versus Contractor 619 Private Owner’s Perspective 655
A. Illustrations 619 23.05 Payment Claims Against Prime Contractor:
B. Project Never Begun 619 “Pay When Paid” Clause 656
C. Project Partially Completed 620 23.06 Payment Claims Against Property, Funds, or
D. Defective Performance: Correction Cost or Entities Other Than Prime Contractor 659
Diminished Value? 621 A. Introduction 659
E. Delay 624 Court Judgments versus Specific Remedies 659
22.04 Certainty 625 Payment Bonds 659
22.05 Records and Notices 626 Effect of Statutory Remedy on Nonstatutory Claims 660
A. During Performance 626 B. Mechanics’ Liens 660
B. After Dispute Arises 626 Legal Complexity 660
C. Notices 627 Overview 660
22.06 Consequential Damages: Lost Profits 627 Claimants and Lienable Work 661
A. Defined 627 Lien Priority 662
B. Owner Claims 628 Constitutionality 663
C. Contractor Claims 628 Criticism 663
D. Waiver of Consequential Damages: No-Lien Contracts 664
AIA Approach 629 C. Stop Notices 664
22.07 Avoidable Consequences: D. Trust Fund Legislation: Criminal and
The Concept of Mitigation 629 Civil Penalties 664
22.08 Collateral Source Rule: Off-Setting Benefits 631 E. Nonstatutory Claims Against
22.09 Single Recovery Rule: Claims Against Third Parties 665
Multiple Defendants 631 F. Joint Checks 666
22.10 Noneconomic Losses: Erlich v. Menezes 632 G. Payment Claims on Public-Private
22.11 Punitive Damages 636 Partnership (PPP) Projects 667
22.12 Disputes and Settlements: Rich & Whillock v. 23.07 Performance-Related Claims Against
Ashton Development, Inc. 638 Prime Contractor 667
23.08 Owner Claims Against Subcontractors 668
23.09 Pass-Through Claims Against Owner:
C h a p te r t w ent y - th r ee
Liquidating Agreements 669
The Subcontracting Process: 23.10 Public Contracts 670
An “Achilles Heel” 643
C h a p te r t w ent y - f o u r
23.00 Overview 643
23.01 An Overview of the Process 643 Terminating a Construction Contract:
23.02 The Subcontract and Sources of Rights and Sometimes Necessary but Always
Duties: Flow-Through Clauses 647
23.03 The Subcontractor Bidding Process 651 Costly 671
A. Using Sub-Bids 651 24.00 Overview 671
B. Irrevocable Sub-Bids 651 24.01 Termination: A Drastic Step 671
24.02 Termination by Agreement of the Parties 673
xviii Contents
24.03 Contractual Power to Terminate 673 E. Implied Contractual Indemnity 699

A. Default Termination 674 F. Comparative Negligence 699
B. Termination or Suspension for G. Preemption 699
Convenience 676 25.05 Contractual Indemnity 700
C. Events for Which Neither Party Is A. Indemnification Compared to Exculpation,
Responsible 679 Liability Limitation, and Liquidated
D. Role of Design Professional 679 Damages 700
E. Waiver of Termination and Reinstatement of B. Indemnity Clauses Classified 701
Completion Date 680 C. Functions of Indemnity Clauses 702
F. Notice of Termination 682 D. Statutory Regulation 704
G. Taking Over Materials and Equipment 683 E. Common Law Regulation: Specificity
H. Effect on Existing Claims for Delay 683 Requirements 706
I. Disputed Terminations 684 F. Interpretation Issues 707
J. Public Contracts and Constitutional Losses and Indemnity Coverage 707
Protection 684 Work-Relatedness of Injury 708
24.04 Termination by Law 685 Amount Payable/Defense Costs 708
A. Material Breach 685 Who May Enforce Indemnity Clause 709
B. Future Breach: Prospective Inability and G. The AIA Indemnity Clause 710
Breach by Anticipatory Repudiation 686 H. Indemnitor Required to Procure
C. Bankruptcy 688 Insurance 711
24.05 Restitution When a Contract Is Terminated 688 25.06 Insurance: Risk Spreading 712
24.06 Keeping Subcontractors After Termination 689 A. Types of Insurance 712
B. Introduction to Insurance Industry and
Policy 713
Part E: Risk Management and Standardized Insurance Policies 713
Dispute Resolution 691 Regulation 714
Premiums 714
C h a p te r t w ent y - f i v e Deductible Policies 714
Policy Limits 714
Shifting Losses and Risk Management: Notice of Claim: Cooperation 715
Contribution, Indemnity, Duty to Defend 715
and Insurance 693 Settlement 716
Multiparty Policies 716
25.00 Overview 693 25.07 Property Insurance: Partial or Total Destruction of
25.01 First Instance and Ultimate Responsibility Project and Subrogation Waivers 716
Compared 693 25.08 CGL Insurance and Defective
25.02 Terminology 694 Construction Claims 718
25.03 Contribution Among Wrongdoers 694 25.09 Professional Liability Insurance 720
25.04 Noncontractual Indemnity 695 A. Requirement of Professional
A. Contribution and Noncontractual Liability Insurance 720
Indemnity Differentiated 695 B. Policy Types: Occurrence or
B. Basic Principle: Unjust Enrichment 696 Claims Made 720
C. When Is Noncontractual Indemnity C. Coverage and Exclusions:
Awarded? 696 Professional Services 721
D. Employer Indemnification and Workers’ D. Preparing to Face Claims 723
Compansation Immunity 698
Contents xix
C h a p te r t w ent y - s i x B. Reasons for Initial Design Professional

Decision 742
Surety Bonds: Backstopping C. Initial Decision Requirement Excused 742
Contractors 725 D. Jurisdiction of Decision-Making Powers 743
26.00 Overview 725 E. Procedural Matters 744
26.01 Mechanics and Terminology 725 Requirements of Elemental Fairness 744
26.02 Function of Surety: Insurer Compared 726 Standard of Interpretation 745
26.03 Surety Bonds in Construction Industry 727 Form of Decision 746
A. Construction Industry Bonds Not for Costs 747
Payment or Performance 727 F. Finality of Initial Decision 747
Bid Bonds 727 G. Finality: A Comment 749
License Bonds 727 H. The Initial Decision Maker: Some
Lien Release Bonds 727 Observations 750
Subdivision Bonds 727 27.03 Statutory Framework of Arbitration 751
B. Need for Bonds in Construction Industry 727 27.04 Abuse of Arbitration 751
26.04 Performance Bonds 728 27.05 State Regulation and Federal Preemption 753
A. Surety’s Promise to Owner 729 A. State Statutes 753
B. Triggering the Performance Bond B. Federal Preemption 754
Obligation 729 27.06 Nonstatutory Obstacles to Arbitration 756
Conference 729 A. Unconscionability 756
Declaration of Default 729 B. Underlying Contract 757
Tender of Contract Balance 730 Invalidity of Contract 757
C. Surety’s Options 730 Incorporation by Reference 757
D. Surety’s Defenses 731 Contract Formalities 757
E. Surety Responsibility 732 Nonsignatories 758
26.05 Payment Bond 733 Electronic “Writing” 758
A. Function 733 C. Other Defenses: Fraud, Mutuality, Termination
B. Who Can Sue on the Bond? 734 of Contract, and conditions Precedent 759
C. Payment Bond Liability 735 27.07 Arbitrability 760
26.06. Asserting Claims: Time Requirements 736 A. Substantive Arbitrability: Which Disputes
26.07 Reimbursement of Surety 737 Are Subject to Arbitration? 760
26.08 Regulation: Bad-Faith Claims 738 B. Procedural Arbitrability: Timeliness of
26.09 Bankruptcy of Contractor 739 Arbitration Demand 762
26.10 International Contracts 739 C. Who Decides Jurisdiction and Timeliness 762
27.08 Waiver of Arbitration 764
27.09 Prehearing Activities: Discovery 765
C h a p te r t w ent y - s e v en 27.10 Selecting Arbitrators and
Arbitrator Immunity 766
Claims, Arbitration, and Other Alternative 27.11 Place of Arbitration 768
Dispute Resolution Methods 740 27.12 Multiple-Party Arbitrations: Joinder and
27.00 Overview 740 Consolidation 768
27.01 Claims Process: Initial 27.13 The Hearing 770
Administrative Review 740 A. A Differentiation of Issues:
27.02 AIA Claims Process 741 Desirable versus Required 770
A. Introduction: Who Makes the Initial B. Waiver 770
Decision? What Happens Next? 741 C. Time 770
xx Contents
D. Proceeding Without the Presence of Appendices

One of the Parties 770
E. The Arbitrators 771 Appendix A
F. Rules for Conducting the Hearing 771 Standard Form of Agreement Between Owner and
G. Opening Statements 771 Architect with Standard Form of Architect’s Services
H. Production of Evidence: Subpoena (AIA Document B101-2007) A-1
Powers 771
I. Legal Rules of Evidence 771 Appendix B
J. Documentary Evidence 772 Standard Form of Agreement Between Owner and
K. Questioning Witnesses 772 Contractor (AIA Document A101-2007) B-1
L. Visiting the Site 772
M. Ex Parte Communications 772 Appendix C
N. Transcript 772 General Conditions of the Contract for Construction
O. Reopening Hearing 772 (AIA Document A201-2007) C-1
27.14 Substantive Standards 773
Appendix D
27.15 Remedies 773
Performance and Payment Bonds (AIA Document
27.16 Award 776
A312-2010) D-1
27.17 Enforcement and Limited Judicial
Review 776 Appendix E
27.18 Insurers and Sureties 779 Standard Form of Agreement Between Contractor and
27.19 Arbitration and Litigation Compared 780 Subcontractor (AIA Document A401-2007) E-1
27.20 Alternative Dispute Resolution (ADR):
A Survey 783
Appendices F to I on Website
A. Arbitration 783
B. Mediation 786 Appendix F
C. Mediation-Arbitration 787 Construction Industry Arbitration Rules and Mediation
D. Mini-Trials 788 Procedures (Including Procedures for Large, Complex
E. Dispute Review Board 788 Construction Disputes) (American Arbitration
F. Project Neutral 789 Association, effective October 1, 2009) F-1
G. Project Counsel 789
H. Partnering 789 Appendix G
I. Conflict Manager 789 Standard Form of Agreement Between Owner and
J. Court-Appointed Arbitrators: Adjudicator Engineer for Professional Services (EJCDC Document
(Great Britain) 790 E-500 (2008)) G-1
K. Multi-Tier Systems 790
L. Architect/Engineer Resolution 790 Appendix H
27.21 Adjuncts of Judicial Systems 790 Suggested Form of Agreement Between Owner and
A. Special Masters and Referees 791 Contractor for Construction Contract (Stipulated Price)
B. Summary Jury Trials 791 (EJCDC Document C-520 (2007)) H-1
C. Mediation 791
Appendix I
27.22 Public Contracts 791
Standard General Conditions of the Construction
A. Federal Procurement Contracts 792
Contract (EJCDC Document C-700 (2007)) I-1
B. State and Local Contracts 792
27.23 International Arbitration: FIDIC 794 Subject Index SI-1
Case Index CI-1
Preface
The primary focus of this edition, as in editions that pre- We provide many illustrations of how the legal rules
ceded it, is to provide a bridge for students, mainly archi- operate through summaries of actual cases and reproduc-
tectural and engineering students, but increasingly, those tion of some cases. We do this to demonstrate how legal
in business schools and law schools, between the academic rules work in practice, how most disputes are resolved by
world and the real world. We hope to provide a cushion the facts in the case, and, in the case of actual judicial
for the inevitable shock such a transition generates. The opinions, how judges decide cases.
world of the classroom, with its teachers and its books, is We seek not only to accurately describe the construc-
not the same as the world of construction with its devel- tion industry and the applicable law, but also to pro-
opers, owners, design professionals, contractors, building vide suggestions for reform. A proposal is made for the
inspectors, loan officers, and public officials that regulate major project participants, before commencement of the
the construction process. work, to enter into a Defect Response Agreement, under
This cushion requires that readers understand what is which they agree in advance to divide the cost of inevi-
law, how it is created, how it affects almost every activ- table defects, thereby precluding this issue from impeding
ity of human conduct, and how legal institutions oper- performance.2 Also, mechanics’ liens are a time-honored
ate. This cannot be accomplished through simply stating mainstay of the construction process, meant to guaran-
“the law.” It requires clear, concise, jargon-free text that tee payment of subcontractors, yet the question is asked
probes beneath the surface of legal rules to uncover why whether subcontractors would be better off if such liens
these rules developed as they did, outline arguments for were simply abolished.3
and against these rules, and examine how they work in Describing legal rules and how they operate is not an
practice. in-depth or exhaustive treatment of something as com-
This is a national textbook. We do not concentrate plex as Construction Law. Footnotes are one way to at
on the law of any particular state. It is difficult to state an least hint at greater complexity. With this in mind, let us
American rule with fifty states and a federal jurisdiction. express our footnote philosophy.
A few areas of law that are relevant to the Construction The primary role of footnotes is to provide authority
Process are exclusively regulated by federal law.1 Yet most for textual statements that we believe require documen-
disputes are governed by the law of each state. This does tation. Another function is to indicate a deeper level of
not mean that there are fifty rules. Those who survey the complexity of a legal problem without detracting from the
cases will find that there is a majority rule and one or primary explanation provided in the text. This leads to a
more minority rules. We will try to emphasize the majority third function of footnotes: to provide references that will
rule without ignoring that some states have provided a dif- enable the student, the researcher, or the practicing attor-
ferent legal solution. ney to dig more deeply into a particular legal problem.
1
As illustrations see Sections 8.09B (Occupational Safety and Health 2
Section 16.13.
Act) and 13.02–13.05 (Copyright and Patents). 3
Section 23.06.
xxi
xxii Preface
Footnote references can be statutes, regulations, or Four Main Organizational Changes

cases. In addition to these primary sources of law, refer-
ences can include the burgeoning secondary literature, 1. The chapters have been grouped into five parts: Part
texts and legal journals, that examine Construction A: Legal Framework of the Design and Construction
Law in depth and from a practical perspective. Finally, Process (Chapters 1–7); Part B: The Main Actors:
references can include techniques used by Standard The Prime Contractor and Design Professional
Construction Documents that have suggested solutions for (Chapters 8–13); Part C: Project Delivery Methods
many legal and practical problems. (Chapters 14–15); Part D: Performance Disputes:
Each of us has taught courses in Construction Law. We From Design to Termination (Chapters 16–24); and
have found that students often wish to do research into Part E: Risk Management and Dispute Resolution
legal problems. They are helped by footnote references (Chapters 25–27). A short overview of each part
we have provided. Legal research is not limited to law precedes the first chapter of that part.
students. We have found that students in architecture 2. To streamline the subject matter, the number of
and engineering schools also engage in legal research and chapters has been reduced from thirty-three to
that footnote references help them. In addition, lawyers twenty-seven. For the benefit of users accustomed
or design professionals handling legal materials in practice to prior editions, a Conversion Table is provided
have informed us that these references have helped them. both in the book (immediately after the Preface) and
in the Instructor’s Manual to show correspondence
Changes in the Ninth Edition: Overview between the chapters of the Eighth Edition and those
in the Ninth.
The main impetus for the Ninth Edition is to funda-
mentally update the book, both technologically and orga- 3. The Ninth Edition introduces many new sections
nizationally, to cover the issuance of new standard form consisting of either novel topics or (more commonly)
construction documents, and to incorporate legislative, materials previously scattered throughout the book.
administrative and judicial developments. Law, though it For example, the Eighth Edition discussed legal issues
seeks stability, is not static. New cases come pouring out pertinent to the prime contractor in different parts of
of the courts daily. Legislatures enact new statutes in every the book. These separate discussions (and new ones)
new session. Administrative agencies interpret those stat- are consolidated in the Ninth Edition in a new Section
utes with new regulations. Textbooks must accommodate 8.04, titled “The Prime Contractor,” as follows:
such changes.
Ninth Edition Eighth Edition
Technological Change: Dedicated Website Section Section
From a technological perspective, this edition for the 8.04A: An Industry Overview 8.02B
first time merges the written text with a dedicated website.
8.04B: Independent New material
This website has short questions which students can use
Contractor Status
as self-tests to ensure they understand each c hapter’s
basic content. This website also contains an article on 8.04C: Soil Conditions: 25.02
Frank Lloyd Wright found in the previous edition. Finally, The Common Law Rule
Appendices F through I can be found on the website. By 8.04D: Responsibility 28.05
shifting several appendices of standard form documents for Subcontractors
from the back of the book to the website, this edition is
8.04E: Project Safety 7.04
slimmer and easier for the student to carry around and
use. To access this website, go to www.cengagebrain.com. 8.04F: Acceptance Doctrine 7.03G, 14.09B
At the home page, type in the ISBN of this book (found
on the book’s back cover) in the search box at the top of 4. Each chapter now begins with an “overview” sec-
the page. This will take you to the product page where tion which explains to the student the content and
these resources can be found. p urpose of that chapter. By knowing the purpose and
Preface xxiii
general content of the upcoming chapter, the student • Chapter 6, on torts, includes an expanded discussion of
should have an easier time absorbing and under- the Restatement (Third) of Torts: Liability for Physical
standing the chapter’s material. and Emotional Harm, which was adopted in 2005.
This very influential work contains new definitions
of negligence and the duty of care, which are summa-
More Detailed Changes in rized and discussed.11 A new case analyzes the Third
the Ninth Edition Restatement’s statement of the duty of care as applied
to a construction case.12 Complimenting Chapter 4’s
Any book dealing with construction law should refer to
analysis of independent contractors, Chapter 6 exam-
the most current standard form documents. The updated
ines the independent contractor rule, which addresses
appendices incorporate new editions of these standard
liability of the employer of an independent contractor
form documents:
for torts committed by that contractor.13 A new section
• Appendix D consists of the American Institute of analyzes the economic loss rule and its limitation on
Architects (AIA) new standard form performance and the recovery of purely pecuniary losses in tort.14
payment bonds, Document A312-2010. • Chapter 7, regarding land use regulation and envi-
• Appendix F consists of the new Construction Industry ronmental law, provides an updated explanation of
Arbitration Rules and Mediation Procedures of the zoning law, including the modern paradigm of “smart
American Arbitration Association, revised and issued growth.”15 The environmental discussion includes new
on October 1, 2009. sections on the Clean Water Act and Clean Air Act.16
• Appendix G consists of the Engineers Joint Contracts • Chapter 8 provides an introduction to the construc-
Documents Committee’s (EJCDC) new edition of its tion process with focus on the owner, prime contractor,
version of an owner/engineer agreement, E-500 (2008). and the regulatory framework. As previously noted,
this edition gives much more prominence to the role
The major changes to the book’s chapters are provided
of the prime contractor.17 New language explicates the
here.
prime contractor’s status as independent contractor18
• Chapter 4, previously limited to the law of agency,
and its responsibility for project safety.19 It also includes
is now titled: “Agency and Employment.” New and
expanded discussion of construction lenders, including
expanded discussion of the employment relationship
liability to both the borrower and subcontractors. 20
covers the topics of workers’ compensation, 4 dual
In addition, Chapter 8 updates the regulatory system
employers,5 unions, and labor disruptions.6 Another
governing the construction industry, including building
new section addresses independent contractors—a key
codes,21 building inspections,22 and safety legislation—
employment tool in the construction industry.7
both state safe workplace statutes and federal and state
• Chapter 5, on contracts, includes a new case examin-
occupational safety and health laws.23 The effect of a
ing whether negotiations between a prime contractor
safety law violation on a tort lawsuit arising out of the
and subcontractor resulted in a binding subcontract.8
accident is also explored.24
It discusses how the Uniform Electronic Transactions
Act establishes electronic signatures as compliant 11
Sections 6.03C and F.
with the statute of frauds.9 Increasingly, legislatures 12
Section 6.03F.
are regulating the content of contracts for residential 13
Section 6.06.
improvements.10 14
Section 6.09.
15
Section 7.05.
16
Sections 7.06D and E.
17
Section 8.04.
4
Section 4.11A. 18
Section 8.04B.
5
Section 4.11B. 19
Section 8.04E.
6
Section 4.11C. 20
Section 8.05.
7
Section 4.12. 21
Section 8.08B.
8
Section 5.03B. 22
Section 8.08C.
9
Section 5.05B. 23
Section 8.09.
10
Section 5.05C. 24
Section 8.09C.
xxiv Preface
• Chapter 9 addresses licensing of the design profes- • Chapter 16 includes a new section exploring the ques-
sional and contractor. It includes a new discussion tion of who owns the cause of action for defective con-
of the responsibility of an architect or engineer who struction where the defective property has changed
applies the professional seal of another.25 ownership prior to completion of the lawsuit.39
• Chapter 10 analyzes the design professional/client • Chapter 17 examines whether a contractor or supplier
relationship. A new section reviews issues related to may bring a claim against a design professional for cre-
out-of-state practice, in which the design professional ating proprietary specifications.40
resides in a different state from where the project is • Chapter 21 includes new sections addressing “time is
located.26 of the essence” clauses,41 forensic scheduling (proving
• Chapter 11, devoted to design professional liability, is delay claims)42 and bonus/penalty clauses.43 It also fea-
substantially updated. One new section addresses the tures a new reproduced case on liquidated damages.44
professional standard and compliance with industry or • Chapter 26 introduces the new AIA standard form perfor-
professional ethics standards,27 another covers “green” mance and payment bonds, AIA Document A312-2010.
or sustainable design,28 and a third expands on an archi- A new section summarizes construction industry bonds
tect’s or engineer’s duty to warn.29 We include two new not for payment or performance.45 In addition, the sum-
reproduced cases which address design professional lia- mary of performance bonds has been entirely revised.46
bility to a contractor for negligent misrepresentation • Chapter 27, the final chapter, addresses alternative
and the economic loss rule defense to such a claim (one dispute resolution (ADR). Federal preemption of state
court rejecting the defense and the other adopting it).30 laws regulating the arbitration process receives updated
• Chapter 12 now gathers in one chapter defenses to discussion.47 A review of ADR within federal procure-
claims of design professional liability. ment contracts, including a 2011 recodification to the
• Chapter 13 updates the 1952 patent law with passage Contract Disputes Act, is explained.48
of the Leahy-Smith America Invents Act.31
• Chapter 14 includes an updated discussion of project Supplements for the Ninth Edition
delivery methods which are alternatives to design–bid–
build, in particular construction management32 and For instructors, there is an Instructor’s Manual providing
design–build.33 A new section explores the growing teaching recommendations and suggested problems for
field of public–private partnerships.34 students. For students, the student website contains self-
• Chapter 15, devoted to public contracts, includes a study questions designed to encourage understanding and
new discussion of what constitutes public work.35 The review of important topics.
competitive bidding process receives expanded analysis,36 For both instructors and students, the website contains
including the federal government’s use of “past perfor- Appendices F through I available also for download.
mance evaluations” to assess bidder prequalification.37
A new section explores public procurement reform.38 Legal Citations Format
Now, for our nonlawyer readers, let us outline the
mechanics of citing case decisions. Although legal cita-
25
Section 9.05E. tions seem complicated, they are, in reality, quite simple.
26
Section 10.16D. There are four elements to a citation. A simple citation
27
Section 11.03D.
28
Section 11.07B.
29
Section 11.08G. 39
Section 16.12K.
30
Section 11.08D. 40
Section 17.01C.
31
Section 13.05B. 41
Section 21.04G.
32
Section 14.07. 42
Section 21.05D.
33
Section 14.09. 43
Section 21.11.
34
Section 14.15. See also Section 23.06G. 44
Section 21.08B.
35
Section 15.02. 45
Section 26.03A.
36
Section 15.05. 46
Section 26.04.
37
Section 15.05D. 47
Section 27.05B.
38
Section 15.09. 48
Section 27.22A.
Preface xxv
would be Sniadach v. Family Finance Corp., 395 U.S. 337 Supreme Court (Kan.) and is also collected in the Pacific
(1969). First, the name of the case is given, usually with Reporter (P.2d).
the plaintiff (the person starting the lawsuit) listed first, States are increasingly abandoning the official reporter
followed by the defendant. “U.S.” is an abbreviation of the system and cite only to the West Regional Reporter System.
reporter system from which the case is taken, in this case An example is Smith v. Gilmer, 488 So.2d 1143 (La.App.1986).
the United States Supreme Court Reports. The number This citation, from the Southern Reporter, indicates that this
preceding the abbreviation of the reporter system (395) is was a decision of the Louisiana Court of Appeals (its inter-
the volume in which the case is located. The number fol- mediate appellate court) and that there is no official reporter
lowing the abbreviation of the reporter system (337) states system in Louisiana.
the page on which the case begins. The citation concludes Finally, two of the more populous states—California
with the year that the court announced the decision. and New York—have an unofficial reporter published by
Many significant reported appellate opinions come West that collects all the reported opinions from those
from the Federal Circuit Courts of Appeal. Moorehead states. In California, it is the California Reporter; in
Construction Co. v. City of Grand Forks, 508 F.2d 1008 New York, it is the New York Supplement. Decisions by
(8th Cir.1975) is illustrative. Following the name of the highest appellate court—in California, the Supreme
the parties, an abbreviation of the series of reports in Court, and in New York, the Court of Appeals—are found
which the opinion is contained (F.2d) (Federal Reporter, in the California Reporter and the New York Supplement,
Second Series) is given. Again, it is preceded by the vol- respectively, as well in the official and regional reports. For
ume (508) of the report. The reporter abbreviation is fol- example, the California Supreme Court case of Pollard v.
lowed by the page on which the case begins (1008). The Saxe and Yolles Dev. Co. is cited 12 Cal.3d 374, 525 P.2d
particular federal circuit court (8th) deciding the case 88, 115 Cal.Rptr. 648 (1974). “Cal” is the official reporter,
follows. The citation is completed by the year (1975) of Cal.2d being the second series of that reporter. “P.2d”
the decision. is the second series of the Pacific Reporter. “Cal.Rptr.”
A third type of federal court is the district court, the collects all California appellate cases, Supreme Court
trial court of general jurisdiction. Although state trial decisions as well as those of the intermediate California
court opinions (except those from New York) are not Courts of Appeal. Similarly, a decision by the New York
collected and published, some trial court opinions of Court of Appeals would be found in its official reporter
the federal district courts are published. An example is (N.Y. or N.Y.2d) and the West Regional Reports, the
Gevyn Construction Corp. v. United States, 357 F.Supp. 18 North Eastern Reporter (N.E. or N.E.2d) and the New
(S.D.N.Y.1972). The opinion is collected in the Federal York Supplement (N.Y.S., N.Y.S.2d, or N.Y.S.3d). The New
Supplement (F.Supp.). The name of the reporter series York Supplement also contains decisions of the New York
is preceded by the volume number of the report and fol- intermediate courts of appeal (the Appellate Division of
lowed by the page on which the opinion begins. This the Supreme Court) and the Supreme Court (the New
citation shows that the district court was the Southern York trial court). Intermediate appellate court decisions
District of New York (S.D.N.Y.). Larger states have differ- from these states would have only two citations—one
ent courts located in different cities. Again, the citation to the official reports and the other to the California
concludes with the date (1972) the opinion was issued. Reporter and the New York Supplement. Intermediate
To understand state court citations, it is essential to appellate court decisions from these states are not included
understand the role of the West Regional Reporter System. in the regional reports. (The Table of Abbreviations lists
At one time, most state citations had two citations—one citation references—see the endpapers of this book.)
to the official reporter system selected by the court and The number of reported appellate decisions has
the other to the unofficial reporter system, usually the increased greatly. Most reporter systems have gone into
West Regional Reporter System. West divided the states a second, third, or even fourth series of reports. This is
regionally and published sets of reporters based on these indicated by the citation in the Pollard case, which shows
regional classifications. If a state still has an official report that the official reporter is in the third series, the unof-
system, a typical citation would be Anco Construction ficial regional reporter is in the second series, and the
Co. v. City of Wichita, 233 Kan. 132, 660 P.2d 560 (1983). California Reporter was at that time still in its first series.
This citation indicates that the case came from the Kansas (It now is in its third series.)
xxvi Preface
The hierarchical nature of the court system means that Appreciations

parties receiving a decision by a lower-level court may try
to appeal the decision. The higher-level court has several Special thanks are given to several professors who
options. If it accepts the appeal, it usually either affirms reviewed the Eighth Edition and made suggestions
the lower court opinion or reverses it. This is indicated by for the Ninth: Charles Glagola, University of Florida;
the terms “aff’d” (affirmed) or “rev’d” (reversed) appearing Steve Goldblatt, University of Washington; Matthias
after the citation of the lower court decision. If the higher- Pearson, John Brown University; Marion Tuttle, New
level court refuses to hear the appeal, that is indicated in Jersey Institute of Technology; and Wendy Thomas
various ways: “review denied,” “appeal denied,” or “cert. Wendrowski, Boise State University. These reviewers
denied,” where “cert.” is short for the term “certiorari.” An have contributed ideas, suggestions, and new perspectives.
example is McDowell-Purcell, Inc. v. Manhattan Constr. Co., Preparation of this Ninth Edition was greatly enhanced by
383 F.Supp. 802 (N.D.Ala.1974), aff’d, 515 F.2d 1181 (5th their input, resulting in an improved, more manageable
Cir.1975), cert. denied, 424 U.S. 915 (1976). If the higher edition. Special thanks are also given to Frank Mahuta Jr.,
court opinion appears in the same year as the lower court Milwaukee School of Engineering, and Jonathan Sweet,
opinion, the date appears only once and at the end. An Esq., who greatly assisted in preparing ancillary materials
example from the New York court system is: J. P. Stevens & to this Ninth Edition.
Co. v. Rytex Corp., 41 A.D.2d 15, 340 N.Y.S.2d 933, aff’d, 34 Finally, a book of this size could not come to fruition
N.Y.2d 123, 312 N.E.2d 466, 356 N.Y.S.2d 278 (1974). This without the tireless efforts of the publisher’s staff; in par-
later case history is provided primarily for purposes of accu- ticular, Randall Adams, Hilda Gowans, Rose Kernan
racy and should not concern the student reader. and Shelly Gerger-Knechtl. Their professionalism and
On the very different stylistic matter of pronous, we generous patience never flagged. Working with them was
avoid the awkward “he or she” format. In many instances, a pleasure.
the actor is a corporation or government entity and the
neutral pronoun (“it”) is used. Otherwise, we alternate Justin Sweet
chapters: the male pronoun is used in odd chapters and Marc M. Schneier
the female pronoun in even chapters.
Conversion Table
Ninth Edition Eighth Edition

Chapter 1 Chapter 1
Chapter 2 Chapter 2
Chapter 3 Chapter 3
Chapter 4 Chapter 4
Chapter 5 Chapters 5 & 6
Chapter 6 Chapter 7
Chapter 7 Chapter 9
Chapter 8 Chapter 8 & Section 11.01
Chapter 9 Chapter 10
Chapter 10 Chapters 12 & 13 & Section 11.04
Chapter 12 Sections 14.09, 15.03
Chapter 15 Chapter 18 & Sections 11.03B, 23.03I
Chapter 25 Chapter 31 & Sections 23.05C, 24.08
Chapter 27 Chapters 29, 30
xxvii
About the Authors
Justin Sweet Marc M. Schneier

Justin Sweet received his BA (Literature) and LLB degrees For thirty years, Marc M. Schneier has been the Editor
from the University of Wisconsin in 1951 and 1953, of Construction Litigation Reporter, a national reporter
respectively. He was elected to Phi Beta Kappa and the analyzing legal developments in the construction industry,
Order of the Coif (honorary law). He served as executive which is published by Thomson Reuters/West. He was an
editor of the Wisconsin Law Review. He was admitted to Adjunct Professor of Construction Law at the University
the bar in Wisconsin and California. of San Francisco School of Law, has published numerous
From 1953 to 1954, he served in the Office of the articles in various legal journals, and provides consulting
Wisconsin Attorney General. From 1954 to 1957, he services. His first book was Construction Accident Law: A
was an officer in the Army Judge-Advocate Corps. He Comprehensive Guide to Legal Liability and Insurance Claims,
engaged in private practice in Milwaukee from 1957– published by the American Bar Association in 1999. He
1958. In 1958, he was invited to join the Faculty of Law wrote Understanding and Applying Construction Law as
at the University of California at Berkeley. He received part of the “Essentials of Construction Management”
tenure in 1963. He taught Contracts, Torts, Insurance, series published by the Informa Center for Professional
Marital Property, Restitution, Remedies, Family Law, Development in 2006. Prior to this Ninth Edition, he
and Contract Drafting. He was appointed John H. Boalt co-authored with Justin Sweet the Seventh and Eighth
Professor of Law. He took early retirement in 1994. Editions of Legal Aspects of Architecture, Engineering and
After retirement, he was appointed Professor of Law at the Construction Process—the Seventh Edition published
the Academic College of Netanya in Israel from 1995–2006 by Thomson/Nelson in 2004 and the Eighth Edition pub-
after which he received the title of Professor Emeritus. lished by Cengage Learning in 2009. Most recently, he
He has taught at law schools in Italy, Belgium, Norway, authored, Annotation, Tort Liability of Project Architect or
Switzerland, Singapore, and Hong Kong. Engineer for Economic Damages Suffered by Contractor or
He has written articles in many legal journals, many of Subcontractor, 61 A.L.R.6th 445 (2011).
which were collected in Sweet, Anthology of Construction Marc earned his B.A. in Philosophy at the University
Law Writings published by the American Bar Association of California, Berkeley, in 1978, and was elected as a
in 2010. He also wrote Sweet on Construction Law for the member of Phi Beta Kappa. He earned his J.D. from the
American Bar Association in 1997. University of California, Davis (King Hall), in 1981 and
Beginning in 2010, he has been writing about historic was awarded the Bureau of National Affairs Award for
cases in each issue of the Journal of Legal Affairs & Dispute academic performance. He practiced law in San Francisco
Resolution in Engineering and Construction. prior to being hired as Editor of Construction Litigation
He was the co-founder and director of the International Reporter. His website is buildinglaw.org.
Construction Conference. It met in Fribourg, Switzerland,
Berkeley, California and Washington D.C.
He has acted as an arbitrator and as an expert witness.
xxix
Part A
Legal Framework of the Design

and Construction Process
Part A of this book, encompassing chapters 1 through 7, provides the legal framework of the
design and construction process. This framework is the larger, societal context to the substantive
law applicable to the construction industry.
Chapter 1 Sources of Law: Varied and Dynamic

This chapter outlines the basic framework of the American legal system.
The United States has a federal legal system, meaning that both the federal
government and the individual states are sovereigns. All three branches of
government—legislative, executive and judicial—are sources of the law.
Chapter 2 he American Judicial System: A Forum for Dispute

T
Resolution
This chapter provides a more detailed review of the United States judicial sys-
tem. After a description of the state and federal court systems, the chapter then
turns to the mechanics of litigation: hiring an attorney; which court is avail-
able to the litigants; the pre-trial and trial process; and the trial judgment.
Chapter 3 orms of Business Association: Organizing to

F
Accomplish Objectives
This chapter reviews the basic forms of business association that are most rele-
vant to the construction industry.
Chapter 4 Agency and Employment

This chapter discusses the three major forms of employment by businesses
involved in the construction industry: agent, employee or independent con-
tractor. Each form of employment has its own legal characteristics and conse-
quences for the hirer.
Chapter 5 Contracts: From Formation to Breach

This chapter provides an introduction to the law of contracts. A contract is a
binding agreement that defines the rights and obligations of the signatories.
1
2 Part A / Legal Framework of the Design and Construction Process
Chapter 6 Torts: Legal Relations Not Arising from Contract

Tort law defines civil (non-criminal) rights and obligations independent of any
contract or agreement. These rights and obligations are imposed (or granted)
by society.
Chapter 7 estrictions on Ownership: Land Use Controls and

R
Environmental Law
This chapter addresses limits on land ownership. Most restrictions are through
public land use controls. Environmental law provides an overlapping layer of
land ownership limitations.
Chapter one
Sources of Law:
Varied and Dynamic
Section 1.00 Chapter Overview throw him out of the house after it is built, it would take an
adventurous or powerful person to invest time and materials
The United States has a federal legal system, meaning that to build the house. Similarly, workers would be reluctant to
both the federal government and the individual states are pound nails or pour concrete if they were fearful of being
sovereigns. The ultimate source of law is each sovereign’s attacked by armed gangs. Here, criminal law protects both
constitution. Government is divided into three branches: the property owner from those who might take away his
legislative, executive (including administrative agencies), property and the workers from those who might harm them.
and judicial. All three branches are sources of the law. Similarly, contractors would hesitate to invest their
In addition to governments, private persons or organi- time or money to build houses if they did not believe they
zations are sources of law. Private persons, by entering into could use the civil courts to enforce their contracts and
a contract, create a document with legal significance. In help them collect for their work if owners did not pay
the construction industry, private organizations (such as them. Workers would be less inclined to work on a house
the American Institute of Architects) have created stan- if they were not confident they could use the civil courts
dard form contracts, which (if adopted for a building to collect for work they had done, or to compensate them
project) become the legal document that governs the if they were injured on the job.
project participants. The Restatements of the Law are Finally, some would be unwilling to engage in construc-
codifications of legal rules, which may provide the possibil- tion activity if they were not confident that an impartial
ity of a national law shared by all or most of the states. forum would be available if disputes arose over perfor-
mance. Were the state not to provide such a forum, partici-
pants might settle their disputes by force.
Section 1.01 Relevance Today various sources of law seek to fill these needs.
These sources of law are spotlighted in this chapter.
Law consists of coercive rules created and enforced by the Chapter 2 focuses on the U.S. judicial system.
state to regulate the citizens of the state and provide for
the general welfare of the state and its citizens. Law is an
integral part of modern society and plays a major role in
the construction process. Because this text examines the
Section 1.02 The Federal System
intersection between law and the construction process, it
is important to be aware of the various sources of law and Very large countries, such as the United States, Canada,
the characteristics and functions of the law. Australia, Nigeria, and India, employ a federal system of
Many illustrations can be provided; suppose a man who government. Even smaller countries, particularly those
owns property wishes to build a house to provide shelter with distinct religious, linguistic, ethnic, or national com-
for his family. Without assurance that stronger people will munities (for example, Switzerland), may choose to live
not use force to seize materials with which he is building or under a federal system. A federal system of government
3
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978-1111578718 Legal Aspects of

Architecture, Engineering and the

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978-0131382275 Separation Process Engineering: Includes

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I. Dissolution and Winding Up 24 C h a p te r five

6.08 Remedies 93 Overview of Statute 118

Restrictions on Ownership: Land Use Part B: The Main Actors: The

E. Fixed Fee 190 J. Failure of Cost Prediction caused by

C h a p te r E l e v en Standard Form Contracts 275

E. Recent Legislative Activities 315 13.04 Moral Rights of Artists 339

16.02 Principles Underlying Claims 427 D. Impossibility: Commercial

C. Extrinsic Evidence 489 F. Formal Requirements 521

C h a p te r T w ent y B. The Critical Path Method (CPM) and

Extended Home Office Overhead: C. Bargaining Situation: Shopping and

24.03 Contractual Power to Terminate 673 E. Implied Contractual Indemnity 699

C h a p te r t w ent y - s i x B. Reasons for Initial Design Professional

D. Proceeding Without the Presence of Appendices

Footnote references can be statutes, regulations, or Four Main Organizational Changes

The hierarchical nature of the court system means that Appreciations

Ninth Edition Eighth Edition

Justin Sweet Marc M. Schneier

Legal Framework of the Design

Chapter 1 Sources of Law: Varied and Dynamic

Chapter 2  he American Judicial System: A Forum for Dispute

Chapter 3  orms of Business Association: Organizing to

Chapter 4 Agency and Employment

Chapter 5 Contracts: From Formation to Breach

Chapter 6 Torts: Legal Relations Not Arising from Contract

Chapter 7  estrictions on Ownership: Land Use Controls and

The Foundation’s business office is located at 809 North 1500 West,

Section 4. Information about Donations to

The Foundation is committed to complying with the laws regulating

While we cannot and do not solicit contributions from states where

International donations are gratefully accepted, but we cannot make

Section 5. General Information About Project

Project Gutenberg™ eBooks are often created from several printed

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Chapter 2 he American Judicial System: A Forum for Dispute

Chapter 3 orms of Business Association: Organizing to

Chapter 7 estrictions on Ownership: Land Use Controls and