Jun. 8, 2002
Building in a Lawyer
Column by Robert S. Mann - In medieval England, if you were fortunate enough to live in an enclosed structure and even more fortunate enough to spare a few baskets of wheat sheaves, you used them as floor covering. You placed a piece of wood across the door opening to hold the stalks of wheat inside.
Robert S. Mann
Neutral, ADR Services, Inc.
Email: rmann@adrservices.com
Robert mediates and arbitrates business, real estate and construction disputes.
In medieval England, if you were fortunate enough to live in an enclosed structure and even more fortunate enough to spare a few baskets of wheat sheaves, you used them as floor covering. You placed a piece of wood across the door opening to hold the stalks of wheat inside.
The wheat sheaves were called thresh. The piece of wood was called a threshold. If you could not afford to spare the wheat, you lived with a dirt floor. Hence the term "dirt poor." We still use both terms today.
What is the connection between a construction technique that is at least 500 years old and present-day construction issues? Simply this: It seems remarkable that the construction industry has been at the job for more than 500 years, and yet we continue to see the most basic flaws in conventional, ordinary, wood frame buildings.
Why does this occur, and what should good construction lawyers do about it?
The pervasiveness of construction defects is an issue for lawyers, insurance carriers and developers alike. It was widely reported in the last five years that many developers of multifamily housing chose to abandon the business of building condominium projects and planned-use developments for fear that litigation inevitably would follow, no matter how carefully they planned and carried out their construction activities.
However, many in the plaintiffs' bar saw these highly publicized statements of position as nothing more than carefully orchestrated attempts to influence legislators to introduce various forms of "tort reform" (meaning, limitations on the right to sue for construction defects).
During those years, and even to some extent today, the pages of special interest and trade publications were filled with heated debates as each side traded barbs.
Insurance carriers, too, not only have voiced concerns but have acted on them, sometimes voluntarily, sometimes involuntarily. In the last 18 months, four substantial carriers have gone out of business.
The sinking ships of three of these carriers - Reliance Insurance, United Capital and, most recently, Legion Insurance - have left tens of thousands of construction defect cases whirling in a vortex, dragging some cases down to the bottom and leaving others afloat on an uncertain sea.
The insurance industry has reacted also by moving out of the market, or pricing its products so high that they have become unaffordable to all but the largest developers. It is not uncommon to hear anecdotal reports of commercial general liability policies for a single-family custom home priced at more than $100,000.
Insurance carriers also have begun to pay more attention to risk management, requiring better quality control and better advance planning and giving discounts to those who participate in risk management methods for construction projects.
The underlying causes of construction defects have been the subject of various theories.
One school of thought holds that the dismantling of the union system and its apprenticeship programs has resulted in a situation where very few trained and experienced tradespeople remain in the field.
Another theory is that inexperienced builders made serious inroads into the development of multifamily housing during the explosion of construction in the 1980s. Whatever their intentions may have been, those builders simply lacked the experience and perspective to insist on or to achieve quality products, according to this theory.
A third theory is that builders did not understand that buyers of condominium units had a higher expectation than those who rent apartments, even though the means, methods and quality of the condominium projects were basically the same as luxury apartments.
A fourth theory suggests that developers simply wanted to make the fastest dollar possible and simply did not give any thought or consideration to creating a quality product.
Whatever the reason, clearly the construction boom of the 1980s resulted in the litigation boom of the 1990s. Clearly, also, construction defect litigation continues and perhaps has expanded with the greater focus on mold and indoor air-quality claims.
Where, in this environment of change, do construction lawyers fit, and how can they make a positive difference in the industry? The answers depend on a careful analysis of the customs and practices of developers and contractors and an understanding of the lawyer's role.
One element in the analysis relates to the fact that, in California, the building industry has experienced substantial consolidation. As the cost of development has risen - because the price of land rises, the entitlements to build become more difficult to obtain, the insurance becomes more expensive and the development process becomes more time-consuming - smaller developers gradually have been squeezed out of the business.
Projects seem to be larger, and those companies that build them seem to be larger, as well. For example, consider Newhall Land and Farming's enormous planned community in the Santa Clarita Valley, the Ahmanson Ranch project, and others.
As for construction defects, the trend toward consolidation may be a good thing, because the larger developers operate in a more structured, corporate fashion.
One result of that environment is a greater willingness to use professionals - legal professionals to provide advice on risk management issues, and design professionals to provide advice on ways to avoid "common" defects in the construction process.
However, the obverse of the same coin illustrates a pervasive problem in the industry. Most experienced construction lawyers, whether they represent plaintiffs or defendants, could give good advice to a developer about avoiding construction defects.
Those lawyers see many of the same defects repeatedly, they know the causes of those defects and they know the means and methods of avoiding the defects in the first place. That's not the problem.
The problem is that "smaller" developers generally do not seek the advice of construction professionals, whether they be attorneys, design consultants, or otherwise. As a result, the "smaller" developers tend to make the same easily avoidable mistakes over and over.
This is not to say that the large developers build projects without defects; it is only to say that the larger developers seem more interested in, and amenable to, the use of professionals, including construction lawyers.
Given this structure, what role should the lawyer play in the process? Construction lawyers traditionally have restricted their involvement to tasks such as entity formation, insurance reviews, purchase and sale documents and warranties.
But a more expansive role for the experienced construction lawyer certainly could include advice about the "usual suspects" of construction defect claims and how to avoid them. In addition, the experienced construction lawyer is well-equipped to provide advice about documenting field conditions to make any future litigation less expensive.
The side benefit to documenting site conditions during the construction process is better construction practices, which of themselves might reduce the number and significance of construction defect claims.
Construction lawyers taking a more proactive role to minimize the extent of construction defects and help their clients produce better buildings could do the following things:
• At an early stage, review project plans and specifications to determine whether those documents have language that establishes proper construction means and methods and specific requirements to avoid commonly occurring defects.
• Establish a protocol for developer clients (and general contractors) so that the clients obtain the proper forms of insurance, obtain the proper indemnities, and have a system to maintain those documents for use when a lawsuit erupts years later.
• Advise developers, general contractors and subcontractors on ways to document the nature and quality of their work during the construction project, and advise them how to maintain that documentation.
For example, a framing contractor who has made and maintained a photographic record of shear-wall nailing on a project could either avoid liability entirely on that issue or, at a minimum, eliminate the thousands of dollars that otherwise would be spent on removing exterior finishes to inspect the potentially defective shear walls.
• Recommend that developers and general contractors use outside consultants for recommendations in areas that tend to be continually problematic, such as below- and above-grade waterproofing.
• Argue against the "money-saving" practice of eliminating or minimizing good job supervising by demonstrating that the money saved at the outset will be spent in multiples during the construction defect lawsuit.
• Encourage owners, developers and general contractor clients to implement systems for better communication during construction to minimize or eliminate disputes over change orders and delays.
• Suggest the use of course-of-construction mediation for the effective and timely resolution of disputes.
These are merely a few examples of the many specific practices that the construction lawyer can recommend. Perhaps it is time for the construction lawyer to expand his or her role from that of advocate for the builder after a lawsuit to that of advocate for a better building before the first shovel hits the dirt. A more aggressive approach to construction management by lawyers could result in a transformation of clients from dirt poor to land rich.
Robert S. Mann is the principal of Century City's The Mann Law Firm, where he represents parties in construction matters.
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