The Changing World of the Construction Lawyer and What the Future Holds

01 September 2008

These construction lawyers were located in a few major cities around the country. Their practice primarily involved the preparation and prosecution of contract claims before administrative boards of contract appeals, courts, and arbitration panels. Much of their practice involved construction disputes with the federal government. Construction law was in its infancy.

Today, the ABA Forum on the Construction Industry has approximately 6,000 members, and one author conservatively estimates that there are over 30,000 construction lawyers around the country. Every state has a significant number of lawyers who identify construction law as part of their practice.
Construction law has evolved far beyond claims preparation and prosecution. The construction lawyer's practice now commonly involves a variety of issues covering such topics as: construction insurance, suretyship, design professional liability, construction defects, construction failures, uniform commercial code, mechanics liens, employment and labour law, environmental law, finance, corporate law, false claims and compliance, and many other issues. Construction contracts themselves have become far more complex with new delivery systems and more sophisticated contract clauses and risk-sharing approaches.
Like the rest of the world, changes in the construction industry are proceeding at an exponential rate with advances in technology, means and methods. As a result, the construction lawyer's practice also has changed. Some of the key changes and challenges facing the construction lawyer are discussed below.

PROJECT DELIVERY METHODS
The primary method of project delivery used in the construction industry for many years was fixed priced, competitively bid contracting commonly referred to as design-bid-build. Under the design-bid-build process, a design professional produces plans and specifications for the owner who sends those plans and specifications out for bid by general contractors. The owner awards the contract to the lowest priced responsive and responsible bidder. The general contractor then subcontracts all or a portion of the work to specialty trade contractors - often after shopping the contract with other subcontractors. This process was used particularly by local, state, and federal governments who believed that it provided its citizens with the best opportunity to fairly compete for the contract and resulted in the lowest price to the public.

Surprisingly, two types of standard form contracts predominated the construction industry for close to 100 years and continue to be used on a regular basis today. A standard form contract published by the American Institute of Architects (AIA) was used primarily by the private sector. A federal government standard contract form was followed by most state and local governments for public works projects. These contracts placed the risk for additional costs resulting from changes, design defects, differing site conditions, unanticipated delays, or other unexpected risks on the owner, who was thought best able to handle the risks. This method of contracting typically resulted in the contractor constructing the project to the minimum standards specified and the submission of claims for unanticipated additional costs. It also produced construction lawyers who focused primarily on contract claims preparation and prosecution.
Over the years, sophisticated private owners and developers moved to non-standard form contracts that transferred the risk to the contractor through the use of limited liability corporations and the inclusion of exculpatory and risk-shifting clauses in their contracts. This has made the pursuit of claims against the owner more difficult and shifted the risk of the unanticipated to the contractor. The general contractors in turn have attempted to pass the risk down to their subcontractors.

In an effort to eliminate claims and improve the quality of the work, public owners abandoned the exclusive use of the lowest priced competitive bid system to procure contracts and began to award more contracts based on "best value" to the government. One of the primary considerations in a best value award is the contractor's past performance. Contractors who pursue marginal claims are unlikely to obtain a high past-performance rating. As a result, claims have declined in public contracting, and contractors and their lawyers have had to find ways to please the owner customer. This has had a profound effect on the claims prosecution business in government contracting.
However, the primary change in project delivery methods that has reduced claims in the construction industry has been the movement to design-build in both the public and private sectors. By using a delivery system with a single point of responsibility for design and construction, owners dramatically reduced the number of contract claims submitted by the contractor by eliminating defective design claims.

This reduction in claims has been replaced in part by direct claims by the contractor against the designer. However, the number of defective design claims against the designer is far less than similar claims against the owner because designers are typically liable only for defects that are beyond the standard of care in the industry, designers often include limitation of liability clauses in their contracts, and designers generally do not have the financial ability to pay claims as many owners do.
The changes in delivery systems and the efforts by owners to transfer risk to the contractor have resulted in a change in the nature of many construction lawyers' practices. The amount of litigation between the contractor and owner has been dramatically reduced. No longer is scorched earth litigation the standard, as contractors attempt to maintain customer relations. On the other hand, litigation between designers and contractors and contractors and subcontractors has increased.

FUTURE CHANGES IN CONSTRUCTION PROCUREMENT
The newest wave of changes in the procurement of constructions services involves public private partnerships (PPP) and building information modelling (BIM). If these procedures achieve their potential, they will have a dramatic effect on the construction industry as a whole, as well as the construction lawyer's practice.
In a typical PPP, the private sector develops, finances, designs, constructs, operates, and maintains infrastructure that is normally provided by the government in exchange for revenue from the project. For example, a state may give a private venture the right to construct a toll road in exchange for the venture's right to collect tolls for a specified number of years. PPPs are far more common outside of the United States. Domestically, they have been used sparingly. However, with tight public budgets and politicians' reluctance to raise taxes, governments are likely to turn more and more to PPPs to solve their problems. The construction lawyer's role on a PPP project differs from the normal construction project. While there will still be some claims preparation and prosecution, the construction lawyer's focus in the PPP process will be more on complicated transactional issues, financing, and government statutes and law. However, the construction lawyer's most important input will be recognising and evaluating the risks involved in the deal.
For years, the construction industry has used two dimensional paper drawings prepared by a designer and specialty contractors to construct buildings. Technology is on the verge of dramatically changing this approach to building construction. This technology is building information modelling (BIM).

Ultimately, BIM will provide a five-dimensional computer model. All information that is needed to design, build, operate, and maintain the project will be contained in the computer model.
The most basic application of BIM, and its primary use at this time, is a three-dimensional computerised view of the structure and the mechanical, electrical, and plumbing (MEP) components and equipment. This will allow designers and contractors to find conflicts and other problems before construction begins and to do more prefabrication in the plant rather than fit the MEP into the space in the field, and resolve conflicts when they occur. While this is a major advancement, BIM is or will be capable of far more. If the designer or owner wants to consider a change, such as reducing the size of a beam, it will be able to enter the information for the change, and the computer model will redesign the structure. If different products are being considered, the information regarding the various products can be entered in the model, and the impact of each product on the design determined. Ultimately, the programme will be able to calculate the additional costs of the change, the impact of the change on the schedule for the construction project, and the effect of the change on the future cost to maintain and operate the building. The possibilities are unlimited. BIM will also dramatically alter the relationships between the designer, contractor, and owner, which in turn will impact the construction lawyer's practice.

CONSTRUCTION DEFECTS
Litigation over construction defects has increased dramatically over the past 25 years as owners and condominium purchasers have become more aware of their rights and remedies and have more actively pursued those rights and remedies. For example, there has been considerable litigation over mould in recent years. The increase in construction defect litigation has impacted the construction lawyer's practice and brought more issues into play.
A construction defect dispute does not solely involve contract principles. In fact, contract issues may play only a small role in the dispute. Construction defect litigation instead often involves tort law, class actions, and statutory remedies. In addition, the damage from the defect often is covered by insurance or claims against the various parties' insurance policies are made. As a result, construction defect litigation has expanded the construction lawyer's practice beyond the construction contract claims to litigation of tort, insurance, class action and statutory issues.

DISPUTE RESOLUTION
The AIA standard form documents have designated arbitration as the method of dispute resolution for 100 years. For many years, arbitration was believed to be less expensive and faster than litigation. Another advantage of arbitration is that construction disputes, which often are technically complex and involve industry practice issues, are decided by arbitrators who are knowledgeable of the construction industry. Finally, there are very limited bases to appeal an arbitrator's award and a long appeals process, which overturns the arbitration award, is unusual.
Over time, the perception and reality of arbitration have changed. Arbitration has become more like litigation, causing its cost and the time to decision to increase substantially, while many courts have reduced the time to decision. Arbitration still has the advantage of using persons knowledgeable with the construction industry as the trier of fact. However, many people in the construction industry now perceive litigation as the better process for dispute resolution because of the certainty provided by standard court rules, the greater due process and expanded discovery provided by litigation, and the broader right to appeal an unfavorable decision. As a result, there has been a movement away from arbitration and toward litigation by many in the industry.

This change in attitude is clearly reflected in the recent evolution of the standard form construction documents. The AIA standard form document and a document produced by a group of contractors, owners, design professionals, and surety organisations referred to as the ‘ConsensusDOCS', do not require arbitration, but provide a check box for the parties to select arbitration as their dispute resolution mechanism. If the box is not checked, the default dispute resolution procedure is litigation. Only time will tell whether this change in the standard form documents will result in a substantial reduction in the amount of arbitration and corresponding increase in litigation of construction disputes. If it does, construction lawyers will have to hone their litigation skills.
The construction industry has always embraced other alternative dispute resolution procedures (ADR), particularly mediation. There is no change in the use of mediation on the horizon. However, there has been a movement toward the use of onsite dispute resolution procedures that are non-adversarial, do not include lawyers, and use independent industry people to resolve disputes. The new AIA documents provide for a project neutral to decide claims before a party can proceed to mediation or binding dispute resolution. The ConsensusDOCS provide an option to use a dispute resolution board or project neutral to make recommendations on disputes during construction before binding dispute resolution.
These changes demonstrate the construction industry's dissatisfaction with the adversarial, costly, and extended nature of the existing dispute resolution procedures. This movement may reduce the amount of contract claim litigation and use of construction lawyers in the claims resolution process.

COMPLIANCE
The construction industry has long operated in an environment where the buyer must beware in which claims were often overstated with the intention to negotiate down, and representations were made loosely. Enron and the federal, state, and local governments' increased focus on identification and prosecution of false claims are changing this environment. As a result, a key word in construction today is ‘compliance'. Construction companies are instituting programmes to educate their personnel about their ethical responsibilities in an attempt to prevent the submission of false claims and false statements, and are taking decisive action to investigate and correct allegations of false claims and false statements when they are discovered. This effort has provided a new practice area for the construction lawyer.

GLOBALISATION
No discussion of the changing role of the construction lawyer would be complete without a mention of globalisation. Construction companies are beginning to cross international borders at an ever-increasing rate, and the rate of increase will continue to grow as technology shrinks the world. Many of the largest US contractors are owned by foreign companies because the US market still provides great opportunities. In turn, US companies are beginning to expand into the international arena. Outsourcing of design and other services is increasing. As a result, the construction lawyer will need to change with the industry and become more versed in the international marketplace.

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Construction law is a relatively new practice area that is still expanding. The construction lawyer's practice is evolving rapidly as a result of changes in the construction industry, including new project delivery methods, construction defect litigation, new dispute resolution techniques, new ethical standards, and globalisation of the construction industry. No longer can the construction lawyer's practice focus exclusively on contract claims preparation and prosecution. Rather, the construction lawyer must recognise the changes in the construction industry and evolve along with the industry in order to be successful.

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