Final law project

MEMORANDUM

TO: All Spring 2018 MSEM 520 Associates

FROM: J. Hamilton, President

DATE: April 18, 2018

SUBJECT: Imminent Lawsuit-Museum Project

I have just been notified that we will be sued within the next 30 days on one of our projects due to å number of disputes, issues and problems. I understand you have had the benefit of a course in contract law and legal issues associated with engineering, construction and the law. Please prepare a memo to my attention analyzing the questions at the end of this memo.

The situation as I understand from our Project Engineer for the project is as follows:

The East Asylum, PA Astoria Conservatory and Museum engaged our company to prepare plans and specifications for the construction of a two (2) story, steel frame, concrete and brick building with a full basement for the storage of original music manuscripts, paintings and other works of art. Our Client, the Owner, furnished us with a topographic survey, but we subcontracted with East Asylum Geotechnical, Inc. for the test borings and soils and groundwater investigation and recommendations based on EJCDC Document No. E-570, 2006 ‘Standard Form of Agreement between Engineer and Consultant”. Our client and we executed

EJCDC Document No. E-500, 2007 “Standard Form of Agreement between Owner and Engineer.”

We delivered the plans and specifications to our Client with our estimated construction cost of $10.3 million. Upon receipt of approval by our Client, invitations to bid were advertised, and the lowest responsive, responsible, acceptable bid submitted by a General Contractor resulted in the execution of EJCDC Document C-520, 2007 for a stipulated price of

$10.8 million with the companion EJCDC Document C-700, 2007 “Standard General Conditions of the Construction Contract.”

The general contractor engaged the services of several subcontractors for the various specialties of the project. Contractual arrangements between the General Contractor and its Subcontractor(s) were based on the use of AIA Document A401-2007, “Standard Form of

Agreement between Contractor and Subcontractor.” (Appendix E-Yellow textbook)

After construction began, the General Contractor notified us as the Owner’s Representative, that there was ledge covered by two feet of soft clay where the concrete foundation spread footings were to be placed at the southeast comer of the building footprint. We called the geotechnical engineer who did the test boring report. They came to the site, investigated and told us they missed the fact that clay and shallow bedrock would be encountered within the building footprint and to dig out all the clay, blast and remove about five feet of the bedrock and replace with structural fill. Rather than undergo the expense of changing the foundation as originally designed, we revised our plans to provide for reinforced poured concrete grade beams and additional steel at the point where this condition was encountered. The report

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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of the borings, soils and groundwater did not show any indication that groundwater at this location might be encountered.

We further revised the plans to provide for a specific brand of waterproofing materials to be applied to the exterior of the foundation walls and the bottom of the foundations and grade beams from the bottom of the grade-beam to a point about one foot below finished grade outside the building footprint.

The waterproofing materials were a new product and had not previously been used by the contractor, or us, but the manufacturer was a reputable company that had supplied material on other projects we had designed in the past and had a long history of producing acceptable building materials. The P. O. from the general contractor to the manufacturer had the same Terms and Conditions as the “Phillips” Ts & Cs previously provided to you. The shop drawing/submittal submitted to us by the general contractor indicated the manufacturer had tested the product and they both recommended its use to us. Unfortunately, we did not make any independent test of the materials before specifying its use.

During one of our frequent visits to the jobsite, it became apparent that the subcontractor who was subcontracted by the General Contractor to perform this work was not performing the work according to the plans as revised with regard to the installation of steel at the southeast corner. The General Contractor and the Subcontractor complained that we were overreacting and that their work was all being performed according to the revised plans and specifications.

Following a series of tense meetings between the parties, we rejected the work and then directed (Work Directive Change, EJCDC Document No. 1910-8-F) the general contractor to remove a portion of the grade beam already in place and to use more steel and a different type of steel. The general contractor finally agreed to these demands, stating that it did so under protest, and instructed the Subcontractor to make the changes. Subsequently the Subcontractor thru the General Contractor submitted a combined, total Change Order Request (EJCDC Document No. 1910-8-B) for $ 1.3 million for the additional work due to the clay/ledge discovery and $0.8 million for the rework associated with the rejected work.

A “Certificate of Substantial Completion” EJCDC Document No. 1910-8-D was executed on March 3 1, 2017 and the Client commenced moving in/occupying the basement and 1st floor on April 8, 2017. The “Punch list” items, comprising paving, loaming and landscaping items were completed on May 5, 2017. Upon completion of the ‘Punch list” items we issued a Certificate Of Final Completion and, after receiving the ‘Lien Release for Final Payment”, the General Contractor was paid in full for all “Undisputed” amounts. The negotiations surrounding the Change Order Request for $2.1 million, including independent mediation pursuant to the AAA Rules of Mediation for the Construction Industry, are still ongoing.

About 5 months after the General Contractor was paid in full our Client found it necessary to move a number of valuable Mozart music transcripts and other objects of art, including paintings into the building and placed them on the basement floor at the southeast corner of the building, intending to put all of them into the water and fire proof vault on the second floor when they had time. The night after all these were moved into the basement, a torrential downpour caused an accumulation of water 8 feet deep, which destroyed and/or damaged all of the items placed on

the floor, estimated market value of $50 million. A night watchman, an employee ofthe Client had fallen asleep in the security office on the 1st floor, missed several security tours of the building during the night and therefore did not detect the flooding until the damage was done.

Subsequent investigation has revealed that the grade beam in the southeast comer of the building had cracked and because the soft clay had not been completely excavated, had settled to a point where a gap was created between the beam and the concrete floor. We had a Senior Resident Engineer on site during the entire duration of the construction of the Project whose duties and responsibilities were as set forth in the Exhibit D to our Contract. We further found that the Subcontractor had failed to install the additional concrete grade beams and steel as we had directed and had been instructed by the general contractor. The investigation also revealed that the waterproofing material had been torn as a result of the settlement and the flooding, but testing showed that the waterproofing material might not have repelled all the water in any event. (See Figure  The General Contractor’s Surety, under the ‘Performance Bond” (AIA A —312; Appendix D in Yellow Text) in the original amount of $10.8 million has been notified.

My questions are as follows:

A. Does our Client have a claim against us for the water damage to the building based on Breach of Contract? Explain.

B. Does our Client have a claim against us for the loss of the valuable Mozart music transcripts and other objects of art, including paintings based on design error? Explain. Based on Breach of Contract? Explain.

C. Is there a basis for us being liable for the General Contractor’s use of the defective waterproofing materials? Explain Why/Why Not?

D. Are we liable for failure to adequately inspect the General Contractor’s or the subcontractor’s work in a timely manner? Explain.

E. Identify any defenses you think we have and state the facts you believe are supportive of us using those defenses. What additional facts might be helpful if we can identify them?

F. Is the General Contractor liable to our client for the Subcontractor’s failure to comply with our instructions? Explain.

G. Does our Client have a claim against us and/or the General Contractor based on the issuance of the Certificate of Substantial Completion? Why/Why not? Certificate of Final Payment/Lien Release? Why/Why not?

H. Does the General Contractor have a defense based on the issuance of the

Certificate of Substantial Completion? Why/Why not? Based on the issuance of the Certificate of Final Payment/Lien Release? Explain.

I. Is there a basis for our Client’s claim for damages to be apportioned between the General Contractor and us? Do you think our Subconsultant, the Geotechnical Engineering Company has any responsibility or liability exposure to us? The General Contractor? Our Client? Explain for each.

J. Would we potentially have less liability exposure if our client had contracted with the Geotechnical engineering company instead of us subcontracting with them? Explain.

K. Identify specific provisions in our contract with our Client as well as the other contracts I mentioned above that I should be aware of that may impact our liability exposure.

L Identify the type of and an estimate the damages we might be liable for.

M. There has been some unconfirmed information via “the grapevine” that the Subcontractor’s insurance expired on September 3, 2016 and they may be preparing for a bankruptcy filing within the next thirty (30) days from today. Might either of those facts, if true, affect our potential liability exposure? Explain your analysis.

N. Do you think it was prudent to notify the Surety? Why—Explain and identifr any issues the Surety may raise.

O. Identify all the issues associated with the $2.1 million Change Order negotiations and mediation activities that you think I should be aware of. What is your advice on what our role in this negotiation/mediation should be going forward in light of the flooding and destruction of the client’s property that recently occurred?

P. Is there a reasonable possibility we may be considered an “agent” of our Client during construction? Explain your answer.

Additional questions I would appreciate your providing me answers (50 words maximum for each) to are:

I . Why may some knowledge of contract law be helpful to you?

2. What are the elements of a contract?

3. What is a subcontract and when is it useful?

4. Identify three rules used to interpret conflicting or ambiguous terms in a contract?

5. Why is a “Force Majeure” clause important in a contract?

6. Explain what is meant by “Breach of Contract”?

7. Explain the difference between “latent” and “patent” defects?

8. Explain the purpose and operation of “Liquidated Damages”?

9. Identify the elements of the tort of “negligence”?

10. Briefly explain the difference between ‘Negligence Liability” and “Product Liability.

11. Identify four (4) responsibilities that usually transfer from the Contractor to the Owner as of the Date of Substantial Completion.

I do not have time before meeting with our outside law firm next Thursday, 05/04/17 to think about this. In addition, I am too distraught and upset to deal with this as it has the potential to put our company out of business. (We only have $10 million insurance.)

Therefore, I need a memo from you analyzing each of the questions/issues identified above and advising me on:

· Issue/Liability Identification

· Analysis/Discussion

· Identification of Additional Information Needs

· Recommendations/Conclusions

· Please identify any references from the textbook you used in your contract law course

Physical Format: For the responses to Questions A through P.–6 pages maximum type-written, 1.5 line spacing, font no larger than 10 pt., 8 in by I I in. paper, linch margins all sides, Memo format.

For the responses to Questions Ith rough 11–An additional 2 pages maximum.

Total of 8 pages.

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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assumptions you believe you must make in order to give me the benefit of your complete analysis and advice.

 Also, please remember that your year-end bonus depends on how complete and succinct your memo is. Although you may use the Text and materials passed out during the semester, the honor system is in effect, please work individually on this Exam.

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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SPRING 2018 FINAL EXAM

MSEM 520 Contract Law & Legal Aspects of Engineering

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 Figure 1

Illus&ation of Problem Constuction Project

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