Legal Aspects of Building in the Golden State
COPYRIGHT © 2020 Ernest Brown, APLC.
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Note: This publication is intended to provide current and accurate information. The information in this book, however, may not be sufficient in dealing with particular issues, and neither Ernest Brown, APLC, nor its employees, warrant or represent its suitability for such purpose. The information published in this book should not be relied upon as a substitute for independent research to original sources of authority.
While we invite readers to contact Ernest Brown, APLC, but please note that contacting us (and the author) does not create an attorney-client relationship, unless you are accepted as a client of the firm.
The cover of this book is a photograph of the Oakland Airport Connector (OAC).
The Author was project counsel for the Flatiron/Parsons Joint Venture that was the design/builder for the project. The major subcontractors were Turner Construction (stations) and Doppelmayr Seilbahnen, GmbH (track structure and rails, cars, power systems and controls.) The project was a Design Build Plus job, as Doppelmayr also had a separate contract to operate and maintain the system for twenty years.
The OAC project is a 3.2 mile skyline between San Francisco’s Bay Area Rapid Transit’s (BART’s) Coliseum Airport Station and the new terminus station at Oakland International Airport. The project will uses right-of-way elevated Automated Guideway Transit (AGT) system to avoid the congested traffic on Hegenberger Avenue. There are two elevated stations (Coliseum and Airport) and a mid-point structure that serves as the operations center, maintenance shop and traction power station.
Construction on the project began in 2011 and the train system became operational in 2015. The estimated cost of the project is $484m. The automated train system replaced the previous AirBART bus system that operated on city streets between Coliseum Station and the Oakland International Airport.
TABLE OF CONTENTS
Chapter 1 — California Projects & Delivery Systems
§ 1.1 Dreams to Reality
§ 1.2 The California Market
§ 1.3 The Mission Statement
§ 1.4 Project Delivery Pathways
§ 1.4.1 Contracting Strategies & Methods
§ 1.4.1(a) Design-Bid-Construct
§ 1.4.1(b) Project Management (PM)
§ 1.4.1(c) The Design-Build Process
§ 1.4.1(d) Multiple Prime Contracting
§ 1.4.1(e) Fast Track Projects
§ 1.4.1(f) Turnkey Projects
§ 1.4.1(g) Performance-Based Contracting
§ 1.4.1(h) Design-Build-Operate-Transfer (DBOT)
§ 1.4.1(i) Partnering and Team Building
§ 1.4.2 Pricing Methods
§ 1.5 Project Relationships
§ 1.5.1 Usual Parties
§ 1.5.2 Project Organization
§ 1.5.2(a) The Design Relationship (Architect or Engineer)
§ 1.5.2(b) General Contractor
§ 1.5.2(c) Construction Manager
Chapter 2 — Project Evaluation
§ 2.1 Community Priorities
§ 2.2 The Project Concept
§ 2.3 Development of the Project Team
§ 2.4 Evaluating the Likely Benefits
§ 2.5 Estimating True Project Costs
§ 2.6 Evaluation of Project Risk
§ 2.7 Environmental Impact & Mitigation
§ 2.8 Military Base Reuse & Conversion
§ 2.9 The California Environmental Quality Act (CEQA)
§ 2.10 Federal and State Environmental Assessment of Lands
§ 2.11 Agencies with Permit Jurisdiction
§ 2.12 Green Building & Sustainability
Chapter 3 — Project Risk
§ 3.1 Evaluating Project Risk
§ 3.2 Risk Identification
§ 3.2.1 Ownership
§ 3.2.2 Building Type
§ 3.2.3 Location of Project
§ 3.2.4 Contract Provisions
§ 3.2.5 Investigate the Parties
§ 3.2.6 Public Financing Method
§ 3.3 Risk Mitigation Strategies
§ 3.4 Project Risk Checklist
Chapter 4 — Project Finance
§ 4.1 Lump Sum Funding (Pay As You Go)
§ 4.2 Grants
§ 4.3 Renting and Leasing
§ 4.4 State Bonds
§ 4.5 Municipal Bonds
§ 4.6 Certificates of Participation
§ 4.7 Traditional Revenue Bonds
§ 4.8 Local Option Sales Taxes
§ 4.9 Mello Roos Bonds
§ 4.10 Redevelopment Agencies and Bonds
§ 4.11 Subdivision Development Bonds
§ 4.12 Arbitrage of Project Funds
§ 4.13 Selection of Bond Counsel and Financial Advisors
§ 4.13.1 Municipal Bond Issuers
§ 4.13.2 Underwriter’s Counsel
§ 4.13.3 Trustee’s Counsel
§ 4.13.4 Disclosure Counsel
§ 4.13.5 Trustee
§ 4.13.6 Underwriter
§ 4.13.7 Municipal Bond Insurer
§ 4.13.8 Rating Agency
§ 4.13.9 Investment Community
Chapter 5 — Public Private Partnerships
§ 5.1 Private Investment Market
§ 5.2 Traditional Barriers
§ 5.3 Statutory Authorization
§ 5.4 P3 Case Studies
§ 5.5 Cutting Edge Issues
Chapter 6 — Project Management Agreements
§ 6.1 Types of Project Management (PM) Services
§ 6.2 Selection of Project Manager
§ 6.3 Substitution of Key Personnel
§ 6.4 Key Clauses in Project Management Agreements
Chapter 7 — Design Agreements
§ 7.1 Selection of Design Professionals
§ 7.2 Key Clauses in Design Agreements
§ 7.2.1 Project Description and Scope of Work
§ 7.2.2 Basic Services Versus Additional Services
§ 7.2.3 Standard of Care
§ 7.2.4 Schedule of Performance
§ 7.2.5 Redesign Without Cost
§ 7.2.6 Adherence to Codes
§ 7.2.7 Licensure and Payment
§ 7.2.8 Construction/Site Services–Shop Drawing & Submittal Review
§ 7.2.9 Construction Services–Change Order Evaluation and Approval
§ 7.2.10 Construction Services–Substitutions
§ 7.2.11 Construction Services–Supervision and Site Safety
§ 7.2.12 Construction Services-Site Visits & Observation of Construction
§ 7.2.13 Construction Services-Certification of Progress Payments
§ 7.2.14 Construction Services-Authority to Reject Work
§ 7.2.15 Construction Services-Substantial Completion & Final Payment
§ 7.2.16 Construction Services-Arbiter of Disputes
§ 7.2.17 Cost Estimates
§ 7.2.18 Ownership, Use and Reuse of Drawings
§ 7.2.19 Copyrights and Patents
§ 7.2.20 Indemnification
§ 7.2.21 Insurance
§ 7.2.22 Payment Bonds and Retention
§ 7.2.23 Suspension or Termination of A/E
§ 7.3 A/E Statutes of Limitation & Certificates of Merit
Chapter 8 — Construction Agreements
§ 8.1 Key Concepts
§ 8.2 “Standard Agreements”
§ 8.3 Key Clauses in Prime Contracts
§ 8.4 Project Execution
§ 8.5 Design-Build Agreements
§ 8.6 Home Improvement Contracts
Chapter 9 — California Public Works Law
§ 9.1 Agency Authority
§ 9.2 California Public Contract Code
§ 9.2.1 Administrative Provisions
§ 9.2.2 Contracting by State Agencies
§ 9.2.2(a) Minority Business Enterprise (MBE)/Women’s Business Enterprise (WBE)/Disabled-Veteran Business Enterprise (DV BE)
§ 9.2.2(b) Award to Lowest Responsible Bidder
§ 9.2.2(c) Bid Advertisement
§ 9.2.2(d) Bidding Requirements
§ 9.2.2(e) Contract Award
§ 9.2.2(f) Resolution of Claims and Arbitration
§ 9.2.2(g) Changes and Extra Work
§ 9.2.2(h) University Rules
§ 9.2.3 Contracting by Local Agencies
§ 9.2.3(a) School Districts
§ 9.2.3 (b) Contracting by Community College Districts
§ 9.2.3(c) General Law Counties and Cities
§ 9.2.3(d) Transit, Utility, and Special Districts
§ 9.2.4 Chartered Cities and Counties
§ 9.2.5 Other Applicable California Codes
§ 9.3 Regulated Contract Provisions
§ 9.3.1 Allowed Clauses
§ 9.3.2 Prohibited or Limited Clauses
§ 9.3.3 Required or Otherwise Key Public Works Clauses
§ 9.4 California Public Records Act
§ 9.5 Federal Law Considerations
§ 9.6 Governmental Immunities
§ 9.7 Contact with Public Officials
Chapter 10 — Insurance & Bonding
§ 10.1 Insurable Risks
§ 10.2 Construction Insurance
§ 10.2.1 Coverage Issues
§ 10.2.2 Insurance Coverage Litigation
§ 10.3 Bonding
Chapter 11 — Contractor Licensing
§ 11.1 Overview
§ 11.2 Who Needs a License?
§ 11.3 Requirements for Public Contracts
§ 11.4 Which License Is Necessary?
§ 11.5 Unlicensed Contractors
§ 11.6 Exemptions from the License Law
§ 11.7 Sanctions
§ 11.8 New Electrician Certifications
§ 11.9 Practice Pointers
Chapter 12 — The Bidding Process
§ 12.1 Competitive Bidding Requirements
§ 12.2 Bid “Responsiveness”
§ 12.2.1 “Responsiveness” Defined
§ 12.3 Bidder Responsibility
§ 12.3.1 “Responsibility” Defined
§ 12.3.2 Standard of Review
§ 12.3.3 Notice & Opportunity to be Heard for Unsuccessful Bidders
§ 12.4 Solicitation of Bids
§ 12.4.1 Pre-qualification
§ 12.4.2 Licensing Requirements
§ 12.4.3 Information to Be Supplied to Bidders
§ 12.5 Bid Submission
§ 12.6 Withdrawal of Bids
§ 12.7 Bid Mistakes
§ 12.8 Subletting and Subcontracting Fair Practices Act
§ 12.8.1 Post Substitution Litigation
§ 12.9 Bid Evaluation
§ 12.10 Prevailing Wages
§ 12.11 Bid Protests - Administrative Challenges
§ 12.11.1 Notice of Award
§ 12.11.2 Request for Hearing and Notice
§ 12.11.3 Hearing and Decision
§ 12.12 Bid Protests - Legal Challenges
§ 12.12.1 Interference with Prospective Economic Advantage
§ 12.12.2 Breach of Contract
§ 12.12.3 Abuse of Discretion
Chapter 13 — Construction Problems
§ 13.1 Inadequate Design
§ 13.2 Unforeseen Conditions
§ 13.3 Changes and Modifications
§ 13.4 Scheduling
§ 13.5 Suspension of Work
§ 13.6 Delay
§ 13.7 Cumulative Impact, Disruption and Lost Productivity
§ 13.8 Prompt Payment
§ 13.9 Impossibility of Performance
§ 13.10 Pass Through Agreements
§ 13.11 Good Faith and Fair Dealing
§ 13.12 Miscellaneous Claims
Chapter 14 — Assessing Damages
§ 14.1 Breach of Contract
§ 14.2 Material Breach & Abandonment
§ 14.3 Tort Damages
§ 14.4 Waiver of Consequential Damages
§ 14.5 Economic Loss Rule
§ 14.6 Limitations of Liability
§ 14.7 Fraudulent Claims
Chapter 15 — Payment Remedies
§ 15.1 Who Has These Rights?
§ 15.2 Preliminary Notice
§ 15.3 The Mechanic’s Lien
§ 15.4 Enforcement of Mechanic’s Liens
§ 15.5 Public Project Mechanic’s Liens (Rare)
§ 15.6 Payment Bonds and Stop Notices
§ 15.7 Prompt Payment Statutes
Chapter 16 — Third Party Claims
§ 16.1 Construction Accidents
§ 16.1.1 Workers’ Compensation
§ 16.1.2 Third-Party Lawsuits
§ 16.1.3 Indemnity and Insurance Issues
§ 16.1.4 Products Liability Issues
§ 16.2 Construction Defects
§ 16.2.1 Prevalence in Residential Construction
§ 16.2.2 Typical Defects Claims
§ 16.2.3 Strict Liability for Mass Graded Lots & Tract Housing
§ 16.2.4 Insurance Coverage Issues
§ 16.2.5 Residential Construction Defects
§ 16.3 Americans With Disabilities Act
Chapter 17 — Construction Claims Analysis
§ 17.1 Phasing the Analysis
§ 17.1.1 Phase I: The Factual Investigation
§ 17.1.1(a) Project Roster
§ 17.1.1(b) Project Issues List
§ 17.1.1(c) Contract Review
§ 17.1.1(d) Contractual Requirements
§ 17.1.1(e) Plans and Specifications Review
§ 17.1.1(f) Indemnity and Insurance
§ 17.1.1(g) Key Witness Interviews
§ 17.1.1(h) Contractor - Public Agency Meeting
§ 17.1.2 Phase II: Detailed Claim Analysis
§ 17.1.2(a) Project Chronology
§ 17.1.2(b) Financial Records Review
§ 17.1.2(c) Technical Analysis and Early Expert Witness Involvement
§ 17.1.2(d) Calculation of Quantum
§ 17.1.3 Phase III: Pursuing Settlement
§ 17.1.3(a) Advantages to Early Settlement
§ 17.1.3(b) Planning the Mediation/Negotiation
§ 17.1.3(c) Selecting the Negotiation Team
§ 17.1.3(d) Settlement Agenda
§ 17.1.3(e) The Settlement
§ 17.1.3(f) The Good Faith Settlement Motion
§ 17.2 The False Claims Act
Chapter 18 — Deadlines and Limitations
§ 18.1 Contract Provisions
§ 18.2 Statutory Notice Requirements
§ 18.3 Other Public Works Statutes
§ 18.4 Additional Statutes of Limitations
§ 18.5 Tort Claims Issues
§ 18.6 Statutes of Repose
Chapter 19 — Dispute Resolution
§ 19.1 Litigation
§ 19.1.1 Special Master
§ 19.1.2 Judicial Referee
§ 19.2 Arbitration
§ 19.2.1 AAA Arbitration
§ 19.2.2 JAMS Arbitration
§ 19.2.3 OAH Arbitration
§ 19.2.4 CSLB Arbitration
§ 19.2.5 Judicial Arbitration
§ 19.3 Dispute Review Boards
§ 19.4 Project Neutral
§ 19.5 Mediation
§ 19.5.1 The Strengths of Mediation
§ 19.5.2 Unsuccessful Mediation
§ 19.5.3 Mediation Checklist
§ 19.6 Fact Finding
§ 19.7 Sources of California Law on ADR
§ 19.8 ADR Considerations
§ 19.9 ADR Tools for Construction Disputes
Chapter 20 — WHISKEY Checklist
Endnotes
Project Execution Manual – Suggested Outline
Glossary of Infrastructure Terms
CalTrans Definitions
Bibliography and Further Resources
About the Author
Introduction
Over the past forty years, I have been blessed to participate in the construction community. We are fortunate to employ an amazing group of men and women. They strive everyday for safe, high quality, and cost-effective projects. I got to be part of executive teams that designed and built challenging and impressive jobs throughout California.
It has also been a true privilege to serve as legal counsel to public entities on iconic projects. I have worked with some of the best public officials and agency staff in the United States.
We are now publishing the Fourth Edition of this book. It is very gratifying that my publishers have distributed over 15,000 copies of this book, including an International Edition in Korean.
I started in 1999 with one goal: What could I have told my young self in 1978, when I was a freshly minted UC Berkeley lawyer with a MIT civil engineering degree? And from the response from a lot of young people who have contacted me since, we pretty much hit the mark.
These are two insights that twenty years of writing these books taught me: 1) The fluid nature of the laws, policies and regulations that govern our industry. The timing, rules and language has rapidly evolved over my career. 2) In contrast, the core principles of our industry are ancient and remain right and true.
The Caltrans Mission Statement is an excellent reflection of setting clear goals to measure success, improvement and service (see text). In a similar vein, I am reminded of the AGC Award for Service, Integrity and Responsibility (SIR). The value of those character traits are immutable.
The SIR Award was created by the Northern Nevada Chapter of the AGC. My Grandfather, Ernest S. Brown, Esq, a labor lawyer, and my Father, John Webster Brown, SE, a Civil & Structural Engineer, were early Nevada AGC Awardees and in the case of my father, a SIR recipient. They were my first and greatest of my mentors.
So, I guess you can understand my lifelong passion for the construction industry. Why I so respect the work of the agencies, firms and companies. Together, creating great projects.