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3 SANCTUARY BOULEVARD

SUITE 201

MANDEVILLE, LOUISIANA 70471

TELEPHONE: (985) 819-8400

FACSIMILE: (985) 819-8484

CONSTRUCTION CLAIMS

BY:

MARK W. FRILOT

April 16, 2014

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A. GENERAL INTRODUCTION1

The object of this presentation is to provide a basic understanding of the concepts involved in damages associated with construction claims, including those for delay, disruption, interference, and defective work as well as the rights and defenses available to the various parties in such situations. To more fully understand the damages aspect of this paper it is necessary first to address some of the various claims that can be made in construction cases. In presenting this information, this paper presumes a contractual relationship between the disputing parties. For simplicity, only the contractor/owner relationship is described. In most situations, as evidenced by some of the cases cited in this paper, “subcontractor” can be substituted for “contractor,” “contractor” for “owner”, etc., when applying the content of this presentation to subcontractor/contractor or subcontractor/sub-subcontractor relationships. There are, of course, some differences, but those are usually obvious. Perhaps the best place to start is with Louisiana’s Civil Code, particularly Articles 1994 and 1995. Simply put, Article 1994 makes a contracting party liable for damages resulting from its nonperformance of a contractual obligation, defective performance of a contractual obligation, or delayed performance of a contractual obligation. Article 1995 states that the damages for which a breaching party is liable are measured by the loss sustained by the other party and the lost profit caused by the breach. B. ENTITLEMENT TO DAMAGES

Before addressing how damages are quantified, a party to a contract must demonstrate entitlement to recover damages.

1 Portions of this paper follow and update materials previously prepared for and presented by Danny G. Shaw, a Shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz, to Louisiana State Bar Association and National Business Institute, Inc. sponsored seminars.

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1. DELAYS

a. Introduction

Many construction projects are delayed in their completion, and delays almost always cost someone money. The intent of this section is to define and describe the various types of delay that may be found in a typical construction project. Delays in the contractor’s performance fall generally into two basic types – inexcusable and excusable. Inexcusable delays are those caused by or otherwise attributable to the contractor. They entitle the owner to recover damages or enforce rights defined in the contract, such as those arising under a liquidated damages clause. Excusable delays in the contractor’s performance are those delays not caused by or otherwise attributable to the contractor; the owner cannot recover damages resulting from an excusable delay. Putting aside the effect of a no-damage-for-delay clause, excusable delays break down further into two basic categories – compensable and noncompensable. Excusable-compensable delays are those caused by or otherwise attributable to the owner. When the contractor suffers an excusable-compensable delay, it receives an extension of contract time, and the owner is liable to the contractor for damages resulting from the delay. Excusable-noncompensable delays in the contractor’s performance are those that are not caused by or otherwise attributable to the owner, and for which the owner is not liable to the contractor. In such an event, the contractor generally receives only an extension of contract time. Whether a delay in the contractor’s performance is inexcusable or excusable, and compensable or noncompensable depends upon a variety of factors. Those factors include the foreseeability of such delays when entering into the contract, the party “at fault,” and, to a great extent, the language of the contract.

b. Inexcusable Delays to Contractor’s Performance

Inexcusable delays are those caused by or otherwise attributable to the contractor. Under Article 2769 of the Louisiana Civil Code, the contractor is liable to the owner for any damages caused by the contractor’s failure to perform within the stipulated time to the extent that the delay is the fault of or attributable to the contractor. Some delays are caused by the active fault of the contractor through its own failure to perform timely or in the manner provided in the contract. Under these circumstances, the contractor will be liable for damages incurred by the owner due to delay. See, e.g., O & M Const., Inc. v. State, 576 So.2d 1030 (La. App. 1 Cir.), writ denied, 581 So.2d 691 (La. 1991); Hemenway Co., Inc. v. Bartex Inc., 373 So.2d 1356 (La. App. 1 Cir.), writ denied, 376 So.2d 1272 (La. 1979); see also Menge Pump & Mach. Co., Inc. v. A. F. Blair Co., Inc., 270 So.2d 320

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(La. App. 4 Cir. 1972); Frees & Laine v. C. W. Vollmer & Co., 78 So.2d 187 (La. App. Orl. 1955) (applying principle to contractor/subcontractor relationship when subcontractor was cause of delay on project). In many delay circumstances, however, the contractor will have experienced an unexpected obstacle or difficulty that delayed the project not “caused” by the contractor. The contractor generally assumes the risk of such delays, even when the delay is not the active fault of the contractor. Courts presume that a party to a contract has taken into account the possible malfunctions, difficulties and potential obstacles that could prevent its timely performance. See Admiral Paint Co., Inc. v. Goltzman, 254 So.2d 104, 107 (La. App. 3 Cir. 1971), writ denied, 255 So.2d 772 (La. 1972); Hughes v. Breazeale, 121 So.2d 510, 514 (La. 1960). Thus, unless the contract stipulates differently, only uncontrollable and unpredictable events are excusable. Id. Common difficulties experienced by contractors that cause delays include weather, labor problems, subcontractor delays, and difficulties incurred in obtaining materials. Absent an enforceable contractual provision to the contrary, the contractor is generally liable for damages incurred due to delays caused by these contingent difficulties. However, courts have not always followed this maxim strictly. In fact, Louisiana’s courts have displayed a fairly liberal attitude when defining the point at which inexcusable delays due to weather become excusable-noncompensable delays. See generally King Bros. Bldg. Contractors, Inc. v. McCullen, 393 So.2d 413, 414 (La. App. 1 Cir. 1980); Davis v. Tillman, 370 So.2d 1323, 1325-26 (La. App. 2 Cir. 1979); Farnsworth v. Sewerage & Water Bd., 139 So. 638, 641 (La. 1932). Even with the more liberal standard, the contractor still has the burden of proving that the weather was unusual and unforeseeable at the time the contract was entered, and directly related to delayed contract performance. See S.J. Lemoine v. St. Landry Parish Sch. Bd., 527 So.2d 1150, 1153-54 (La. App. 3 Cir. 1988).

c. Excusable-Noncompensable Delays to Contractor’s Performance

(1) Contractually Stipulated

Parties to construction contracts often eliminate uncertainty concerning the responsibility for delay by allocating the risk of delay in the contract. The majority of construction contracts contain “force majeure” clauses that excuse specific types of delay, regardless of the contractor’s ability to predict the delay. Typical force majeure clauses entitle the contractor to an extension of contract time if the force majeure event directly affects the amount of time required to perform the contract work. Force majeure events often include unusually severe weather (which should be defined), strikes and other labor disputes arising from causes beyond the contractor’s control, earthquakes, floods and other acts of God, government-created shortages, and other governmental restrictions on the contractor’s ability to perform. The parties can agree that virtually any event provides the basis

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for an excusable-noncompensable delay, so long as a potestative condition is not created one within the complete control of one party. (However, see the discussion of “no damages for delay” clauses, Section C, infra.)

(2) Concurrent Delays

A separate category of excusable-noncompensable delays is concurrent delays. Concurrent delays are of several types or combinations, generally with the same result – the contractor is allowed an extension of contract time, but no compensation. If a delay results from both an excusable-compensable cause, such as the owner’s not providing a work site timely, and an inexcusable cause, such as the contractor’s inability to place equipment on the site for reasons unrelated to the site’s availability, then neither party should recover from the other damages resulting from the delay unless there can be clear apportionment of the delay. See Blinderman Constr. Co. Inc. v. United States, 695 F.2d 552, 559 (Fed. Cir. 1982); see also Essex Electro Engineers, Inc. v. Danzig, 224 F.3d 1283, 1292 (Fed. Cir. 2000); CCM Corp. v. United States, 20 Cl.Ct. 649, 659 (Ct. Cl. 1990); Wilner v. United States, 23 Cl.Ct. 241, 245 (Ct. Cl. 1991). Thus, concurrent delays are treated as excusable-noncompensable delays. A concurrent delay also results when there is both an excusable-compensable delay and an excusable-noncompensable delay, or both a nonexcusable delay and an excusable-noncompensable delay, and such combinations independently cause the same delay, in duration and at the same time, to the project completion. Again, the contract time is extended, but neither the contractor nor the owner is entitled to recover from the other delay related damages.

d. Compensable Delays to Contractor’s Performance

Excusable-compensable delays to the contractor’s performance are unanticipated delays caused by or otherwise attributable to the owner. A contractor may recover damages resulting from the delays caused by or attributable to the owner. See R. S. Noonan, Inc. v. Morrison-Knudsen Co., Inc., 522 F. Supp. 1186, 1191 (E.D. La. 1981). Louisiana courts have recognized several types of excusable-compensable delays. Perhaps the most common is extra-contractual work that the contractor is required by the owner to perform during its performance of contract work. See, e.g., G. Salvaggio & Co., Inc. v. Delta Heights, Inc., 277 So.2d 754, 757 (La. App. 4 Cir. 1973). Other common compensable delays include the unavailability of the work site, the unsuitability of the site or owner-furnished material, conditions that vary from those set forth in the contract, late delivery of owner-furnished materials, defective specifications, the owner’s failure to coordinate properly interfacing contractors on “multi-prime” jobs, failure to review contractor submittals timely, and the like. See generally R. S. Noonan, 522 F.Supp. 1186; Clark v. Whitener, 296 So.2d 393 (La.

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App. 2 Cir.), writ denied, 299 So.2d 795 (La. 1974); Sandel & Lastrapes v. City of Shreveport, 129 So.2d 620 (La. App. 2 Cir. 1961).

2. DISRUPTIONS

a. Introduction

Any complicated construction project requires considerable planning to direct and coordinate the work in an efficient and cost-effective manner. Interference with the contractor’s planned work pace and method of performance can result not only in a delay of the work progress, but also in a loss of efficiency. An interference causing such a loss of efficiency is often termed a disruption. Disruptions are closely related to delays; as a logical matter, many events causing delays in the completion of the work also cause disruptions to a contractor’s efficiency. In fact, many treatises do not distinguish between delay and disruption, but choose instead to treat them as a whole resulting from contract interferences. The distinction between the damages resulting from delays and disruptions has also been blurred by attempts to classify disruption damages as delay damages in order to fit within contractual defenses such as “no damage for delay” clauses. However, for analytical purposes, it is best to keep the two concepts distinct. Pure delay related damages do not address a contractor’s loss of efficiency:

Unlike the delay claim, the disruption claim is intended not to redress USI’s loss from being unable to work, but to compensate USI for the damages it suffered from Blake’s actions that made its work more difficult and expensive than USI anticipated and than it should have been.

U. S. Indus., Inc. v. Blake Constr. Co. Inc., 671 F.2d 539, 546 (D.C. Cir. 1982); see also Saur Incorporated v. Danzig, 224 F.3d 1340, 1348 (Fed. Cir. 2000) (Contractor need not establish delay to overall contract completion to succeed on its disruption claim); Williams Enters., Inc. v. Sherman R. Smoot Co., 938 F.2d 230, 236 (D.C. Cir. 1991). Thus, while delay claims are time related and contain time related damages such as extended overhead or increased direct costs related from the delay, disruption claims (which may arise from the same event justifying delay claim) generally involve losses based on lost labor and equipment efficiency.

b. Interference with Contractor’s Performance

As with delays, not all disruptions suffered by the contractor are compensable. In order to recover damages for disruption, a contractor must prove that the interference causing the disruption was a breach of contract or that the contract provides relief for the disruption. Sometimes an interference causing a disruption is a breach of an express condition of the

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contract, such as an obligation to provide sufficient plans or to provide sufficient access to the work site. More often, a contractor must urge that the owner’s conduct amounted to a breach of an implied condition of the contract. In doing so, the contractor must rely on the premise that the parties to a contract must not prevent or hinder its performance:

In any kind of contract, if the right of one party to compensation is conditional upon the rendition of some service or other performance by him or on his behalf, it is nearly always a breach of contract for the other party to act so as to prevent or hinder and delay or to make more expensive the performance of the condition.

A. Corbin, Contracts § 571 at 349 (1960) (footnote omitted); see also 5 S. Williston, Law of Contracts §§677, 677A & 677B (1961). In the construction industry, this principle creates a duty not to interfere with the contractor’s performance:

In every express contract for the erection of a building or for the performance of other constructive work, there is an implied term that the owner, or other person for whom the work is contracted to be done, will not obstruct, hinder, or delay the contractor . . . .

Northeast Clackamas County Elect. Co-op., Inc. v. Continental Cas. Co., 221 F.2d 329, 334 (9th Cir. 1955); see also Essex Electro Engineers, Inc. v. Danzig, 224 F.3d 1283, 1291(Fed. Cir. 2000); S.O.G.-San Ore-Gardner v. Missouri Pacific Railroad Co., 658 F.2d 562, 569 (8th Cir. 1981); Howard P. Foley Co. v. J.L. Williams & Co., 622 F.2d 402, 406-07 (8th Cir. 1980); Peter Kiewit Sons’ Co. v. Summit Constr. Co., 422 F.2d 242, 257 (8th Cir. 1969); Lichter v. Mellon-Stuart Co., 193 F. Supp. 216, 222-23 (W.D. Pa. 1961) aff’d, 305 F.2d 216 (3rd Cir. 1962) (applying principle to contractor/subcontractor relationship). Despite the generality of this rule, not every act that hinders performance will render the owner liable. The contractor must expect some hindrances from the nature of the work; in effect, the contract implies those hindrances. See Hinchman Elec. Contract Maint. Corp. v. Litton Sys., Inc., 384 So.2d 551, 552 (La. App. 4 Cir. 1980). In determining whether a hindrance is contemplated by the contract, the court will resort not only to common sense, as in Hinchman, but also will look to normal trade practice. See Kenneth Reed Constr. Corp. v. United States, 475 F.2d 583, 587 (Ct. Cl. 1973). Whether an interference is a breach of contract depends on the circumstances of the case. Nevertheless, certain recurring situations often give rise to disruption claims. The first and most common source of disruption is delay. Delays often cause damages not only by preventing the contractor from working or completing its work timely, but also by impacting the contractor’s efficiency. In Luria Bros. & Co. v. United States, 369 F.2d 701 (Ct. Cl. 1966), the court found that the owner’s changing of specifications delayed the contractor’s performance. Naturally, the

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contractor recovered delay damages, including additional home office overhead, idle equipment, wage and material escalations, and additional insurance premiums. Id. at 709-11. But the court also found that the delays caused the contractor to work under unanticipated winter conditions, with a resulting loss of productivity. Id. at 711-14. Therefore, the contractor recovered disruption damages associated with the loss of its productivity. Id.; see also Net Construction, Inc. v. C & C Rehab and Construction, Inc., 256 F. Supp. 2d 350, 354 (E.D. Pa. 2003) (recognizing a distinct claim for lost productivity arising out of a delay, although holding that contractor failed to prove properly lost productivity damages); Williams Enter., Inc., 938 F.2d at 236 (allowed contractor both delay and loss of productivity damages against subcontractor which delayed the project); S. Leo Harmonay, Inc. v. Binks Mfg. Co., 597 F. Supp. 1014, 1029-30 (S.D.N.Y. 1984) (subcontractor allowed to recover loss of efficiency damages from contractor), aff’d, 762 F.2d 990 (2d Cir. 1985). In Ronald Adams Contractor, Inc. v. City of New Orleans, 1999-1064 (La. App. 4 Cir. 5/17/00), 764 So. 2d 1149, the court did not allow disruption damages to the contractor which had to work in unanticipated winter conditions because of a delay finding that the abnormal weather conditions were not anticipated (and, therefore, not foreseen) by any of the parties. Id. at 1153. Note, however, that there also was a provision in the contract providing that time extensions in the contract for weather were not compensable. Id. A second common source of disruption is an owner’s failure to provide a suitable work site. In R. S. Noonan, a contractor sued the owner for costs resulting from excessive flooding of its work site. A combination of factors caused the problem, including an average rainfall that was forty-five percent higher than normal and the regrading of the work site by the owner. R.S. Noonan, 522 F.Supp. at 1189. The district court held that the contractor undertook the risks arising from natural, ordinary, and foreseeable occurrences such as rainy weather and unstable soil conditions, but that the owner was responsible for that portion of the contractor’s damages arising from the owner’s actions. Id. at 1191. Those damages included resulting excess labor costs. Id. A third type of disruption is a failure of the owner to coordinate and supervise properly other contractors’ activities. In R.S. Noonan, other contractors pumped excess water into Noonan’s work site with the knowledge of the owner. Id. at 1190. The district court found this to be a clear breach of the owner’s duty not to hinder the contractor’s performance. Id. at 1191. Similarly, in Lard Elec. Co. v. Miller and Assoc. Constr. Co., 267 So.2d 616 (La. App. 3 Cir. 1972), the court found that a painting subcontractor properly pulled off the job when there were so many other contractors on the job site that its access to its own work site was limited. Id. at 619. Finally, an owner can disrupt a contractor by failing to meet express contractual obligations. See Lewis-Nicholson, Inc. v. United States, 550 F.2d 26, 29 (Ct. Cl. 1977); J. G. Watts Constr. Co. v. United States, 355 F.2d 573, 577 (Ct. Cl. 1966). For instance, where the owner must provide materials or drawings and specifications, and they come either too late or out of sequence, a contractor may recover damages associated with the resulting inefficient

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work. See Harmonay, 597 F. Supp. 1014 (applying the principle to a contractor/subcontractor relationship).

3. ACCELERATION

Closely related to delays and disruptions is acceleration. There are two types of acceleration: actual and constructive. An actual acceleration occurs when a contractor is forced by the owner to complete its work before the actual contract completion date. Constructive acceleration occurs when a contractor overcomes an excusable delay to the work and meets the contract completion date. As with delays and disruptions, not all accelerations are compensable. As a general rule, an actual acceleration will be compensable unless it was voluntary on the part of the contractor. However, these cases are seldom litigated, as it is generally recognized that a contractor is entitled to the full contract term in which to complete its work. An owner’s request for a more rapid completion generally is the topic of negotiation before acceleration begins. Most acceleration litigation concerns constructive acceleration, when a contractor is forced to meet a completion date despite excusable delays for which it received no extension of contract time. In general, acceleration of a contractor’s work is not compensable when the preexisting delay was nonexcusable. The rationale for this rule is obvious: If the contractor was responsible for the delay, then it is not a breach of contract for the owner to require the contractor to complete on time. If the delay was, however, excusable, whether compensable or non-compensable, then the constructive acceleration should be compensable. See generally Nat Harrison Assoc., Inc. v. Gulf States Utilities Co., 491 F.2d 578, reh’g denied, 493 F.2d 1405 (5th Cir. 1974).

4. DEFECTIVE WORK

Louisiana Civil Code article 2769 provides the basis for analyzing claims for construction defects. Wilkenson v. Landreneau, 525 So. 2d 617, 619 (La. App. 3 Cir 1988). Article 2769, entitled “Contractor’s liability for non-compliance with contract” provides:

If an undertaker fails to do the work he has contracted to do, or if he does not execute it in the manner and at the time he has agreed to do it, he shall be liable in damages for the losses that may ensue from his non-compliance with his contract.

La. Civ. Code art 2769. To establish a claim under Article 2769, a plaintiff must prove a contractual relationship with the defendant and that defendant failed to perform properly under the contract. Washington v. Degelos, 312 So. 2d 918, 921 (La. App. 4 Cir. 1975). Jurisprudence also recognizes that

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“[i]mplied in every building contract is that the work of the contractor is to be performed in a good, workmanlike manner, free from defects in either materials or workmanship.” Hernandez v. Martinez, 00-1282 (La. App. 5 Cir. 2/28/01), 781 So.2d 815, 821. Under Louisiana jurisprudence “a contractor is liable for damages if it is shown that he did not possess the necessary skill, efficiency or knowledge, or did not exercise ordinary care in performing work and is liable for losses, which the owner suffered because of contractor’s non-compliance with the contract.” Austin Homes, Inc. v. Thibodeaux, 2001-1282, p. 6 (La. App. 3 Cir.), 821 So. 2d 10, 15, writ denied, 2002-2324 (La. 11/15/02), 829 So.2d 436. One court set forth the following burden of proof for an owner to recover against a contractor for defective work: “The owner seeking to recover from a contractor bears the burden of proving 1) both the existence and nature of the defects; 2) that the defects were due to faulty materials or workmanship; and 3) the cost of repairing the defects.” Mount Mariah Baptist Church, Inc. v. Pannell’s Associated Electric, Inc., 36,361 (La. App. 2 Cir. 12/20/02), 835 So. 2d 880, 887 (citing Guy T. Williams Realty, Inc. v. Shamrock Constr. Co., 564 So.2d 689 (La. App. 5 Cir.), writ denied, 569 So.2d 1982 (La. 1990)). In a recent decision by Louisiana’s First Circuit Court of Appeal, the court found that the owner of a construction company (organized as a Louisiana limited liability company) was personally liable for defective work performed by the company on a residential construction project. Matherne v. Barnum, 2011-0827 (La. App. 1 Cir. 3/19/12), 94 So.3d 782. In Matherne, the plaintiffs filed suit against the contractor of a bulkhead, boat slip, and deck for damages allegedly caused by the contractor’s defective design and workmanship on the bulkhead. Id. at 785. In addition to naming the actual construction company, Barnum and Barnum Construction, LLC (“Barnum LLC”), as a defendant, the plaintiffs also filed suit against Barnum LLC’s sole member, Mayhew Barnum, in his personal capacity. Id. Mr. Barnum argued that the plaintiffs could not maintain an action against him personally. Id. However, the trial court found that Barnum LLC was “merely a sham entity” at the time that the construction contract was entered into, throughout the time when the work occurred, and afterward. Id. at 788. Thus, the trial court found it was appropriate to pierce the corporate veil of Barnum LLC and hold Mr. Barnum personally responsible for the actions and inactions of Barnum LLC. Id. The court went on to conclude that Mr. Barnum had breached the contract by his failure to perform the construction contract in a workmanlike manner. Id. On review by the Louisiana First Circuit Court of Appeal, the court explained that although Louisiana statutory law found in La. Rev. Stat. § 12:1320(B) insulates a member of a limited liability company from personal liability for a debt or obligation of the limited liability company, Subsection D of this same statute provides a cause of action against a member of a limited liability company because of any breach of professional duty, as well as for any fraud or other negligent or wrongful act by such person. Id. Thus, La. Rev. Stat. § 12:1320 was not intended to shield professionals from liability for personal negligence. Id. Applying this reasoning, the court concluded that Mr. Barnum was not acting solely in his capacity as a

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member of the limited liability company when he designed and constructed the work for the plaintiffs, but rather he was engaged in the construction profession. Id. at 789. The court further held that pursuant to La. Rev. Stat. § 12:1320(D), Mr. Barnum was subject to personal liability arising from his own negligence in performing the construction. Id. Notably, unlike the ruling of the trial court, the appellate court’s finding of personal liability on the part of Mr. Barnum was based on Mr. Barnum’s negligence in performing his professional duties, and not on a veil piercing theory. C. DEFENSES TO DAMAGE CLAIMS

1. Delay, Acceleration, and Interference

Defenses to delay, acceleration or interference damage claims generally fall into two basic categories – contractual defenses and non-contractual defenses. Contractual defenses are those based upon clauses or provisions contained in the contract. Non-contractual defenses are those governed by codal, statutory, or jurisprudential law as applied to the factual circumstances surrounding each claim. Most construction contracts contain a number of clauses that anticipate problems that may occur during the course of the project and that govern the relationship and actions between the parties. Typical clauses of this type that provide contractual defenses are notice requirements and “no damage for delay” clauses. Clauses setting forth notice requirements in construction contracts generally state that a contractor must give certain timely notices to the owner of events giving rise to claims for additional compensation or damages. Most typical is a notice requirement regarding delays to the contractor’s performance. Many times such clauses require written notice delivered to a specified address within a certain period of time. See O&M Construction, 576 So.2d at 1045 (contractor’s delay claim rejected on alternative bases of failure to provide notice and failure to prove delay). Louisiana courts have generally held that the terms of the contract bind the parties; if the notice provision is clear and unambiguous, it will be enforced. Equitable Real Estate Co. v. National Surety Co., 63 So. 104, 107 (La. 1913); Pamper Corp. v. Town of Marksville, 208 So.2d 715 (La. App. 3 Cir. 1968), writ denied, 210 So.2d 509 (La. 1968); Meaux v. Southern Constr. Corp., 159 So.2d 156 (La. App. 3 Cir. 1963), writ denied, 162 So.2d 9 (La. 1964). Nevertheless, the parties may tacitly revoke notice clauses through their actions. Failure to insist on compliance with notice requirements may waive all or a part of the notice requirements. See Nat Harrison, 491 F.2d at 583; Compagna v. Smallwood, 428 So.2d 1343, 1348 (La. App. 4 Cir. 1983); Pelican Elec. Contractors v. Neumeyer, 419 So.2d 1, 4-5 (La. App. 4 Cir. 1982), writ denied, 423 So.2d 1150 (La. 1982). Another clause commonly found in construction contracts is a “no damage for delay” clause. At first blush, some “no damage for delay” clauses may seem to violate public policy in

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that they state that no claim shall be made or allowed for damages that arise out of certain types of delay, even some delays caused or controlled by the owner. The Louisiana Supreme Court, however, has found that such clauses are not necessarily against public policy. Freeman v. Dep. of Highways, 217 So.2d 166, 170-71, 175-76 (La. 1968).2 Despite this, due to the possibility of severe or harsh results which may result from the use of a “no damage for delay” clause, such clauses are strictly construed. U.S. Indus., 671 F.2d at 544.3 Another defense to a delay claim is that the contract has been modified or that the right to recover has been waived. Often this defense depends on non-written modifications or waivers, such as an oral modification or a waiver through action or inaction. Even where the original contract contains a provision that the owner is not liable unless change orders are in writing, construction contracts may be modified orally. Pelican Elec. Contractors, 419 So.2d at 4-5; see also Wisinger v. Casten, 550 So.2d 685, 687 (La. App. 2 Cir. 1989); Grossie v. Lafayette Constr. Co., 306 So.2d 453, 455-56 (La. App. 3 Cir. 1975), writ denied, 309 So.2d 354 (La. 1975); Anzalone v. Gregory, 334 So.2d 504, 506-7 (La. App. 1st Cir. 1976). Thus, a common defense to a claim for damages based upon the breach of a contractual provision may be that the effect of that provision was expressly waived by a subsequent oral or written modification to the contractual provision. (Obviously, specific notice requirements can also be waived in this manner.) A waiver of contractual provisions or requirements may also arise from the actions of the parties. For instance, the parties waived a requirement that the owner notify the contractor of defective work through their actions in Big “D” Dirt Services, Inc. v. Westwood, Inc., 94-1234 (La. App. 3 Cir. 1995), 653 So.2d 604. The defense of implied waiver often succeeds when one party has failed to protest a breach of the contract and has continued to perform subsequent to the other party’s breach. Keating v. Miller, 292 So.2d 759, 761 (La. App. 4 Cir. 1974). As with other affirmative defenses, the burden of proof is on the party claiming waiver, who must show that the other party had knowledge of its contractual rights and intentionally waived them. Michel v. Efferson, 65 So.2d 115, 119 (La. 1952); V.P. Owen Constr. Co. v. Dunbar, 532 So.2d 835, 837 (La. App. 4 Cir. 1988); Hemenway, 373 So. 2d at 1360. It is worth noting that typically where damages are claimed for defects, acceptance of the work by the owner without objection to known defects waives any claim that the owner has for damages due to these defects. Eastover Corp. v. Martin Builders, 543 So.2d 1358, 1362-63 (La. App. 4 Cir. 1989); Davidge v. H&H Constr. Co., 432 So.2d 393, 394 (La. App. 1 Cir. 1983);

2 But see La. Rev. Stat. 38:2216(H), declaring such clauses in public contracts to be against public policy.

3 For an excellent review of the treatment of “no damage for delay” clauses in Louisiana as well as the rest of the country, see “The Enforceability of No Damage for Delay Clauses in Construction Contracts,” 28 Loy. L. Rev. 129 (1982).

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Brouillette v. Consolidated Constr. Co., 422 So.2d 176, 177-78 (La. App. 1 Cir. 1982). However, when the damages claimed represent damages for delays, mere acceptance of the work does not waive the claims. Southbend Contractors, Inc. v. Parish of Jefferson, 408 So.2d 1158, 1162 (La. App. 4 Cir. 1981), writ denied, 413 So.2d 496 (La. 1982). A party to a contract must make a reasonable effort to mitigate its damages caused by the other party’s breach. La. Civ. Code art. 2002. To the extent that an owner or contractor has caused or allowed unnecessary or unreasonable damages to result from a compensable delay, acceleration, or interference, the unnecessary or unreasonable damages can be challenged and should not be included in a damage award.

Most other common defenses to damage claims asserted are considered “factual” or “merit” defenses. By use of such factual or merit defenses, a party effectively contends that there were no delays, accelerations, or interferences to the project, that such delays, accelerations or interferences were the fault of the other party, or that no damages occurred as a result. Especially when sophisticated scheduling devices, such as a critical path method analyses, are used to prove the fact and quantum of a delay, acceleration or interference claim, construction experts are preferred, if not necessary, to defend against or limit those claims. Experts should not only be able to help determine the fact and amount of such claims, but also help in demonstrating if delays should have been anticipated, if delays are concurrent and non-compensable and if the delay or its effects could have been mitigated.

2. Defective Work

The Louisiana legislature has provided contractors with a defense to certain claims arising out of defects in construction. A contractor will be relieved of liability for defects in a building if the contractor erects a building according to the owner’s plans and specifications. La. Rev. Stat. 9:2771. Logically, Section 2771, however, does not provide blanket immunity for any building defects. A contractor can still be liable for damages “if the destruction, deterioration, or defects were his fault and not related to the plans and/or specifications . . . .” Austin Homes, 821 So. 2d at 15; see also La. Rev. Stat. 9:2771. Of course, the immunity is only applicable if the plans and specifications were not provided by the contractor. D. QUANTIFYING AND RECOVERING DAMAGES

Once the contractor or owner has demonstrated that actions or inactions by the other party to the construction contract have delayed, disrupted, accelerated or interfered with its contractual performance or ability to use the project or the owner has demonstrated that the contractor failed to construct properly the project, the damaged party still must quantify its damages. This section attempts to review briefly pricing concepts and means by which

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contractors and owners demonstrate their entitlement to damages resulting from delay, acceleration and other contract interferences and defective construction.

1. Damages Generally

In general, damages for construction claims are based upon those for breach of contract and are determined by referring to Articles 1994 through 2004 of the Louisiana Civil Code. Article 1995 provides: “Damages are measured by the loss sustained by the obligee and the profit of which he has been deprived.” Article 1996 states: “An obligor in good faith is liable only for the damages that were foreseeable at the time the contract was made.” Courts have elaborated: “The general rule as to the measure of damages is the amount of the loss the creditor has sustained, or of the gain of which he has been deprived.” McCarty Corp. v. Industrial Scaffolding, Inc., 413 So.2d 1322, 1324 (La. App. 1 Cir. 1981). A measure of damages in case of breach has also been described as those “proximately resulting” from the breach and “the sum that will place plaintiff in the same position as if the obligation had been fulfilled.” Meltzer v. Roof Coatings, Inc., 536 F.2d 663, 666 (5th Cir. 1976) (citing North American Contracting Corp. v. Gibson, 327 So.2d 444 (La. App. 3 Cir. 1975), writ denied, 332 So.2d 280 (La. 1976) and Garcia v. Hollywood Pool Corp., 328 So.2d 899 (La. App. 4 Cir. 1976), writ denied, 333 So.2d 237 (La. 1976)); see also Nippert v. Baton Rouge Railcar Services, Inc., 526 So.2d 824 (La. App. 1 Cir. 1988), writ denied, 530 So.2d 84 (La. 1988). Therefore, damages in breach of construction contract cases generally are those foreseeable damages that result from the breach.4 Of course, the parties may define the measure of damages. La. Civ. Code art. 2005; Amacker v. Wedding, 363 So.2d 223 (La. App. 4 Cir. 1978), writ denied, 365 So.2d 246 (La. 1978); Alan Abis, Inc. v. Burns Elec. Security Services, Inc., 283 So.2d 822 (La. App. 2 Cir. 1973). “Liquidated delay damages” or “stipulated delay damages” provisions, which attribute a dollar value to each day of delay, are the most common such clauses. But other contractual provisions regarding the contractor’s remedies are becoming more and more common as owners and contractors attempt to anticipate delay, acceleration, and disruption problems to construction projects. Precise proof of actual damages resulting from a delay, acceleration, or other interference is always preferred, but because damages often are not mathematically certain, Louisiana law allows the finder of fact some discretion regarding the determination of damages. “When damages are insusceptible of precise measurement, much discretion is left to the court for the reasonable assessment of these damages.” La. Civ. Code art. 1999; see also generally Jordan v. 4 Although it may be obvious, except for a liquidated damage provision or other contractual provision entitling a party to damages without proof as to existence or quantum, a plaintiff in any legal action for damages bears the burden of proving the amount as well as the fact of damages. Perez v. State, 578 So.2d 1199, 1206 (La. App. 4th Cir. 1991), writ denied, 581 So.2d 706 (La. 1991); Fidelity Bank and Trust Co. v. Hammons, 540 So.2d 461, 463 (La. App. 1st Cir. 1989), writ denied, 544 So.2d 402 (La. 1989); Pizani v. M/V Cotton Blossom, 669 F.2d 1084, 1088 (5th Cir. 1982); Clark, 296 So.2d 393.

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Travelers Ins. Co., 245 So.2d 151, 155 (La. 1971). The rule was expressed succinctly in Rynveld v. Dupuis, 39 F.2d 399 (5th Cir. 1930):

Appellants were required to prove their right to damages to a certainty, but damages are not rendered uncertain because they cannot be calculated with absolute exactness. It is sufficient that there be proved a reasonable basis for computation, although the result may be only approximate.

Id. at 400; see also Austin v. Parker, 672 F.2d 508, 522 (5th Cir. 1982) (quoting the Rynveld decision with approval); Lou-Con, Inc. v. Gulf Bldg. Services, Inc., 287 So.2d 192, 203 (La. App. 4 Cir. 1973), writ denied, 290 So.2d 901 (La. 1974) (“On the other hand, the law is also clear to the effect that where damages cannot be precisely and mathematically determined the trial judge is vested with reasonable discretion in making awards of damage.”).

2. Contractor’s Damages for Delay

a. Direct Costs

(1) Labor

Perhaps the most easily demonstrated labor-related delay damages are those directly associated with extra work. Also easily demonstrated are those labor-related damages associated with postponing work to a period of time when the labor rates are higher than the time when the work was to be performed. In each case, the contractor requires only its bookkeeper or accountant to demonstrate the basis and amount of its damages. More difficult to prove are damages associated with labor inefficiencies; however, if properly substantiated, the contractor should recover for those inefficiencies. U. S. Industries, 671 F.2d at 547-48. Labor inefficiencies for which a contractor can recover include those associated with moving work scheduled for a productive weather season to a less productive season, inefficient or duplicative time associated with unnecessary mobilization and demobilization, repeated starting and stopping of a job or activity, working too many or too few hours per day or week, overmanning the job, and not being able to plan and carry out work as originally scheduled. For these types of damage claims, expert witnesses are usually required to testify as to the planned or expected labor productivity or efficiency, the bases for those expectations, the measured or estimated actual efficiencies, and the reasons for the differences. While a direct job comparison of efficiency before and after an event or with and without an impediment or change is usually the best-received manner of demonstrating efficiencies related to a delay, acceleration, or interference, such a comparison is not always available. In that case, one can also use data generated from other jobs for purposes of comparison. In the event neither is available, or if the available data require reinforcement, expert witnesses can

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consult some of the many studies published by various experts or consultants in the field. As with any litigation or other claims resolution processes, proper documentation of labor costs, segregated by time, event and activity, will help greatly in identifying and proving labor related damages associated with delays, acceleration or other interference.

(2) Material

Material costs associated with delay, acceleration, or other interferences are not normally significant as compared to labor or equipment costs because, with pure delay, acceleration, or interference, additional materials are not usually required. However, to the extent additional material costs are actually incurred as a result of the delay, acceleration or interference and such costs are foreseeable, they are certainly recoverable. La. Civ. Code art. 1996. Examples of additional material related costs might include increases in prices from those available had the project not been delayed, the costs of providing temporary protection for materials awaiting installation, increases in costs for materials through loss of bulk purchasing discounts, and the like.

(3) Equipment

While material costs are usually insignificant, equipment costs associated with a delay or interference (and even an acceleration in the right circumstances) can be very significant for a contractor that requires equipment in the performance of its work. Obviously, to the extent a job is delayed and construction equipment remains on site for a longer period than expected, the contractor should be compensated for those costs (such as rent or owner costs) associated with the delay. See generally Sandel, 129 So.2d at 625. If interferences or accelerations require additional equipment, the associated cost is also recoverable. See R. S. Noonan, 522 F.Supp. at 1191. If a contractor rents or leases equipment, establishing the amount of damages merely involves multiplying the period of delay by the rate the contractor pays for the equipment. However, many construction contractors own or “lease” from themselves or their affiliates the equipment used on their jobs. Establishing the proper “rental” or “ownership” rates for owned equipment is more difficult and traditionally requires the use of expert testimony. See Autrey v. Williams and Dunlap, 343 F.2d 730, 748 (5th Cir. 1965) (citing Corbin, Contracts §1094, at 513 (1964)). Based on the contractor’s equipment purchase, maintenance and other records, and with reference to the many publications available to him, the expert should establish an “ownership” or “rental” rate for each piece of equipment delayed or used inefficiently. Examples of the publications that courts have accepted for this purpose are Construction Equipment Rental Compilation (Associated Equipment Distributors), Contractors’ Equipment Manual (Associated General Contractors of America), Construction Equipment Use Rates (U. S. Army Corps of Engineers), and Rental Rate Blue Book (Equipment Guide Book Company). Construction contracts for equipment-intensive jobs increasingly recite either specific rates to be used for

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various types and pieces of equipment, or mandate the use of a certain publication to establish the contract rate for delays, acceleration, or other interferences.

b. Indirect and Associated Costs

As with any business, construction companies have overhead costs that the company must absorb in order to perform the project and conduct business. Overhead usually is broken into to “field” overhead and “home office” overhead. Field overhead or “job” overhead consists generally of those indirect job costs incurred at the construction site. These costs relate to a specific project and generally include those costs associated with the contractor’s field office and field supervision or management. Field overhead costs are like direct costs in that they often relate to a specific delay, suspension and the like. When identified with the specific delay or suspension, they should be recovered in total. However, when the contractor experiences only a partial delay or interference, field costs must be prorated or apportioned to that portion of the job that is delayed or suffers from the interference. See Guy James Constr. Co. v. Trinity Indus., Inc., 644 F.2d 525, 533 (5th Cir. 1981), modified, 650 F.2d 93 (5th Cir. 1981). Home office overhead, sometimes also referred to as “G&A” (general and administrative overhead), also may be recovered when associated with a delay, acceleration or interference. McCarty, 413 So.2d at 1323-24. However, unlike job overhead expenses, home office overhead costs typically are incapable of specific association and segregation:

As the record shows overhead or indirect expenses consists generally of the expenses of a business enterprise for salaries of executives, central office staff personnel, rent, communications, vehicles, utilities, interest on borrowed capital and numerous other expenses which are extremely necessary for the operation of the business, but which are not directly attributable to a particular construction job or project. Since it is practically impossible to accurately allocate the exact amount of indirect expense actually incurred on each job or project, the generally accepted practice is to determine what the proportionate amount of all indirect expenses is to the dollar volume of work performed or business done by the company, and then allocate these overhead or indirect expenses to each job or project. Overhead or indirect expenses are in fact an expense. They are as true a cost of doing business as are the direct costs.

Id. at 1324.

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In those instances when home office overhead can be identified with direct extra costs, overhead often is expressed as a percentage of those direct costs. See McCarty, 413 So.2d at 1323-24. However, when a delay or suspension of work results in relatively minor direct costs but ties up company resources or bonding capacity, basing damages on a percentage of direct costs often fails to make the contractor whole. In those instances, the contractor should attempt to determine a per diem overhead rate for the delay. Most methods used to establish this per diem rate are variants of what has become known as the “Eichleay formula,” which is derived from the Board of Contract Appeal case, Eichleay Corp., 60-2 BCA ¶2688 (ASBCA 1960). Under the Eichleay formula: (1) Contract Billings Total Overhead Expenses Total Billings x Incurred During Contract for Period Period = Overhead Allocable to the Contract (2) Allocable Overhead Per Diem Overhead Rate Days of Contract = for Contract Performance Despite their widespread use, Eichleay formulas and their progeny have been criticized because, without more, they do not demonstrate that a contractor has absorbed additional overhead because of the delay or that the contractor either refrained from seeking or lost other jobs due to the extended performance. See Guy James, 644 F.2d at 532-33. Although the Guy James decision is based on Texas law, its determinations appear consistent with the Louisiana Civil Code and Louisiana decisions; further, it has been recited extensively throughout the country with regard to what a contractor must demonstrate in order to recover home office overhead incurred because of a delay or suspension. See e.g., Aetna Cas. & Sur. Co. v. Doleac Elec. Co, 471 So.2d 325, 330-31 (Miss. 1985); Harmonay, 597 F.Supp. at 1031; United States, Federal Corp. v. Commercial Mechanical Contractors, Inc., 707 F.2d 1124, 1129 (10th Cir. 1982).

3. Owner’s Damages for Delay

Like the contractor, the owner may recover damages it incurs due to a delay in completion of the contract work or other interference with its enjoyment of the work for which the contractor is liable. La. Civ. Code arts. 1995, 2769. The measure of an owner’s damages for delay are actual damages unless the parties have stipulated damages in the contract.

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a. Stipulated or Liquidated Damages

Louisiana’s courts will uphold a liquidated damage provision to a construction contract, often referred to by Louisiana’s courts as a “penal” provision or a “stipulated damages” provision pursuant to Article 2005 of Louisiana’s Civil Code, with no showing of pecuniary or actual damage. Utley James of Louisiana, Inc. v. State, 94 2504 (La. App. 1 Cir. 10/6/95), 671 So.2d 473,476; Heirs of Gremillion v. Rapides Parish Police Jury, 493 So.2d 584, 587-88 (La. 1986); Southern Constr. Co. v. Housing Authority, 197 So.2d 628, 632 (La. 1967). Unlike many jurisdictions, Louisiana’s courts have shown little desire to determine whether or not the liquidated damage amount is a reasonable attempt by the parties to approximate actual damages:

It is well settled under Louisiana law that parties to a contract generally have the unqualified right to stipulate for any amount of liquidated damages in the event of a breach. When the parties thus agree, Louisiana courts refuse to inquire into whether the actual damages suffered equaled or approximated the stipulated amount. Kenny v. Oak Builders, Incorporated, 256 La. 85, 235 So.2d 386 (1970); Southern Construction Company v. Housing Authority of City of Opelousas, 250 La. 569, 197 So.2d 628 (1967). It is said that Louisiana courts will not consider the amount of actual damages in order to get a party out of a bad bargain in the absence of fraud, error, or mistake, Lama v. Manale, 218 La. 511, 50 So.2d 15 (1951), as long as the stipulations are not contrary to good morals, public policy, or violative of some statutory provision. Morris Buick Company v. Ray, 43 So.2d 83 (La. App. 1949).

Pembroke v. Gulf Oil Corp., 454 F.2d 606, 611 (5th Cir. 1971). The courts’ reluctance to tamper with stipulated damages has been codified in Civil Code Article 2012, which states: “Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy.” Although, under Civil Code Article 2009, the party claiming liquidated damages need not prove the existence of actual damages, that party does bear the burden of proving the delay that triggers the liquidated damage clause. Conwed Corp. v. Bergeron, 405 So.2d 1127, 1128 (La. App. 1 Cir. 1981). The question of whether the defendant can prevent the accrual of liquidated damages by presenting affirmative proof that the owner suffered no actual damages was raised but not answered in Utley-James, 671 So.2d at 476-77 (La. App. 1 Cir. 1995).5

5 See La. Civ. Code art. 2009, comment (d) (“This Article does not prevent a defendant from proving that a plaintiff who seeks to avail himself of a stipulated damages provision actually has sustained no loss. It merely shifts the burden of proof on the issue from the plaintiff to the defendant.”).

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A delay in the contractor’s performance requires a determination of whether the contract stipulated a specific time for completion or expressly provided that “time was of the essence”. This is important in determining whether or not a “putting in default” under Articles 1989 and 1991 of the Louisiana Civil Code is required. In general, when the terms of the contract make “time of the essence” or contain a specified time for performance, a putting in default is unnecessary to recover damages incurred due to the delay. See Utley-James, 671 So.2d at 477; O&M Construction, Inc. v. State, 576 So.2d 1030, 1038 (La. App. 1 Cir.), writ denied, 581 So.2d 691 (La. 1991); Fibrebond Corp. v. Aetna Cas. & Sur. Co., 583 So.2d 848, 853-54 (La. App. 1 Cir. 1991); Grover v. Carter, 498 So.2d 132, 134 (La. App. 5 Cir. 1986), writ denied, 500 So.2d 422 (La. 1987). Notably, the Utley-James court went on to hold that the owner was entitled to withhold payment of an amount equal to the total of the liquidated damages it claimed. Utley-James, 671 So.2d at 478.

b. Owner’s Actual Damages

Without a liquidated damages clause, an owner may recover any reasonable, foreseeable, actual damages it incurs pursuant to Articles 1994 and 1996 of Louisiana’s Civil Code. Common actual damages that an owner may recover for delay in completion of the project are the damages resulting from loss of use of the project or facility. These damages include lost rentals or lost profit opportunity, additional rental or costs of existing or temporary facilities, interest or interim financing, additional supervisory or project “overhead” costs incurred during extended period of construction, and, of course, owner’s liability to other contractors that made claims against the owner based on the contractor’s delay. See generally Hemenway, 373 So.2d at 1358-61; Plaisance v. Dutton, 336 So.2d 1034 (La. App. 2 Cir. 1976); Master Maintenance Eng’g, Inc. v. McManus, 292 So.2d 284 (La. App. 1 Cir. 1974). Some measures of damages are mutually exclusive; one court has held that to award lost rental income and additional construction interest as damages for the delay in the completion of a project can constitute a double recovery. Brewhouse, Ltd. v. NOPSI, 614 So.2d 118, 122-23 (La. App. 4 Cir. 1993).

4. Owner’s Damages for Defective Work

“Under La. Civ. Code Art. 2769, the appropriate measure of damages, due to breach of a contract to build, is what it will take to place the homeowner in the position he deserved to be in when the building was completed.” Austin Homes, Inc. 821 So. 2d at 18. An owner is entitled to recover “the cost of repairs necessary to convert the unsound structure to a sound one or the amount paid to remedy the defect.” Id. Another issue that must be considered is whether the contractor substantially completed the project. A contractor “is entitled to recover the contract price even though defects and omissions are present when he has substantially performed the building contract. ‘Substantial Performance’ means that the construction is fit for purposes intended despite the deficiencies; . . . .” Mount Mariah, 835 So. 2d at 888. If the contractor has substantially performed the contract,

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the owner must pay him the contract price less amounts required to complete or correct the defective work. Id. E. DESIGN PROFESSIONAL LIABILITY TO CONRACTORS

The “general rule” is that a designer must adhere to the standard of care and skill practiced by other professionals in the same community. Historically, that standard and its breach are proven by expert testimony. However, where the designer is deemed “obviously” to have failed to complete his contractual requirements, or “obviously” failed to meet his duty to those with whom he has not contracted, it may be possible to establish the designer’s duty and its breach without the introduction of expert testimony. When the community standard falls below “good practice” or is not uniform, the duty may be defined by minimum standards of sound design principles.

1. Liability of Design Professionals to Contractors, Subcontractors, and other

Third Parties with Whom There is No Privity of Contract

Unlike in cases involving claims between a contractor and the owner, there is generally no contractual relationship between the contractor and the design professional on a construction project. However, this lack of privity of contract does not preclude contractors, subcontractors, and the like from asserting claims directly against a design professional, as Louisiana courts have recognized that design professionals owe an independent duty of care to persons with whom they do not have privity, such as contractors and subcontractors, and that a cause of action exists in tort to recover damages for a breach of that duty. See, e.g., S.K. Whitty & Co., Inc. v. Laurence L. Lambert & Associates, 576 So.2d 599, 601 (La. App. 4 Cir. 1991) (finding that a subcontractor has a cause of action for pre-construction negligence against an engineer who allegedly prepared defective construction plans and specifications); Standard Roofing Co. of New Orleans v. Elliot Constr. Co., Inc., 535 So. 2d 870, 880 (La. App. 1 Cir. 1988) (recognizing an action in negligence by a subcontractor against a project architect with whom there was no privity); J. Ray McDermott Engineering, L.L.C. v. Fugro-McClelland Marine Geosciences, Inc. 2007 WL 490162, at *5 (E.D.La. 2007) (finding that an engineer hired to prepare an engineering report for the design and installation of caissons on an oil rig owed a duty to meet the required standard of care in preparing that report, and this duty was owed to any third parties who suffered damages as a result of the alleged negligence, including the subcontractor hired to install the caissons).

In Colbert v. B.F. Carvin Construction Co., 600 So.2d 719, 724-725 (La. App. 5 Cir.

1992), a balancing test was adopted by the court to determine whether a particular third party, in this case a general contractor on a school renovation contract, could sue an architect with whom it did not have privity of contract for damages allegedly resulting from the architect’s failure to prepare adequate plans and specifications, furnish additional instructions and clarifications, and timely inspect areas of work. This balancing test looks to the following factors: 1) The extent to which the transaction was intended to affect the third party; 2) the foreseeability of harm to him;

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3) the degree of certainty that the third party suffered injury; 4) the closeness of the connection between the design professional’s conduct and the injury suffered; 5) the moral blame attached to the design professional’s conduct; and 6) the policy of preventing future harm. Id. at 725 (quoting Westerhold v. Carroll, 419 S.W.2d 73, 81-82 (Mo. 1967)).

Applying this test, the court found that the factual allegations of the petition indicated the

person to be injured by the architect’s negligence was known, i.e. the contractor. The facts also stated allegations showing it was foreseeable and there was certainty that the contractor would be injured by the architect’s negligent actions and failure to act. The allegations also indicated there was a closeness between the injury suffered and the architect’s conduct so that the contractor was in a class of persons whose connection with the transaction was so close as to approach that of privity, if not completely one with it. Finally, the court found that the architect was not being exposed to unlimited liability to an unlimited number of persons. Id. at 725 (citations omitted).

The Colbert balancing test was recently applied by the United States District Court for

the Eastern District of Louisiana to find that a general contractor could assert a negligence claim against a project engineer/construction manager. Harris Builders, L.L.C. v. URS Corp., 2012 WL 928712, at *1 (E.D.La. 2012). In that case, the general contractor alleged that the project engineer/construction manager intentionally and negligently violated a number of duties owed to the contractor, including the duty to manage the project in a fair manner, approve completed work when warranted, develop plans and specifications to appropriate standards of quality, not to interfere with the contractor’s ability to perform the project, and to timely and fairly review and approve additional time and compensation for work performed by the contractor that was outside the scope of the plans, specifications, and contract documents. Id. The court analyzed Colbert and found that the contractor’s complaint passed muster under the Colbert balancing test. Id. According to the court, the project engineer/construction manager’s construction plan preparations and instructions to the contractor to redo certain work were acts that it had to have known would directly affect the contractor. Id. Further, the court concluded that it was foreseeable and fairly certain that the contractor would suffer economic harm if the project engineer/construction manager managed the project poorly, and the project engineer/construction manager’s development of project specifications directly affected the work the contractor performed. Id.

2. The Standard

The general rule for establishing a design professional’s duty to those with whom he has not contracted is the standard of care and skill practiced by other professionals in the same community. Rogers v. Price, 29,721 (La. App. 2d Cir. 08/20/97) 698 So. 2d 723; McKeen Homeowners Ass’n, Inc. v. Oliver, 586 So.2d 679, 681-82 (La. App. 2d Cir. 1991); Holzenthal v. Sewerage & Water Bd., 2006-0796 (La. App. 4th Cir. 01/10/07); 950 So. 2d 55, 83; Nicholson & Loup, Inc. v. Carl E. Woodward, Inc., 596 So. 2d 374 (La. App. 4th Cir.), writs denied, 605 So. 2d 1098 (La. 1992); Carter v. Dietz, 556 So.2d 842 (La. App. 4th Cir. 1990), writ denied, 566

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S.2d 960 (La. 1980); Sams v. Kendall Constr. Co., 499 So.2d 370 (La. App. 4th Cir. 1986); Calandro Development, Inc. v. R. M. Butler Contractors, Inc., 249 So.2d 254 (La. App. 1st Cir. 1971); see also Maloney v. Oak Builders, Inc., 224 So.2d 161, 168 (La. App. 4th Cir. 1969), rev’d in part on other grounds, 235 So.2d 386 (La. 1970); Pittman Constr. Co. v. City of New Orleans, 178 So.2d 312 (La. App. 4th Cir. 1965), writ denied, 179 So.2d 274 (La. 1965). Often, the duty to third parties is influenced, if not established, by contractual duties owed by the design professional to the party with whom he has contracted. See Milton J. Womack, Inc. v. House of Representatives, 509 So.2d 62 (La. App. 1st Cir. 1987), writ denied, 513 So.2d 1208 (La. 1987); Gurtler, Hebert and Co. v. Weyland Mach. Shop, 405 So.2d 660 (La. App. 4th Cir. 1981), writ denied, 410 So.2d 1130 (La. 1982). That duty to the other contracting party, usually the owner, will briefly be addressed.

In Seiler v. Ostarly, 525 So.2d 1207 (La. App. 5th Cir. 1988), Louisiana’s Fifth Circuit Court of Appeal reviewed the limits of a designer’s duty to an owner, with whom he had contracted, by linking the designer’s obligation to the duties established by his contract. First, the court looked to the contract to see what duties were explicitly established. Id. at 1209. In the absence of an express contractual provision, the Fifth Circuit ruled that an architect’s liability attaches only when his conduct falls below the standard of care and skill exercised by others engaged in the same profession in the locality: Moreover, in the absence of an express contractual provision to the

contrary, the architect does not guarantee the owner a perfect plan or a satisfactory result. He is not liable for mere errors of judgment. His liability attaches only when his conduct falls below the standard of skill and care exercised by others engaged in the same profession in the same locality. Sams v. Kendall Const. Co., 499 So.2d 370 (La. App. 4th Cir. 1986).

525 So.2d at 1209.

In Sams, the case upon which the Fifth Circuit in Seiler primarily relied, the Fourth Circuit considered a subcontractor’s negligence or malpractice claims against the project architect with whom he had no contract. The Sams court treated the tort duty to third parties in exactly the same manner as the tort and general contractual duties owed to parties in privity, reciting the “same care and skill required by others engaged in the same profession in the same locality” standard, and relying on its Maloney decision, 224 So. 2d 161, for support. Sams, 499 So.2d at 373-74.

Notwithstanding the clearly defined “general” test for establishing a designer’s tort liability, the courts have demonstrated some willingness to fashion modified rules or tests for determining the propriety of designer conduct.

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In Emond v. Tyler Bldg. and Constr. Co., 438 So.2d 681 (La. App. 2d Cir. 1983), Louisiana’s Second Circuit reviewed a decision by the district court in favor of a home owner against an engineer who designed the home’s foundation which ultimately failed. (The plaintiff in Emond bought the house from the builder and had no contract with the engineer for any services.) The Emond court set forth the test for liability against the engineer as involving two inquiries: “first, whether the engineers owed a duty to the plaintiffs to protect against the risk encountered and, second, whether that duty was breached.” Id. at 685.

The Emond court then defined the general duty owed the third party owner as “the degree of professional care and skill customarily employed by others of his profession in the same general area.” Id. Although the Emond court recited the general standard, its subsequent analysis suggests something of a departure:

Jones contends that the professional standard of engineers in the Shreveport area was to rely on soil data furnished by the FHA. The flaw in this position is that the evidence does not support it. The record indicates that, although some engineers rely exclusively on FHA data, this is not a general practice followed by all engineers. The record also shows that, to whatever extent that practice is followed, it is one that has developed among some Shreveport engineers and is not in accord with sound engineering principles.

* * *

The duty owed to the Emonds and Tyler was breached by the engineer’s failure to design a foundation which met even the minimum requirements of sound engineering principles.

Id. at 685. It therefore appears that the “community standard” test can arguably be overlaid with standards of “minimum requirements of sound engineering principles”, even if not demonstrated to be contrary to the practice in a community.

Although the next several cases regard perhaps more the plaintiff’s burden of proof and how breach of a designer’s tort related duty is to be proven, they also contain analyses which may be argued to modify or provide exceptions to the general rule regarding the designer’s standard of conduct.

In Lawyers Title Ins. Co. v. Carey Hodges & Assocs., 358 So.2d 964 (La. App. 1st Cir. 1978), the First Circuit had an opportunity to evaluate a surveyor’s conduct. In doing so, the First Circuit stated:

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We deem it reasonable, however, to except from the general rule those instances when the conduct of a surveyor may be so unprofessional, so clearly improper, and so manifestly below reasonable standards dictated by ordinary intelligence, as to constitute a prima facie case of either a lack of the degree of skill and care exercised by others in the same general vicinity or failure to reasonably exercise such skill and care. We find the omission of a visible drainage structure from a surveyor’s plat to fall within the exception. No profession may, by adopting its own standards of performance, method of operation, or paragons of care, insulate itself from liability for conduct which ordinary reason and logic characterize as faulty or negligent.

Id. at 968 (citations omitted).

In Hogan Exploration, Inc. v. Monroe Eng’g Assocs., 430 So.2d 696 (La. App. 2d Cir. 1983), the court reviewed the conduct of an engineering firm which failed to stake correctly a well site. After citing Lawyers Title Ins. for its authority, the Second Circuit stated:

Certainly the staking of a well site in the wrong quarter section after admittedly being provided with sufficient information to stake the well at the proper location constitutes conduct so clearly improper and manifestly below reasonable standards in the engineering profession to render such actions an exception to the general rule of proof and constitutes conduct which ordinary reason and logic characterizes as faulty and negligent.

Id. at 700.

In a sweeping decision which will be discussed more fully for its implications regarding proof of a negligence claim, Louisiana’s First Circuit in Womack, 509 So.2d 62, arguably sets forth a duty-risk analysis which may not require a finding of the designer’s failure to exercise the degree of professional care and skill customarily employed by others in the same general area. In the contractor’s suit against the architect to recover an amount equal to the “early completion incentive payment,” the contractor alleged negligence in not showing the existence of cross-bracing, the First Circuit indicated that a “common sense standard” could be employed to find “obvious negligence”. Womack, 509 So.2d at 65. The court further stated:

We agree with [architect] Schwing’s position that an architect is not required to produce perfect plans. He is, however, required to take reasonable steps to make his plans as accurate as reasonably possible. . . . Schwing’s actions fall below the standard of care

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because it failed to take reasonable steps to determine the location of structural elements involved in its renovation plans. Accordingly, we hold that Schwing was negligent. It owed to plaintiff the duty to use reasonable skill and care in the preparation of plans on which plaintiff would base his bid and do his work. Schwing breached that duty. That breach of duty caused the harm plaintiff complains of. The risk and harm encountered by plaintiff fall within the scope of protection afforded by that duty. Harm to the contractor is easily associated with deviation from the rule that the architect use reasonable skill and care when preparing plans.

Id. at 67 (citations and footnotes omitted).

3. Burden of Proof

As previously indicated, the relevant issue in determining a designer’s tort-related liability is usually whether he has performed services with the same degree of skill and care exercised by others in the same profession in the same general area. Plaintiff bears the burden of proof to demonstrate the designer’s failure to perform commensurate with those standards. Raburn & Assocs. v. Burgundy Oaks L.L.C., 38,428 (La. App. 2 Cir. 05/20/04); 875 So. 2d 119, 122 (“Proof of failure to perform commensurate with these standards ordinarily rests with the party making such claims.”); McKeen Homeowners, 586 So.2d at 682 (reasoning that “[t]he burden of proving that an architect or engineer did not perform his work in accordance with the skill usually exercised by others in his profession in the same locality is upon the party making the change”); Weill Constr. Co. v. Thibodeaux, 491 So.2d 166, 171 (La. App. 3d Cir. 1986); Hogan, 430 So.2d 696; Calandro, 249 So.2d 254; Pittman, 178 So.2d 312.

Normally, the one seeking to prove negligence must establish a deviation from the standard of care and skill by use of expert testimony. Raburn, 875 So. 2d at 122; Carter, 556 So.2d 842; Sams, 499 So.2d 370; Charles Carter & Co. v. City of Baton Rouge, 344 So.2d 431 (La. App. 1st Cir. 1977); Pittman, 178 So.2d 312.

But every general rule has its exceptions and the courts have held that where the design professional’s conduct is clearly improper or manifestly below reasonable standards, negligence may be proven by application of “ordinary intelligence.” See Hogan, 430 So.2d at 700; Lawyers Title Ins., 358 So.2d at 967-68.

Perhaps the most noteworthy departure from the general rule that expert testimony is required to prove negligence against a design professional is found in the First Circuit’s Womack decision rendered in May, 1987. In that decision, the First Circuit acknowledged the requirement for expert testimony in normal situations but, analogizing the designer malpractice

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case to a medical malpractice case, found that expert testimony was not always required. Womack, 509 So.2d at 65. Quoting from Hastings v. Baton Rouge General Hosp., 498 So.2d 713, 719-20 (La. 1986), a medical malpractice case, the Womack court stated:

“In some medical malpractice cases, expert testimony to establish a standard of care is unnecessary. When a physician does an obviously negligent act, such as fracturing a leg during an examination; amputating the wrong arm; carelessly dropping a knife, scalpel, or acid on a patient; or leaving a sponge in a patient’s body, lay persons can infer negligence. Failure to furnish medical care to a patient with a serious head injury for a period of two hours can be judged by a common sense standard. Similarly, the failure of an on-call physician to respond to a hospital emergency when he knew or should have known his presence was necessary, is obviously negligence.”

Womack, 509 So.2d at 65 (emphasis added and citations omitted).

The Womack court then went on to state that, notwithstanding the normal requirement for expert testimony to establish the lack of care in a negligence case against an architect:

If architects and physicians are to be judged by the same standard of care, and if expert testimony is not always required to establish the standard of care for physicians, and if lay persons can infer negligence by applying a common sense standard in the case of physicians, then an architect’s negligence may on occasion be established without reference to expert testimony.

* * *

We conclude that testimony from an expert is not always necessary to establish the negligence of an architect acting in his professional capacity. When the matter in question is one that can typically be understood without assistance from an expert, when a lay person can infer negligence, then expert testimony is not required.

Id. at 65-66 (citations omitted); see also Houma, La. v. Municipal and Indus. Pipe Service, Inc., 884 F.2d 886 (5th Cir. 1989).

It appears that the Fourth Circuit Court of Appeals has retreated somewhat from Womack’s departure from the general rule that expert testimony is required to prove negligence against a design professional. Carter, 556 So.2d 842. In Carter, the plaintiff was involved in an

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accident on the Greater New Orleans Bridge and brought an action against the consulting engineers retained by the Mississippi River Bridge Authority (“MRBA”). The engineering firm had advised the MRBA not to install a median barrier on the bridge. The plaintiff alleged that the absence of a median barrier contributed to causing her accident and that the engineering firm was negligent in advising against the installation of a median barrier and was therefore liable. At the trial no expert testimony was offered to prove the standard of care and skill employed by civil engineers in the area. The jury found the engineering firm liable. The engineering firm’s attorney moved for a judgment notwithstanding the verdict based on the fact that the plaintiff failed to establish a prima facie case of negligence because no expert testimony was presented to establish the standard of care and skill of engineers in the area. The trial court denied the motion and in its reasons for denying the motion it cited Womack and Hogan. Carter, 556 So.2d at 868.

In reversing the trial court, the appellate court stated that: “Both Hogan and Womack involve an exception to the rule requiring expert testimony to prove an engineers professional negligence where the negligence is an obvious act.” Id. at 868 (Emphasis added). The Carter court then held that:

Whether an engineer has rendered his professional judgment unskillfully is not an obvious act of negligence such as when the Hogan defendant drilled a well on the wrong site. And it is not the sort of commission or omission from which a laymen could readily infer professional negligence without the testimony of an expert witness.

Id. at 868; see also Greenhouse v. C.F. Kenner Assocs. Ltd. Pshp., 98-0496 (La. App. 4 Cir. 11/10/98); 723 So. 2d 1004, 1008 (“Unless lay persons can infer negligence by applying common sense standard, expert testimony is required to establish the applicable standard of care. Failure to submit expert testimony to prove the standard of care is a ‘fatal omission.’”) (citing Carter, 556 So. 2d at 843).

4. Prescriptive Period

Tort actions against design professionals are governed by a one year prescriptive period, commencing on the day the injury is sustained, i.e., the time of the incident that causes the loss. La. Civ. Code art. 3492; Landis and James Construction Co. v. Gee Cee Corp., 95-1927 (La. App. 4 Cir. 2/15/96); 669 So. 2d 1265, 1267. However, the prescriptive period is limited by the peremptive period of La. R.S. 9:5607, which requires suit to be filed within five years of registry of acceptance or occupancy of the work or of the completion of the design services if the services are not preparatory to construction or if the designer does not perform inspection of the construction work. The time limitation applies regardless of when the injury is sustained.

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F. CONCLUSION

As one can determine from a review of this paper, while making, defending and trying construction claims is not rocket science, grounded in fundamental contract law, it does require knowledge of contract law, knowledge of the contract language and attention to detail. About the Presenter:

Mark Frilot is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz in the Firm’s Mandeville office. Mark represents owners, contractors, subcontractors, and suppliers across the full spectrum of construction law. Mark is listed among The Best Lawyers in America® for construction law, and is known for his experience in contractor licensing and design professional liability, as well as public and private works claims and bidding disputes.