Why School Districts Should Consult With Legal Counsel Before Signing a Standard AIA Contract
Numerous school referenda were approved in the 2025 Spring election this week, and construction is now on the horizon. Let’s consider the contracts that will become the foundation of these building projects.
The American Institute of Architects (AIA) provides a comprehensive suite of contracts designed to streamline the creation and management of construction agreements. While these forms are expertly crafted to anticipate challenges in construction projects, they are primarily tailored for commercial use rather than for governmental entities such as school districts. As a result, AIA contracts may not fully address the unique legal and regulatory considerations school districts must navigate when undertaking construction projects. To ensure compliance with state laws and to safeguard their interests, school districts should carefully review and modify these contracts as necessary. Most importantly, school districts should consult their legal counsel before executing any construction or design contract to ensure it aligns with their specific requirements and legal obligations.
It’s important to note that any unrevised AIA contract is essentially a base form and represents just the beginning of the drafting process. Created by an association that represents architects, these agreements require careful review and revision by the school district’s counsel so that the interests of the owner-district are also incorporated. Representation by counsel during the development of the contract documents contributes toward ensuring a more balanced agreement that protects the district’s interests. This is crucial in creating a fair and equitable contractual relationship among the parties.
No standard form can perfectly accommodate every project. Each construction project and each school construction project are unique. A contract that works for one project or district may require modifications to suit the specific needs of another. Thorough review and customization are essential to ensure that AIA construction and design contracts align with the district’s wishes, requirements and legal obligations.
AIA construction contracts typically include the architect’s agreement, the contractor’s contract, and the general conditions, all of which must be consistent with one another. A common mistake is revising one of these agreements without carefully reviewing the other two documents, potentially creating conflicts between provisions.
Revisions to the base agreements might include inserting provisions that address critical steps occurring during a pre-referendum phase of a project. For instance, the parties may agree to add contract terms that reflect the contractor’s commitment to provide referendum support services such as contributing to strategy development, research, community engagement, and/or graphic design, copywriting, and editing of referendum materials. Moreover, the construction contract should be modified to require strict adherence to the plans and specifications while granting the district’s facility manager the right to observe the work during any phase of construction. The contract should include a warranty ensuring high-quality craftsmanship and materials that meet required standards. Provisions should also be added to minimize disruption to school operations and to enforce compliance with the district’s or the school’s access policy during construction.
Similarly, the design agreement should clearly outline the school district’s expectations for conceptual design, allow the facility manager opportunities to review the design, require the designer to incorporate all legal requirements, and define the designer’s responsibility for inspecting the work. Finally, it is up to the school district to establish the insurance requirements in the contracts. AIA documents do not specify coverage amounts, as these figures must be determined based on the specific project needs and on the guidance of the district’s insurance broker.
It has been the intention of this update to shed light on some of the reasons why consulting an experienced construction law attorney is invaluable when a district begins the process of contract review and development. While AIA contracts are widely recognized as the industry standard for construction agreements, these agreements should be improved upon to best serve the interests of the school district and to level the playing field between all parties.
Yes, Damages for Delay: Court Permits Delay Damage Claim to Proceed
A federal court in upstate New York is permitting a subcontractor’s delay claim to proceed notwithstanding a “no damages for delay” provision in the subcontract. The case, The Pike Company, Inc. v. Tri-Krete, Ltd., involves delay claims asserted by a subcontractor hired to install pre-cast concrete walls on a college dormitory project. The subcontractor alleges that the general contractor, The Pike Company, actively interfered with its work causing it to incur costs to overcome that interference and mitigate delays. Pike moved for summary judgment based on the no damages for delay provision in the subcontract, which generally provided that (1) the subcontractor’s only remedy for delays caused by an act or omission of the contractor was an extension of the schedule and (2) any damages for delay, interference, or changes in sequence were waived.
The court held that while such clauses are generally valid and enforceable, there are a number of recognized exceptions:
Yet there are exceptions to the general enforceability of a no damages for delay provision. Even when a contract includes such a provision, damages may be recovered for: (1) delays caused by the contractee’s bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract. For example, the failure of a contractor to supervise and coordinate the work of subcontractors on a construction site may preclude the enforcement of a no damages for delay provision. Likewise, a no damages for delay provision may be found to be unenforceable where there is an “intentional abandonment” of the contract that renders it unenforceable—such as when an owner makes dramatic changes to the work or causes significant delay. As the party seeking to preclude the enforcement of the no damages for delay provision, [the subcontractor] bears the “heavy burden” of demonstrating that the provision does not apply.
Applying this law to the facts at hand, the court held that evidence in the record supported a finding that one or more of these exceptions applied. This included evidence that Pike interfered with the subcontractor’s means and method of production, failed to timely complete predecessor work, compressed the subcontractor’s schedule by a factor of 50%, and refused to grant time extensions as provided for in the subcontract. Such evidence of uncontemplated and unreasonable delays caused by Pike, and Pike’s breach of its fundamental subcontract obligations, precluded summary judgment in Pike’s favor.
The court also rejected Pike’s argument that the subcontractor failed to give adequate written notice of its delay claims. The court held that under New York law, oral directives may sustain a claim for extra work damages notwithstanding a contractual provision requiring written authorization. The court further held that Pike arguably waived the written notice requirement when it granted change orders to another contractor on the same job without insisting on written notice. The issues created genuine issues of material fact that precluded summary judgment in Pike’s favor.
A copy of the court’s decision can be found here. No trial date has been set.
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Pedestrian Fatalities Up Almost Half from a Decade Ago
During the first half of 2024, drivers killed 3,304 pedestrians in the United States, a 2.6% decrease from the same period in 2023, according to a new study from the Governors Highway Safety Association (GHSA). However, this decline does not overshadow the alarming trend of rising pedestrian fatalities over the past decade, which have increased by 48% since 2014, translating to 1,072 more deaths.
Pedestrian Fatality Trends
Each year, the GHSA releases the first comprehensive look at pedestrian traffic death trends for the first six months of the year, using preliminary data from State Highway Safety Offices (SHSOs). The analysis indicates that while pedestrian fatalities decreased slightly from last year, they remain 12% higher than in 2019, emphasizing a concerning trajectory for road safety.
The slight decrease in pedestrian fatalities in early 2024 aligns with a broader trend in overall traffic deaths. According to the National Highway Traffic Safety Administration (NHTSA), total roadway fatalities dropped 3.2% during the first half of 2023. Nevertheless, the overall numbers remain significantly higher than those recorded five and ten years ago. In the first half of 2024, there were 18,720 roadway deaths, showing a 10% increase from 17,025 in the same period of 2019 and a 25% rise from 15,035 in 2014.
At the state level, the GHSA report reveals mixed results: pedestrian fatalities decreased in 22 states, while 23 states and the District of Columbia (D.C.) saw increases. Five states reported no change in their numbers. Notably, seven states experienced consecutive decreases in pedestrian fatalities, whereas four states faced two significant increases.
Why Are Roads So Dangerous for Pedestrians?
There is a combination of factors contributing to this rising danger for pedestrians. A decline in traffic enforcement since 2020 has allowed dangerous driving behaviors—such as speeding, distracted driving, and driving under the influence—to grow rapidly. Additionally, many roadways are designed primarily for fast-moving vehicles, often neglecting the needs of pedestrians. Many communities lack infrastructure – such as missing sidewalks and poorly lit crosswalks – that also help protect pedestrians. Furthermore, the growing presence of larger, heavier vehicles on roads increases the risk of severe injuries or fatalities in pedestrian accidents.
What Can Be Done?
To tackle this pedestrian safety crisis, the GHSA advocates for an approach that establishes a strong safety net that can protect everyone on the road. A crucial part of this strategy is traffic enforcement focused on dangerous driving behaviors – like speeding, and impaired or distracted driving – that disproportionately endanger pedestrians.
In summary, while there are signs of progress in addressing pedestrian safety, the statistics reveal a pressing need for ongoing efforts to protect those who walk on our roads. By strengthening enforcement, improving infrastructure, and promoting safe practices among both drivers and pedestrians, we can work toward reversing this tragic trend and ensuring safer streets for everyone.
Mistake No. 9 of the Top 10 Horrible, No-Good Mistakes Construction Lawyers Make: Screwing Up the Hearing Exhibits
I have practiced law for 40 years with the vast majority as a “construction” lawyer. I have seen great… and bad… construction lawyering, both when representing a party and when serving over 300 times as a mediator or arbitrator in construction disputes. I have made my share of mistakes and learned from my mistakes. I was lucky enough to have great construction lawyer mentors to lean on and learn from, so I try to be a good mentor to young construction lawyers. Becoming a great and successful construction lawyer is challenging, but the rewards are many. The following is No. 9 of the top 10 mistakes I have seen construction lawyers make, and yes, I have been guilty of making this same mistake.
While the legal profession has come a long way as far as being “paperless,” with few exceptions, construction legal disputes still maintain a high level of tree killing. To be clear, clients have moved on and are at the forefront, using AI as well as project specific software (like Procore) to manage the enormous amount of documentation necessary to timely and properly design and build large projects. While I have served on a few arbitration panels where all sides cooperate and have presented exhibits exclusively via thumb drives/laptops and links, these are the exceptions and not the rule. Last year, I was on a panel for a three-week arbitration involving six parties (owner, architect, prime contractor, surety, two subcontractors). Despite pre-hearing admonitions by the panel for counsel to work cooperatively on joint exhibits, clearly labeled and numbered, the parties presented each panel member with a total of 60 black exhibit books, each more than six inches thick… and 75% of the exhibits in each side’s set were exactly the same. Precious time was wasted during the hearing dealing with redundant and poorly organized exhibits and caused a lot of confusion. A typical exchange went something like this: “Panel, please go to our Exhibit Book 23, exhibit 235, and sorry, this exhibit has 45 pages that are not numbered, so go somewhere in the middle.” Counsel and the arbitrators would then stand up, reach back to their exhibit book stack, sort through and find the right numbered book, haul it back to the table, move (or step over) the five books they just used, pull open the book with the three-hole binder (which typically gets broken), and try to find the referenced exhibit.
There’s a better way, and before the construction lawyers out there grind their teeth and shake their heads, please remember that your goal as an advocate is to persuade the arbitrator of the merits of your client’s position. Anything you can do to make the arbitrator’s decision easier (yes, treat your arbitrator like Santa) should be done. Here are just a few of the ways – some easy, some hard – that have been implemented to address this issue, especially in large, multi-week arbitrations, with hundreds of exhibits and scores of witnesses:
Go fully or even partially paperless.
This takes full cooperation and coordination with not only counsel, but the arbitrator (who may still want hard copies). Technology is great until it is not. Is the hearing room appropriate and has the necessary technology? Of course, no need to worry about a room if it is a 100% virtual arbitration (which happened many times during COVID). But, what’s plan B if something goes wrong? Chaos happens, and that’s no good especially if it happens to you (and thus your client).
Create a joint set of exhibits.
Most good arbitrators mandate in the initial scheduling order that counsel exchange a list of all possible exhibits 30 days prior to the hearings and then work together in good faith (yes, I know that can be hard) to create a joint set of exhibit books. As mentioned above, if each side prepares and brings its own set of exhibit books, it is certain that many, if not most, of the exhibits in each sides’ books will be identical. Avoiding duplication is really easier than you think. The books can be organized in sections with a joint index. By way of example: pre-hearing briefs; contracts; pay applications, pictures/videos, damages backup, summaries, specifications, expert reports; and a year-by-year chronology (notice letters and emails). Remember that generally the technical rules of evidence do not strictly apply in arbitrations, so there is no need to fight about relevancy or admissibility. Absent something unusual, all the submitted exhibits from all sides will be admitted by the arbitrator. While this process can take time and effort, setting aside the fact that it will make the arbitrator’s life easier (especially during the post-hearing award process), it has enormous benefits, including making the preparation of witnesses and examinations so much easier and more efficient. If you try it, you will like it. If the arbitrator does not suggest this process during the initial call, you should do so.
Identify the exhibit books you will be using before an examination.
Do not wait until you begin a witness examination (direct or cross) to specify which book you will be using. Tell the arbitrator (and counsel) before you start which books you will be using so everyone can pull out those books and better follow your examination. Again, this eliminates all sides going back and forth to find the applicable witness books.
Consider creating witness exhibit books.
This may seem counterintuitive if the goals is to limit the number of books, but if you have a witness with a small number of exhibits that are scattered among multiple books, consider putting together an exhibit book for that witness that has the exhibits already numbered (as well as what books they are in).
Color code the exhibit books on the front and the spine.
Most counsel use the same black exhibit books. While there may be a label on the front and sometimes the spine, especially if there are multiple books, there can be confusion and time wasted. Using a different color code on the labels, or even different color binders, can help efficiency (“Please go to book 5, the red one.”).
Make sure each page in each exhibit is numbered.
While many of the exhibits will have their own numbers, confusion and delay occur when, for instance, there is an exhibit that has 20-60 pages, but the individual pages are not numbered. This happens with photos, long text streams and multiple invoices. There is nothing more frustrating for an arbitrator (and a witness), and it disrupts an examination, for the lawyer to say: “Please turn to book 18, exhibit 135, and if you go about ¼ of the way in, you will see a picture that looks like…” And no one can find it. Worse, halfway through your “Perry Mason-like” cross examination about that picture, the arbitrator says “Counsel, sorry, I must have been looking at the wrong picture. Can you orient me?”
Make good decisions on what exhibits go into your books, and keep up with what exhibits have been used in the hearing.
The arbitrator understands that since there is limited pre-hearing discovery in most arbitrations (sometimes no depositions), the tendency is to include every possible document or email. But be careful not to dump scores of exhibits into books that may not even be used. This will impact your credibility. And pay close attention to what exhibits are actually used during the hearing. It may be (again, treat your arbitrator like Santa) that with everyone’s cooperation, there can be scores of exhibits removed from books, or even complete books can be withdrawn.
When there will be multiple exhibit books, these simple guidelines will help you, your client, and witnesses better prepare and present your case. You can enhance your credibility by using these tactics regarding exhibits prior to your next arbitration hearing.
What Is DMSMS and What to Do About It?
What does DMSMS mean?
DMSMS stands for Diminishing Manufacturing Sources and Material Shortages. It is the loss or impending loss of manufacturers or suppliers of items, raw materials, or software. In other words, DMSMS is obsolescence. DMSMS occurs when companies (at any level of the supply chain) that make products, raw materials, or software stop doing so or are about to stop. DMSMS issues can occur for various reasons, such as technological advancements, shifts in market demand, regulatory changes, or a manufacturer’s strategic business decision.
Where can contractors find DMSMS requirements?
DMSMS requirements are typically found in prime contracts. Specifically, a Statement of Work (“SOW”) can describe DMSMS requirements such as: a DMSMS Management Plan, a Bill of Materials, Health Status Reports, End of Life Notices, and various other requirements to mitigate DMSMS risks. The contract may use Contract Data Requirements Lists (“CDRLs”) to specify the content of deliverables, the inspection and acceptance process, and the frequency of delivery (e.g., the Contractor must deliver a Health Status Report “monthly” or an End of Life Notice “as required”).
Below are descriptions of these DMSMS concepts:
A DMSMS management plan is a comprehensive strategy that outlines the processes, roles, responsibilities, and tools necessary to proactively identify, assess, and mitigate the risks associated with the loss or impending loss of manufacturers or suppliers of critical items, raw materials, or software throughout the life cycle of a system.
A Bill of Materials is a comprehensive list of materials, components, and assemblies required to construct, manufacture, or repair a product, often presented in either a flat or indentured format to show the relationships and hierarchy of the items.
A Health Status Report provides a comprehensive accounting of specific obsolescence issues within a system and identifies estimated obsolescence dates, usage rates, and stocks on hand for each item.
An End of Life Notice provides the part numbers, descriptions, and manufacturers for all items that are approaching or have reached a point when the item will no longer be produced, supported, or maintained by its manufacturer.
What are the important DMSMS resources?
Below are key policies on DMSMS that also include recommended contract language:
1 – Source: Robin Brown, Under Secretary of Defense Research & Engineering, DMSMS & Parts Management Program (Apr. 23, 2024) (ndia.dtic.mil/wp-content/uploads/2024/dla/Tue_Breakout_DMSMS_PMP.pdf).
DoD Instruction 4140.01 Vol. 3 recommends 18 potential courses of action for the Department of Defense (“DOD”) to consider when trying to resolve DMSMS issues, such as encouraging the existing source to continue production, making a life of type buy, converting design specifications to performance-based specifications, etc.
What risks does DMSMS pose to contractors?
Increased Costs: Contractors may need to invest in managing DMSMS risks and finding alternative sources, redesigning components, or making a life of type buy to ensure the availability of critical items. These activities can be expensive and, depending on the contractual language, may not be covered by the contract, leading to financial strain.
Compliance Risks: Contractors must comply with contract terms related to DMSMS and other terms such as qualified baselines and source of origin for parts. Failure to adhere to these requirements can result in legal and financial penalties. For example, the use of non-compliant materials or failure to report DMSMS issues can lead to contract termination or other legal actions.
Schedule Delays: DMSMS issues can cause significant schedule delays and disrupt production timelines due to the time required to identify, qualify, and implement alternative solutions.
Quality and Reliability Concerns: The use of alternative parts or materials can introduce quality and reliability concerns. For example, counterfeit parts or parts that do not meet the original specifications can compromise the performance and safety of the system. This can result in increased maintenance costs, reduced system reliability, and potential safety hazards.
Strained Customer Relationships: DMSMS can significantly strain a contractor’s relationship with its government customer. DMSMS issues can lead to increased costs, contract non-compliances, schedule delays, and quality concerns. The government purchasing command has its own customer, the warfighter, and contractors that fail to perform as required can strain that purchasing command’s relationship with the warfighter, leading to further reputational harm if the contractor is blamed for negative impacts to the warfighter.
What should contractors do to mitigate DMSMS risks?
Identify all prime contract requirements that need to be flowed down to meet prime contract terms.
Establish subcontract terms up front that will mitigate DMSMS risk such as recurring parts forecasting updates, licensing with the Original Equipment Manufacturers for access to Bills of Materials, using external data sources to identify predicted level of obsolescence risk for supplies, and developing interchangeability Parts Lists.
Negotiate terms so that if a supplier will no longer manufacture a part, they will license sufficient intellectual property (“IP”) for another source to manufacture the part. This should include the IP for necessary tooling.
Establish subcontract terms defining the party responsible for cost increases due to DMSMS issues.
Negotiate advance notice terms regarding parts availability such as requiring the supplier to provide a Last Time Buy Notice months prior to discontinuation of the product.
Request information regarding DMSMS as part of the supplier selection process.
Collaborate with customers and higher-tier suppliers through proactive risk identification and resolution, regular reviews and updates, and effective communication.
Boosting Boston’s Housing: City & State Partner to Overcome Market Challenges
According to recent news coverage, about 30,000 housing units proposed for Boston are approved by the Boston Planning Department (BPD) yet unable to break ground due to market conditions. In response, the Wu administration, in partnership with the Commonwealth of Massachusetts, is advancing the following strategies to facilitate construction commencement: revising affordable housing agreements, providing direct public funding through a newly launched fund, and granting tax abatements, tax credits, and grants for office-to-residential conversions.
Revised Affordability
The Inclusionary Development Policy (IDP) originally created by a mayoral executive order in 2000, and now codified in Article 79 of the Boston Zoning Code, requires developers of market-rate housing projects to include a prescribed number of income-restricted housing units at prescribed affordability levels. The BPD prefers on-site IDP units, although compliance may be achieved by creating off-site units near the project or by paying into an IDP fund in an amount based on the project’s location in a high, medium, or low property value zone.
For stalled projects, the BPD and the Mayor’s Office of Housing (MOH) have been willing in certain circumstances to revise a project’s IDP commitments given the difficult financial environment and the urgency to build more housing. This strategy is not part of a formal program and does not follow rigid procedural rules.
Examples of recent proposals include:
A payment in lieu of half of the approved on-site IDP units based on the applicable property value zone and conditioned on building permit issuance within a specified timeframe, with the contributed amount being directed to an identified nearby affordable housing project; and
A commitment to deliver 4% instead of 18% on-site IDP units in an initial building, and to construct a separate project in close proximity with larger, more deeply affordable units, funded with proceeds from the sale or refinancing of the initial building.
In each case, affordable housing agreements with MOH were amended with a limited administrative process.
Momentum and Accelerator Funds
MassHousing is administering a newly created Momentum Fund, supplemented for Boston projects by the City of Boston’s Accelerator Fund, providing additional equity alongside private equity to improve the economics of stalled projects. The resulting noncontrolling investment would:
Comprise a quarter to half of the total ownership interests;
Be committed before construction financing closes;
Be funded when permanent financing closes; and
Be coterminous with the project’s senior loan up to 15 years.
The Momentum Fund is capitalized with $50 million as part of the Affordable Homes Act signed by Governor Healey in August 2024, and the Accelerator Fund is capitalized with $110 million proposed by Mayor Wu and approved by the Boston City Council in January 2025. MassHousing will review applications and handle underwriting, and will consult with the BPD on applications for projects in Boston.
To receive funds, projects must create at least 50 net new housing units, at least 20% of them income restricted at 80% AMI, and must demonstrate that they are energy code compliant and can commence construction within 6 months of the commitment of funds.
Resources for Office to Residential Conversions
Boston’s Downtown Residential Conversion Incentive Program supports downtown office-to-residential conversions in light of the post-pandemic decline in office utilization paired with businesses vacating Class B and C properties in favor of Class A properties. Eligible proposed conversions must be IDP and energy code compliant, and must commit to commence construction by December 31, 2026.
Developers under this program can obtain tax abatements of up to 75% at the standard residential tax rate for up to 29 years as memorialized in a Payment in Lieu of Taxes (PILOT) agreement, along with fast-tracked project impact review and reduced mitigation and public benefit commitments.
By the end of last year, 14 submitted applications to the Conversion Program representing 690 housing units resulted in 4 project approvals, with submissions and approvals continuing this year based on an extension of the program through December 2025.
Separately, the Commonwealth’s Affordable Housing Trust Fund has allocated a total of $15 million for grants to conversion projects of at least 70,000 square feet. This fund can provide up to $215,000 per affordable unit and up to a total of $4 million per project. The City of Boston will apply to the state for such funding on behalf of qualifying project applicants. As of early March 2025, about $7.5 million of the original pool is still available. In addition, the Affordable Homes Act establishes a tax credit program for qualified conversion projects covering up to 10% of total development cost to be administered by the Executive Office of Housing and Livable Communities (“EOHLC”). EOHLC is currently developing guidelines for implementation and is seeking input from developers and other interested parties.
An Unanticipated Complication of Investing in SFR: Investors Sometimes End Up Being HOA Managers
Build-to-Rent (“BTR”) is a subsector of Single Family Rentals (“SFR”). As a subsector of SFR, BTR occupies a unique space within the U.S. residential rental market. The broader category of SFR includes scattered homes for rent, while BTR communities are entire neighborhoods of new homes being rented instead of sold to homebuyers.
Traditional homebuilders are making their way into the SFR market through their BTR communities. Rather than building homes and selling them as soon as they are completed, many homebuilders have adopted a different strategy. They are holding the homes after completion and renting them. For homebuilders, BTR presents an alternative revenue stream that may provide some protection from the cyclical fluctuations of the traditional homebuilding market. This diversification has insulated some homebuilders from slowed sales in the last two years due to higher mortgage rates. This is good news for shareholders in the publicly traded homebuilders, and also for the tenants in the brand new homes who otherwise could not qualify for or afford to buy a new home.
Additionally, some institutional investors are buying entire communities in one transaction. Both scenarios result in the institutional investor having control of the applicable HOA. Some investors operate their SFR communities like multi-family rental projects whereby the homes are not built on separately platted lots but are constructed on one large lot that can only be conveyed as one property. The norm, however, is that rental homes are individually transferrable lots within community associations. When one entity owns all of the lots within a community association, the need to operate the community association in accordance with its governing documents may be questioned. It is my position that there are benefits to institutional owners in keeping community associations operative and in retaining the expertise of common interest development (aka HOA) experts.
In some neighborhoods, the development and permitting process included a requirement by the municipality that a community association must be formed to maintain shared facilities such as private streets or drainage facilities. In those cases, local law requires that the community association remain active and conduct the required maintenance.
Some communities have common area amenities shared by the residents which are often owned by the community association. If an institutional owner who owns all of the homes does not keep the association’s corporate status active and compliant, there may be title issues with the ownership of the shared amenities. Without an active association, it may not be possible to insure the common amenities.
Additionally, for the institutional owner there is liability protection in the association owning amenities like a swimming pool, tennis courts, or a fitness center. In the event of an injury on those amenities, the association would be the liable property owner, not the institutional owner. This serves to limit liability to the assets of the association, while protecting those of the institutional owner.
The institutional owner may find operating an association burdensome because state laws vary widely and there are many corporate governance laws that apply to community associations differently than other types of business entities. Therefore, institutional investors should consider retaining HOA managers to exclusively handle HOA-related issues within their communities. Such managers have different knowledge and skill sets than the leasing or property managers that might otherwise be engaged by an institutional owner in the operation of a rental community.
Additionally, attorneys who specialize in HOA law and have regional expertise can provide benefit to institutional owners. When an institutional owner owns an entire community, HOA counsel can ensure compliance with niche laws. If you have any questions or would like more information on this subject, please feel free to get in touch with the author of this article.
The Long-Standing Waiver for Manufactured Products from FHWA’s Buy America Requirements is Phasing Out
Amidst the flurry of tariff threats swirling around the world, the Federal Highway Administration (FHWA) is terminating the waiver known as the Manufactured Products General Waiver from the Buy America requirements found in 23 U.S.C.A § 313. The Buy America regulation requires all federal-aid projects to use only steel, iron, and manufactured products that are produced in the United States. Since 1983, these requirements have been waived for manufactured products that were permanently incorporated into federal-aid projects by not requiring such products to be produced domestically, apart from predominantly iron or steel components of manufactured products. This waiver is being phased out in 23 C.F.R. 635.410, an amendment to the Buy America regulation which establishes new standards that will apply to manufactured products on federal-aid projects. The final rule was published in the Federal Register on January 14, 2025 (Vol. 90, No. 8, pp. 2932-58).
The new rule, 23 C.F.R. 635.410, defines “manufactured products” as “articles, materials, or supplies that have been processed into a specific form and shape, or combined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies.” A manufactured product does not include an article, material, or supply if it is “classified as an iron or steel product, an excluded material, or another product category as specified by law or in 2 C.F.R. part 184” or “mixtures of excluded materials delivered to a work site without final form for incorporation into a project.” However, “an article, material, or supply classified as a manufactured product may include components that are iron or steel products, excluded materials, or other product categories as specified by law or in 2 C.F.R. part 184.”
Manufactured products must be manufactured in the United States effective for federal-aid projects obligated on or after October 1, 2025. The Manufactured Products General Waiver will remain in place until then. The additional requirement to have greater than 55% of the manufactured product’s components, by cost, be mined, produced, or manufactured in the United States becomes effective for federal-aid projects obligated on or after October 1, 2026. For all federal-aid projects obligated on or after October 1, 2026, all manufactured products permanently incorporated into the project must both be manufactured in the United States and have the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States be greater than 55% of the total cost of all components of the manufactured product.
Under the new rule, an article, material, or supply is generally only subject to one set of requirements. The classification of an article, material, or supply is made based on its status at the time it is brought to the work site for incorporation into an infrastructure project. The work site is the location of the infrastructure project at which the iron or steel product or manufactured product will be incorporated. The new rule also provides additional clarifications for precast concrete products and enclosures of electronic hardware systems classified as manufactured products, as well as, how to determine whether the cost of components for manufactured products is greater than 55% of the total cost of all components.
Are You Really Covered as an Additional Insured?
For your next construction project in New York, securing commercial general liability coverage as an additional insured may not be as simple as it would appear. Recent court rulings have interpreted the terms of insurance policies, where additional insured parties are intended to be covered pursuant to a “blanket” endorsement (i.e., the additional insureds are not explicitly named in the body of the endorsement or the underlying insurance policy), to provide coverage only to those persons or entities that the named insured has agreed to add as additional insureds in writing.
As a result of the rulings described below, when drafting construction contracts, it is important to be unambiguously clear as to which parties are intended to be additional insureds under any insurance policies required to be obtained under such contracts. In order to protect against the risks of non-coverage highlighted below, any party entering into a construction contract or subcontract should take the following actions when additional insureds are added to an insurance policy pursuant to a “blanket” endorsement:
(i) require by direct written agreement between the applicable named insured and each proposed additional insured that such named insured must include such proposed additional insureds as additional insureds under its insurance policy, together with a contractual indemnity by the named insured in favor of such proposed additional insureds, or preferably (where feasible) (ii) require that any insurance policy required under such construction contract should expressly name each and every party that is intended to be included as an additional insured thereunder; and
review the underlying insurance policies (i.e., not just the applicable certificates of insurance, which are informational only and do not supersede or modify the actual policy terms) to confirm exactly what persons or entities are covered as additional insureds thereunder and to confirm whether coverage as an additional insured is primary or excess to other coverage available to such additional insured.
In 2018, the New York Court of Appeals upended market norms in affirming a ruling limiting coverage for additional insureds to those in contractual privity. Gilbane Bldg. Co. v. St. Paul Fire & Marine Ins. Co., 31 N.Y.3d 131 (2018). In Gilbane, the court found that a project’s construction manager was not covered as an additional insured by the insurance purchased by the general contractor (GC Policy), because the GC Policy included a “blanket” additional insured endorsement and the construction manager did not have privity of contract with the general contractor, the named insured under the GC Policy. The court specifically and exclusively relied on the language of such “blanket” endorsement, which read “WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract … ” (with emphasis added). The court specified that the language “with whom” clearly required a written agreement between the named insured and any proposed additional insured, in which the named insured agreed to add such person or entity as an additional insured in order to effectuate coverage for the proposed additional insured.
This approach was reinforced in a recent decision in the New York Supreme Court, Appellate Division, Second Department, New York City Hous. Auth. v. Harleysville Worcester Ins. Co., 226 A.D.3d 804 (2024). In that case, an owner contracted with a general contractor who subsequently contracted with a subcontractor for construction work. The subcontractor obtained insurance coverage for the project and was later sued by its own employee in a lawsuit that also named as defendants the owner, general contractor and other parties whom the subcontractor had agreed to include in its insurance policy as additional insureds. The court determined that, apart from the general contractor, none of the other parties were entitled to coverage, relying on the language of the subcontractor’s insurance policy: “Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations only as specified under a written contract … that requires that such person or organization be added as an additional insured on your policy” (with emphasis added). The court interpreted this language as limiting coverage to those with whom the named insured (the subcontractor) had contracted directly to do work, thereby finding that the general contractor qualified as an additional insured under the terms of the policy, but that no other parties seeking additional insured status were covered.
The court also held that language in the subcontract between the general contractor and the subcontractor, incorporating the terms of the prime contract between the owner and the general contractor that required the general contractor to add the owner as an additional insured under the general contractor’s policy, was “insufficient to confer additional insured status on [the owner] with respect to the subcontractor’s policy.” Finally, after comparing the terms of the respective policies issued to the general contractor and the subcontractor, the court determined that the subcontractor’s policy was excess to the general contractor’s policy, so coverage for the general contractor — the one party the court determined was entitled to coverage under the subcontractor’s policy as an additional insured — would be triggered only if and when the liability limits of the general contractor’s own policy were exhausted. As a result, the general contractor would first have to pursue any applicable claim under its own insurance policy, and only after policy limits under its own policy were exhausted could the general contractor seek coverage as an additional insured under the subcontractor’s policy.
Rising Construction Costs in 2025: Tariffs, GMP, and Fixed-Price Contracts
Tariffs are a top concern in 2025, with postponements on imports that have been looming on the U.S. construction industry for the past month. A planned 25% import tariff is positioned to affect construction materials from Canada, Mexico, China, and soon several other countries., Economists fear the financial impact of the tariffs, amid other executive orders, on increasing costs for Americans, including for major construction projects.
Luckily, debate about the impending tariffs goes back farther than just the beginning of the year, so the construction industry has been proactive in considering the effects of these added costs on their prices.
What does this mean for construction law?
Contractors and construction companies that bought up materials at the beginning of the year ahead of tariffs have at least some leeway with the price of goods and project timing. Those that did not now face an increased cost of 1.4% on input prices that do not include the tariffs that, as of March 10, 2025, have yet to be implemented. Contractors that are still negotiating contracts will need to consider the financial impact that tariffs will have on material prices and project timeline. For those that have existing contracts or are in the middle of a project, the outlook is more grave.
Two types of contracts may have a severe financial impact on the contractor:
Guaranteed Maximum Price (GMP): an agreed-upon amount that sets the highest possible reimbursement on material, labor, and fee costs by the client. This allows wiggle room to find cheaper materials.
Fixed-price contracts: an agreed-upon price that remains the same from negotiation to project completion.
For contracts negotiated prior to the Trump Administration’s tariff announcement, the additional cost for materials may have a negative financial impact on the contractors. With GMP and fixed-priced contracts, contractors may lose money if they did not proactively negotiate for the impending tariffs on construction materials such as cement, lumber, steel, and aluminum. Addendums on these contracts may be referenced as “material price escalation” clauses rather than mentioning “tariffs.” Most construction contracts have such terminology built in following the COVID-19 pandemic supply chain demand.
As tariffs are uncertain, what is certain is that the contracts for construction projects must have clauses and amendments that consider the economic influences on material cost, whether it’s imposing tariffs, environmental causes, a pandemic, etc. We cannot plan for these events, but we can plan for what we do if they happen.
Under New York Law a Recourse Provision Bars Most Claims Except for Fraud
In Iberdrola Energy Projects v. Oaktree Capital Management L.P., 231 A.D.3d 33, 216 N.Y.S.3d 124, the Appellate Division for the First Department ruled that a nonrecourse provision in a contract barred a plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and statutory violations of a trade practices statute, but not for fraud.
This case arose from a contract related to the construction of a power plant in Salem, Massachusetts. A choice-of-law provision dictated that the contract was governed by and construed in accordance with New York law. Defendants created a special-purpose entity (SPE) to serve as the company charged with constructing the new plant. Defendants owned, controlled, and managed the SPE and were the SPE’s majority and controlling equity holders. The majority of the SPE’s board of directors and officers were also defendants’ employees. The SPE retained plaintiff to be the project’s engineering, procurement, and construction contractor.
The contract permitted the SPE to terminate the contract for convenience or for a material breach by the contractor. In the event of termination for cause, the owner would incur substantial payment obligations; a termination for convenience would not. The contract required the contractor to post a standby letter of credit in the amount of approximately $140 million as security for the contractor’s performance. The owner was permitted to draw on the letter of credit only “upon any Contractor’s breach or failure to perform, when and as required, any of its material obligations under the Contract.” The contract contained a nonrecourse provision that provided that,
[Owner’s] obligations hereunder are intended to be the obligations of Owner and of the corporation which is the sole general partner of Owner only and no recourse for any obligation of Owner hereunder, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director or Affiliate, as such, past, present or future of such corporate general partner or any other subsidiary or Affiliate of any such direct or indirect parent corporation or any incorporator, shareholder, officer or director, as such, past, present or future, of any such parent or other subsidiary or Affiliate.
The project was plagued with delays and cost overruns. When the project was 98% complete, the SPE terminated for cause. The SPE drew the $140 million afforded by the letter of credit, retained a replacement contractor, and completed the remaining work. The original contractor filed for arbitration against the SPE, claiming that the SPE breached the contract, engaged in tortious conduct, violated the Massachusetts Unfair Trade Practice Act, and sought $700 million in damages. The SPE appeared in the arbitration proceeding and asserted counterclaims.
The arbitration panel determined, among other things, that the SPE lacked cause to terminate the contract and that it terminated the contract as a pretense to draw on the letter of credit and issued a final award in the contractor’s favor for $236,404,377. That award was confirmed in New York, and the SPE filed for bankruptcy. The original contractor filed a civil action in New York, bringing the same claims against the defendants, but all counts except for fraud were dismissed based on the nonrecourse provision.
The New York lower court enforced the plain meaning of the nonrecourse provision, which sophisticated commercial parties negotiated. The nonrecourse provision is a contractual limitation on liability, which, like other exculpatory clauses, is generally enforceable provided it does not violate a statute or run afoul of public policy. The court determined the provision to be “as broad as it is clear: no liability could be imposed upon various individuals and entities for “any claim based on the contract or otherwise in respect thereof.” Plaintiff’s causes of action for tortious interference with contract, unjust enrichment, and violations of Massachusetts’s deceptive trade practices statute were all hinged or predicated on conduct taken under or in contravention of the contract. Since these causes of action were all related to or connected with the contract, they were all barred by the nonrecourse provision. The court showed no sympathy for the plaintiff contractor and its likely inability to recover any part of the judgment it was holding. The plaintiff knew it was entering a very large contract with an SPE and should have known of the breadth of the nonrecourse provision. The takeaway appears to be: Beware of nonrecourse provisions with SPEs.
A Costly Oversight: Federal Court Emphasizes Strict Adherence to Mechanic’s Lien
A federal judge in New York served up a good reminder last week about the importance of dotting your i’s and crossing your t’s when it comes to perfecting a mechanic’s lien. The case involves a payment dispute between a subcontractor and general contractor on a police station renovation project in the Bronx.
The subcontractor liened the job and brought suit to foreclose its lien (among other claims). The New York lien law at issue for public improvement works provides that a lien “shall not continue for a longer period than one year from the time of filing the notice of such lien, unless an action is commenced to foreclose such lien within that time, and a notice of the pendency of such action is filed with the comptroller of the state or the financial officer of the public corporation with whom the notice of such lien was filed.” N.Y. Lien Law Section 18 (emphasis added). The subcontractor had filed its lien and a lawsuit to enforce it within one year but had failed to file the notice of pendency. The subcontractor’s lien had therefore automatically expired after one year. The subcontractor argued that the notice of pendency was unnecessary because the contractor had bonded off the lien. The court rejected that argument and dismissed the subcontractor’s lien claim. The case is J&A Concrete Corp. v. Dobco Inc., 2025 WL 605252 (S.D.N.Y. Feb. 24, 2025). A copy of the court’s opinion is located here.
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