Butler Snow is one of the best law firms that is committed to help and provide value and client satisfaction with over twenty offices nationwide. Dave Mayhan and Sarah O’ Brien are attorneys in Butler Snow specializing in litigation, particularly in defense of real estate and construction professionals. They share the typical challenges their clients face and how they are engaging with them, as well as walk us through their expertise in real estate and construction legalities.
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Butler Snow: Your Guide To Legal Matters with Dave Mayhan, Sarah O’ Brien, and Guest Co-Host Meranda Vieyra
Hello, Bob and Meranda.
Tell us a little bit about Butler Snow and what you do?
Butler Snow is the law firm with over twenty offices and way over 40 specialty areas of law. Sarah and I have been in Denver for our entire careers. We’ve got a combination of nearly 50 years of practice. We specialize in litigation and in particular the defense of real estate and construction professionals.
I think about driving into Denver and driving over here. It’s like cranes are sprouting from every nook and cranny. I would imagine given the pace of construction, not only in Denver but across the nation that you guys are busy. What does your typical client look like?
I don’t know if there’s a typical client. The construction industry involves a broader range of professionals from those involved in the development, design and contractor professionals to inspectors. It provided a lot of employment here in town and it will continue to do so as people move here. Every client is unique and every subspecialty has different issues. We were all collectively trying to figure out how we can best plan and develop proper construction both in residential and commercial real estate as this town grows. We’ve seen growth in the past, but this is just the tip of the iceberg.
As you guys look out across your client base and the typical challenges that your clients face, we were talking about being proactive to start with. When you guys are either engaged or retained for somebody for business, what are some of the proactive things that you could advise somebody in the trades that you represent that they might consider?
One of the first things we would recommend is that you need to own your contracts, which is more than keeping the paper. Often somebody will hand you a contract that’s a standard agreement that is going to immediately be bent toward their benefit. We recommend that those be reviewed and modified and negotiated so that your contracts are to your benefit. From things all the way from limitations of liability to insurance issues, indemnity language up front. That’s a very important thing to address before you even start the project.
For me, if I was to read a contract and I’m not a contract attorney, I may not see the nuance. There may be a piece that sticks out at you when you first look at it and go, “I wouldn’t sign it that way.” Do you find that given the pace of construction in Denver, that there are a lot of contracts that are signed quickly? If so, what would you advise if people are going down that road?
We’re better than some. Smart people don’t read all their contracts. There’s an assumption or maybe a trust in someone. When you develop a team and you’re in a construction project, there needs to be that trust. Oftentimes, even smart people don’t read their entire contract and they take things for granted. When you do read that, you need legal expertise to know how your dispute resolution process is handled. Whether you’re going to be handling that upfront, how well you need to document your work. Even in the post-construction phrase, how do the warranty and resolution process work? All those are details that we’ve experienced both on the backend in terms of the litigation over those, so we can provide clients with valuable insight to be proactive, deal with those issues up front, iron out those problems. If and when you get into a dispute, it doesn’t turn into a disaster in the litigation or arbitration. Maybe sometimes you can even avoid that.
You cover the broad range and the construction side. Are there top one, two or three problems that you see repetitively that a business owner could easily avoid if they would pay attention to what you tell them?
One that we were discussing that you see a lot when you get to the point of litigation, construction projects, especially big ones is that there’s a lot of documentation. When you get to litigation, everybody goes back to the plans and specifications and the project built pursuant to them. What we have noticed a lot of changes are made as the project moves forward, but they’re not always documented well. If you end up in litigation and you’ve made a change to the drawing but the architect didn’t sign off on it or you don’t have a change order in the file, you can bet that by the time they get to litigation there’s going to be a dispute about whether that change was approved, who approved it, did it get paid for? One that I would put out there is document your file well, making sure that your design professionals are signing off on changes to the design because we see that issue come up a lot that in our world, the “design defect” then it wasn’t built for the design. That’s a big mess when you get to litigation. That could probably be at least lessen if you better documented what changes are made, who’s approving them, why they’re being made.
If you can solve the problem, go in there and do whatever it is you have to do to fix that problem.
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Another common mistake is to kick the can down the road. These projects are time-sensitive and time is money. Just about every business, we have that situation but imagine the contracting. You got to get the thing built. You want to have the owner have access. You have a thousand different people involved from the planning, development, building inspectors and whatnot. Sometimes the pressure is so great to get that project done that these project disputes that arise during the construction or even in the plan can get kicked down the road. It’s not a good idea. You want to address those promptly and resolve them. The longer you wait, the worse it gets. It’s often the case.
It sounds to me that you are partners in the construction trades without being an employee and trying to do. I would think that would be optimum if I was the business owner. How do we get you on board and make sure you don’t make a mistake if somebody is pushing me to finish and do a change of work without documentation and being signed off? Do you want to be a bad guy or do you want to make sure that you preserve your business? That’s what it would seem like to me.
That’s a good way to look at it. I gave this example to Meranda once. My uncle was a dentist. We all think that preventative health care dentistry is important. You wouldn’t think about waiting to go to the dentist for years until your mouth hurts. If you do, sometimes it’s too late. In litigation, if we’re brought in after the dispute goes to a summons, a complaint or somebody notices arbitration with AAA or some other forum, there’s only so much you can do at that stage. The facts are let out. The contracts were signed. The disputes have developed without enough background and documentation as Sarah said. Bringing somebody in a proactive or preventive measure does cost money and time up front, but sometimes it can save your dividends later on.
My father’s advice is you only floss the teeth you want to keep.
Focusing a little bit on housing and the building demand that’s going on here in Colorado, we’re seeing a trend of low inventory. I wanted to focus on how has that lack of inventory impacted new construction in Colorado?
I don’t know the low inventory is impacting construction. There are a lot of things going on. The population is rising fast. It’s hard to keep up with that pace. We’ve noticed over a number of years multifamily for sale construction lessened in the metro area. There are a lot more apartments. It could be many reasons. Maybe Millennials don’t want to buy. They want to rent. We’ve heard from construction professionals a lot that finding skilled labor has become much harder. There’s very low unemployment in Colorado, so if you can’t find the right people to build, the building slows down. Probably those things affect what inventory is out there, where maybe what we’re seeing a lot of is already built inventory going back and forth. There’s always new construction in Colorado. It’s a matter of finding where it’s being built.
What we’ve experienced is the balance of inventory has been skewed. We have a huge amount of apartment construction in the last several years and not a very significant amount of condominium or townhome development. One of the big impacts of that is we’ve had a very aggressive plaintiff’s bar and very skewed laws that favor the lawsuits and plaintiffs’ bar versus the development and construction industry. It’s gotten hugely expensive to get insurance. The litigation over the condo in townhomes has been so great that it’s scared people away from that market. We are seeing people trying to step into that. There’ve been some measures in the legislature to limit appropriately construction defects in order to provide a remedy to people who have a problem, but at the same time treating builders, contractors, and developers fairly. We’ve had a difficult time here. There’s a disincentive for builders in this town and on this state to build ownership-based work, meaning condominium or townhome development because it’s gotten so costly from the litigation side.
Do you think they’re trying to fill a little bit of that gap with restoration work from the perspective of a construction litigator? What kind of legal issues are you saying?
We see legal issues in restoration, but primarily we’ve seen litigation over large size, multifamily townhome, and condominium development. One of the ways of the plaintiffs’ bar is trying to take advantage of that. If you have a hundred-unit complex and they claimed that all the windows have problems even though some of them have and not all. They want to claim that all of them need to be replaced. It ratchets up exponentially the expected costs. The difficulty of going into litigation is most jurors are homeowners or they want to be homeowners. How do you sell on the defense side a legitimate restricted repair when most of those people give the benefit of the doubt to the homeowner? I’m a homeowner myself, and I’ve had issues with a new house that I had built many years ago.
I understand that there’s a difference between real damages and something that’s a figment of some lawyer’s imagination trying to get a big claim. We’ve had various high damage awards given in cases. It winds up on the back end that the actual repair and reconstruction work has been a fraction of what they claimed they needed. What the result is it has fattened the wallets of a lot of plaintiffs lawyers to the expense of the builders and contractors and even the homeowners later on. They have to pay for higher insurance premiums because we’ve had a slew of litigation.
Are there any legal preventative measures that new construction and reconstruction focused companies should be taking when we’re looking at the growth continuing in Colorado?
Sarah has touched on that too and she can add to this. Being proactive right up front in terms of the contracts is one of the most fundamental areas. If you line up your dispute resolution process, the proper insurance, and proper planning to coordinate with all your teams who are building, developing, designing, and ultimately producing this product for sale, those are important first steps.
We were discussing that sequencing is an important element of building a big construction project and oftentimes that’s not documented well. It’s pretty easy nowadays to take pictures of what things look like at different phases of construction. If it ends up in litigation, you’re not questioning who did, what works, when. We’ve seen the success that people have had with bringing in inspections during construction. You know the elements of construction that are most likely to get raised for big money, windows, stucco wrap. If you bring in someone to inspect and/or your design professional in to inspect the installation while it’s being done and sign off and approve it, that’s very helpful in avoiding a significant lawsuit over that. Also, we talked about warranty work. If you can solve the problem, if you have a hundred units and two of them have a window leak, they make a warranty claim. You go in there and do whatever it is you have to do to fix that problem. You avoid the HOA calling in a plaintiffs’ lawyer and an expert who’s going to come in and nitpick every single thing in that building. Now you’ve gone from a couple of windows leaking to a $10 million defect suit.
Documentation takes on an interesting standpoint. The practice of law has changed and so was construction. There are creative ways to do this. Documentation, we learned that as lawyers. We read cases. We live in the paper world, but now it’s all electronic. What’s fun in this day and age is you can take an iPad, take a picture, draw on it, send it to a project manager who’s in another state, or maybe even in another country to get clarification or a change or an RFI. You can use drones to examine buildings that are going up at high rises. It’s an exciting time to be in the field. For those people who are on the cutting edge of technology, both on the legal side and on the building side, it creates great economies, great fun.
I think about the technology we have here. My partner in the practice races. Every car has to have a 360 GoPro on top. If there’s a wreck, they can assign who did it and who’s paying for it. If you were a construction supervisor with a GoPro walking through the site and say, “Here’s where we are and here’s what we did,” it would seem that would be better than zero.
I liked the idea of utilizing technology. I know insurance companies are using drones in a very different way to change the claim process for lots of different commercial industries. I like the idea of using technology to protect your interests and being proactive about it. It takes two seconds to take a photo. That’s an idea for litigators in general of helping their clients.
You were talking too when you go in front of the judge. The judge may or may not be familiar with a defined point of construction perhaps, but the imagery, it would seem like to me from technology, “This is what it should be. Here’s the drawing. Can you see the disparity?” The visuals would be compelling.
I always liked the famous Aristotle quote “The soul does not think without an image.” If you have a presentation, an image, a cracked window or a damaged foundation, it’s very compelling, but similarly, what limits there are to those damages and what’s not needing to be repaired are also similarly needing to be shown. I’ll never forget I broke my foot. I was about ready to try a five-week construction arbitration case. I had about a dozen banker’s boxes around me on my couch in my house. My son, who’s going to high school, he looks at me and he said, “Dad, you could put that all on your iPad.” I said, “What? I don’t have time.” He said, “I’ll show you.”
Within about an hour and an hour and a half, I learned how to use this pad. Four weeks later, I tried a case using it. After that, there were about a dozen lawyers involved and at least half of them came up to me after my opening and said, “How can you that? Can you show me how to use that?” I did. I’ve given presentations. I’ve written a chapter in the Colorado Trial Handbook on technology in the courtroom. I’ve found that I even struggled to keep up, even though I’m active in this because there are such changes. This is valuable from not just the law but even in the construction world. I’ve learned from construction managers on site who take pictures and used PDF Expert or other programs to send questions to their lawyers or back to their office. Also, to use in the presentation scale when you can show select documents to a jury or a judge from a pad or from other similar technology. It brings home a complex topic. You can image in your mind what somebody is talking about.
I have a property manager the same way. You have this side on your property, so send me a picture. You give me the picture, and I’ll say, “I see what you’re saying. Let’s go ahead and do it.”
We’ve used that for document review. We’ve used that for onsite project connectivity, so it’s wonderful.
I’m going to turn it over to Bob on construction contracts.
I’m the construction company owner. I’m busy and excited about the pace of everything. There’s probably a modest opportunity that I might overlook something given my particular behavior. For creating a contract where there’s warranties, insurance, attorney’s fees, what advice might you offer to me as that construction company owner?
Hire a lawyer and make sure that you own your documents. To play on what Sarah had mentioned, the need is to not accept something that somebody gives you. These projects are multifaceted. They involve a lot of detail from the planning, the development, the building permitting stage. You’re dealing with multiple subcontractors and contracts.
You only floss the teeth you want to keep.
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I have an attorney that wrote my will.
I bet that attorney, if he or she is worth their salt, he or she listened and talked to you and found out your needs. Getting back to the client first, I was a client. I was in-house for about two or three years. That gave me a helpful perspective to know what the best and most important thing is as an outside lawyer. That is putting your client first. That’s one of the elements and the mantras of Butler Snow.
It’s not just a saying. It’s what do you need and finding that out? One of the pitfalls of what lawyers do is they want to sell their ideas. I have a lot of them. I practiced law for 30 years. I’ve seen mistakes. I’ve developed suggestions about how clients can do it better. First and foremost, I want to learn about that client. I want to listen to them. I want to hear what their needs are, what their wants are, and I can best get to their goal. How fast do you want to build this project? How big is it? What do you want to do? Those are all important. What is the best contract that can get you there? Not trying to put my contract into your particular situation. I need to learn what you are.
Oftentimes clients have asked me, how often do my contracts have to be looked at? I think at least annually. Sarah has mentioned to other construction professionals, owners, and developers, probably with each respective project. Because each project tends to be different unless you’re building the same thing over and over again. If you’re a Walgreens or a Walmart and you want the same store in the same location, that is a different situation. In housing and commercial real estate and development, almost every project has its unique issues. Every contract has to be looked at individually.
Every jurisdiction, we have a lot of municipalities and counties that have different rules for construction of the same thing. You need to have somebody who’s aware of what those differences are. Looking at your contract, indemnity provisions are important. We haven’t talked that much about it, but certainly, insurance is important. That’s become more expensive and difficult to obtain probably because of the legal market in construction and the number of lawsuits. Dave and I have seen cases where people drew up a contract. Something about the contract is wrong and there was an indemnity for this, that or the other. We had one client at one time that was earth moving. Compaction grading that had earth movement exclusion on their insurance. That’s the only thing that’s going to happen with your work is if the dirt moves, but that was excluded. Encompassing all of that, if we’re looking at your contract before you even get started and what insurance you obtained for the project, those things would have been caught before it’s a $2 million claim and you can have somebody denying coverage for that claim.
I’m a growing construction firm. I’ve been using a general practice attorney. At what point in time should I start considering using a specialist to help my business?
Right now, even if you’re a small or medium-sized business, everything can be at stake. To get involved in a lawsuit can put your business and your livelihood at stake. We’ve counseled small, large and medium-sized companies. We can suit the needs of what that particular business is. If we can’t do it, we’ll find you somebody else even outside our firm who will because the client has to be put first. That’s first and fundamental. Even if you have a small business, in some ways you have more at stake.
I think about years ago the banks were doing stress testing, still, do. For the construction company and we were talking about contract review, it would be interesting to have a stress test environment where the business owner says, “This is what I think I have. Do my document support what I think I have?” Back to your point of whether you’re in this county or that county, this new contract or that new contract. What do you think about the discipline of stress testing where you are in your business and risk management?
I haven’t used that term before. Certainly, that’s always taking place. There’s always a risk analysis and a stress testing that goes forward. Do you have enough insurance for this project? Do you have enough cross-indemnity provisions with those you’re working with to give you enough protection? Are you taking on too much risk, not only financially but legally? There’s always an evaluation that goes on.
My thoughts as a business owner would be a cost benefit. How much risk am I taking home for the price I’m charging? Am I covered? What’s the likelihood of me getting to the end of this project and not having litigation come out of it? That would certainly enter my mind as I’m chasing a piece of business down.
One of the interesting things about real estate development construction, whether it’s residential or commercial, is they have such a long lead time. When you think about a particular risk, if you’re doing an investment, you’re looking at what are my three, six months, one-year yields. If it’s not working out, I move out. If you’re developing a real estate project, it could have a year lead time to get the planning and permitting done. You’ve got to hire your development people. You’ve got to put a contracting team together from start to finish. It could be three to five years. Imagine trying to predict the economy that far out. That’s a lot of risks that some of these people are taking.
The interest carry costs of a project and once the project’s done, you have to fill it. If there are delays, your pro forma just went upside down. Thinking about the difference between subcontractors and in this case, general contractors, is there a key difference between contracts and subcontractors?
The difference in the legal aspects?
Yes, exclusions, protections.
As far as the homeowner goes, the individual who purchases the property. No. Under Colorado law, you’re obligated to provide a defect-free construction, whether you’re the sub or the general contractor. Dave will know the exact time. Numerous years ago, it used to be that general contractor could require an indemnity from the subs for everything.
In 2007, the legislature changed the law. It used to be that large general contractors could demand total indemnity from their subs. No matter who was responsible for the work, even if the general contractor was 100% responsible for a given defect, they could call on their subcontractor as an essential insurer. It’s what’s called the “type one indemnity.” Those were legislatively eliminated in 2007 amendments. Therefore, you can only seek indemnity for the fault caused by your subcontractor. It balanced out of the equation. What we had is a lot of major builders and large people using their economic power to demand insurance effectively from their subcontractors. It puts the onus on the subs to have additional insurance or insure out of their own pocket. Everybody has an obligation in commercial especially in residential to implied warranty of habitability is what it’s called in the residential aspect to the ultimate homeowner. Even if you’re not in contractual privity, if you don’t have a direct contract with the owner, you were still legally liable to that owner. That liability could last for up to six or eight years after the duration of the project or after substantial completion.
Honestly, between general contractors and the subs, a lot of that’s going to be defined going back again by the contract. You have to review the documents up front to make sure that that’s the relationship you want to have. I think everybody has to follow through. We see a lot of cases where general contractors ask for proof of insurance from subcontractors that they never actually received and somehow that gets overlooked. When you get to litigation, that’s problematic.
It seemed like a checklist would be pretty simple to adopt.
Yes, it can be, but we have these long terms. What we just discussed is an interesting point. Let’s say you complete the construction. It’s out of sight, out of mind. You’re not called back for a warranty. Nothing happens. Let’s say in year five, you got a notice, “I want you to come back and fix this defect.” You might have to address that. I hope you’ve maintained your insurance if you have a main CGL policy. I hope you kept your documents. These are difficult issues to deal with five, six, seven or ten years after the fact.
People have changed. The memories are gone.
Construction litigation, in general, is super complex. My second job in the legal industry was with a construction defect firm. I’ve seen these captions that have come in at three to four pages long. It seems every company in the entire world is involved in the lawsuit. Staying out of a situation like that is important. It’s being proactive. I know generally we’re not naming names or giving legal advice here in any way, but are there any success stories, owners or managers, construction companies that did it right, little pieces of advice the audience can take away from.
Specific examples without naming names or identifying people are parties who’ve been successfully able to manage their risk with clear clauses that deal with dispute resolution in the most favorable and cost-efficient manner up front. Even if they have a dispute, they have been able to get to a forum specifically arbitration, deal with it in an expedited way without extensive lawyer fees and argument. The dispute is handled within a year or less. Those involved both the arbitration clauses and the rescue dispute resolution processes, if they are clearly designated and they have timeframes, limitations and they anticipate a claim, they’re managed in the way that lowers the cost, they can be efficient. Clients had been very happy with that aspect. Contracts that lacked that information wind up getting into a legal morass as you’ve seen, Meranda, in lawsuits that last for years and are incredibly expensive.
I hate to say it, but our profession sometimes isn’t the most efficient. The legal bills themselves can cause crippling problems for large and small businesses. There’ve been some major builders in this town who have had multimillion-dollar judgments against them and lawsuits that have lasted for years. Some of the difficulties they’ve had are not only just the judgment but the insurance that doesn’t cover some of the legal fees. You’d never want to be in that position. If you can manage your risk through clauses in the contract that deals with the most efficient way of dispute resolution, that can be very helpful. Sometimes disputes are inevitable, but you’d hate to lose control of the management of those disputes.
It’s anticipating the claim.
If you can't find the right people to build, the building slows down.
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Also, some of what we’ve discussed for avoiding the litigation or arbitration in the first place would be going back to making sure that you have the sequencing. It’s taking photographs and documenting changes that occur. Warranty work, making sure that the minute somebody peeps about this doesn’t seem quite right. You address the issue then not seven years later if possible. We’ve seen people have good luck with hiring or bringing back their design professional to inspect the work as it’s occurring. That especially helps the general contractors, the developer as well as any sub that did the work. If somebody is an expert in that, comments back and looks at what you built and signs off on it, it’s much harder later for a hired expert on the plaintiff side to say it’s all wrong when you should have known it was all wrong. That’s harder to do. It costs money and time to that done during the construction, but if you end up in a litigation or arbitration position, that’s very helpful to have taken that extra step.
It probably costs less than litigation.
I would want to presume to tell contractors how to bill. I worked my way through school at times in several different construction trades. That gave me a helpful background in doing what I’m doing now. Ultimately, you don’t want to be that owner, developer, or contractor who at the end of the day in a dispute looked at as somebody who was trying to cut costs to do things on the cheap. What will be it to you if you have to face a jury and you got into that position because you skimped on particular material or you hired the least costly contractor when they didn’t have that experience? Keep in mind, anticipate the disputes as you suggested and make sure that cost-cutting is done smartly, efficiently and not at the expense of the quality of the project.
I always like talking to litigators because they see the world a little bit differently. You can tell where the holes are. You can see around the corner and see what’s going to fly several years from now and what isn’t if we have a third party looking in. With regard to risk avoidance, in Colorado construction projects, focusing on the working phases, what can we look at there? Is it the same thing with documentation? How do we avoid risk as it keeps going? I know you said to own your own contracts. Is that basically it?
No, it’s just a part of the puzzle. It’s complex. It involves only your contracts. It involves understanding the team that you’re working with and managing them throughout. Building relationships with materials, suppliers, and contractors who you can rely on and making sure that you’re hiring people who might not be the cheapest bid but who have the most experienced. We’re talking about very technical trades here. In Colorado, the employment rate is low. It’s difficult to get trades. I know major contractors who were trying to get H1 visas for European workers, who are in specialty contractor trades. There are not enough workers here in Colorado to do that work. That’s continuing to be a problem. The management of these large and small projects has become even more complex because of the relative labor shortage. It involves working and partnering with people and making sure that your relationships are in order as well as your contracts. There are many different issues that come into play. Having a lawyer partner as a team with the management personnel throughout helps to iron out a lot of these issues.
Hiring a lawyer proactively from the beginning rather than reactively when the lawsuit comes in.
How did the insurance companies that ensure these contractors view a proactive involvement of an attorney that specializes in the building trades? What effect does that have from the insurance company’s perspective?
I don’t think it’s pushed enough, but I’m sure they appreciate it on the backside. It’s almost like health insurance. I don’t know if you get enough of a benefit for taking care of yourself early on, but we all can appreciate that. With enough preventative care, the long-term problems maybe not be eliminated but certainly lessened. If you get to an issue earlier rather than later, that’s better. It’s an interesting point that you raised, Bob. I wish the insurance company was a little bit more proactive about finding benefits for that. I haven’t yet seen a discount on your premium if you talk to a lawyer in advance to get risk management.
It’s very interesting to see when we’re more aggressive on risk management. We’ve reviewed all of our contracts. We have our policies and procedures in place. We document it as we go. It would seem to be the insurance company goes versus the fool over here that has no idea. He doesn’t document anything and you got a napkin contract. That’s just me. Maybe that’s just logical.
Maybe looking forward and being a proactive business owner, that might be something that they do as a policy. This is could be business ownership for Colorado construction company to say, “This is what we do for every single project. We bring in Butler Snow. We bring in Dave and Sarah.” They look over everything. It’s how we help us.
I will give the insurance company of benefit in the sense that the fewer claims you have, the better your future premiums are going to be. From that aspect, there is a benefit out there for those who manage their work and lower their risks through future premiums. I wish the benefit was maybe a little bit up front and a little clearer. Keep in mind, the more experience you have in claims and paying out claims, you’re not only dealing with deductibles, but you’re probably going to have a higher risk as you go forward.
There’s a lot of benefits to getting that work done proactively. Our firm has done fixed fee arrangements. Another thing that people shy away from is lawyers. How much is the bill going to be and how is that going to be run up? We can work arrangements with people if we do an initial consult or having a pre-planned meeting, getting involved early in on a project. We can fix feet bid, a risk review management so they have an assessment up front and know what to expect in terms of how much to pay. To get a contract review and another review of their insurance policies and documentation practices that would help them avoid, if not eliminate the risk of a lawsuit.
If any of the audience that is in the Colorado construction industry or looking at getting involved in Denver residential or commercial construction project, if they want to do one of these risk review meetings with you. How do I find you? Should I contact you on LinkedIn? Should we go to your website?
The website is probably the best resource, www.ButlerSnow.com. It’ll give the information on Sarah and me, the Denver Office and the resources that we have throughout our other offices that can provide them with the best review and management. We have personnel who are doing labor and employment law, who do other transactional work. Sarah and I have experience in risk planning, management, and also in the arbitration and litigation in just about every dispute that we’ve seen arise from a real estate or construction project. Our goal is to find the right person for their needs. If we can’t fill it, we’ll find you someone else.
I said, “The biggest mistake a listener can make is to not call.” You can always say not appropriate or not now. The thing that we encourage is to reach out. There’s no casualty so far.
I like the idea of a one-stop shop is what I’m understanding. A lot of construction companies are not just in Colorado. They’re all over the US and coming to a larger law firm like Butler Snow, it’s one call. My needs are taken care of if it’s an employment issue or litigation. You make it easy.
A lot of different areas, all businesses including construction have issues in labor and employment, or litigation, construction, contracts, workers’ compensation. There are lots of different areas and Butler Snow can cover them all. We all work together. We’re not separate offices that are distinct from one another. It’s one big firm. The flat fee idea can apply to all of that. Depending on what a customer needs, you could design a plan where you have a flat fee per month for whatever services you may need from the firm.
That’s good for everybody. That’s good for you and it’s good for them. They can bid appropriately. They know what their overhead is. To some extraordinary event, it just makes sense.
Maybe build it on all projects annually. We bring in your team, look at all the contracts and make sure the laws haven’t changed and make sure there hasn’t been any case law that has changed interpretation. The gravity of some of these lawsuits that I’ve seen, it would be a smart practice to bring in a team. Why not sit down for an afternoon with you and have you look it over?
With that being said, statutes of limitations for the construction business owner, for construction defects in Colorado, how long do they need to worry about it?
A long time, longer than you might think. It’s complicated like most things in the law. The general statute of limitations is two years. An owner or residential or commercial owner of the property who has a property to renovate it or built new, they have two years from the date that they knew or should have known of the issue to bring it up in a lawsuit or an arbitration typically. That two years can vary because it’s a new or should have known standard. It tends to be subjective and fact-dependent. Exactly when somebody knew or should have known of a leak, a settlement, a crack or some defect in the real property improvement is somewhat subjective and a little vague. There is a statute of repose that overlays that.
The contractor, builder, developer or other construction professional is safe from lawsuits if they occur more than six years after the date of substantial completion. It’s not defined in the statute, but it’s typically the date that the building is certified for occupancy. It gets even more complicated. If the defect is realized in your five or six, you have two years from that date of realization to bring a suit. I said six years, but it can be extended to possibly eight. What you have is a situation where at least eight years out you as a builder, designer, construction professionals are at risk from being brought into a lawsuit. Typically, people have warranties of one or five years, but these construction defects suits can be brought within that period of time. The Homeowner Act, it gives protection to not limit those repose or statute of limitations.
Here’s another twist. What we’ve seen now in commercial building projects with some municipalities is they demand from the builders, designers, and contractors a longer statute of repose. You can contract for that outside of that. It’s not atypical for a roofing contractor. If you get a new roof, it’s a warranty to the building and materials for ten years, or if you wanted to have another particular type of commercial roof, ten or fifteen years. You can do that outside of that. Sometimes municipalities and contracts are asking for and we’ve had builders and contractors come to us and say, “Is this legitimate?” It is. Some people are actually signing contracts and doing these projects without knowing that their owner or person that they’re building this for is asking for a longer statute of limitations and repose. That becomes complex because you need to maintain your insurance throughout that period of time, or risk going bare if you get hit for a claim and you’re ten, eleven or twelve. You’ve agreed to take on a longer time in your own statute of repose.
That’s where ignorance is expensive or it could be.
Ignorance is expensive.
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It’s tricky and it’s complicated. You need a lawyer up front to help you negotiate or work around this potential minefield of a long tail of exposure to claims.
If I’m the construction company and I got served with a construction defect lawsuit, what should I do?
You can call us. It can’t wait. We’ve had clients who are in default because they didn’t answer the complaint, or they didn’t respond. You’re going to spend a lot of time trying to get yourself out of that situation instead of defending yourself against the claim. The sooner we get involved, the better.
Depending upon where you’re served, if you’re served out of state or in state, you can have it as short as 21 days. If you don’t respond in 21 days, you could risk being a default, and undoing that is not easy. Courts take very seriously the deadlines for filing a response or protecting yourself in a lawsuit. Don’t throw it in your round file. Don’t put it on your desk. Don’t think it’s going to go away like that sore tooth. It’s going to get worse.
For that construction company, they get served or they think they’re going to get served. What do you do to help them perhaps occupy the highest ground available to them? What do you do for them?
There are measures you can do during the litigation to help mitigate or ameliorate the worst-case scenario. It takes a skilled litigator to prep the case, to talk to the witnesses, to develop experts who can come in and help provide the necessary expertise to either call a defect, a defect. If it’s not a defect, we talk about that and explain it or work on a proper remedy. Sometimes defects are there or issues or mistakes were made. The real issue is how much cost is the repair and what is legitimate and what is a figment of somebody’s imagination? Oftentimes plaintiffs’ lawyers are paid on the percentage of the amount that they get. They have a natural incentive to inflate the damages and it often gets done. That’s just life in our litigation system. As a result, most of our battles are over how much this costs. It requires a certain expertise to Marshall up the experts and learn to present that case at trial. That’s often working with the skilled construction professional or a person who’s been involved in either developing or designing or building the project, using their expertise together with a team of experts who we’ve worked with, who are experienced in testifying and know the game.
Again, going back to documents, the sooner you get us the documents, the sooner we talked to you. The sooner you find people that did the work or know the answer, that individual may be someone we have to go look for and find to talk to. The sooner you get that information, the better defense you’re going to have.
In a sweeping term or general term, how informed do you think the construction business owner is with some of the topics we covered?
People have a general idea that they can be sued and that lawsuits are out there. They’re expensive. They’re a part of life, especially in Colorado. There’s been a lot of publicity about the litigation of projects involving residential and commercial real estate. I don’t know if they appreciate the nuances of how they can best protect themselves and how they can position themselves well. It’s almost something that you keep out of mind and out of sight. There have been some people who are fortunately avoiding those. It’s almost an inevitability if you’ve been in the business for a long time to have a dispute of one way, shape or form happen. The key is how to protect yourself when that happens and make sure you have the proper planning to deal with it.
Oftentimes, they don’t know what they don’t know. I hope it’s a pretty thin strategy. I hope this doesn’t happen. Meranda, I’ve run out of my inventory of things to quiz you about. What about you?
I know that you published an article on condo conversions and that issue. Anything to insert, as a follow-up, because I know in Colorado that’s a big issue in our industry. Any final statement on condo conversions, anything to look out for? I know a lot of people are interested in that.
The repose period will be a big issue as to whether it applies and who it applies to. We’ve discussed whether there will be differences in how it’s looked at as to how much remodel are done or renovation is done to an apartment building before it becomes a condo. If it counts as new construction, what applies to that? It’s a minefield on how that will work. I don’t know that we have any direct authority in this state on how that will be handled.
Anybody who’s contemplating conversion from apartments to condominiums needs proper legal advice. With a firm like ourselves who’ve experienced litigation and litigation planning, there’s a lot of issues to deal with in terms of making sure that the apartments to condo conversion complies with the local building codes, whether the disclosures are done right, what kind of insurance you have going forward for those involved in the renovation or sale. There are a lot of issues that we can help with in terms of providing counseling and risk avoidance from day one.
The Disabilities Act on an older property, are you in or out of code? If you’re going to do a remodel, to what effect? Did you or didn’t you?
That will come back to the question as to consider it a new building or a remodel because certainly a lot of times you have to comply with the code at the time it’s built. If a new code comes out, it doesn’t mean you have to demolish your entire parking lot to comply. If you’re redoing the whole property to sell it, does that count as new construction under what you better now reconstructed or remodel it up to the current code? Anybody who’s on an old house, that can sometimes be difficult if the code has substantially changed.
With that being said, I’ll reiterate what I said before, and you did too. Even if you’re not in doubt, you’d be well served to make a call. It might be less than a little less expensive.
We are both on LinkedIn.
Dave, Sarah, I can’t tell you how much I appreciate you, the hospitality of this nice facility and sharing your wisdom. Thank you so much.
You’re welcome. Thank you.
We are both on LinkedIn.
Dave, Sarah, I can’t tell you how much I appreciate you, the hospitality of this nice facility and sharing your wisdom. Thank you so much.
You’re welcome. Thank you.
About Dave Mayhan
David is a member of Butler Snow’s litigation department and practices within the Tort, Transportation, & Specialized Litigation Group.
About Sarah O’Brien
Sarah is a member of Butler Snow’s litigation department and practices within the Tort, Transportation, & Specialized Litigation Group.
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