Sunday, March 26, 2017

Construction Insurance, Bonds, and Warranties

Doug Gallagher (left) and Rob Funk during their presentation at the March 23, 2017 CSI-Willamette Valley Chapter meeting (photo by Marina Wrensch)
Despite having worked in the trenches of the profession for over three decades now, construction insurance, bonds, and warranties remain among the most confusing and inscrutable matters of those requiring my everyday attention as an architect. Consequently, I looked to the March meeting of the Construction Specifications Institute – Willamette Valley Chapter as an opportunity to acquire clarity about a grouping of topics that are often the cause for misunderstandings and misconceptions amongst those in my profession. 

Our knowledgeable speakers for the evening were Doug Gallagher, Attorney of the eponymously named Douglas Gallagher Law Office PC , and Robert Funk, CIC of KPD Insurance and Risk Solutions. Their task was daunting—to describe the various forms of construction insurance, bonds, and warranties, and the salient features of each that distinguish their fundamental purposes—and they had only an hour within which to accomplish it. Given this constraint, the two men truly did their best to cover subject matter deserving the attention of an all-day seminar or much more. 

In a nutshell, Doug and Rob defined construction insurance, bonds, and warranties as follows: 

Construction Insurance
Fundamentally, insurance is a financial risk management tool, the primary concept of which involves the transference of the risk of potential financial loss from the insured to an insurance company in exchange for a monetary premium. 

Most everyone is familiar with insurance in one form or another, such as automobile insurance, homeowner’s insurance, or health insurance. Construction industry insurance is similar, protecting policy holders from catastrophic financial losses in the event of a claim or occurrence. 

Construction insurance includes coverage for general liability related to claims for bodily injury, property damage, personal injury, and others that can arise from construction-related activities. There are also professional liability policies, that protect individuals and companies from the full cost of defending claims of negligence, primarily for errors & omissions (after all, humans sometimes will make mistakes). Other forms of liability insurance include policies for managerial liability, and liability risks related to pollution, the actions of company directors and officers, cyber activities, and workers’ compensation. Excess liability policies provide coverage limits above those of an underlying liability policy, and are sometimes a contractual requirement on construction projects. 

Construction insurance also includes property insurance. Builder’s risk policies offer coverage in the event of property losses, protecting the insurable interests in materials, fixtures, and/or equipment being used in the construction or renovation of a building. Builder’s risk insurance can be purchased either by the owner or the general contractor, depending upon the terms of the Contract for Construction. It is usually a statutory requirement for public work. Inland marine coverage (a peculiar term as Rob pointed out) protects property in transit, as well as the instrumentalities of transportation (the bridges, roads, and piers, etc.). 

Property insurance purchased by one party can also provide coverage for the business or personal property of others, who become additional named insureds on the policy. This kind of coverage is often used in the instances where an owner may rely upon the insured contractor to provide protection of property the owner has paid for but is not yet part of the completed work (such as for materials stored in an off-site warehouse). 

Rob did leave us with cautionary words on the subject of construction insurance: Insurance, the saying goes, is like Swiss cheese. There’s a lot of substance to it but a lot of holes as well. It’s in everyone’s best interest to understand required and recommended coverages for any construction project. Doug seconded this point by saying it’s important to avoid limiting coverage through poor contract language. Equally important for everyone involved with a construction project is to review contractual requirements related to indemnification with their respective insurance providers. Finally, coordinating, verifying, and tracking certificates are keys to effectively managing insurance products. 

Surety Bonds
The easiest way to distinguish surety bonds from insurance policies is to understand that insurance provides protection from things beyond your control, whereas bonds come into play upon a breach of a contractual obligation. A bond is itself essentially a form of contract between a principal (the contractor) and the surety company (the “rich uncle” as Rob characterized it). It is a third party, usually the owner, who is the claimant when a bond is exercised. 

The various forms of surety bonds include bid bonds, performance bonds, payment bonds, and maintenance bonds: 

Bid bonds provide financial protection to the owner if a bidder is awarded a contract pursuant to the bidding process, but fails to sign the contract and provide required performance and payment bonds. The bid bond process also helps to screen out unqualified bidders and is often necessary to the process of competitive bidding.

Performance and Payment bonds protect an owner from financial loss in the event the contractor fails to perform the contract in accordance with its terms and conditions. With cause, an owner can declare a contractor in default and terminate the contract, and then can call on the surety to meet the surety’s obligations under the bond. 

Surety companies prequalify contractors based on their financial strength, construction expertise, and ability to perform the proposed work. By requiring surety bonds, owners present themselves with a level of assurance that the selected contractor will fulfill its contractual obligations successfully. Regardless, private owners do not always require contractors to furnish bonds because they increase the cost of a project. On the other hand, all public agencies do require performance and payment bonds. The bonds provide subcontractors and suppliers with remedies for losses for non-performance by the principal in the absence of construction lien rights on public projects.

Interestingly, Doug said AIA Document A312 – Performance Bond & Payment Bond does not entirely comply with the Oregon Regulatory Statutes. I’m not sure exactly how A312 fails to do so, but if I correctly recall what Doug said, it may have something to do with Oregon’s civil statutes of limitations. 

Maintenance bonds are purchased by a contractor and protect the owner of a completed construction project for a specified period against defects and faults in materials and workmanship. The purpose is to provide the owner with a means to ensure the cost to resolve problems is not an issue. 

A key concept associated with surety bonds is that a contractor who has had a claim filed against a bond must repay the surety for any compensation it makes to the obligee (the owner). 

One of the more vexing topics for anyone involved with construction is the purpose and true scope of warranties. Warranties are not to be confused with the correction period (usually one year in duration from the date of Substantial Completion), which is the time during which the contractor has the obligation to rectify deficient work. The correction period is associated with the contractor’s responsibility to generally correct deficiencies, whereas warranties apply to the need to complete a project in accordance with specific requirements of the contract documents. Warranties are a representation made by one party that another party can rely on. Warranties may be expressed (in writing) or implied (not directly stated but assumed to exist under common law). 

The problem with written warranties is that you need to fully understand what they say. Manufacturers are careful to only warrant what they directly control. Also, the scope of one manufacturer’s warranty may differ significantly from that of another manufacturer even though their products or systems may otherwise be similar and meet the project’s specified requirements; accordingly, it is incumbent on the design professional to clearly (and realistically) define warranty requirements and subsequently review submitted them with care to ensure the warranty provisions fully comply with them. 

What about “guarantees?” How is a guarantee different from a warranty? A guarantee is generally synonymous with a warranty; the difference is a guarantee is more akin to a surety bond, wherein someone makes a promise to be responsible for another’s debts or obligations. 

Class Limitations Periods in Oregon
Doug touched upon time limits on claims, which are important to be aware of under different circumstances. 

A statute of repose is intended to bar actions after a specified period has run from completion of a project. In Oregon, this period runs for 10 years for public projects, and 6 years for commercial projects. 

A statute of limitations differs from a statute of repose by being triggered by an “injury” or claim for damages. The time limits vary depending upon the nature of the claim. They are 6 years for breach of contract, 4 years for product liability, 2 years for upon disclosure of negligence, and 2 years from the date of discovery for design defects. 

If I understand correctly, this means a plaintiff can file a claim for, say, faulty construction within four years of identifying the problem if the statute of repose has not already been exceeded. 

*    *    *    *    *    *

As I suggested earlier, I find construction insurance, surety bonds, and warranties to be complex, nuanced, and confusing subjects. I hope I have conveyed the gist of the presentation by Doug and Rob with as much fidelity and with as few inaccuracies as possible. Big thanks to the both experts for taking on a considerable challenge with good humor, grace, and effectiveness. 

Big thanks too to Jeremy Moritz of the Eugene Builders Exchange for making the EBE available as our venue for the evening. Jeremy sees great things in the future for the Builders Exchange, even as the nature of construction information management is in great flux. I agree, and hope to see the relationship between EBE and CSI Willamette Valley Chapter flourish in the future.

Saturday, March 18, 2017

Educational Seminar: Fall Protection for New and Existing Buildings

Construction worker on the Empire State Building, during a time when there was less emphasis upon fall safety.
Join the Willamette Valley Chapter of the Construction Specifications Institute on Thursday, March 30, 2017 for what promises to be an essential educational seminar on fall protection for new and existing buildings. 

Attend the seminar and you will learn:
  • About fall protection regulations for construction and general industry
  • About temporary and permanently installed devices available for fall protection and fall restraint
  • About procedures for designing fall protection systems
  • How to design skylights and retrofit existing skylights for fall protection
  • To recognize potential difficulties with retrofitting existing buildings with fall protection systems 
The knowledgeable group of speakers will include:
  • Larry Fipps - Senior Safety Consultant, Oregon OSHA
  • Charlie Garcia - Engineered Solution Specialist, Guardian Fall Protection
  • Jody Moore - DeaMor Associates
  • Tom Jordan - Senior Project Manager, Ausland Group
  • Mack Landreth - Owner, Smith Sheet Metal
3 AIA/CES HSW Learning Units will be available by request to those who attend.

A thorough understanding of fall protection (elimination, prevention, or arrest) is invaluable for everyone involved with the design, construction, or maintenance of buildings where there may be a risk associated with working at height. According to the U.S. Department of Labor, falls account for 8% of all work-related trauma injuries leading to death. Undoubtedly, the number of workers whose lives are temporarily or permanently impacted by fall-related injuries are even more significant.

This is your chance to learn about fall protection regulations for new and exiting buildings, for construction and maintenance, from a panel of industry experts! Your clients look to you for solid advice; equip yourself with the facts. Don't miss this seminar. Here are the details: 

What: Fall Protection for New and Existing Buildings educational seminar 
When: Thursday, March 30, 2017   8:15 to 12:00 pm   Please arrive 10 mins early!
Where: Baker Downtown Center, 975 High Street, Eugene. Telecast Location: Bend Center, 80 NE Bend River Mall Drive, Bend.  
Credits:  3 AIA (CES HSW Learning Units) 
RSVP: Register no later than noon, Monday March 27 to Steve Gunn, CSI/CDT or (541) 686-2031. Remote attendees must RSVP with Steve! 
Registration: or pay at the door (check or cash fine, no cards accepted) 
Cost: $75.00  Cost includes continental breakfast, coffee, and snacks

Sunday, March 12, 2017

The Fickle Finger of Fate

Oregon’s Chris Boucher on the cover of the November 7, 2016 pre-season edition of Sports Illustrated magazine.
This had been an historically great season for the University of Oregon’s Men’s Basketball team. Another regular season Pac-12 championship, a place in the conference tournament championship game, and the prospect of a possible No. 1 seed heading into the NCAA tournament. The Ducks appeared to be a team of destiny, with a roster of remarkable athletes, most notably first-team all-American and Pac-12 player of year Dillon Brooks, Pac-12 defensive player of the year Jordan Bell, and the uniquely skilled, game-changing senior classman Chris Boucher
The bad news first spread via social media on Saturday afternoon, later to be confirmed by the major sports networks and news outlets just hours before the Pac-12 conference title game versus Arizona. Chris Boucher had torn the anterior cruciate ligament in one of his knees during the first half of Friday’s semi-final game against Cal. He was done for the season. He would not play in the conference championship game Saturday evening nor would he be available for the NCAA tournament. Given his backstory, the end to Boucher’s collegiate career seems particularly tragic. 
Without Boucher, the Ducks looked lost and undermanned during the first half against Arizona, a team Oregon had dominated during their only regular-season contest. They clearly missed Boucher’s spark off the bench (though gifted with talents of a starting player, he was Oregon’s game-changing “sixth man,” presenting matchup problems and a change of pace for opponents to contend with). The Ducks did rally in the second half, and came tantalizingly close at the end, but ultimately succumbed to Arizona’s superior depth and size. 
They say sports is a metaphor for life. Ideally, we all may be blessed to win more games than we lose. Sometimes though life is like the three-point shot attempt that fails to drop. In the real-world arena of business, not everything goes your way. There will be both losses and wins. The keys to success are to give everything your best shot, mastering the fundamentals of your field or industry, being focused, never permitting yourself to become too involved in things you cannot control, and learning from experiences, both good and bad. As legendary coach John Wooden said “Things turn out best for the people who make the best of the way things turn out.” 
Throughout my career as an architect, I’ve suffered my share of “losses.” Projects have gone sideways for any number of reasons: inadequate design coordination, budgetary setbacks, project delays, disgruntled clients. I like to think I’ve learned from these setbacks and, with the help of my mentors and teammates, managed to make the appropriate adjustments in each game plan. Turning to the words of coach Wooden again, “failure is not fatal, but failure to change might be.” Given the mutability of the world in which we work, architects must be resilient and welcome the need for change. Rather than make excuses, we should also embrace adversity by accepting its inevitability and building our resolve to overcome future obstacles. 
The Oregon Ducks still have important games to play. How will they respond to Boucher’s absence? Like any good team, the Ducks will move on, adjust, and prepare themselves both mentally and physically for the rigors of the NCAA tournament. They will not give up, however much they may miss having Chris Boucher on the floor. They will persevere. They will give it everything they have. They may come up short but it will not be because they did not try. Duck fans cling to the hope the team will surprise the pundits and oddsmakers by navigating its way through March Madness all the way to the Final Four in Phoenix. Without a doubt, Chris Boucher would have eased the path to the promised land; alas he can now only watch and cheer his teammates on. 
For better or worse, Oregon fans will ultimately judge the 2016-2017 men’s basketball season by how the team performs when the bright lights are turned on this coming week. Like I said, the players will give it everything they have. The fickle finger of fate has dealt the Ducks a bad hand and the loss of Chris Boucher is devastating. Regardless, the season may still prove to be truly historic. What’s most important though for the team and all of us who are fans, is to adopt the correct perspective and look for the learning opportunities in an adverse situation. 

Tuesday, March 7, 2017

Amazon Corner

Amazon Corner entry plaza rendering by Rowell Brokaw Architects

AIA-Southwestern Oregon’s Committee on Local Affairs (CoLA), of which I’m a member, penned the following commentary for the public record in response to an appeal of the decision by the City of Eugene Planning Director in favor of the proposed Amazon Corner development. CoLA supports the project.

Re: Amazon Corner (ARA/TIA 16-0017) 

The Committee on Local Affairs (CoLA) of the American Institute of Architects – Southwestern Oregon Chapter endorses in principle the proposed Amazon Corner mixed-use development. In our professional opinion, the project is entirely consistent with the forward-looking, broadly shared goals of Envision Eugene. We believe it holds great promise as an example of the much-needed type of infill development Envision Eugene champions, one that will help accommodate the anticipated growth of our city’s population while minimizing pressures to expand the urban growth boundary. 

In our view, the Amazon Corner project is attractive for several reasons. Per published plans, the development will: 

  • Increase the amount and diversity of housing to meet a currently underserved segment of the rental market; 
  • Support the City’s efforts to focus and encourage development along or very near to major transportation corridors (including what will likely be a new BRT alignment), bike and pedestrian paths; 
  • Include mixed uses, including retail spaces adding vibrancy to the pedestrian realm while providing desirable goods and services; 
  • Contribute toward a more walkable neighborhood; and 
  • Add people so local businesses flourish and public transit can operate with greater efficiency. 
While we are sympathetic to the immediate neighbors who have expressed concerns regarding adverse traffic impacts, we are optimistic those impacts will not prove to be as significant as they fear. Because of the presence of abundant access to transportation options, and the proximity of dining, shopping, and services, the residents of Amazon Corner may use their cars less than some expect. Regardless, we concur with the Planning Director’s decision mandating addition of a signalized pedestrian crossing on Hilyard Street and dedicated turn lanes to help traffic on East 31st Avenue get onto Hilyard. These are prudent measures that will help mitigate increases in vehicular traffic that may be associated with the project. 

Partial plan along Hilyard Street and west elevation (Rowell Brokaw Architects)

We find it noteworthy that the Eugene-based developers—Amazon Corner LLC—are not planning to build to the full potential permitted outright under the C-2 designation. While substantial, the proposed height of five stories will certainly be less obtrusive than a structure that may have taken full advantage of the 120’ height restriction. 

Promoting compact urban development is a strategy that has been proven elsewhere to foster housing choice, support efficient transportation options, and preserve arable and natural lands. If our city is to manage its growth in a manner consistent with the values espoused by Envision Eugene, we cannot afford to squander opportunities to encourage thoughtful compact development when they present themselves. In this case, Amazon Corner exactly fits the mold. If successful, it may serve as a valuable precedent for similar projects throughout Eugene that neighbors will welcome rather than oppose. We believe it is the right project, in the right place, at the right time. 

Scott Clarke, Eric Gunderson, Stan Honn, Randy Nishimura, and Travis Sheridan (1)
Members, American Institute of Architects – Southwestern Oregon Chapter Eugene-Springfield Committee on Local Affairs.  

(1)  Committee member Austin Bailey recused himself from comment because he is a member of the Rowell Brokaw Architects team working on the project for Amazon Corner LLC.

Sunday, March 5, 2017

Architecture is Awesome #13: Teamwork

Members of the Robertson/Sherwood/Architects team.
This is another in my series of posts inspired by 1000 Awesome Things, the Webby Award winning blog written by Neil Pasricha. The series is my meditation on the awesome reasons why I was and continue to be attracted to the art of architecture. 

The myth of the heroic, lone architect at odds with philistine clients persists even though the reality is much different. Almost every building project today is the product of teams of many people working together to realize a shared vision. Architects operate not only with design partners but also with owners, users, contractors, craftspeople, and the countless others necessary to realize something as complex as a building. Teamwork is an indispensable and essential aspect of the process of creating architecture. 
Numerous tomes on business management have expounded on the virtues of teamwork. When done properly, teamwork stimulates communication and sharing of ideas. Teamwork engenders a broad sense of ownership in a project, increases efficiency, and leverages multiple talents. Effective teamwork also fosters learning, creativity, and innovation. A productive team shares a common vision and a commitment to success and its associated expectations. 
The 1996 Chicago Bulls (photo source:

The best teams aren’t made up of people who all think alike, or who all have the same skillsets. Michael Jordan may be the most talented basketball player of all time but his 1990’s Chicago Bulls dynasty would never have been as successful if he wasn’t surrounded by precisely the right teammates and coaches. Scottie Pippen, Steve Kerr, Toni Kukoc, Dennis Rodman, Phil Jackson, and the other key members of those championship teams provided a diversity of personalities and strengths that perfectly complemented Michael’s. 
Despite the necessity of teamwork, there’s no doubting the indispensable genius of individual architects. Like Michael Jordan, their brilliance has often been the genesis of truly dazzling achievements. The many great architects we can cite are too numerous to ignore; however, their work unquestionably bears the marks of many hands. Even Howard Roark, the hero of Ayn Rand’s The Fountainhead, would rely upon assistants—a team—to pursue his rational self-interest. 
Gary Cooper as Howard Roark in The Fountainhead.
The master architect is most successful when he or she is also a consummate team player. The most successful firms value teamwork because they understand that a whole is greater than the sum of its parts. The empirical evidence is clear: What one can do, many can do better. 
Effective communication is critical to achieving the goal of wholeness in teamwork. Architects are fortunate today to have powerful collaboration tools at their disposal. For example, far-flung team members can share a common, cloud-based BIM model around the clock, a virtual embodiment of project synergy and the compounding power of group effort. As the complexity of architecture inexorably increases, the value of teamwork and tools to facilitate it will likewise appreciate. 
When a great team is on its game, it can win at anything. When the game in play is architecture, and the results are some of the greatest buildings and places humans have ever created, the AWESOME power of teamwork is undeniable.

Next Architecture is Awesome: #14 Harmony