COURSE NO CONSTRUCTION LAW SECTION 1 PROFESSOR ALAN E. HARRIS

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1 UNIVERSITY OF CALIFORNIA SCHOOL OF LAW TAKE-HOME COURSE EXAMINATION SPRING 2001 STUDENT EXAM #12 COURSE NO CONSTRUCTION LAW SECTION 1 PROFESSOR ALAN E. HARRIS You have 24 hours to complete this exam. To pick up this exam from Take-Home Exam Headquarters, Room 123 Boalt, you MUST bring; your exam label with your exam number on it. This copy of the exam will then be date- and time-stamped. You must return this copy of the exam and your exam answers to Take-Home Exam Headquarters within 24 hours after picking it up. Your answers will be date- and time-stamped. Type your exam number, course name, page number and instructor's name on each page of your typed answers. Answers must be typed and double-spaced. SPECIAL INSTRUCTIONS: 1. There are 2 questions, a total of 4 pages of the exam. You must answer both questions. 2. The total number of words for both answers combined should be limited to 2,500. You can allocate the words between the answers as you choose.

2 FINAL EXAMINATION Course No Construction Law Section 1 Professor Alan E. Harris Question 1: Ownership Properties has asked for your advice on the probable outcome of its dispute with Construction Specialists and its potential exposure to a claim made by Sure- Wall Stucco. Ownership presents you with the following facts: In April 1999, it entered into a written contract with Construction Specialists for the construction of a strip mall containing seven spaces for tenants. The project had 3000 total square feet and, because of the strong market, Ownership had pre-leased all of the space for $2lsquare footlmonth. The project was scheduled to be completed in six months from April 15, 1999 (Construction Specialties had been given 15 days to mobilize its workers after the contract was signed). In fact, the work wasn't completed until December 15, Construction Specialties has filed a lawsuit for damages against Ownership. Construction Specialties has alleged the delayed construction was caused as follows: 3 days were lost due to a design error that stopped the glass installation until the architect came up with a solution; 37 days were lost because the owner changed its mind in the middle of construction and switched from a metal roof to Spanish tiles; 20 days were lost due to unusual rain in September (the roof was still being installed at this time and this rain would not have been a problem if the job was on schedule since the original schedule showed the roof being installed in August). Neither the glass change nor the roofing change was included in a change order signed by the parties. Ownership tells you that the problem with the glass was a design error but doesn't believe it delayed completion of the project. Ownership also advises you that for 20 of the days the contractor claims a roof delay, he couldn't have put the roof in because the original roofing subcontractor had gone bankrupt. Construction Specialties' claim is for: 1. All of the money it spent on the job over what it had budgeted for the job; plus 2. 10% of the money it paid for interior labor (painting, carpet, dry wall, etc) because those workers had to work around puddles caused by water getting in through the incomplete roof (Construction Specialties had all of these people working in a confined space without a full roof because Ownership kept screaming about.its need to get tenants into

3 the mall); plus 3. The profits it planned to make building the fast food restaurant across the street (it lost that contract because the other owner wanted its restaurant finished by the rainy season and did not see how Construction Specialties would be able to get to that work because of the delays in the work for Ownership Properties); plus 4. $1000 per day for 60 days for the time spent by Construction Specialties' president in calling subcontractors, the architect and City officials to push the project to completion. Ownership wants to know the legal rights that Construction Specialties has against it. In addition, Ownership wants to know if it can get the suit thrown out because Construction Specialties was licensed only as an electrical contractor when it signed the contract and only got a general contractor's license three weeks later when the City inspector threatened to shut down the job. The City should have picked up this problem when Construction Specialties applied for the building permit the day it signed the contract and a proper license would definitely have been issued in time to have it in place before the work started. To protect itself if the suit isn't thrown out for this reason, Ownership wants to know if it can successfully sue the architect for indemnity. The architect and Ownership signed a contract with an indemnity agreement identical to that in the AIA B141 form. Ownership advises you, however, that the contract also has a limitation of liability clause which says the architect will help Ownership in any dispute with Construction Specialties at no charge, but that any liability to Ownership for indemnity is limited to $1. Ownership can't believe it signed such an agreement and wants to know if this limitation is valid. Ownership also believes that all of the delay in the work was Construction Specialties' fault and wants to recover the liquidated damages of $1000 per day set up in the contract. Ownership has withheld $10,000 from Construction Specialties because it is dissatisfied with the "feel" of the exterior stucco. Everyone agrees that the stucco is uneven in color but Construction Specialties says this is what is produced when the specifications are followed and that it looks as good as most strip malls. Construction Specialties also points out that the City, the architect, the owner's construction manager and Ownership all saw the stucco going in and didn't complain until the end of the job. The cost of tearing out and replacing the stucco would be at least $20,000 and the stores couldn't be used while this is being done. Since Ownership hasn't paid Construction Specialties, it hasn't paid Sure-Wall Stucco (its subcontractor). sure-wall has filed a suit which has been consolidated with Construction Specialties' suit. Sure-Wall's suit asks for $10,000 from Construction Specialties on its subcontract and the same amount from

4 Ownership claiming that its work was fine. Ownership wants to know if it can successfully defeat the suit for lack of privity. Since Ownership wants to put pressure on Construction Specialties, it also wants to know if Construction Specialties can stand behind its "pay when paid" clause with Sure-Wall or its claim that it doesn't have to pay Sure-Wall for work the owner is unhappy with, or whether Construction Specialties will soon be forced to advance the $10,000 to Sure-Wall. Finally, Ownership wants to know if the City is responsible for any of these damages and under what circumstances could it sue its construction manager for having talked Ownership out of using Mega Contractors for this project. Your advice should be based on general legal principles, except that you should assume the California statutes for licensing, indemnity and liquidated damages apply. Question 2: Donald Developer has an opportunity to acquire the rights to develop the Ferry Building in San Francisco. He has developed a concept involving a public market on the ground floor along with a cafe. His plans for the second floor are for an upscale restaurant and an elegant hotel on the second and third floors. These floors have outstanding views of the San Francisco Bay and the East Bay. He is not sure what uses have been made of the building in the past, but he is sure that at times it was used as the repair yard for ferries and also knows that no structural upgrades have been made since at least the 1950s. His plan is to demolish the interior of the building but to retain the exterior shell. While his ideas are still in flux, Developer knows how many hotel rooms he wants and what rate he intends to charge. As for the restaurant, he is open to ideas on the theme of the restaurant and its menu. He knows that he will have to meet severe City health requirements to operate his open-air food market at the street level but will do anything to retain that part of the development because of its uniqueness in San Francisco. While he has developed apartments before, this is by far Developer's biggest project ever. He has lined up investors but they have set an absolute maximum that he can spend on the project. He is also concerned because many new restaurants, cafes and hotels are on the drawings boards for this area and because a permit is pending to allow a Farmer's market to open on weekends in a park two blocks away. Therefore, time is very important to him. Developer has several questions for you: 1. Should he use a design, bid and build approach; a desigdbuild approach; a multiple prime contractor approach; or some other approach to maximize his chances of getting the project done to his liking, but on time and within his

5 financial resources? 2. Should he use fixed price contracts, time and material contracts or some other form, and should he require whoever is handling the construction to give a guaranteed maximum price? 3. Should he require bonds from anyone? 4. What payment provisions should be included in his contracts to help insure that the job will not shut down before completion, that everyone who works on the job will be paid, and that the work will be done to his satisfaction? 5. How should he deal with the unknown toxic and structural conditions? With your advice, Developer will decide whether to start the ride of his life. Give him your thoughts on how he should proceed and why you think this is the best approach for him to take.

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