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Blueprint for Disaster: A Case Study of Why Architects Should Use Caution When Contracting with Geotechs Michael A. Hoffer, AIA Hahnfeld Hoffer Stanford.

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Presentation on theme: "Blueprint for Disaster: A Case Study of Why Architects Should Use Caution When Contracting with Geotechs Michael A. Hoffer, AIA Hahnfeld Hoffer Stanford."— Presentation transcript:

1 Blueprint for Disaster: A Case Study of Why Architects Should Use Caution When Contracting with Geotechs Michael A. Hoffer, AIA Hahnfeld Hoffer Stanford M. Brandon Waddell, Esq. Vincent Lopez Serafino Jenevein, PC

2 The Dairy Center Project A Public University System retains HHS to design a Dairy Center A Public University System retains HHS to design a Dairy Center –Dairy Center to be leased by University to Local Operator and operated for profit –Local Operator will in turn allow access to the facility to students enrolled in dairy classes at the University

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17 Critical Project Issues Accelerated Project Schedule Accelerated Project Schedule TCEQ Permit for Confined Animal Facility TCEQ Permit for Confined Animal Facility –State required over one year to review and release permit for lagoon construction –High water table discovered in vicinity of waste water lagoon Owner procurement of rotary milking parlor and equipment Owner procurement of rotary milking parlor and equipment

18 Critical Project Issues Weather delays Weather delays –Site excavation and lagoon construction Electrical Co-op serving region and TXDOT were slow to respond to engineering requests Electrical Co-op serving region and TXDOT were slow to respond to engineering requests Construction Manager at Risk Construction Manager at Risk

19 Contract Negotiation University drafted the contract University drafted the contract Basic Services included Architectural, Civil, Structural and MEP Services Basic Services included Architectural, Civil, Structural and MEP Services University insisted that HHS retain the geotechnical engineer and included the geotechnical investigation as a Reimbursable Service under the contract University insisted that HHS retain the geotechnical engineer and included the geotechnical investigation as a Reimbursable Service under the contract

20 Geotechnical Firm TCEQ required the pond liner be engineered by a geotechnical engineer with the specifications sealed by the engineer TCEQ required the pond liner be engineered by a geotechnical engineer with the specifications sealed by the engineer In August 2009, HHS approached a local geotechnical firm regarding the project In August 2009, HHS approached a local geotechnical firm regarding the project Geotechnical firm assured HHS that it had previous experience with pond liners and could design it Geotechnical firm assured HHS that it had previous experience with pond liners and could design it

21 Contract with Geotechnical Firm Geotechnical firm forwards its proposal to HHS Geotechnical firm forwards its proposal to HHS –Includes the Geotechnical Firm’s Standard Terms and Conditions The Standard Terms and Conditions were accepted by HHS The Standard Terms and Conditions were accepted by HHS

22 Geotechnical Report Geotechnical firm forwards its Geotechnical Report to HHS which includes the specifications for the pond liner Geotechnical firm forwards its Geotechnical Report to HHS which includes the specifications for the pond liner Geotechnical firm initially took 10 borings but based on a high water table near the pond, additional borings were required and piezometers were placed for monitoring Geotechnical firm initially took 10 borings but based on a high water table near the pond, additional borings were required and piezometers were placed for monitoring

23 Geotechnical Report Design included a 36-inch liner placed in 8 inch lifts and compacted to 6 inches: Design included a 36-inch liner placed in 8 inch lifts and compacted to 6 inches: –92% - 95% of Maximum Dry Density –Moisture Conditioned on the wet side of optimum between 4% and 7% above the Optimum Moisture Content –Compaction should be verified by lab that a coefficient of permeability of 1x10 -7 cm/sec or less is achieved

24 Geotechnical Report The Geotechnical firm’s design is submitted to TCEQ for comment in September The Geotechnical firm’s design is submitted to TCEQ for comment in September No comments are immediately received from TCEQ No comments are immediately received from TCEQ

25 TCEQ Permit 8 months following the issuance of the Geotechnical report, TCEQ issues its draft permit regarding the pond liner 8 months following the issuance of the Geotechnical report, TCEQ issues its draft permit regarding the pond liner TCEQ required an 18-inch liner: TCEQ required an 18-inch liner: –Minimum Compaction- 95% –Moisture Conditioned to -1% to 3% of optimum moisture content –Compaction should be verified by lab that a coefficient of permeability of 1x10 -7 cm/sec or less is achieved

26 Comparison Geotechnical Firm TCEQ Thickness of Liner 36 inches 18 inches Compaction 92% to 95% At least 95% Moisture Content +4% to +7% -1% to 3% Permeability 1x10 -7 cm/sec

27 Permit Review and Construction Upon receipt, HHS forwards the TCEQ Permit and liner requirements to the Geotechnical firm to review and comment Upon receipt, HHS forwards the TCEQ Permit and liner requirements to the Geotechnical firm to review and comment Geotechnical firm never responds Geotechnical firm never responds Final Permit is issued in August 2010 and construction commences on the liner in accordance with the Geotechnical firm’s Specifications Final Permit is issued in August 2010 and construction commences on the liner in accordance with the Geotechnical firm’s Specifications Liner is fully placed, fails only one test during construction, and the Owner is pleased with the results Liner is fully placed, fails only one test during construction, and the Owner is pleased with the results

28 Construction of Pond Liner Construction was delayed by weather and final permit approval by TCEQ Construction was delayed by weather and final permit approval by TCEQ Owner hired an independent testing lab to observe construction Owner hired an independent testing lab to observe construction –Key tests included clay liner compaction and permeability tests required to meet TCEQ standards Construction took approximately 2 months Construction took approximately 2 months

29 Post-Construction Substantial completion of the Project occurs in in December 2010 Substantial completion of the Project occurs in in December 2010 In January 2011, a local resident contacts TCEQ regarding the dairy and asks TCEQ to investigate the Project In January 2011, a local resident contacts TCEQ regarding the dairy and asks TCEQ to investigate the Project The local resident stated he was concerned about wastewater runoff and effects of the dairy on the groundwater The local resident stated he was concerned about wastewater runoff and effects of the dairy on the groundwater

30 Post-Construction Copies of all test reports are provided to TCEQ Copies of all test reports are provided to TCEQ In February 2011, HHS and members from the Environmental and Geotechnical teams meet with TCEQ In February 2011, HHS and members from the Environmental and Geotechnical teams meet with TCEQ Geotechnical firm defends its design Geotechnical firm defends its design

31 TCEQ Response March 31, TCEQ issues a letter to the University stating the pond liner, as built, does not meet the compaction requirements of the permit March 31, TCEQ issues a letter to the University stating the pond liner, as built, does not meet the compaction requirements of the permit TCEQ directs the University to construct the liner in accordance with the compaction requirements of the permit TCEQ directs the University to construct the liner in accordance with the compaction requirements of the permit Problem- Remediation of the liner would require removal and replacement due to the elevation of an inlet pipe that prevented placement of additional lifts per the TCEQ specification Problem- Remediation of the liner would require removal and replacement due to the elevation of an inlet pipe that prevented placement of additional lifts per the TCEQ specification

32 Claim is Made The University forwards the demand to reconstruct the liner to HHS The University forwards the demand to reconstruct the liner to HHS HHS contacts Joe Bryant to report the claim HHS contacts Joe Bryant to report the claim Carrier engages Brandon Waddell to represent HHS Carrier engages Brandon Waddell to represent HHS

33 Initial Meeting Issues addressed: Issues addressed: –HHS willing to do whatever was necessary to bring the project online –Carrier wanted to address the issue quickly due to potential for a significant consequential damage claim by the University and Operator Contracts reviewed and facts discussed Contracts reviewed and facts discussed

34 The Plan: Quick and Cost Effective Engage an independent expert to analyze and defend the initial liner design Engage an independent expert to analyze and defend the initial liner design Promote acceptance of the design to the University and ultimately to TCEQ Promote acceptance of the design to the University and ultimately to TCEQ Simultaneously make demand to the geotechnical firm to pay for the remediation costs Simultaneously make demand to the geotechnical firm to pay for the remediation costs In the event TCEQ refuses to accept the as- built liner, facilitate prompt payment of the claim so that the facility could open and HHS could pursue the Geotechnical firm In the event TCEQ refuses to accept the as- built liner, facilitate prompt payment of the claim so that the facility could open and HHS could pursue the Geotechnical firm

35 Demand to Geotechnical Firm Attorney demand sent to Geotechnical firm upon engagement Attorney demand sent to Geotechnical firm upon engagement –Set forth the terms of the Agreement for Engineer to provide specifications for the liner in conformance with TCEQ Regulations –Demanded the Geotechnical firm to pay for the cost of replacement plus attorney’s fees –Geotechnical firm given 10 days to respond

36 Expert Review and TCEQ Independent geotechnical expert reviews as-built design and agrees that liner is sufficient to comply with permeability standards issued by TCEQ Independent geotechnical expert reviews as-built design and agrees that liner is sufficient to comply with permeability standards issued by TCEQ Based on the expert’s opinion, HHS contacts TCEQ to arrange a meeting Based on the expert’s opinion, HHS contacts TCEQ to arrange a meeting TCEQ unwilling to meet with HHS because HHS was not the “Applicant” for the permit TCEQ unwilling to meet with HHS because HHS was not the “Applicant” for the permit

37 TCEQ Meeting University contacted regarding the necessity for University to request meeting as Applicant University contacted regarding the necessity for University to request meeting as Applicant University initially unwilling to ask the TCEQ to meet with our expert University initially unwilling to ask the TCEQ to meet with our expert After a week of negotiation, the University agrees to request the meeting but is apologetic to TCEQ and is unwilling to advocate on behalf of HHS After a week of negotiation, the University agrees to request the meeting but is apologetic to TCEQ and is unwilling to advocate on behalf of HHS

38 TCEQ Meeting Within 3 weeks of the claim being made, the meeting with TCEQ occurs Within 3 weeks of the claim being made, the meeting with TCEQ occurs Independent expert and Mr. Hoffer present data evidencing that the liner is suitable given the in-situ conditions and clearly explain that the as-built liner will perform substantially better than the liner proposed in the permit Independent expert and Mr. Hoffer present data evidencing that the liner is suitable given the in-situ conditions and clearly explain that the as-built liner will perform substantially better than the liner proposed in the permit

39 TCEQ Response TCEQ instructs that the liner must be removed and replaced TCEQ instructs that the liner must be removed and replaced –TCEQ would not give credit for any portion of the liner that did not meet the compaction requirements

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41 Geotechnical Firm Geotechnical firm’s deadline to respond to demand had passed Geotechnical firm’s deadline to respond to demand had passed We learned that the Geotechnical firm was unwilling to submit its claim to its carrier We learned that the Geotechnical firm was unwilling to submit its claim to its carrier After 2 nd demand letter and several conversations between the Geotechnical firm and its broker, the Geotechnical firm submits the claim After 2 nd demand letter and several conversations between the Geotechnical firm and its broker, the Geotechnical firm submits the claim

42 Contract with University Drafted by University Drafted by University Architect’s Services included: Architect’s Services included: – Basic Services Architectural, Civil, Structural, MEP, etc. Architectural, Civil, Structural, MEP, etc. –Reimbursable Services Geotechnical, TCEQ Permitting, Site Survey, etc.) Geotechnical, TCEQ Permitting, Site Survey, etc.)

43 Contract with University “Architect shall take reasonable precautions to verify the accuracy and suitability of any drawings, plans, sketches, instructions, information, requirements, procedures, requests for action and other data supplied to Architect (by Owner or another party) that Architect uses for the Project. Architect shall identify to the Owner in writing any such documents or data which, in Architect’s professional opinion, are unsuitable, improper or inaccurate in connection with the purposes for which such documents or data are furnished.” “Architect shall take reasonable precautions to verify the accuracy and suitability of any drawings, plans, sketches, instructions, information, requirements, procedures, requests for action and other data supplied to Architect (by Owner or another party) that Architect uses for the Project. Architect shall identify to the Owner in writing any such documents or data which, in Architect’s professional opinion, are unsuitable, improper or inaccurate in connection with the purposes for which such documents or data are furnished.”

44 Contract with University (Cont.) “Architect’s services shall be free from any material errors or omissions in accordance with the Standard of Care.” “Architect’s services shall be free from any material errors or omissions in accordance with the Standard of Care.” “Owner shall have the right to reject any of Architect’s services because of any fault or defect in the Project due to any material errors or omissions in the Plans, Drawings, Specifications, and other materials prepared by Architect or its consultants.” “Owner shall have the right to reject any of Architect’s services because of any fault or defect in the Project due to any material errors or omissions in the Plans, Drawings, Specifications, and other materials prepared by Architect or its consultants.”

45 Contract with University (Cont.) “Upon notice of any such errors or omissions, Architect shall promptly provide any and all services necessary to correct or remedy them at no additional cost to the Owner.” “Upon notice of any such errors or omissions, Architect shall promptly provide any and all services necessary to correct or remedy them at no additional cost to the Owner.” “Architect’s obligation to correct its error and omissions is in addition to, and not in substitution for, any other remedy for defective services which Owner may have at law or in equity or both.” “Architect’s obligation to correct its error and omissions is in addition to, and not in substitution for, any other remedy for defective services which Owner may have at law or in equity or both.”

46 Contract with Geotechnical Firm Proposal for engineering of the pond liner included a $4,000 fee Proposal for engineering of the pond liner included a $4,000 fee Geotechnical firm’s Standard Terms and Conditions were attached to the Proposal Geotechnical firm’s Standard Terms and Conditions were attached to the Proposal Signed and accepted by HHS Signed and accepted by HHS

47 Limitation of Liability Limitation of Liability- SHOULD [ENGINEER] OR ANY OF ITS PROFESSIONAL EMPLOYEES BE FOUND TO HAVE BEEN NEGLIGENT IN THE PERFORMANCE OF ITS WORK, OR TO HAVE MADE AND BREACHED ANY EXPRESS OR IMPLIED WARRANTY, REPRESENTATION OR CONTRACT, CLIENT, ALL PARTIES CLAIMING THROUGH CLIENT, AND ALL PARTIES CLAIMING TO HAVE IN ANY WAY RELIED UPON [ENGINEER’S] WORK AGREE THAT THE MAXIMUM AGGREGATE AMOUNT OF THE LIABILITY OF [ENGINEER] SHALL BE LIMITED TO $25,000 OR THE TOTAL AMOUNT OF THE FEE PAID TO [ENGINEER] FOR ITS WORK PERFORMED WITH RESPECT TO THE PROJECT, WHICHEVER IS GREATER Limitation of Liability- SHOULD [ENGINEER] OR ANY OF ITS PROFESSIONAL EMPLOYEES BE FOUND TO HAVE BEEN NEGLIGENT IN THE PERFORMANCE OF ITS WORK, OR TO HAVE MADE AND BREACHED ANY EXPRESS OR IMPLIED WARRANTY, REPRESENTATION OR CONTRACT, CLIENT, ALL PARTIES CLAIMING THROUGH CLIENT, AND ALL PARTIES CLAIMING TO HAVE IN ANY WAY RELIED UPON [ENGINEER’S] WORK AGREE THAT THE MAXIMUM AGGREGATE AMOUNT OF THE LIABILITY OF [ENGINEER] SHALL BE LIMITED TO $25,000 OR THE TOTAL AMOUNT OF THE FEE PAID TO [ENGINEER] FOR ITS WORK PERFORMED WITH RESPECT TO THE PROJECT, WHICHEVER IS GREATER

48 Indemnity Indemnity- To the fullest extent permitted by law, [Architect] expressly agrees to defend (at Architect’s expense and with counsel acceptable to Engineer), indemnify, and save and hold harmless [Engineer] from and against any claims, suits, losses, causes of action, damages, liabilities, and expenses of any kind whatsoever, including, without limitation, all expenses of litigation and arbitration, court costs, and attorney’s fees, arising on account of or in connection with any and all damages to the property (including the loss of use thereof)…. INCLUDING DAMAGES WHICH ARISE FROM OR IN CONNECTION WITH, OR ARE CAUSED BY ANY ACT, ERROR, OMISSION, OR NEGLIGENCE OF [ENGINEER]…BUT EXCLUDING DAMAGES CAUSED BY THE SOLE NEGLIGENCE OR WANTON AND WILLFUL MISCONDUCT OF [ENGINEER].” Indemnity- To the fullest extent permitted by law, [Architect] expressly agrees to defend (at Architect’s expense and with counsel acceptable to Engineer), indemnify, and save and hold harmless [Engineer] from and against any claims, suits, losses, causes of action, damages, liabilities, and expenses of any kind whatsoever, including, without limitation, all expenses of litigation and arbitration, court costs, and attorney’s fees, arising on account of or in connection with any and all damages to the property (including the loss of use thereof)…. INCLUDING DAMAGES WHICH ARISE FROM OR IN CONNECTION WITH, OR ARE CAUSED BY ANY ACT, ERROR, OMISSION, OR NEGLIGENCE OF [ENGINEER]…BUT EXCLUDING DAMAGES CAUSED BY THE SOLE NEGLIGENCE OR WANTON AND WILLFUL MISCONDUCT OF [ENGINEER].”

49 Response from Geotech’s Carrier Engineer’s liability is limited to $25,000 Engineer’s liability is limited to $25,000 Engineer’s design was justified Engineer’s design was justified Damages were not caused by the sole negligence of Engineer Damages were not caused by the sole negligence of Engineer Geotech has instructed the Carrier to seek indemnification for all attorney’s fees incurred pursuant to the contract Geotech has instructed the Carrier to seek indemnification for all attorney’s fees incurred pursuant to the contract

50 Translation

51 Limitation of Liability Limitation of Liability (LOL) clause- A contractual provision that restricts the amount of damages a client can recover from a designer Limitation of Liability (LOL) clause- A contractual provision that restricts the amount of damages a client can recover from a designer Properly drafted, and where enforceable, it can provide protection against contractual breaches and negligence Properly drafted, and where enforceable, it can provide protection against contractual breaches and negligence –Will not protect against intentional misconduct –Will not limit the designer’s liability to persons other than the client

52 Indemnity Indemnity Provision- A clause which states that a party to the contract agrees to compensate the other party for any losses incurred as a result of the performance of the contract or in association with the contract. Indemnity Provision- A clause which states that a party to the contract agrees to compensate the other party for any losses incurred as a result of the performance of the contract or in association with the contract. Important to understand the differences between LOL and indemnity clauses: one is a damage cap, the other is an agreement to pay another for damages they incur or have to pay Important to understand the differences between LOL and indemnity clauses: one is a damage cap, the other is an agreement to pay another for damages they incur or have to pay

53 Limitation of Liability No per se rule in Texas that prohibits a design professional from limiting its liability through contract No per se rule in Texas that prohibits a design professional from limiting its liability through contract However, there are very few reported cases concerning the issue of the enforceability of a design professional’s limitation of liability and whether such a clause violates public policy However, there are very few reported cases concerning the issue of the enforceability of a design professional’s limitation of liability and whether such a clause violates public policy

54 Case Law CBI NA-CON v. UOP, Inc. (1998 Houston case) CBI NA-CON v. UOP, Inc. (1998 Houston case) –Designer’s liability limited to reperforming non-conforming work –The court did not provide any legal analysis regarding the enforceability of the provision –However, the provision was upheld by a 2-1 margin

55 Case Law City of Dillingham v. CH2M Hill (Alaska Supreme Court) City of Dillingham v. CH2M Hill (Alaska Supreme Court) –Owner signs a contract with Civil Engineer that includes an LOL clause –Alaska Anti-Indemnity Statute: bars indemnity for the sole negligence of a design professional in a construction contract –Court commented that it was clear that the legislature, by enacting the statute, intended to prevent parties from bargaining away liability - HELD: LOL clause was unenforceable.

56 Case Law Lanier v. Planners and Engineers Collaborative, LP (Georgia Case) Lanier v. Planners and Engineers Collaborative, LP (Georgia Case) –LOL Clause: “In recognition of the relative risks and benefits of the project, both to Developer and Engineer, the risks have been allocated such that Lanier agrees, to the fullest extent permitted by law, to limit the liability of Engineer and its subconsultants to Developer and to all construction contractors and sub-contractors on the project or to any third parties for any and all claims, losses, costs, and damages of any nature whatsoever...so that that the total liability of Engineer and its subconsultants to all those named shall not exceed Engineer’s total fee for services rendered on the Project.”

57 Case Law Lanier (cont’d.) Lanier (cont’d.) –Georgia Anti-Indemnity Statute states: “A covenant, promise, agreement or understanding in a contract relative to the construction, alteration, repair or maintenance of a structure …purporting to indemnify or hold harmless the promisee against liability for damages to property caused by or resulting from the sole negligence of the indemnitee is against public policy and is void and unenforceable.” –There was no finding that the Engineer’s sole negligence was the cause of the construction defect.

58 Case Law Holding: –LOL is unenforceable Reason: as drafted, it allowed the Engineer to shift liability to third parties and applied even if the sole negligence of the Engineer was the cause of the damage Reason: as drafted, it allowed the Engineer to shift liability to third parties and applied even if the sole negligence of the Engineer was the cause of the damage

59 Case Law 1800 Octillo v. WLB Group (Arizona Supreme Court) 1800 Octillo v. WLB Group (Arizona Supreme Court) –Registered Land Surveyor's contract included a limitation of liability provision –LOL Provision: “Client agrees that the liability of WLB, its agents and employees, in connection with [the] services hereunder to the Client and to all persons having contractual relationships with them, resulting from any negligent acts, errors and/or omissions of WLB, its agents and/or employees is limited to the total fees actually paid by the Client to WLB for services rendered by WLB hereunder.

60 Case Law –Arizona Anti-Indemnity Statute stated: “A covenant clause or understanding in, collateral to or affecting a construction contract or architect or engineer professional services contract that purports to indemnify, to hold harmless or to defend the promisee from or against liability for loss or damage resulting from the sole negligence of the promisee or the promisee’s agents, employees or indemnitee is against the public policy of this state and is void.”

61 Case Law Holding: The LOL provision is enforceable. Holding: The LOL provision is enforceable. Rationale: “The LOL provision [did] not completely insulate the Surveyor from liability, as would an indemnity or hold harmless provision, nor did it require the Developer to defend the Surveyor. Instead, the provision merely limited liability.” Rationale: “The LOL provision [did] not completely insulate the Surveyor from liability, as would an indemnity or hold harmless provision, nor did it require the Developer to defend the Surveyor. Instead, the provision merely limited liability.”

62 Case Law Markborough v. Superior Court (California) Markborough v. Superior Court (California) –Geotechnical Engineer included an LOL clause in the “fine print” of its standard terms and conditions –California Anti-Indemnity statute provided that “all provisions which purport to indemnify the promisee against liability for damages for death or bodily injury, property damage or any other loss arising from the sole negligence of the promisee or for defects in design furnished by the promisee are against public policy and are void and unenforceable.”

63 Case Law Holding: The LOL is enforceable so long as the parties had an opportunity to negotiate. Holding: The LOL is enforceable so long as the parties had an opportunity to negotiate. –The court gave 4 caveats to holding: The client was a major residential developer and capable of negotiating commercial agreements The client was a major residential developer and capable of negotiating commercial agreements The suit did not involve personal injuries—as the court put it, the damages were “only money” The suit did not involve personal injuries—as the court put it, the damages were “only money” The limitation amount was reasonable (greater of $50,000 or the total fee). The damage was over $5,000,000.00! The limitation amount was reasonable (greater of $50,000 or the total fee). The damage was over $5,000,000.00! Court found there was an actual opportunity for negotiation (Geotech did not refuse to negotiate) Court found there was an actual opportunity for negotiation (Geotech did not refuse to negotiate)

64 Texas Anti-Indemnity Statute In 1987, the Legislature enacted a very limited Anti-Indemnity statute that prevented design professionals from seeking indemnity from contractors for the design professional’s sole negligence In 1987, the Legislature enacted a very limited Anti-Indemnity statute that prevented design professionals from seeking indemnity from contractors for the design professional’s sole negligence It did not prevent design professionals from indemnifying each other It did not prevent design professionals from indemnifying each other As of January 1, 2012, Texas has a new Anti-Indemnity Statute As of January 1, 2012, Texas has a new Anti-Indemnity Statute

65 Texas Anti-Indemnity Statute Section 151 of the Texas Insurance Code Section 151 of the Texas Insurance Code –“A provision in a construction contract, or in an agreement collateral to or affecting a construction contract, is void and unenforceable as against public policy to the extent that it requires an indemnitor to indemnify, hold harmless, or defend a party, including a third party, against a claim caused by the negligence or fault, the breach or violation of a statute, ordinance, regulation, standard, or rule, or the breach of a contract of the indemnitee, its agent or employee, or any third party under the control or supervision of the indemnitee."

66 Effects on Enforceability of LOL Provisions Arguments for Enforcement of LOL Arguments for Enforcement of LOL –CBI NA-CON v. UOP, Inc. case –Routinely enforced in other areas of the law Arguments against Enforcement of LOL Arguments against Enforcement of LOL –City of Dillingham and Lanier cases are now persuasive in Texas –Legislative intent to restrict risk shifting in the construction industry

67 Effect of LOL Provision in This Case HHS’ carrier would not proceed against the Geotechnical firm HHS’ carrier would not proceed against the Geotechnical firm –Reason: They believed the limitation of liability provision would be difficult to overcome

68 Resolution of the Claim Faced with the potential delay damage to the Owner, HHS’ Carrier authorized full payment of the claim Faced with the potential delay damage to the Owner, HHS’ Carrier authorized full payment of the claim Portion of the liner is removed and dried Portion of the liner is removed and dried Upon replacement, the liner fails compaction tests and the owner has to import soil Upon replacement, the liner fails compaction tests and the owner has to import soil

69 Additional Claim for Money University requests additional sums from HHS University requests additional sums from HHS Settlement Agreement stated “University releases and forever discharges HHS from any and all property claims, damages, demands, costs, expenses, compensation, losses (including loss of use), property damages, actions and causes of action of each and every nature whatsoever, whether past, present or future, whether known or unknown, whether in tort or in contract, without limitation, that University has or may have against HHS relating to the Pond Liner.” Settlement Agreement stated “University releases and forever discharges HHS from any and all property claims, damages, demands, costs, expenses, compensation, losses (including loss of use), property damages, actions and causes of action of each and every nature whatsoever, whether past, present or future, whether known or unknown, whether in tort or in contract, without limitation, that University has or may have against HHS relating to the Pond Liner.”

70 University’s Response University acknowledged the release of HHS, but argued that they would file a claim against the Geotechnical firm University acknowledged the release of HHS, but argued that they would file a claim against the Geotechnical firm Argued that HHS would then have to defend a claim for indemnity from the Geotechnical firm Argued that HHS would then have to defend a claim for indemnity from the Geotechnical firm

71 HHS’ Reply University could not make a claim against the Geotechnical firm because it had assigned those claims to HHS pursuant to the Settlement Agreement University could not make a claim against the Geotechnical firm because it had assigned those claims to HHS pursuant to the Settlement Agreement –“University, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby grant and convey to HHS, all of its right, title and interest in any and all claims and causes of action which University could maintain against Engineer arising from Engineer’s acts or omission in performing engineering services incident to the design and construction of the pond liner.”

72 Recap As of today, HHS’ carrier paid in excess of $200,000 for a geotechnical “problem” that HHS did not cause As of today, HHS’ carrier paid in excess of $200,000 for a geotechnical “problem” that HHS did not cause Faced with the LOL and Indemnity Provisions against the Geotechnical firm, HHS’ Carrier would not authorize any action against the Geotechnical firm and will not seek to recoup the funds Faced with the LOL and Indemnity Provisions against the Geotechnical firm, HHS’ Carrier would not authorize any action against the Geotechnical firm and will not seek to recoup the funds Roadblocks: Roadblocks: –TCEQ’s unwillingness to deviate for standard specifications –University’s unwillingness to advocate for a deviation as the Applicant –Geotechnical firm’s unwillingness to cooperate –Contractual provisions funneled liability to HHS

73 Recommendations Architects Architects –Insist that the Owner hire the Geotechnical Firm –If you must, then include language in your contract that states the Geotechnical firm is hired solely as a convenience to the Owner, that the Architect has no means of control over the work performed by the Geotechnical firm, that the work product will be delivered to the Owner, and that the Architect will be entitled to rely on the accuracy of the information received –Include your own LOL clause in your contract or strike any that the Geotechnical firm includes if you cannot include one in your contract with the Owner

74 Recommendations To Geotechnical Firms To Geotechnical Firms –Continue to utilize LOL clauses in your contracts –If the Owner or Architect will not agree to your standard limit in your contract, negotiate a higher limit of liability in exchange for a higher fee (some limit is better than no limit)

75 Recommendations to All Review your standard contract Review your standard contract Review other contracts that you sign Review other contracts that you sign –What are your rights in a dispute and who bears the risk? Your LOL clause has a better chance of survival in court if it: Your LOL clause has a better chance of survival in court if it: –Is conspicuous –Is reasonable and not so drastic as to remove the incentive to perform your services with due care –Is separate from any Indemnity Provision –Does not conflict with the Anti-Indemnity Statute –Does not limit liability for your sole negligence

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