General Dirt About Dealing with Construction Defects

Construction defects bedevil owners, design professionals, contractors, sureties, and insurers alike. They can arise during construction or wait for years to be discovered. They can cause damage far out of proportion to their seemingly innocuous appearance. The responsibility for defects is hotly contested and difficult to determine; litigation is complex and spendy. Defects test the mettle and resources of all.

Some of the most prevalent defects in the Pacific Northwest are defects in the building envelope. In other words, defects that cause water leaks. Problem areas include most components of the building envelope, such as roofs, flashings, sealant joints, balcony/decks/exterior slabs above grade, windows, basements, and the exterior skin of the building. With regard to building skins, two skin types receiving a lot of unwanted attention these days are vinyl siding and exterior insulated finish systems (EIFS).

This article provides some general dirt about dealing with construction defects that cause water leaks. Its purpose is to provide a very broad overview of the issues and key points involved, both from the preventive aspect (how to minimize the risk of defects) and the curative aspect (how to fix the defect and resulting damage). Much of what follows may seem obvious or overly general, but it is presented this way for a purpose — many projects wind up in construction defect litigation because of the failure to implement the obvious, general principles. Moreover, the legal and factual details involved in dealing with defects could fill series of textbooks, and they have. Future articles will give a more in depth look at the general issues raised in this article.

A. Preventing Construction Defects.

There are several measures that can prevent construction defects. As an added benefit, these measures also can prevent opportunities for finger pointing if and when construction defects occur.

There is a considerable overlap in these measures, and they are fairly self-explanatory. These measures are probably best thought of as quality control measures. The measures are: (1) identification of potential problem areas in the building envelope; (2) retaining appropriate expertise to address the potential problem areas; (3) clear and complete communication through architectural drawings, details, and specifications; (4) clear delineation of contractual responsibilities; (5) appropriate inspection/observation procedures during construction; and (6) procurement of critical manufacturers' warrantees.

Some key points regarding each measure are given below; however, this is not a complete list. Determine how or if these key points can be applied to your projects.

1. Potential problem areas must be identified.
1. Potential problem areas present a risk of water intrusion. As stated above, these areas can include most all components of the building envelope. Of special importance are: unique design conditions; the use of new, special, or unfamiliar materials; atypical uses of familiar materials; and/or the requirements for manufacturers' warrantees. New, critical, or special materials must be researched to determine suitability for use on a specific project.
2. It may be necessary to employ a qualified consultant or specialist to identify potential problem areas during the design phase. Manufacturers of critical components or materials may also need to be consulted during design. This involvement is recommended by many manufacturers, and required by some as a condition for obtaining a warranty.
3. Potential problems need to be identified and resolved during the design phase and addressed through the contract documents and/or through specific provisions in the parties' written contracts.
4. Potential problems must also be identified during the construction phase. Every party involved in construction has an independent duty to identify obvious potential problem areas within the scope of their work and communicate that information to the appropriate party for resolution. For example, the design professional needs to carefully monitor construction and communicate the resolution of problem areas to contractors through additional details and specifications. Contractors need to identify obvious potential problem areas in the drawings and during construction of a project, and they need to communicate that information to their upstream contractor or design professional for resolution.
2. Appropriate expertise is needed to address potential problem areas.
1. Contract with qualified parties.
2. Realize the scope of your own expertise and determine whether it is adequate to address the potential problem areas on a project for which you will be responsible. If you don't have the necessary expertise, get help or get out.
3. Again, a qualified consultant or specialist may need to be retained to address potential problem areas through preparation of portions of the contract documents, choosing materials, developing construction methods, and/or conducting inspections. The manufacturers of critical components or materials should also be consulted.
4. Contractors should be cautious in proposing substitute materials or designs. Unless the contractor makes it clear to the contrary, the substitution may be interpreted to impose a warranty obligation on the contractor that the substitution is a design equivalent to what was originally designed. The contractor usually does not have the expertise to determine design equivalents and will not want to be held liable for such a warranty.
3. Architectural drawings, details, and specifications must be clear and complete at potential problem areas.
1. Just do it, or make sure it gets done. Clear and complete drawings, details, and specifications are the primary way all parties communicate the requirements and responsibilities on a project.
2. Don't blindly rely on manufacturers' details or recommendations. They change often and may not be applicable or appropriate for resolving your project's problem areas. Manufacturers' details and recommendations should be reviewed carefully by the design professional for compatibility with a project.
3. Clear and complete drawings, details, and specification are needed for problem areas on all projects, even design-build projects. The drawings, details, and specifications must also be clear and complete in delegating discretion and responsibility to a contractor to achieve a particular design or performance standard.
4. As noted above regarding identification of problem areas, the contractor has a duty to identify obvious problems in the drawings and specifications.
4. There must be a clear delineation of contractual responsibilities.
1. Get written, signed contracts. The contracts must have a clear and concise description of the scope of work, as well as warranty obligations.
2. Any delegation of design responsibilities must be done carefully and clearly in writing. Such delegation must be done in accordance with the law (which generally prohibits such delegation) and professional standards.
5. Appropriate inspection/observation procedures must be utilized during construction.
1. This needs to be done by a competent design professional, regardless of who the contractor is. Again, the use of a qualified consultant, specialist, and/or a manufacturer's representative may also be necessary.
2. The use of a consultant or specialist may also be useful on residential or other smaller projects where there are no drawings or specifications and/or no design professionals.
6. Procurement of manufacturers' warrantees.
1. Specific requests for specific warrantees for critical materials will help involve the manufacturers and help ensure warrantable installation on a project.

B. Fixing Construction Defects.

Sometimes, despite the best intentions, the building will have water intrusion defects and damage will occur. There are several measures that must be implemented to achieve an efficient "fix." The timing for the following measures will overlap in most circumstances, and is dependent on the nature of the defect and the timing requirements of contracts and warranties. Implementation of the measures will require coordination and swift action.

The first measure, which is the most important, is that a qualified consultant must identify the defect, the scope of damage, and the appropriate "fix." Second, the appropriate parties must be notified about the defect. Third, the "fix" must be made subject to binding agreement. Fourth, litigation may play an important role.

1. The defect, the scope of the damage, and the scope of the "fix" should be determined by a qualified consultant.
1. It is important that the defect, the damage, and the scope of the proposed "fix" be well documented.
2. Impartial and well-respected third-party consultants are generally a better choice than a project's architect, contractor, or subcontractor(s) to identify defects, the scope of damage, and the appropriate "fix." If possible, obtain the agreement of all interested parties as to the choice of an appropriate consultant.
3. In addition to the defect, it is very important to identify the scope of the damage. An appropriate "fix" cannot be determined unless the damages are known. Damages can be hidden and extensive, and not apparent from the defect. This is particularly true with EIFS defects, where condensation and water entrapment issues can combine with water intrusion issues to produce astounding damage. The type of damages will also affect insurance coverage.
4. Damages that will continue to increase until the "fix" is done must also be identified and documented.
5. Leaks can cause mold growth inside the building envelope. These molds may present potential health risks to the building inhabitants. Mold testing may be needed.
2. The potentially responsible parties and their bonding/insurance companies must be notified of the defect in a timely fashion.
1. The objective is to get all potentially responsible parties (with their insurance carriers and/or sureties) at the table as soon as possible to establish a clear consensus of the nature of the problem and of the proposed "fix." The "fix" may then be achieved promptly with very little or no litigation.
2. Providing accurate documentation of the continuing or increasing damages provides incentive for the potentially responsible parties to get the "fix" completed promptly.
3. Although there are instances when the "fix" must be done immediately, it is generally more beneficial to hold off on the "fix" (or at least the permanent "fix") until all potentially responsible parties have received notice of the defect, the damage, and the proposed "fix." The potentially responsible parties can then be given a chance to determine and implement a fix. Indeed, contract provisions may provide that the potentially responsible parties must be afforded the opportunity to undertake the "fix."
4. Potentially responsible parties include everyone who has potential responsibility for the defect, including the owner, architect, engineer, contractors, key subcontractors, and material suppliers or manufacturers. The potentially responsible parties' insurance carriers and bonding companies must also be invited into the fray.
5. The timing and other requirements for notice are dictated by the urgency of the defect, and the terms of the applicable contracts, bonds, and warranties. Some timeframes for providing notice can be very short. I have seen an EIFS manufacturer's warranty that requires notice of a defect within seven days to preserve a warranty claim.
6. Time limitation requirements imposed by the law (statutes of limitations) may affect who the potentially responsible parties are, as well as your leverage in negotiating a "fix," and may force litigation. For example, you must bring a claim for breach of contract within six years of the breach.
3. The "fix" must be subject to binding agreement.
1. If the "fix" is entirely within the warranty provisions of the original contracts, a separate binding agreement will not be required. However, the scope and nature of the "fix" must be documented as a warranty obligation.
2. If the "fix" is outside the applicable contracts, or new or additional duties are imposed beyond those imposed by the original contracts, a separate binding agreement must be executed. The scope of the "fix" should be set forth in contract documents prepared by a design professional.
3. The nature of the project and the damages may require that the "fix" be done before all potentially responsible parties have resolved their respective liabilities to their satisfaction. In this instance, the potentially responsible parties may agree (or be forced to agree) to fund or undertake the "fix" and fight afterward about who should pay for what. The "fix" agreement needs to address this type of situation.

4. Litigation may play an important role.
1. While this law office advocates mediation as an efficient dispute resolution tool, litigation is a "stick" that may be required to force the participation of a reluctant potentially responsible party, or to reserve rights. Litigation may also provide the posturing and leverage necessary for a successful mediation or settlement.
2. Construction defect issues can be complex and specialized. A lawyer who has experience in this area is an invaluable asset.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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