Under Construction – February 2025

Welcome to the winter edition of Snell & Wilmer’s Under Construction newsletter.

We hope 2025 has started off well and that your holiday season was filled with warmth and joy. As we embrace the new year and the opportunities ahead, we are excited to bring you the latest updates and insights in the world of construction and legal news that matter most to you and your business.

In this newsletter, we explore arbitration lessons from a recent Arizona case, Chayce Concrete, LLC v. Path Construction Southwest, LLC, a discussion of California Assembly Bill 98 and its impact on warehouse design and construction, and a deep dive into a recent Colorado appeals court decision that provides further guidance on the Colorado Economic Loss Rule Doctrine. We also discuss the important lessons from the Idaho Supreme Court Decision in Moyer v. Doug Lasher Construction regarding statute of limitations considerations, an overview of the recent convening of the Texas Legislature for its 89th Regular Season, and California construction law updates.

We have curated these articles to be both informative and enlightening, helping you stay ahead of the curve. Your feedback matters to us and if there is a specific construction issue you would like us to address in future newsletters, please let us know.

We hope 2025 is profitable, busy, and safe for you, your company, and your family!

Best Regards,

Jim Sienicki, Editor

By Creighton P. Dixon and Courtney Moore

In Chayce Concrete, LLC v. Path Construction Southwest, LLC, the Arizona Court of Appeals reaffirmed Arizona courts’ deference to arbitrators when it comes to confirming an arbitrator’s award. The opinion further highlights the importance of timely addressing discovery disputes, including requests to postpone a hearing.

The case was a prototypical construction dispute between a general contractor and its subcontractor. The general contractor was hired to complete a trailhead improvement project for the City of Scottsdale, and the subcontractor completed specific portions of the trailhead project. Disagreements developed relating to the subcontractor’s alleged nonperformance and the general contractor’s alleged failure to meet its payment obligations. Notably, the parties agreed to arbitrate their dispute.

The parties conducted discovery, including the subcontractor serving the general contractor requests for production. The general contractor produced documents requested by the subcontractor while simultaneously objecting to some of the requests and noting it was withholding particular categories of documents on that basis. Nearly three months later and only days before the commencement of the arbitration hearing, the subcontractor proffered its first challenges to the general contractor’s discovery responses. For example, the subcontractor argued that the general contractor failed to produce documents that could have supported the subcontractor’s arguments. The subcontractor allegedly requested to postpone the arbitration hearing, but there was no record of a written or oral request to do so.

After the hearing, the arbitrator ruled in favor of the general contractor, but the Superior Court refused to enter the award and instead vacated the arbitration award in accordance with A.R.S. § 12-3023(A)(1) and A.R.S. § 12-3023(A)(3). On appeal, the Court of Appeals reversed the Superior Court’s decision.

The Court of Appeals evaluated two of the statutory bases to vacate an arbitration award. First, pursuant to A.R.S. § 12-3023(A)(1), the Superior Court shall vacate an arbitration award on motion by a party to the arbitration proceeding if the award was obtained by corruption, fraud, or undue means. Here, the Court of Appeals could not identify any facts in the record indicating that the general contractor engaged in corruption, fraud, or undue means justifying the Superior Court’s decision to vacate the initial arbitration award. Rather, the Court of Appeals noted that the arbitrator’s award specifically evaluated the subcontractor’s complaints about the general contractor’s allegedly insufficient disclosures.

As it relates to A.R.S. § 12-3023(A)(3), an arbitration award shall be vacated on a motion by a party to the arbitration when an arbitrator fails to postpone an arbitration hearing on showing of cause sufficient for postponement, substantially prejudicing the rights of the party. In Chayce, the Court of Appeals rejected the Superior Court’s ruling that the arbitrator failed to postpone the arbitration hearing and that the subcontractor was prejudiced as a consequence. The Court of Appeals found no evidence to demonstrate that the subcontractor requested a postponement of the arbitration and, even if it did request a postponement, the arbitrator had the discretion to deny it. As such, the Superior Court erred in vacating the arbitration award under A.R.S. § 12-3023(A)(3).

With the Court of Appeals clarifying the bounds of these statutes, contractors and their counsel should consider the following for their next arbitration:

By Laurie Choi and James Snow

On September 29, 2024, California Governor Gavin Newsom signed California Assembly Bill 98 (AB 98) into law. AB 98 was created to add to California’s attempts to reduce emissions by providing new requirements for warehouse construction and trucking activities associated with warehouses. The new requirements become effective on January 1, 2026, and construction industry practitioners should take note of the volume and complexity of these new regulations. This article only touches on portions of AB 98 pertaining to construction and development.

Types of Facilities Affected

AB 98 applies to the development of most logistics use and warehouse facilities, but excludes those that predominantly serve retail customers for onsite purchases and those that are primarily served by rail. AB 98 applies to development of new facilities as well as expansions by more than 20% of the prior square footage, excluding office space.

The New Requirements Focus on Energy Efficiency and Reduced Emissions

Starting January 1, 2026, any new or expanded facility must meet requirements that are tiered based on the square footage of the facility, the proximity to a “sensitive receptor,” and the current zoning status of the land. Sensitive receptor is defined as a residence, a school, a daycare facility, a nursing home, a hospital, or publicly owned parks, playgrounds, or other recreational areas used by children. Depending on these variables and the location of the facility, there are certain standards that must be met.

These standards may include:

Because there is a complex tier system and numerous exceptions and potential ambiguities throughout the Bill, you may want to review AB 98 with legal counsel regarding any upcoming design or construction of warehouse facilities in California.

By: Laurie Choi, Amanda E. McKinlay, and Joe Layzell

In the recent decision of Veolia Water Tech., Inc. v. Antero Treatment LLC, 2024 COA 126 (Colo. App. 2024), the Colorado Court of Appeals addressed the “murky” application of the economic loss rule to the intentional tort of fraud. The Court separately affirmed the use of the benefit-of-the-bargain measure of damages approach to calculate market value. The Court rejected the argument that this measure of damages was actually a form of “lost profits” damages or “consequential damages” which were expressly waived under the applicable construction contract. This article addresses key takeaways of the decision for consideration by Colorado construction professionals.

Veolia involved a contract to design and construct a facility to treat wastewater. Veolia and Antero first agreed for Veolia to conduct preliminary testing and analysis of the proposed treatment system before the parties were to enter into a final Design/Build Agreement (DBA). There were two key requirements in the DBA. First, Veolia guaranteed its design would separate a completely solid waste byproduct from the wastewater that would be stable and nonhazardous. Second, Veolia guaranteed the process would only consume a certain amount of power. Neither of those guarantees were met, and Antero alleged that Veolia knew that it would not be able to meet these requirements prior to the time of contracting. There were also mechanical failures at the facility and schedule delays. Antero sued Veolia for breach of contract and fraud. As relevant here, the DBA contained a waiver of consequential damages and a limitation of liability provision, but included an exception to the limitation of liability for liability arising from “gross negligence, fraud or willful misconduct.”

Economic Loss Rule

Under Colorado’s economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256, 1264 (Colo. 2000). In addressing whether the economic loss rule applied, the Veolia Court posed two questions: (i) were the contracts at issue an “interrelated network” of contracts so that they acted as a “single contract”; and (ii) whether the legal duties associated with fraud in the inducement were independent of the contractual duties and, therefore, not barred by the economic loss rule.

The Court answered the first question in the affirmative, finding that while Veolia’s initial proposal did not require the parties to engage in any further business or contracts, it did contain representations relevant to the DBA which were subsequently incorporated in the DBA. However, the Court’s conclusion did not necessarily mean the economic loss rule barred Antero’s fraud claims. Next, the Court turned to its second question, which it answered by way of a three-part analysis: (i) whether the relief sought via the breach of contract and fraud claims were the same; (ii) whether there was a recognized common law duty of care to avoid fraudulently concealing or misrepresenting material facts; and (iii) whether the duty in tort was independent of the contractual duties, including the implied duty of good faith and fair dealing. The Court found that Veolia had some degree of discretion in how it designed the facility (noting the limits of its discretion were evident from the fact that it had to seek a change order for certain processes). The Court found that this discretion, in turn, gave rise to an implied duty of good faith and fair dealing in Veolia’s exercise of its discretion. Conversely, the challenged misrepresentations giving rise to Antero’s fraud claim concerned the waste salt and power consumption guarantees to which Veolia had no discretion to change.

Under these circumstances, the Court held that the economic loss rule did not apply to bar Veolia’s fraud claims because (1) the fraud concerned aspects of Veolia’s performance over which Veolia had no discretion, thus undermining the implied duty of fair dealing’s application; (2) Antero was not using tort claims to pursue damages explicitly prohibited by the DBA; and (3) the DBA, entered into by two sophisticated commercial parties, explicitly permitted additional damages in the event of fraud.

Benefit-of-the-Bargain Damages for Design and Construction Defects

The Court held that “it is within the district court’s discretion to determine which measure of damages is appropriate []”; finding no issue with the selection of market value (opposed to cost of repair) as the appropriate measure of damages because Antero provided sufficient evidence that repairing the facility would constitute economic waste. The Court further affirmed the use of the benefit-of-the-bargain measure of damages approach to calculate market value, rejecting the argument that this method was actually a form of “lost profits” damages or “consequential damages” which were barred under the applicable construction contract, noting that income is but one factor to determine fair market value.

The Veolia decision may affect damages consideration for Colorado construction cases in two ways. First, a trial court may exercise discretion in determining which measure of damages applies for claims for defective design and construction. Second, even if a construction agreement prohibits recovery of lost profits, parties might nevertheless recover damages through the benefit-of-the-bargain measure of damages approach to calculate market value, which can take into consideration loss of anticipated profits.

The facts of the Veolia matter appeared to be critical to the Court’s decision, so further analysis and review is necessary before broadly applying the holding to all situations involving allegations of defective design and construction.

By Tara Martens Miller

The Idaho Supreme Court recently issued its decision in Moyer v. Doug Lasher Construction, Inc.¹, clarifying several critical issues in construction law and the application of the statute of limitations on summary judgment. This case provides guidance to contractors, property owners and their attorneys regarding timely navigating claims for defective construction and related claims, together with the application of the statute of limitations defense in construction disputes.

In Moyer v. Doug Lasher Construction, Inc., the Plaintiff-Homeowners, Moyer and Bower (Homeowners), alleged that Doug Lasher Construction (Lasher) performed substandard work on their home, leading to significant water leaks and defects. Homeowners brought claims for breach of contract and violation of the Idaho Consumer Protection Act. The Fourth Judicial District, Ada County, granted Lasher’s motion for summary judgment and found all claims barred by the applicable statute of limitations.

Idaho Code §§5-241(b) and 5-216 provide that the time period to bring any cause of action arising out of a written contract for the construction of a home is five years from the final completion of the construction. Idaho Code § 48-619 provides for a two-year statute of limitations for causes of action arising out of the Idaho Consumer Protection Act. Moyer emphasized the importance of adhering to these statutory deadlines, noting that even meritorious claims can be barred if filed outside the limitation period. This underscores the necessity of promptly identifying and addressing construction defects.

Moyer’s key holdings include:

The Idaho Supreme Court’s decision in Moyer highlights for contractors, owners, and attorneys the need for diligence and careful attention to promptly filing a lawsuit in construction defect disputes. Failure to file within the applicable statutory period may result in dismissal of Plaintiff’s claims, regardless of the merits of the claim.

Footnotes

1. 2024 Ida. LEXIS 151, 560 P.3d 1114, 2024 WL 5150713 (December 18, 2024).

2. 126 Idaho 532, 535, 887 P.2d 1039, 1042 (1994).

By Conor G. Bateman

The Texas Legislature follows a unique legislative calendar and convenes in regular session for 140 days only once every other year. This unusual schedule creates a flurry of new state laws every other year in Texas. These sessions typically convene in January of odd-numbered years and end in May or June. The Legislature can convene in Special Sessions during other times of the year, although the topics for a Special Session are limited to 30 days and to specific topic(s) designated by the Texas Governor.

The 89th Regular Session of the Texas Legislature convened on Tuesday, January 14, 2025. The Regular Session will adjourn on Monday, June 2, 2025. There are several topics of interest to the construction industry expected to be debated during this session. In 2021, the Texas Legislature enacted substantial changes to the Texas statutory mechanic’s lien laws contained in Chapter 53 of the Texas Property Code. There were additional revisions during the most recent Regular Session in 2023 and additional amendments are likely to be discussed in this session.

In 2021, the Texas Legislature enacted substantial changes to the Texas statutory mechanic’s lien laws contained in Chapter 53 of the Texas Property Code. There were additional revisions during the most recent Regular Session in 2023 and additional amendments are likely to be discussed in this session.

In 2023, the Legislature amended the Texas Prompt Pay Act in Chapter 28 of the Texas Property Code applicable to private projects and Chapter 2251 of the Texas Government Code applicable to public projects. These amendments added provisions applicable to “unsigned change orders” and expressly authorized contractors to refuse to proceed with additional work directed by an owner if the “aggregate actual or anticipated value” exceeds ten percent (10%) of the original contract amount. TEX. PROP. CODE § 28.0091 (a). “Anticipated value” was not defined and amendments to these provisions could be discussed during this session.

Both the Texas Construction Association¹ and the Texas Building Branch of the AGC of Texas² are currently advocating for amendments to Chapter 272 of the Texas Business & Commerce Code. This chapter applies to construction contracts for projects located within Texas and makes a forum selection clause designing venue outside Texas “voidable” by the party obligated to perform the work within the state of Texas. TEX. BUS. & COM. CODE § 272.001 (b).

The Fourteenth Court of Appeals in Houston recently held that a subcontractor waived its rights under this statute by agreeing to subcontract terms which incorporated the prime contract. In re MVP Terminalling, LLC, No. 14-21-00399-CV 2002 WL 3592303 (Tex.App.- Houston [14th Dist.] 2023, pet. denied). The prime contract contained a separate forum selection clause requiring venue in Oklahoma. Although the trial court in Houston ruled in favor of the subcontractor and held Section 272.001 of the Texas Business & Commerce Code required venue in Texas, the Fourteenth Court of Appeals in Houston reversed this decision and held the prime contract required venue in Oklahoma. The Texas Supreme Court denied the subcontractor’s appeal in January 2024.³ See In re MVP Terminalling, LLC, No. 14-21-00399-CV (Tex. App. – Houston [14th Dist.] 2022, writ denied).

The Texas Construction Association and the Texas Building Branch of the AGC of Texas are both advocating legislation to reinforce the applicability of Chapter 272, although no legislation had been introduced as of January 22, 2025. Additionally, several courts have interpreted arbitration agreements and have held that Chapter 272 is preempted by the Federal Arbitration Act. See, e.g., Global Indus. Contractors, LLC v. Red Eagle Pipeline, LLC, 617 F. Supp. 3d 633 638 (S.D. Tex. 2022).

A full summary of the 89th Regular Session will follow in a future Under Construction article.

Footnotes

1. https://www.texcon.org/texcon/TCA_Issues.asp

2. https://agctbb.org/advocacy/

3. https://www.texcon.org/NewsBot.asp?MODE=VIEW&ID=30363

By Michael J. Baker

Listed below are some of the important and recent California laws regarding the construction industry.

AB 2293 – Nonprofit Healthcare Joint Powers

• Authorizes one or more private nonprofit mutual benefit corporations to form for the purpose of providing healthcare services in order to create a joint powers authority and enter into such an agreement.
• Permits solicitation and evaluation of bids and awarding of contracts by public entities and requires use of a skilled and trained workforce to complete a contract or project.
• Must pay prevailing wage.
• Must certify under penalty of perjury that a skill and trained workforce was used as well as prevailing wage paid to all eligible construction workers.

AB 1957 – Selected Counties Permitted to Use Best Value Selection

• Alameda, Los Angeles, Monterey, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Solano, and Yuba counties may select a bidder on the basis of best value, as defined, for projects in excess of $1 million.
• The Best Value program is extended to January 1, 2030. This is a five-year extension of existing law.
• Maintains current definitions of “Best Value”, “Best value contract,” “Best value contractor,” and other related definitions including “Qualifications.”

AB 1034 – Amends Labor Code 2699.6

• Amends multiple statutes of the Government Code (11 statutes).
• New law addresses expiration of an excavator ticket. Existing law requires an excavator to contact the regional notification center, cease all excavation, and wait a minimum of two working days before restarting excavation.
• This law revises the procedure an excavator must follow, should a ticket expire.
• Law also revises requirements for an excavator to use vacuum equipment.
• Law requires an operator response that an excavator must receive before beginning excavation and the emergency notification procedures when an excavator discovers or causes damage to a subsurface installation.

AB 2579 – Building Inspection Elevated Elements

• Existing law requires inspection by January 1, 2025, and every six years thereafter of all exterior elevated elements and associated waterproofing elements as defined, including decks and balconies, for buildings with three or more multifamily dwelling units.
• The new law extends the deadline for initial inspection until January 1, 2026. The law also provides that no new inspections are required until January 1, 2026, if the property was inspected within three years prior to January 1, 2019.

AB 2696 – Liability for Unpaid Wages and Benefits Labor Code to 218.8

• Amends the above reference code that requires a direct contractor to be liable for any debt owed to a wage claimant or third-party on the wage claimant’s behalf, incurred by a subcontractor of any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor.
• This bill authorizes a joint labor – management cooperative committee established under the law to bring an action in any court of competent jurisdiction against a direct contractor to enforce liability for any unpaid wages or benefits or contribution as well as liquidated damages and interest. This law adds additional parties that have standing to bring a claim.

SB 1303 – 1771.8 Labor Code – Labor Compliance Program

• Existing law requires the awarding body as part of a labor compliance program to withhold contract payments when, among other things, payroll records are delinquent or inadequate. Existing law requires an awarding body to write a notice of contract payments to the contractor or subcontractor. This notice must be in writing and describe the nature of the violation as well as the amount of wages, penalties, and forfeitures withheld.
• This new law would require a private labor compliance entity, prior to withholding funds for alleged violation, to confer with the negotiating parties to review relevant public works law and would prohibit the entity from withholding an amount that exceeds the alleged underpayments and penalty assessments.
• The new law requires the private labor compliance company seeking to withhold funds to provide a venue for public works contractors to review and respond to evidence of alleged violations as outlined in the statute.

SB 1162 – Employment Compliance Reports – Apprenticeship Programs

• Law requires monthly compliance reports to include the full name and to identify the apprenticeship program name, location, and graduation date, of all workers relied upon to satisfy the apprenticeship graduation percentage requirement.
• Law requires the creation and maintenance of a public online database to verify that a worker graduated from a California apprenticeship program. The database is required to be searchable by using the first name, last name, and graduation date of the worker.

AB 2705 –Labor Code 1743 – Collecting on Payment Bond

• Law limited claimants from commencing an action to enforce a liability on a payment bond at any time after the claimant ceases to provide work, but no later than six months after the period in which a stop payment notice may be given.
• This law provides a limitation period for any action on a payment bond filed by the Labor Commissioner to be governed by the same timing requirements for the Labor Commissioner to serve a civil wage and penalty assessment. In essence, this law extends the payment bond statute of limitations and a surety on a bond.
• The period of any action on a payment bond shall also be tolled pending a final order that is no longer subject to judicial review.

AB 3190 – Amends Section 1720 of the Labor Code Relating to Public Works – Expands Prevailing Wage

• Law expands the definition of what is considered to be a prevailing wage project to include projects paid using credits against a tax, including certain low – income housing tax credits.
• The law exempts from public works provisions, private residential projects built on private property when the public funds are less than $3 million for a project that is the acquisition or rehabilitation of a specified residential project.
• These tax breaks may trigger a prevailing wage requirement. The tax benefit may not be worth the benefit given the potential increase in costs to pay prevailing wages on what was traditionally not prevailing wage work.

AB 2192 – Uniform Public Construction Costs Accounting Act Amendment

• Public Contract Code provides for certain modifications regarding project management delivery if a public entity adopts the Uniform Public Constructs and Costs Accounting Act. This applies to public works.
• The law defines “public project,” which would be considered a public work, to additionally include installations involving any publicly owned, leased, or operated facility.
• There are multiple threshold dollar values which allow the entity to award certain work under the specified conditions, depending on the scope of work, to prequalified contractors properly classified in informal bidding.
• The public entity is to maintain a list and inform all contractors on the list of the category of work being bid and sufficient notice shall be provided per statute.
• The notice of inviting informal bid shall describe the project in general terms and how to obtain the detailed information about the project, and shall state the time and place for the submission of bids.

SB 1455 – Amends 12 Contractor License Law Statutes and Adds Two More

• This bill amends 14 statutes and contains 20+ pages of amendments and modifications to existing California Contractor’s License Law which is in the Business and Professions Code.
• For brevity purposes, this presentation will only deal with the highlights in brief matter, the statutes have been changed and need to be reviewed carefully given the draconian consequences of not being licensed at all times.

New License Law Highlights

• Deletes the requirement that an employment duty statement be included in a specified applicants or licensees information submitted.
• Deletes the provision that makes failure to provide the specified information a cause for discipline. Redefines “direct supervision or control.”
• Requires a corporation or limited liability company seeking licensure to provide its identification number issued by the secretary of state.
• Requires that a qualifying individual who is neither a proprietor, general partner, nor joint licensee to file a bond in the amount of $25,000 in addition to other bonds.
• Maintains existing provision providing for personal liability of $1 million in damages to third parties in certain cases if contractor fails to register and be in good standing with the Secretary of State.
• Licensee that is subject to a public complaint requiring a professional or expert investigation or inspection is required to pay reasonable fees to cover the expenses and costs of that investigation.
• Requires public works authorities to award and determine license classification based on applicable regulations.
• Requires CSL to establish a process and procedure for licensees to establish they are employers eligible for exemption from Worker’s Compensation insurance requirements.
• “Qualifying person,” “qualifying individual,” or “qualifier,” as used in the license law means a person who qualifies for a license pursuant to Section 7068.
• Section 7040 identifies who is exempt from license.
• Section 7059 establishes guidelines for additional classifications and may limit the field and scope of the operations of a licensed contractor to obtain additional classifications.
• Allows a specialty contractor to perform two or more crafts or trades, if the performance of the work in the crafts or trades, other than the one for which it is licensed, is incidental and supplemental to the performance of the work in the craft for which the specialty contractor is licensed.
• Prohibits specialty contractor to perform a prime contract if the specialty contractor work is less than a majority of the project. The specialty work must be the majority of the project in order to perform as a prime contractor.
• Section 7065 sets out the requirements as to who gets a license, who is required to be listed individually, requires all partners to be listed, and requires a corporation or LLC to provide Secretary of State identification numbers. Section 7065 also states who qualifies as an individual, who qualifies as a partnership qualifier, who qualifies as a corporation qualifier, and who qualifies as an LLC qualifier.
• Section 7065 additionally states when an examination is required and when an examination is not required to obtain a license.
• Section 7068.1 establishes what is required of the person qualifying on behalf of an individual or firm. The qualifying individual shall be responsible for exercising supervision and control of their employer’s or principal’s construction operations to secure the compliance with the license law.
• Section 7068.1 states the conditions that the qualifier must meet.
• The term “Firm” and “Person” is defined.
• “Supervision and control” is defined.
• “Direct supervision or control” is defined.
• Section 7071.9 is amended to require new and additional bond requirements for the qualifying individual.
• Section 7076 sets forth the requirements when a license is canceled under various circumstances and the obligations of the license contractor whether it is an individual, partnership license, joint venture license, corporate license, or LLC license.
• Section 7125 adds new requirements for exemptions.
• New requirements are added to establish criteria to meet the Worker’s Compensation exemption.
• Establishes license suspension if there is a failure to meet and comply with an auditor investigation, or if there is a material misrepresentation to the workers comp insured or there is a failure to pay insurance premiums.
• Requirement if Worker’s Compensation insurance is canceled to report the same.
• Requires establishment of procedure by January 1, 2027, for the Board to establish a process and procedure which may include audit, proof, or other means to verify that an applicant or license without an employee is eligible for exemption.
• Section 7137 establishes entirely new fee schedule, increasing fees across the board.