BRADLEY ARANT ROSE & WHITE LLP

Second Quarter 2002

CONSTRUCTION AND PROCUREMENT LAW NEWS Recent federal, state, and local developments of interest, prepared by the firm’s Construction and Procurement Group: A. H. Gaede, Jr. Stanley D. Bynum E. Mabry Rogers Gary C. Huckaby (h)

Andrew J. Noble, III Walter J. Sears III H. Harold Stephens (h) Michael D. McKibben

David G. Hymer Axel Bolvig, III J. David Pugh James F. Archibald, III

CONTRACTOR ENTITLED TO UNABSORBED OVERHEAD BECAUSE WORK WAS SIGNIFICANTLY INTERRUPTED The U.S. Armed Services Board of Contract Appeals ruled that a contractor was entitled to unabsorbed home office overhead because its work was “significantly interrupted” by the Government. Roy McGinnis & Co., ASBCA 49867, 2001 WL 1187051 (Sept. 28, 2001). The Board found that a contractor does not have to demonstrate work stoppage before recovering unabsorbed home office overhead.

INSIDE: Yet Another State Supreme Court Case Construes Pay When Paid Clause as a Timing Mechanism Only . . . . . . 2 Ninth Circuit Holds That Architects Cannot Be Directly Liable for ADA "Design and Construct" Discrimination . 2 Contractor Held to Have Waived "Additional Insured" Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A Short Primer on Louisiana Construction Law . . . . . . . 4 VA Board Accepts Measured Mile Comparison of Different Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Federal Court of Claims Holds That Payment on Per Diem Basis on Some Change Orders Does Not Establish a Contract-in-Fact for Other Change Orders . . . . . . . . . . . . 6 Florida Revises Anti-indemnity Law, Again . . . . . . . . . . 7 Blount Moves to Portland . . . . . . . . . . . . . . . . . . . . . . . . . 7

Douglas E. Eckert Arlan D. Lewis Joel E. Brown Donna M. Crowe

Stacey A. Thurman David W. Owen James Wm. “Will” Manuel (j)

Roy McGinnis & Co. was awarded a $7.2 million contract by the U.S. Army Corps of Engineers for construction at Kelly Air Force Base in San Antonio Texas. The Government stipulated that it delayed the project a total of 110 days out of 150 days. McGinnis was able to move its crews around to perform about 40 days of work during the 150 day period. During the delay at Kelly, McGinnis completed work at Laughlin AFB, approximately 150 miles from Kelly, and bid two other projects for Laughlin. McGinnis submitted a $115,000 claim for unabsorbed overhead damages due to the delay at Kelly. See Eichleay Corp., ASBCA 5183, 60-2 BCA 2688 (formula for unabsorbed overhead damages). The Government denied McGinnis’ $115,000 claim, because it contended that McGinnis (a) was not on “standby,” (b) performed contract work during the delay period and (c) could have obtained replacement work. See Melka Marine, Inc. v. U.S., 187 F.3d 1370 (Fed. Cir. 1999) (to recover home office overhead damages, a contractor must establish that it is on “standby” due to a government caused delay and that it cannot perform replacement work.) On appeal the ASBCA rejected the Government’s position and ruled that McGinnis was entitled to recover home office overhead damages. The fact that McGinnis bid other work during the delay period did not mean that it could have found replacement work under the reasoning of Melka Marine. The Board found that McGinnis could not have found replacement work because the duration of the delay at Kelly AFB was uncertain and McGinnis had to remain available to perform that work once the delay ended. Furthermore, McGinnis’ bonding company would not allow it to take on additional work.

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This case reaffirms that a total work stoppage is not required to satisfy the “standby” requirement for home office overhead damages. The Board cited earlier precedent for its position that overhead damages are recoverable if work is suspended or significantly interrupted. See Interstate Gen. Gov’t Contractors, Inc. v. West, 12 F.3d 1053 (Fed. Cir. 1993).

YET ANOTHER STATE SUPREME COURT CASE CONSTRUES PAY WHEN PAID CLAUSE AS A TIMING MECHANISM ONLY In Federal Insurance Co. v. I. Kruger, Inc., 2002 WL 399039 (Ala. March 15, 2002), the Alabama Supreme Court recently held that a “pay-when-paid” clause in a subcontract, which provided that “final payment . . . shall be made thirty (30) days after the last of the following to occur . . . final payment by Owner to [general contractor] on account of the Products including retainage,” was a timing mechanism only, and did not create a condition precedent to payment. Even though the owner did not pay the general contractor, the Court held that the subcontractor was entitled to payment because it satisfactorily performed and a reasonable time (more than one year) had passed without payment. The Court also held that a paywhen-paid clause is inconsistent with the purpose of a Little Miller Act payment bond and could not be asserted by the payment bond surety as a defense to a payment bond claim by a subcontractor. The opinion affirms summary judgment in favor of the subcontractor. The Court relied heavily on Crass v. Scruggs, 22 So. 81 (Ala. 1897). In that case, a subcontractor recovered damages for breach of contract against the general contractor, even though the railroad owner failed to pay the general contractor, and the subcontract provided that payment was due “as soon thereafter as said R.R. Company pays or causes to be paid the said [general contractor].” The Crass court construed that provision as a timing mechanism only. The Court distinguished the more recent case of James E. Watts & Sons Contractors v. Nabors, 484 So. 2d 373 (Ala. 1985), which enforced an oral pay-if-paid clause on the grounds that the subcontractor in that case testified that it did not expect to receive payment unless the owner paid the general contractor. The Court also observed that the majority of jurisdictions treat pay-when-paid clauses as timing mechanisms only. The dissent argued that a contract is a contract, and courts should not re-write them to relieve “hard or unfair” consequences.

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The case seems to leave open whether the Court would enforce a clause that more expressly made owner payment a condition precedent to the general’s obligation to pay the subcontractor, with an express assumption by the subcontractor of the risk of owner non-payment. The three dissenters clearly would enforce that clause, and might attract some votes from the Kruger majority. NINTH CIRCUIT HOLDS THAT ARCHITECTS CANNOT BE DIRECTLY LIABLE FOR ADA “DESIGN AND CONSTRUCT” DISCRIMINATION Title III of the Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12181 et seq. prohibits discrimination against the disabled with regard to access to public accommodations (such as restaurants, hotels, retail shops, and cinemas) and commercial buildings (such as office buildings, manufacturing plants, etc.). Section 12182(a) of the ADA prohibits discrimination in “any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.” Section 12182(a) provides the “general rule” of liability under Title III. Section 12183(a) describes conduct which constitutes “discrimination,” for purposes of § 12182(a) and as applied to public accommodations and commercial facilities, includes “a failure to design and construct facilities for first occupancy . . .that are readily accessible to and usable by individuals with disabilities . . .” Section 12183(a) does not specifically identify those who may be liable for “design and construct” violations, and the question of whether an entity outside of those listed in § 12182(a) can be liable has resulted in uncertainty. Some courts have reasoned that liability for the “design and construction” of commercial facilities is not limited to owners, lessors, lessees, and operators, and thus, architects can be liable for designing a noncompliant facility. Other courts have interpreted § 12183’s reference to “design and construct” to apply only to the definition of “discrimination,” and not to who may be held liable. These courts have held that “design and construct” liability in § 12183 does not extend to architects and is limited by § 12182(a). Most recently the Ninth Circuit joined those courts refusing to extend “design and construct” liability to architects that are not owners, lessors, lessees or operators of noncompliant facilities. In Lonberg v. Sanborn Theatres, Inc., 259 F.3d 1029 (9th Cir. 2001), amended, No. 9956221, 2001 WL 1135432 (9th Cir. Sept. 27, 2001), physically disabled plaintiffs sued the owner, operator, and architect of a movie theater complex alleging that various

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aspects of the theater violated the ADA because they were not sufficiently accessible to persons using wheelchairs. The district court granted partial summary judgment to the architect based on the fact that the architect was not the constructor. On appeal, the plaintiffs argued that liability for “design and construct” discrimination extends to anyone who designs and constructs a noncompliant building and is not limited to entities referenced in § 12182(a). The Appeals Court held that applying the list of liable entities in § 12182(a) to the “design and construct” discrimination defined in § 12183(a) was more consistent with the text of the statute, and also conforms to the general structure of the other titles of the ADA, which employ a general rule of liability to set forth who is liable, and subsequent provisions to describe what constitutes discrimination. Consequently, the court held that only an owner, lessee, lessor or operator of a noncompliant public accommodation can be liable under Title III of the ADA for the “design and construct” discrimination described in § 12183(a). It is important to note that the Lonberg court did not address whether an architect could be liable to an owner under tort or contract law for designing a noncompliant public accommodation or commercial facility. Hence, Lonberg should not be read as completely exempting designers from liability for a design that does not comply with the ADA.

CONTRACTOR HELD TO HAVE WAIVED “ADDITIONAL INSURED” STATUS In a recent case, a general contractor was held to have waived any requirement that its electrical subcontractor name the general contractor as an additional insured on a general liability policy which the subcontractor was required by the subcontract to purchase for the project. Stone Bldg. Co. v. Star Elec. Contractors, Inc., 796 So. 2d 1076 (Ala. 2001). Stone was the general contractor, and Star was an electrical subcontractor on the project. The subcontract required Star to “maintain” insurance sufficient to protect Star and the Contractor from claims for bodily injury and property damage which might arise from operations under the subcontract. Before proceeding with the work, Star gave a Certificate of Insurance to Stone indicating that the contractually required coverage was in place. An employee of the drywall subcontractor on the same project was accidentally electrocuted and fell from the ladder on which he was standing. He survived, but his

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injuries required hospitalization. The worker sued Stone and Star, among others. Stone cross claimed against codefendant Star alleging that Star’s insurance should defend Stone and cover the injured worker’s claims and that Star was required to indemnify Stone from the worker’s claims. Star denied both of Stone’s cross claims. There was no dispute that the subcontract required Star to obtain general liability insurance and that the subcontract language made clear that the insurance was to protect the interests of both Stone and Star. However, the subcontract did not expressly require that Stone be made an “additional insured.” Stone argued that it had relied upon the Certificate of Insurance as evidence that it was insured under Star’s general liability policy. The Certificate, however, did not indicate that Stone was an additional insured. The Certificate merely showed that Star had in place the contractually required insurance and that Star was insured. Accordingly, both Star and its insurer rejected Stone’s demand that it be provided a defense in the lawsuit and coverage for the worker’s claims. Before the trial, Stone settled with the injured worker, agreeing to pay $495,000. By settling, Stone had effectively liquidated its damages in the amount of the settlement payment plus its legal fees and costs. Stone continued to pursue its claims against Star to recover its damages. Star continued to reject Stone’s demands and maintained that it was not liable for the worker’s injuries. The trial went forward on the issue of Star’s liability to the injured worker and on Stone’s cross claims against Star for insurance coverage and indemnity. The jury found Star not guilty, so Star paid nothing to the injured worker. Stone’s cross claims against Star were tried in a separate proceeding. Before the trial of the cross claims, Star filed a motion for summary judgment on a number of grounds, the foremost of which was that Star could not be liable to Stone because the jury had found that Star was not liable to the injured worker. The trial court granted Star’s motion. Stone then appealed. On appeal, the Alabama Supreme Court first reviewed Stone’s claims for insurance coverage. The court pointed out that neither the subcontract language nor the Certificate said anything about making Stone an “additional insured.” Therefore, if Stone relied upon industry custom or practice or made some assumption about coverage upon receipt of the Certificate, then its reliance was misplaced and Stone was mistaken. The paperwork simply did not support Stone’s claims. At best,

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Stone was deemed to have waived any requirement that it be named as an additional insured because it did not object when it received the Certificate that did not list Stone as an additional insured. There was good news for Stone, however, on its indemnity claim. Star argued that because there was no liability to the worker, there was no obligation to indemnify Stone. In this case, the evidence showed that Star was fully apprised of the worker’s claims and of Stone’s demand for indemnity, Star participated fully in the defense of the case, and Star was given an opportunity to participate in the settlement. Therefore, the court said that Star could be liable to indemnify Stone for the amounts paid in settlement and for the legal fees and costs incurred by Stone, even though a jury found that Star was not liable to the worker. Lesson: Read the Certificate of Insurance, both original and any renewals. A SHORT PRIMER ON LOUISIANA CONSTRUCTION LAW In Louisiana, especially at Mardi Gras time, they say, “Let the good times roll!” However, contractors that let release and waiver language in change orders roll by them without close scrutiny can live to rue the day. That’s what happened to one contractor in a Louisiana case, giving the judge an opportunity to talk about a number of issues important to contractor claims and to address how they are treated under Louisiana law, which is sometimes different from the law of the other 49 states. Pellerin Construction, Inc. v. Witco Corp., 169 F. Supp. 2d 568 (E.D. La. 2001). Pellerin had a lump sum contract for $4,145,000 to erect two structures at Witco’s processing plant in Taft, Louisiana. The contract substantial completion date was December 31, 1998. The contract had a no damage for delay clause. That is, Pellerin expressly waived recovery of damages suffered by reason of delays of any nature and agreed that an extension of time would be its sole remedy for delay. By January, 1999, the project was not complete, and Pellerin had by that time encountered all of the problems that later gave rise to its claim – incomplete drawings, late steel erection by others, re-sequencing of its work, bad weather, crowded work conditions, and changes to its scope of work. Pellerin negotiated a Contract Modification, signed on March 8, 1999, which gave Pellerin $308,000 and extended the substantial completion date to

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April 25, 1999. Subsequent modifications moved the substantial completion date to late June, 1999, when Pellerin actually finished. Eight months after completing the work, Pellerin sued the owner. Pellerin alleged that the owner actively interfered in the project, breached the contract, was grossly negligent, and effected a cardinal change to the contract. Alternatively, Pellerin asserted that it was entitled to recover in quantum meruit for the additional work that it performed and for the additional cost that it incurred. The Contract Modification and each of the later revisions all contained language stating that the contractor released all claims for additional compensation except those claims previously submitted in writing in strict accordance with the contract including any rights the contractor might have had for additional compensation arising out of delays or disruption of its schedule that might have arisen prior to the date of the modification. In addition, it stated, “Pellerin waives any past, present or future entitlement to any change to the Contract.” Under the Louisiana Civil Code, the court found that the words in the Modification were clear and unambiguous and were binding on Pellerin. Pellerin, probably expecting such a result, sought to avoid the consequences of this language by claiming that the Modification was executed under economic duress. According to provisions of the Louisiana Civil Code, duress will vitiate a party’s consent when it is of such a nature as to cause a reasonable fear of unjust and considerable injury to a party’s person, property, or reputation. Pellerin claimed duress because the project delays had caused it to incur almost $1,000,000 in additional costs and because it was running a $1 million operating deficit on the project. However, under Louisiana law, the mere stress of business conditions does not constitute economic duress if the opposing party did not engage in conduct designed to produce that stress. While Pellerin may have been in financial straits, there was no evidence that the owner improperly threatened Pellerin or caused delays in order to put Pellerin in extremis so that it could thereafter make unjustified demands on Pellerin. The court found that there was no economic duress, and dismissed all of Pellerin’s claims without a trial. The court also found that the no damage for delay provision in the contract barred Pellerin’s claims. In an effort to avoid such a result, Pellerin had argued that the

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doctrine of active interference precluded the enforcement of the no damage for delay clause. Under that doctrine, recognized in a number of states, if a contractor is delayed by an owner’s active interference, the contractor can recover damages for delay even though the contract has a no damage for delay clause. The court found there was no Louisiana legal authority adopting the doctrine of active interference. That did not mean that a no damage for delay clause gave an owner in Louisiana the absolute right to prevent the contractor’s performance. The federal court determined that, in Louisiana, a no damage for delay clause is enforceable unless the delay was caused by the owner’s intentional or gross fault. The court found there was no such evidence in this case. Finally, Pellerin sought to recover on an alternative claim that it was entitled to damages under the theory of quantum meruit because there had been a cardinal change. Quantum meruit is a theory that allows a contractor, under certain circumstances, to be paid the reasonable value of the work it has done. A cardinal change, according to the federal court, is a drastic modification beyond the scope of the contract that alters the nature of the thing to be constructed. This federal court could not find any Louisiana authority recognizing the cardinal change doctrine. Moreover, (a) the court found that the changes in the scope of this project were not so drastic or profound as to alter the nature of the thing to be constructed, and (b) the court also found that, under Louisiana law, recovery of damages under the theory of quantum meruit was permitted only in the absence of a contract. The good times did not roll for Pellerin. VA BOARD ACCEPTS MEASURED MILE COMPARISON OF DIFFERENT WORK The VA Board of Contract Appeals recently approved a productivity claim that relied on a measured mile analysis, even though the analysis compared the rates of production of different, albeit similar, activities. Appeal of P.J. Dick, Inc., VABCA 6080-82 (2001). P.J. Dick, Inc. (“PJD”) was awarded a $68,462,000 contract for construction of a Clinical Addition to the VA Medical Center in Ann Arbor, Michigan. PJD originally accepted a bid for the electrical subcontract work from Superior Electric Company (“SEC”), but when SEC and PJD could not agree on subcontract terms and conditions, PJD then awarded the electrical subcontract to Kent Electric Services (“KES”). KES relied on the estimates

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prepared by SEC, and KES prepared a labor budget for the project, including budgets for feeder circuit work and branch circuit work. Feeder circuit work involves installation of larger cables, pulled through longer and straighter runs. Branch circuit work involves installation of cables and connections that are branched off of the feeders, and this work generally involves shorter runs and more turns. The installation of the feeder circuits went as planned, without significant impact. However, due to the VA’s failure to prepare coordinated, complete contract drawings, KES suffered significant productivity losses in the installation of its branch circuits. The VA’s contract documents were so poor that there were no areas of branch circuit installation that were not impacted. Although KES budgeted 30,727 labor hours for its branch circuit installation (including approved changes), KES actually expended 70,498 hours to complete its branch circuit installation. VA-caused delays forced KES to begin this work on all floors simultaneously, working when and where spaces were made available, and once in a space, KES was forced to stop, start, leave, and return as it identified errors in the drawings and awaited VA approval of corrections. Essentially, KES was forced to complete the VA’s design in the field, and this effort required significant additional labor and supervision hours that KES could not have reasonably anticipated. At trial, the VA argued that KES used an improper measured mile analysis because KES calculated its losses by comparing the rate of production for its non-impacted feeder circuit installation to the rate of production of its impacted branch circuit installation. The VA argued that in order to rely on the measured mile method, KES was required to compare good and bad productivity rates of the same crews performing the same work. The Board disagreed, reasoning that because work performed in different periods is never identical on a construction project, and because the calculation of productivity losses is not an exact science, measured mile analyses of work “reasonably alike” is acceptable if the “approximations it involves will be meaningful.” The KES approach was meaningful because the labor force for the feeder circuit installation was taken from the same pool of workers used for the branch circuit installation, and these workers possessed similar skills and experience. Furthermore, the skill and knowledge required to install feeder circuits is similar enough to that required to install branch circuits as to permit a valid comparison between the

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two. Because KES’s feeder circuit work was installed per its plan (demonstrating that KES’s plan was reasonable), the comparison between non-impacted feeder circuit installation and impacted branch circuit installation was a valid comparison. Additionally, KES presented an alternate analysis of its productivity losses (using MCAA factors), and the results of this analysis suggested that the measured mile analysis was accurate. Although the KES opinion supports use of the measured mile analysis, caution should be taken before assuming that Courts or Boards will automatically recognize different activities as being similar enough for a measured mile analysis.

FEDERAL COURT OF CLAIMS HOLDS THAT PAYMENT ON PER DIEM BASIS ON SOME CHANGE ORDERS FOR EXTENDED SITE OVERHEAD DOES NOT ESTABLISH A CONTRACT-IN-FACT FOR OTHER CHANGE ORDERS In our “Construction and Procurement Law News” bulletin for the Third Quarter 2001, we reported on the Sherman R. Smoot case. In that case, the Armed Services Board of Contract Appeals refused to grant summary judgment to the Government on a contractor’s claim for extended site overhead calculated on a per diem basis. The contract provided for a set percentage markup on change orders for site overhead. During performance, the Government paid the contractor for extended site overhead on a per diem basis on several change orders that delayed the project. When the Government refused to pay on a per diem basis for other change orders that delayed the project, the contractor filed a claim. When the Government sought summary judgment, the contractor asserted that the Government had modified or waived the contract provision providing for a set percentage markup by paying for site overhead on a per diem basis on the prior change orders. The ASBCA denied summary judgment apparently believing the contractor’s position presented an issue of fact. That result has now been placed in question. In W. M. Schlosser, Inc. v. U.S., 50 Fed. Cl. 147 (2001), there were 95 change orders, eight of which extended the contract time for 224 days. For three of the eight change orders, the Government (the Navy) paid Schlosser for 46 days of extended site overhead at a per diem rate of $713.73 per day. When Schlosser sought similar payment for the balance of 162 days, the Government refused and Schlosser appealed to the Claims Court.

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From Judge Hewitt’s opinion, which is heavily pro-Government, it appears Schlosser argued there had been an implied-in-fact contract modification as a result of the prior change orders. The court first noted that the contract provided that “[f]ield overhead will be evaluated as a percent markup and NOT a direct cost to the change proposal.” Apparently, the 8% markup was bid by Schlosser on the bid form, and Schlosser could have used a different percentage. The government argued that its per diem payments for 46 days on the three change orders was a mistake and that no implied-in-fact modification had occurred. Noting that an implied-in-fact contract can only be created if (a) there was mutual intent and (b) the government representative was authorized to bind the government, the court said neither was established and rejected Schlosser’s position. Schlosser also argued that the delays were “administrative delays,” primarily the result of delayed issuance of the change orders and, by analogy to the suspension of work (“SOW”) clause, site overhead should be allowed on a per diem basis. The court rejected this position, concluding Schlosser had failed to prove an SOW. The Schlosser case is an example of the potentially unfair results in site overhead cases, beginning with the Mortenson and Caddell cases. In summary, Mortenson and Caddell held that a contractor cannot recover site overhead for non-delay changes on a percent basis and for delay changes on a per diem basis, which had been the normal practice for many years. According to these two cases, FAR 31.203 allows for only one allocation method for recovery of job site/field overhead. While cumbersome, the most logical answer to Mortenson and Caddell was for contractors to make a direct charge of site overhead to non-delay change orders, so they could preserve the ability to recover on a per diem basis for delay change orders. However, Schlosser holds that the government can dictate the choice a contractor uses to recover for its site overhead costs – even for delays – on change orders. Obviously, the government may require the percent markup basis. The contractor may thus be denied the ability to select its accounting method. The result: the government can structure its contracts so that for a $1,000 change which extends a job for 30 days, a contractor will be limited to a site overhead recovery of $80 (assuming 8% as in Schlosser). So much for fairness in government contracting.

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Schlosser is not binding on the Boards. Moreover, Schlosser does not address home office overhead, and it recognizes that an SOW may precede a change; the markup agreement was only for change orders. Finally, at least as to Judge Hewitt, the case demonstrates the occasional need to get a lawyer involved in any change order that may change the language of the “front end” document. This firm hopes the Government will not adopt the Schlosser approach. Contractor associations such as the AGC and ABC, along with subcontractor associations and construction labor unions, may be able to effect a legislative change to improve the current situation. Until then, the result will likely be that contractors, being ever optimistic, will continue to bid for government work even with the imposed percent markup which limits proper site overhead recovery for delays. The more prudent contractors will include a contingency to cover the risk and probably not get the job. The less prudent contractors will take the risk and will get the job, and the government will get more problems. FLORIDA REVISES ANTI-INDEMNITY LAW, AGAIN Effective July 1, 2001, Florida has revised its law on indemnification in construction contracts for the second time in two years. Previously, under the 1998 law, Florida permitted indemnification from losses or damages for which the indemnitee (party being indemnified) may be liable, even if the indemnitee was wholly at fault. This was limited only by the requirement that either the contract provided for a monetary limit of the indemnification or the owner gave specific consideration (payment) for the indemnification. Fla. Stat. § 725.06 (1998). As reported in our Fourth Quarter 2000 issue, the law was amended in July of 2000 so that indemnity was permitted only to the extent that it covered the negligence, recklessness or intentional wrongful conduct of the indemnitor in the performance of the construction contract. That is, you could no longer be indemnified against losses caused by your own actions. This created some uncertainty, and appeared to make certain standard form contractual provisions, like paragraph 3.18 of AIA Form A201 (1997), void as against the public policy of Florida. Florida has changed it again. While one may still have unlimited indemnification where the indemnitor is at fault, for private contracts the legislature has returned to allowing indemnification against losses from one’s own acts, provided the provision satisfies certain conditions. Those conditions are that the provision: 1) must have a

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monetary limitation that bears a reasonable commercial relationship to the contract; 2) must be part of the project specifications or bid documents; 3) cannot include indemnification for damages from gross negligence or the willful, wanton or intentional misconduct of the indemnitee; and 4) cannot include damages resulting from statutory violations or punitive damages caused by the indemnitee. Fla. Stat. § 725.06 (2001). For public contracts, the amended law is close to the 2000 version and permits indemnification only to the extent of the indemnitor’s negligence, recklessness or intentional misconduct. Any other form of indemnification in public contracts is void and unenforceable. This change may warrant yet another review of contract forms used on Florida projects.

BLOUNT MOVES TO PORTLAND On May 9, 2002, Blount International, Inc. announced that it was closing its office in Montgomery, Alabama, and moving its headquarters to Portland, Oregon. Since the late 1940s when Blount Brothers Construction Company was founded by Winton M. “Red” Blount and his brother, Houston Blount, Blount has been an integral part of this firm and, in particular, its construction practice. Red Blount, somewhat facetiously, has said many times that Blount grew from building fish ponds to building launch pads at Cape Kennedy to building a $2 billion university in Saudi Arabia. This firm grew with Blount, and many of our lawyers, past and present, handled legal matters for Blount. Beginning with Jim Blair, then Frank McFadden, then Nick Gaede, Stanley Bynum, Mabry Rogers, Wally Sears, and many others represented Blount on construction matters. Many other lawyers with this firm worked on corporate and securities matters for Blount. Over the years, we worked with many highlyskilled individuals at Blount, beginning with Red Blount himself, Paul Hess, John Caddell, Jim Satterwhite, Bull Wilson, Fred Plaga, Charlie Smith, Bill Mullins, Joe Willis, Pete Forster (now Chairman and CEO of Clark Construction Group), and others too numerous to name. Not only did our representation of Blount afford to this firm the opportunity to work on many USA construction projects – federal, state, and private – but when Blount went overseas in the mid-1970s, we went with Blount. As a result of those efforts, we represented Blount in several major projects in Saudi Arabia (including

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the $2 billion King Saud University), a number of projects in Iran (including several cases before the U. S. Iran Claims Tribunal), and in the Bahamas. Our relationship with Blount gave us the opportunity to represent clients in many interesting cases, including the Moses Cone case before the United States Supreme Court which established that the Federal Arbitration Act had to be enforced by state courts, and a number of significant arbitration matters before the International Chamber of Commerce. These representations of Blount were instrumental in this firm’s gaining a national and international reputation for handling construction matters. Having Blount close its offices in Alabama and move to Portland is, in some ways, like losing a very, very dear friend. As most know, Blount decided to exit the construction business in the early 1990s, so our representation of Blount on construction matters also ceased at that time. However, because of the many relationships that we had with Blount and its employees over the last 30 years, we received the opportunity to represent a number of other entities, including Pitt-Des Moines Steel (recommended by Austin Paddack, former CEO of Blount), Westinghouse Electric in its multi-district uranium cases with a number of electric utilities (as the result of representing Blount in the acquisition of a Westinghouse subsidiary), the close out of the Euro Disney park in Paris (as a result of recommendation by opposing counsel in an ICC arbitration case where we represented Blount), Clark Construction Group (as a result of Pete Forster moving to Clark as an executive), and other opportunities too numerous to name. One cannot say anything about Blount without noting that Blount, as a corporation, and Red Blount, in particular, have been model citizens who have contributed greatly to Alabama and, indeed, the nation. Red Blount served as Postmaster General in President Nixon’s first term cabinet, has been president of the United States Chamber of Commerce, and has received numerous accolades for his generosity in creating the Alabama Shakespeare Festival Theater, the Montgomery Museum of Art, and merit scholarships at the University of Alabama, just to name a few. In conclusion, Blount has been an integral part of this firm for many years, and much of the success of this firm in general, and in particular the construction practice, has been as a direct result of our close association with Blount and its executives and employees.

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Thanks and Godspeed to you, Red Blount, and all of our many friends who were with Blount.

About Bradley Arant We welcome you to visit our website, www.bradleyarant.com, to learn more about our firm, the practice group and our lawyers. Bradley Arant Rose & White LLP was organized in Birmingham, Alabama around 1900. The firm presently has over 170 lawyers with offices located in Birmingham, Huntsville and Montgomery, Alabama; Jackson, Mississippi and Washington, D.C. The firm represents a variety of local, regional, national and international organizations and is committed to understanding and responding to the needs of its clients. The firm has a diversified civil practice including environmental law, labor and employment, health care, employment benefits, construction, procurement, government contracts, litigation, general corporate, partnership and business entity law, mergers and acquisitions, banking, bankruptcy and creditor rights, tax, estate planning, energy, trade regulation, international trade, securities, municipal finance, real estate, governmental affairs, white collar crime, intellectual property and antitrust. The breadth of our practice not only permits us to serve the diverse needs of our regular clients but also gives us the depth and degree of practice emphasis required to assist new clients facing complex legal issues or transactions. Our depth allows us to focus on specific industries, like construction. We are committed to providing the highest standards of legal service. In recognition of this commitment, many of our lawyers have been selected for membership in professional organizations that recognize outstanding attorneys in particular fields, including the American College of Construction Lawyers, the American Law Institute, the American College of Trial Lawyers, the American College of Tax Counsel, the American College of Trust and Estate Counsel, the International Association of Defense Counsel, the American College of Labor and Employment Lawyers, the American College of Bond Counsel, the American College of Bankruptcy, the American College of Mortgage Attorneys, the Alabama Law Institute, the Southern Federal Tax Institute, the American Tax Policy Institute and the American Bankruptcy Institute. Two of our lawyers have been members of the Product Liability Advisory Council. We have more lawyers listed in the most recent edition of The

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Best Lawyers in America than any other Alabama law firm. Since 1923, the Martindale-Hubble Law Directory has selected our firm to serve as the reviser of its Alabama Law Digest. We also seek to improve the legal system. Throughout our history, our lawyers have been actively involved in local, state and national bar associations, in legal education and in other professional activities. Members of the firm have served as presidents of the Alabama, Birmingham and Huntsville-Madison County Bar Associations and have been elected chairs of the major practice sections within the Alabama Bar, including, in recent years, Litigation, Health Law, Labor Law, Tax, Real Property, Probate and Trusts and Environmental Law. A number of attorneys from the firm have been, or are, on the adjunct faculty at the University of Alabama School of Law, the Cumberland School of Law and other law schools. Three of the firm’s lawyers are members of the International Bar Association, and the firm is a member of the American Law Firm Association (“ALFA”), an international law firm group. Two former partners have served as federal judges. One partner is on the Board of the American Arbitration Association. We also are committed to improving government through the preparation and implementation of essential legislation at the state level in the areas of municipal finance, education and tax reform. One of our late partners drafted the legislation that allowed Alabama to be one of the first states in the country to offer industrial revenue financing. Another partner was appointed by the Governor to chair the most comprehensive tax reform proposal ever considered by the Alabama legislature. Members of the firm also have served on committees charged with drafting and revising numerous business and property laws, including the Alabama Business Corporation Act, the Alabama Limited Liability Company Act, the Alabama Uniform Partnership Act (1996), the Alabama Uniform Commercial Code, the Alabama Condominium Code, the Alabama Probate Code and Alabama’s trademark and trade secret laws. Recently, the firm published a handbook that explains Alabama’s governmental ethics laws. While committed to excellence, we are sensitive to the need to control costs. We understand that the value of what we do is measured by the results. To provide more timely and cost-effective service to our clients, we have invested heavily in state-of-the-art voice and data technology. As a result, we are easily accessible to our clients – whether by e-mail, phone, facsimile, or video conference. A large menu of off-the-shelf and custom

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applications for litigation support, planning, communications, legal research and financial analysis is available to our attorneys to provide them with access to the tools they need to best serve our clients’ needs. Because notebook computers are available to all attorneys and legal assistants, the firm’s computer network capabilities are available at any location that can be reached by telephone. We would also like to remind you that the Environmental and Toxic Tort Practice Group of Bradley Arant Rose & White LLP has published the third edition of its environmental handbook entitled Environmental Law and Regulation in Alabama. If you would like a copy of this handbook, which provides a general overview of environmental law in the State of Alabama, then please let us know. Upcoming additions to the handbook include chapters dedicated to the Endangered Species Act and the law concerning wetlands. The “ETT” group also publishes periodic newsletters regarding new developments in the area of environmental and toxic tort law. If you have any suggestions for topics you would like to see addressed in the environmental handbook or newsletters, please let us know.

Lawyer Activities Feb 2002

Nick Gaede was elected treasurer of the American College of Construction Lawyers at the annual meeting in February 2002.

Apr 2002

Bradley Arant was a sponsor at the Forbes Magazine conference “Developing, Constructing, Operating and Securing Energy Power Projects” at the Fairmont Hotel in San Francisco, California. Axel Bolvig and John Harrell, along with John Rocchio, Senior Vice President of Business Development for Calpine Corporation, led a session titled “The Mistakes Made and Lessons Learned in Calpine’s Development Experience and Issues in EPC Contracts in Merchant Power Plant Construction.”

Apr 2002

Nick Gaede participated in a seminar in New York City for PLI in April dealing with construction risks and presented a paper on Design/Build.

May 7, 2002 Mabry Rogers, Board Member, American Arbitration Association, attended the

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AAA’s Annual Board of Directors Meeting on May 7, 2002. May 17, 2002 Bradley Arant attorneys Nick Gaede, Nathan Johnson and Linda Friedman spoke at a May 17, 2002 program presented by the International Law Section of the Alabama Bar Association. The all-day program was located at the Scrushy Center in Birmingham. Attorneys Nathan Johnson and Linda Friedman spoke about “Protecting Intellectual Property Overseas”, and attorney Nick Gaede addressed issues about international arbitration. Spring 2002 Nick Gaede taught a class on European Union law at Alabama Law School this spring and will teach a class on Negotiation at Cumberland Law School this fall. Fall 2002

Wally Sears and Jim Archibald will teach a course in construction law in the 2002 fall semester at the University of Alabama Law School.

Nov 2002

Bradley Arant will be a co-sponsor of a three-day program on international energy issues in London, England in November. Nick Gaede will participate in a session dealing with construction management and risk issues for such projects.

Dec 2002

Nick Gaede will participate in a program dealing with international arbitration at the Construction Superconference.

2002

David Owen provided the annual update to the Alabama Chapter of Aspen, Fifty State Construction Lien and Bond Law (Robert F. Cushman & Stephen D. Butler eds., 2nd ed. 2000).

2002:

For 2002, Axel Bolvig will serve on the Business Development Committee and Doug Eckert will serve on the General/ Subcontractor Relations Committee of the North Alabama Chapter of Associated Builders and Contractors.

2002:

David Pugh and Joel Brown will prepare chapters to be published in Aspen Law &

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Business’s forthcoming Construction Business Handbook. David’s chapter will address construction liens on public projects, and Joel’s will discuss claims handling on multi-party construction products. The Construction Business Handbook was last updated in 1984.

We’re moving! On Monday, July 29, 2002 we will open the doors at our new Birmingham office at One Federal Place. The new address will be: 1819 5th Avenue North Birmingham, AL 35203-2104 Our phone number will stay the same: (205) 521-8000

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CONSTRUCTION & PROCUREMENT LAW NEWS SECOND QUARTER 2002

Disclaimer and Copyright Information The lawyers at Bradley Arant Rose & White LLP, including those who practice in the construction and procurement fields of law, monitor the law and regulations and note new developments as part of their practice. This newsletter is part of their attempt to inform their readers about significant current events, recent developments in the law and their implications. Receipt of this newsletter is not intended to, and does not, create an attorney-client, or any other, relationship, duty or obligation. This newsletter is a periodic publication of Bradley Arant Rose & White LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own lawyer concerning your own situation and any specific legal questions you may have. For further information about these contents, please contact your lawyer or any of the lawyers in our group whose names, telephone numbers and E-mail addresses are listed below; or visit our web site at www.bradleyarant.com. A. H. Gaede, Jr. . . . . . . . . . . . . . . . . . . . . . . . Stanley D. Bynum . . . . . . . . . . . . . . . . . . . . . E. Mabry Rogers . . . . . . . . . . . . . . . . . . . . . . Gary C. Huckaby (Huntsville) . . . . . . . . . . . . Andrew J. Noble, III . . . . . . . . . . . . . . . . . . . Walter J. Sears III . . . . . . . . . . . . . . . . . . . . . H. Harold Stephens (Huntsville) . . . . . . . . . . Michael D. McKibben . . . . . . . . . . . . . . . . . . David G. Hymer . . . . . . . . . . . . . . . . . . . . . . . Axel Bolvig, III . . . . . . . . . . . . . . . . . . . . . . . J. David Pugh . . . . . . . . . . . . . . . . . . . . . . . . . James F. Archibald . . . . . . . . . . . . . . . . . . . . . Douglas E. Eckert . . . . . . . . . . . . . . . . . . . . . Arlan D. Lewis . . . . . . . . . . . . . . . . . . . . . . . . Joel E. Brown . . . . . . . . . . . . . . . . . . . . . . . . . Donna M. Crowe . . . . . . . . . . . . . . . . . . . . . . Stacey A. Thurman . . . . . . . . . . . . . . . . . . . . David W. Owen . . . . . . . . . . . . . . . . . . . . . . . James Wm. “Will” Manuel (Jackson) . . . . . .

(205) 521-8323 (205) 521-8000 (205) 521-8225 (256) 517-5140 (205) 521-8342 (205) 521-8202 (256) 517-5130 (205) 521-8421 (205) 521-8289 (205) 521-8337 (205) 521-8314 (205) 521-8520 (205) 521-8519 (205) 521-8131 (205) 521-8416 (205) 521-8418 (205) 521-8086 (205) 521-8333 (601) 948-8115

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Note: The following language is required pursuant to Rule 7.2 Alabama Rules of Professional Conduct: No representation is made that the quality of the legal services to be performed is greater than the quality of the legal services performed by other lawyers. ©Copyright 2002 Bradley Arant Rose & White LLP