NATIONWIDE: An Introduction to Construction

Paul Varela, Joseph Guarino, Bennett Lee, Todd Metz, Christopher Burke

The construction industry is projecting continued growth in 2022, with federal legislation spurning multiple large-scale infrastructure projects. While challenges concerning labor, material prices, and supply chain issues remain, the expectation for the foreseeable future is a robust bidding market, requiring precision in bid estimates and contract drafting.

Infrastructure Investment And Jobs Act Promises Rewards, But Not Without Risks

In late 2021, the United States Government enacted and signed into law the Infrastructure Investment and Jobs Act (IIJA), a US$1.2 trillion spending bill that included, among other things, funding for highway, transit, and rail programs for the Department of Transportation, and funding for broadband access, clean water and electric grid renewal programs. For the construction industry, the IIJA means that a significant number of “mega projects” such as roads, bridges, light rail and power infrastructure are on the horizon.

Even large multinational contractors turn to the development of joint ventures when undertaking mega projects such that those envisioned under the IIJA. Joint ventures permit their member entities the ability to pool workforce, equipment and other resources that can provide the collective entity a competitive advantage in bidding contracts. Moreover, by teaming up with more contractors and/or design partners, the risk of each individual contractor is reduced (along with the practical benefit of likely qualifying for bonding at lower rates).

With the rollout of anticipated mega projects from IIJA likely giving rise to more joint ventures, contractors and designers are best served to be aware of legal expectations particular to joint ventures, including that joint venture partners owe a fiduciary duty to one another. This fiduciary duty mandates that the partners are expected to perform strictly in the interests of the joint venture entity, even when such performance may not inure to the benefit of the individual joint venture partner (i.e. in a design-build joint venture agreement, a designer undertaking a costly redesign of a project element in order to save the overall project from delay that could risk forfeiture of an even greater sum). Moreover, joint venture agreements themselves should be carefully drafted so as to anticipate various default scenarios in the event that one of more of the joint venture partners is unable to continue to serve in its designated role. For outside legal counsel, representation of joint ventures brings its own unique challenges. The default position is that outside counsel retained to represent the joint venture does not represent the interests of the individual constituents, but challenges can arise where (as commonly occurs) the attorney and/or firm representing the joint venture has a pre-existing relationship with one of the joint venture partners.

The IIJA is also likely to produce a significant number of federal government design-build projects, a project delivery type that has already seen meaningful market share increase within the last several years. Design-build solicitations (and the resulting contracts) from the federal government typically include performance, rather than design, specifications. One of the most frequently litigated elements of design-build contracting with the government is where the government’s responsibility for potential design defects ends and where the contractor’s responsibility begins. Most of the cases that address this issue involve scenarios where, as part of the RFP process, the government provides certain design criteria and/or specifications for offerors to use as part of their bid proposals. The design criteria and/or specifications provided by the government are typically in the 30-35 percent range of completion; under the concept of “bridging,” these specifications are adopted by the contractor, who is then responsible for final development of the 100 percent design package. The question of where the government-provided design criterion “ends” and where the design-build contractor’s design “begins” can lead to fact-intensive investigations when disputes arise. United States courts and Boards of Contract Appeal rely heavily on the scope of the government-prepared documents and the express conditions expected of bidders to determine who is responsible for potential design busts and resulting cost increases. With the increase of large design-build projects on the horizon, design-build contractors are wise to include detailed exclusions (as appropriate and where circumstances dictate) as part of their bid proposals.

Renewable Energy Sector Continues Rapid Growth 

Building on massive gains already experienced in the last several years, solar and wind power projects expect to continue to see significant expansion in 2022 and beyond. Developers are seeing more competitive pricing for the technologies driving both solar and wind, and the “clean” nature of the technologies remains attractive to utilities across the country. Reports have indicated that over 44 gigawatts of utility-scale solar and 27 gigawatts of wind to come online in 2022, significantly outpacing prior annual records.

Supply-Chain Concerns Continue To Be Potential Market Disruptors

The construction industry’s collective response to the COVID-19 pandemic was impressive, as contractors quickly adapted to differing site safety protocols, technology advancements, and other changes made necessary beginning in 2020. One of the more acute issues associated with the pandemic was increased stress on the supply chain, stress that has continued into 2022 for reasons that extend beyond global health. Supply shortages for projects are continuing and result from a number of interconnected disruptions across the construction and logistics industries. Chief among the ongoing concerns is labor shortages at factories, ports, and rail facilities - put simply, if there is an insufficient workforce to manufacture and transport the products that serve as materials for construction projects, the availability of those materials for deployment suffers. The overall health of the United States (and overseas) construction markets has only exacerbated problems stemming from supply chain difficulties, because the increased demand for products continues to rise, which in turn results in increased costs passed on to developers and consumers. These increased costs also pose challenges to contractors who lock in fixed price contracts during this period of high inflation.