Limiting Liability During Repairs

If funds for the repair work are limited (are they ever not?), especially in cases where a settlement was arrived at through mediation or negotiation, or when a contingency fee was paid to legal counsel out of the claim proceeds, consideration should be given to limiting the liability for the completed whole following the repair work, rather than requiring the repair contractor to assume that liability. This can have significant cost-control benefits if done carefully.

When the developer or general contractor constructed the buildings, they owned any defects in them. The law does not permit the developer or builder to pass through to the purchaser or owner defects without disclosure or compensation. Through the process of settling the lawsuit, the developer in effect transfers ownership of the defects and the value of them to the owners. In accepting the settlement, the owners in actuality accept responsibility for the defects along with the money, and release the developer or contractor from any further responsibility for them. Theoretically, at least, the owner's net account balance should at that point be zero. (In reality, though, the owners almost always still show a net deficit.)

The owners are then in control and possession of certain defects, along with a certain amount of money with which to repair them. As they contract for services to get this done, each party who comes on the scene to work with the defects incurs liability. They make an assessment of that liability, and factor that liability into their cost equation. Assumption of risk forces the cost of their services up.

Anyone becoming involved with the buildings knows that they are already dealing with defective work, work that was done by someone else on a project that has already been in litigation. They do not want to take responsibility for the defective work of someone else, work over which they have no control. Therefore, in order to best protect themselves, they have no choice but to remove all of the work of the other party and to start from the beginning with new work that they can control, for which they can feel comfortable taking full responsibility.

This translates to complete removal and replacement. These new contractors cannot allow original work to remain, because they are taking responsibility for it. They have to get rid of it all. This results in unnecessary removal and replacement of components that have useful life remaining. Remaining useful life is an asset, which should not be thrown away unnecessarily. To do so is simply a waste of money.

Complete removal of defective components is always the preferred choice if money is available to accomplish it. That is the position usually taken in preparing a claim for a defect lawsuit. Such an approach is appropriate, for the money is coming from someone else, and the limit of that money is not yet defined. One would be remiss in not expecting the optimum repair.

Once the case is settled or adjudicated, the funds are then coming from the owner, and a strict limit of those funds has been defined. If the budget was reduced from the amount asked, as in a negotiated settlement, or following a contingency fee, then alternate methods of repair become necessary to minimize cost and stretch the funds.

In order to arrive at a settlement in mediation, a group of experts representing virtually all of the defendants proposed various solutions to all of the problems cited in an effort to cut the cost of the repair. The resulting proposals served as the basis for arriving at a settlement. By nature, those alternate proposals were compromises, short of the optimum method of repair, removal and replacement. They are able to work only if carefully planned and executed. They are by and large surgical in nature, not broad brush, finding what's broken and fixing only that.

At that point, the only hope of coming close to repairing what needs repair for the money received is to try to follow the proposals for repair that came out of mediation, or the settlement agreement. Those proposals should be used as guidance for the repair of each component, which the repair people can then follow in doing the type of surgical repairs agreed to at mediation.

These repair methods do not involve removal and replacement of all existing components; that's too costly and wasteful. Consequently, the end product upon completion will be mainly existing work, modified in an attempt to fix what is broken at the time. Problems that may occur several years later could well be due to wear and tear of the existing work, yet thought to be the failure of the repair. That's why this type of repair cannot carry with it liability for performance of the whole after the work is completed. In general, competent, experienced and responsible professionals will shy away from such work.

Limiting liability for failures after the repairs are accomplished allows a consultant, designer, or a repair contractor to guide these repairs as though they were spending their own money, being careful to minimize cost. They do not have to call for removal of components that have service life left just to protect themselves from liability for work over which they had no control. The rules for planning, designing, executing, and controlling this kind of work are not the same as those for total removal and replacement. The contractors who can and should do the work are different, and the demands upon the owner are different.

This approach to work requires a slower pace, more attention to detail, a smaller work force, and more involvement on the part of the owner. It will take more time, but offers the owners more corrective work for the repair dollar.¹

¹Construction Defect Claims and Litigation (Aspen Publishers, Inc. 1995).

CCL's Tech Briefs are published periodically by CCL Construction Consultants, Inc. Copyright © 2003, CCL Construction Consultants, Inc. All rights reserved. Inquiries and comments are invited, and may be forwarded by mail to the address listed below or via e-mail to cclcc@ix.netcom.com