Simplified Guide to Construction Law

1. Construction Law
The subject of "construction law" is extensive, and it can be made to seem complicated. But it can also be simplified. Part of a lawyer's everyday job is to make complicated things seem simple, but also to make simple things complicated. You'll understand what I mean if you go to the courthouse and listen to lawyers arguing about the law. One lawyer will be telling the judge that the issue is a simple one, easily decided. The opposing lawyer will likely be talking about the complexities of the case, and arguing the exceptions to a simple rule. There are those whose business it is to make the law seem complicated, but it is our business here to simplify a basic understanding of construction law.

The topic of construction law is extensive because the construction trade itself is extensive. The construction process has many diverse activities that invite the application of different fields of law. We will break down broad fields of law: contracts, torts, and real estate, for example, into parts that have a direct impact on the business of construction so as to make those parts understandable to the average contractor. Let us begin with a brief examination of what law is and how it works.

2. What Law Is
Law is to a democratic society and a free enterprise economy what the sea is to a fish: it is the very element from which democracy and business draw nourishment and life. This is no exaggeration. The collapse of communism is followed all around the world by recognition that democracy and enterprise depend upon the rule of law. Former communist nations struggling to enjoy the economic benefits of the industrial revolution, are finding that they are severely hampered by a lack of laws, judges, and, yes, even lawyers!

Neither democracy nor business can exist without law and law enforcement. Without them, elections and contracts are meaningless.

3. Law
Law is rules of conduct. A law either requires, or prohibits, certain behavior. One law requires that a person obtain a license from the state before engaging in the contracting business, as another law prohibits false advertising by contractors. The very right to engage in the contracting business requires an understanding of law, because a licensed contractor must know what is required, and prohibited, by the contractors licensing law.

4. Statutes, Ordinances, and Regulations
Governmental power is divided between federal, state, and local government. Local government is divided between counties and cities. All governments exercise some of their power through commissions, districts, authorities, departments, and bureaus.

The United States congress and the legislatures of the 50 states pass laws known as "statutes". Cities and counties pass laws known as "ordinances". The various districts, boards, bureaus, authorities and agencies also have the power to pass laws, in this case known as "regulations". In case of conflict between federal and state, or local law, the U.S. Constitution provides that federal law is supreme. Likewise, state law controls law in the event of conflict with local law.

Examples of federal laws are OSHA (industrial safety), Davis Bacon (prevailing wage), and the Miller Act (requiring payment bonds on federal contracts).

State and local laws that affect the construction industry include competitive bidding laws, contractors' licensing laws, planning and zoning laws, building codes.

5. Interpretation of Statutes, Ordinances, and Regulations
Even the most carefully drafted laws are likely to be unclear in specific situations. It is the role of the courts to interpret the laws and to apply them to specific situations. If there is a question about whether a person has violated the contractors' license law, or a parking regulation, or any other law, the question will be decided by a court.

The legislative power is separate from the judicial power and therefore the courts do not make laws, but only interpret them. The function of a court in interpreting a statute, ordinance, or regulation is to determine the intention of the agency that passed the law, whether the agency be the Congress of the United States, a state legislature, a city council, or a government agency.

6. Common Law
Statutes, ordinances, and regulations do not, and cannot, govern all human behavior or resolve all human disputes. Areas that are not covered by statutes, ordinances, or regulations are covered by the common law. Common law covers such topics as contracts, real estate, and torts: it is nothing more than the records of the decisions of judges in prior cases.

The colonists brought with them from England the common law, and after the revolution the states adopted it. (Louisiana, with a Spanish and French history, adopted the Code Napoleon.)

Common law had its beginnings in tradition. Legal scholars and reporters kept notes of court proceedings and reported how the judges decided cases. Other judges would consult these reports for guidance, and over the centuries there developed a rule called stare decisis. "Stare decisis" means "stand by things decided": so later judges follow the decisions of earlier judges.

Common law has proved marvelously adaptable to changing times. We now have such specialties as space law and electronics law. And courts are not immune to criticism, so occasionally they overrule earlier decisions. As one great judge said, "The life of the law has not been logic, it has been experience." (Oliver Wendell Holmes)

When people present a court with a question of contract law, the judge resolves the question by reviewing the records of decisions of courts in similar cases. The law to be applied by the judge in such a case is determined by examining the decisions that judges made in previous, similar cases. There is nothing mysterious or unusual about this kind of thinking. A pilot learns the stall characteristics of an airplane by looking it up in a book and the book is based on the experiences of other pilots in the same or similar airplanes. Questions of common law are resolved in much the same manner.

7. Appeal
Generally, the judicial system is divided into two branches: trial courts and appellate courts. A party who loses a lawsuit in the trial court always has the right to appeal the decision to a higher court. A Court of Appeal functions like the eraser on a pencil: it is there to correct mistakes. Between 20% and 30% of all trial court decisions are appealed to a higher court. Since a party is entitled to a trial that is free from error, a Court of Appeal will reverse the decision of a trial court if the decision is erroneous, and will order the trial court to correct the error or, if that is impossible, to retry the case.

8. Appellate Decisions
The decisions of the Courts of Appeal are made in writing, and the opinions are printed in law books. The law books are carefully indexed. Nowadays the opinions are not only in books, but in legal databases. Lawyers learn to look up rules of law in the opinions of the Courts of Appeal the way a student might look up a subject for a school paper in an encyclopedia.

9. Changing the Law
Both statutory law and the common law can always be changed by statute, and they often are. Judges also gradually change the common law so as to keep up-to-date with advances in technology, and changes in social and political thinking.

The common law is not abstract and theoretical. Every decision of every court is based on an actual dispute of some kind. The parties to a dispute present their cases and judges decide them. Thus, the development of common law depends on the self interest of the people in the lawsuit (litigants). Each party is entitled to be represented by a lawyer, and each lawyer's job is to find the cases supporting the interests of the client, and present those cases to the judge in a convincing way.

10. Advocacy
It sometimes seems as if lawyers and judges want to make the law seem complicated. To understand why this happens, you have to accept the fact that the American legal system is based on advocacy. Justice can best be achieved if parties are free to advocate positions that advance their interests. Thus, runs the theory, each party will place before the judge all of the evidence and arguments that support his position, which will enable the judge to reach a fair result.

In the process of litigation, an advocate attempts to make strong points while confusing the strong points of the opponent. Lawyers don't like to admit ignorance, and ignorance of the law may be hidden behind a confusing cloud of jargon.

In this book, not every confusing exception to general rules will be discussed. The object here is to give a basic understanding of construction law that will help the reader to walk safely through the construction industry every day.

11. How Law is Made
Laws are made by the people (constitutions), by Congress and state legislatures (statutes), by cities and counties (ordinances), and, to a disturbing extent, by federal, state, and local agencies (regulations).

Bismarck said those who like treaties and sausages should not see how they are made. The same could be said of laws. It is sufficient for our purposes to understand that statutes are drafted and amended by Congress and the state legislatures with the assistance and advice, and under the influence of, lobbyists. Legislators are also politicians. Politicians are sometimes tempted to write ambiguous legislation so that they can interpret it as any particular audience of voters might want it to be interpreted.

12. Litigation
There are five phases of litigation: pleading, discovery, motions, trial, and appeal.

Pleadings are formal legal statements of the positions of the parties: the claims of the plaintiff and the defenses of the defendant.

Discovery is a process that requires parties to answer questions, either orally (depositions) or in writing (interrogatories). The purpose of discovery is to permit parties to discover the truth, and assemble evidence that may be introduced at trial. Unfortunately, discovery may also be misused to intimidate and exhaust an opponent.

Motions, which are usually argued in open court, request that a judge make orders to make litigation easy or to decide issues in a case without trial.

The author assumes that readers know what a trial is like from observing the versions of them that are on television.

A Court of Appeal reviews portions of the record of the trial court (including pleadings and a transcript of the proceedings at the trial) brought to its attention by counsel, reads the briefs and listens to the arguments presented by counsel, and agrees with or reverses the decision of the trial court.

The loser of a case on appeal may petition the state Supreme Court for a hearing. A state Supreme Court will agree to review only a small percentage of the cases presented to it. The criteria for review are whether the case presents an important point of law, or an unsettled point of law that needs to be clarified, or a case in which the Court of Appeal made a wrong decision that needs to be reversed.

The federal court system has three branches: trial courts (district courts), circuit Courts of Appeal, and the United States Supreme Court. Most cases are handled by state courts. Federal courts have jurisdiction only to consider questions of federal law (statutes passed by the United States Congress), disputes between states, and cases that arise under the United States Constitution.

13. How ADR Fits In
Ambrose Bierce, in The Devil's Dictionary, defined litigant: n. a person about to give up his skin for the hope of retaining his bones. Bierce was alluding to the spiritual and monetary expense of litigation. The five phases of litigation are pleadings, discovery, motions, trial, and appeal. ADR (alternative dispute resolution) may remove three, four, or even all five phases.

The most popular form of ADR is arbitration, which is provided for in a majority of construction contracts and subcontracts. Arbitration completely removes phases 2 and 5 (discovery and appeal) and effectively removes phases 1 and 3 (pleadings and motions).

The next most popular form of ADR, mediation, removes all five phases of litigation.

14. Arbitration
Arbitration is a system under which the parties to a dispute appoint an arbitrator whose decision is as enforceable as the decision of a judge and not subject to appeal. Unless otherwise agreed, there is no discovery. Motions are usually minimal, or non-existent in arbitration. Pleadings in arbitration are a simple statement of a demand for relief by the claimants and an answering statement (which is optional) by the responding party.

15. Mediation
Mediation differs from arbitration in that a mediator has no power to make an enforceable decision. The function of a mediator is to help the parties resolve their own dispute. Experience shows that when parties have a sincere desire to resolve a dispute, mediation is successful in more than 90% of the cases.

Case in Point

The Arizona Supreme Court held that an arbitration agreement that was "grossly inequitable" was not enforceable by a property owner against a construction contractor. An addendum to a construction contract provided that the owner had the option of either selecting arbitration or litigation in court as the means for resolving any dispute, and the addendum also gave the owner the right to change his mind at any time up to final judgment. The court held that an arbitration agreement has to be enforceable by both sides in order for it to be enforceable by either side. The court said that the agreement was so grossly inequitable that it ran counter to the philosophy of encouraging arbitration and that, under the circumstances, the arbitration agreement was unenforceable and the parties would be required to resolve their dispute by litigation in court. Stevens/ Leinweber/ Sullens, Inc v Holm Development & Management, Inc, 165 Ariz 25 (1990).

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