MN Department of Transportation Standard Specifications for Construction, 2014 Edition – Contractors Need to Be Aware of MnDOT’s Significant Division I Revisions – Part 2 of 3 – Sections 1500 through 1700

MN Department of Transportation Standard Specifications for Construction, 2014 Edition – Contractors Need to Be Aware of MnDOT’s Significant Division I Revisions – Part 2 of 3 – Sections 1500 through 1700

March 17, 2014

By Kristine Kroenke & Dean B. Thomson

This briefing paper is Part 2 of a three part series discussing the Minnesota Department of Transportation 2014 Standard Specifications for Construction.  In Part 1, which can be found here on our firm’s web site, we discussed MnDOT’s attempts to restrict the implied warranty of accuracy on data it provides, to expand the Contractor’s scope of Work without compensation,  and to restrict claims through complex procedural hurdles.  In Part 2, we review more claim restrictions, site control restrictions, and insurance requirements imposed by MnDOT.

Section 1500 – More Claims Restriction and Expanding MnDOT’s Authority and Rights

Key changes in Section 1500 include (1) more restrictive claims provisions with narrower time deadlines and new mandatory requirements for submission of claims, (2) added authority for MnDOT to reject the Work and pursue remedies against the Contractor, including that MnDOT can pursue the Contractor’s surety and withhold payments from any other project that the Contractor has with MnDOT.

1.  Section 1517 – Narrowing the Claims Funnel – Time Restrictions

Under §1403.6, a Contractor must make a claim under Section 1517 within 5 Business Days of receiving the Engineer’s final written response regarding the Contract Revision.  The Contractor may also assert a claim under Section 1517 if “the Engineer’s response is untimely.”  Under §1517, the Contractor must exhaust the requirements of §§1402 and 1403 before it may make a claim under §1517.  These requirements leave the Contractor with the narrowest of windows in which to make a claim – it appears that the contractor cannot wait for the Engineer to respond, but the Contractor is not permitted to make a claim too early either.  If the Engineer’s response is not given within the 10 business days in which the Engineer has to decide the claim, how much time does the Contractor have to assert a claim under § 1517?  Under §1403.6, the 5 business day time requirement only pertains to the “Engineer’s final written response,” not to the Engineer’s untimely response.  Contractors should be ready to make a Claim within 5 business days of receiving any decision from Engineer under §§1402/1403 and to ask the Engineer to define “exhaustion” up front.  The safest course of conduct is probably to provide notice of a Claim upon its occurrence and then assert it again when the Engineer’s unsatisfactory decision is received.

2.  Section 1517 – Narrowing the Claims Funnel – New Entitlement Requirements

In addition to limiting the time in which the Contractor may make a claim, MnDOT also restricts the Contractor’s ability to prove up its claim.  Under §1517.1, the Contractor is not entitled to extra time or compensation if (1) it fails to notify MnDOT; (2) its “actions or inactions prevent [MnDOT] from keeping strict account of the impacts and costs of the disputed work;” or (3) its “actions or inactions prevent [MnDOT] from mitigating the impacts and costs of the disputed work.”  Since MnDOT may deny a claim based on its inability to mitigate, how is this reconciled with the 20 to 30 day administrative review period required under §1403?  A Contractor is required to exhaust the requirements of §1403 before making a claim under §1517, yet how is it also supposed to make a claim in a timely manner so as to allow MnDOT to mitigate its damages?  Should a Contractor make a potentially premature claim under §1517.1 to prevent a claim by MnDOT of prejudice?  The 2014 Standard Specifications do not provide answers.  The Contractor will need to seek these clarifications from MnDOT and the Engineer; if clarification are not forthcoming, then the safest course will be to provide notice of the potential claim as soon as possible and provide it again once MnDOT’s investigation process is “exhausted.”

MnDOT requires the Contractor to separately submit the entitlement of its claim from the impact and cost of its claim.  But it is often difficult to establish schedule entitlement without reference to impact.  To prove up its claim, the Contractor may have to submit both.  The 2014 Standard Specifications list detailed “minimum” requirements, which include a schedule analysis in accordance with §1806.

“The Contractor may not submit a claim that fails to establish the causal link between the Department’s responsibility and the Contractor’s impacts and costs,” which will in many cases require Contractors to engage expert assistance from a law firm and other consultants before submittal of claims.  Given the very short window of submittal of claims and their stringent content requirements, it is only prudent for Contractors to consult these resources before submitting requested Contract Revisions of any substantial size or those that seek additional time.  A Contractor must also certify all claims to the best of its knowledge and belief.  All these claim procedures should be coordinated in the contracts between general contractors and subcontractors.

3.  Expanded MnDOT Authority

MnDOT’s Standard Specifications have long been written to grant MnDOT significant discretion to the potential risk of the Contractor, but MnDOT has further expanded both its discretion and the Contractor’s risk in the 2014 Standard Specifications.

Under §1501.1, the Engineer is given authority to interpret the Contract, not just the Plans and Specifications.  Under §1503, the Contractor must provide materials and Work in the middle of a tolerance range and the Engineer may reject materials and work that is  “consistently of borderline quality” (thereby defeating by definition the purpose of a tolerance range).  Under §1512.2, any Work performed contrary to the Engineer’s direction will be considered unauthorized.  Section 1516 also contains new requirements for Project Acceptance, including resolution of prevailing wage complaints, the submission of a DBE “Clearance Letter,” and submission of “all other forms required by the Contract.”

Yet, the Contractor may not rely on the Engineer’s interpretations.  Contractors should therefore confirm with MnDOT that the Engineer’s interpretation is in accordance with the Contract.  The Contractor  should also give written notice of any disagreement with the Engineer within the time frames of Sections 1403 and 1517 if it wants to pursue additional time or compensation.

Moreover, the Engineer’s acceptance does not waive MnDOT’s rights to pursue remedies for defective Work.  Under §1512.1, MnDOT is not limited to requiring the Contractor to correct nonconforming work, it may also “require the Surety to perform and complete the Work.”  If MnDOT determines that it may withhold payments, not only may deductions be taken from project at issue, but they may be taken from “any other contract with” MnDOT.  MnDOT is aware of the problems that the “cross-default” provision creates with bonding, but has refused to delete the language.

Stated another way, MnDOT is expanding the Contractor’s risk in many provisions.  As mentioned above, MnDOT has included language to require that the Surety complete the work, without any discussion of the bond requirements, defaulting the Contractor, or terminating the Contract.  Under §1505, Contractors are required to assume all liability and hold MnDOT harmless for all damages arising from the presence and operations of other contractors working at the Project Site.  An overbroad application of §1505 should not be enforceable because Minn. Stat. §337.02 further states that an indemnification agreement in a building and construction contract is unenforceable except to the extent that the damage is attributable to the actor’s own negligence.[1]

Section 1500 take away – MnDOT intends to pursue the Contractor from many angles and the Contractor must be prepared very early to prove up its claims.

Section 1600 – Control of Material

Section 1600 of the 2014 Standard Specifications does not contain significant risk shifting changes as compared to the 2005 Standard Specifications.  Like other sections of the 2014 Standard Specifications, in Section 1600, MnDOT places the burden on the Contractor.  The Contractor is required to obtain materials in accordance with the requirements of the specifications, while MnDOT disclaims warranties of availability of sufficient material sources.  As before, the Contractor is obligated to obtain materials from sources that can produce uniform materials that meet the specifications and to obtain required Engineer approvals.

Some changes that should be noted are that the Contractor now has less time (15 days versus the previous 30 days) to notify the Engineer if it intends to obtain materials from sources listed by MnDOT and that MnDOT has placed additional written restrictions on how the Contractor may obtain the materials from the MnDOT listed sources.  For example, if MnDOT has made its material pits available to others, the Contractor is now expressly obligated to cooperate with other contractors.

The other significant change is that Sections 1603 through 1609, which pertained to materials specifications, material sampling and testing, plant inspections, substitute materials, storage of materials, handling of materials, rejection of materials, and MnDOT provided materials, have been removed from Division I and are now included in the 2014 Materials Lab Supplemental Specifications for Construction.

Section 1700 – Contractors’ Increased Legal Obligations

Section 1700 addresses Contractors’ legal obligations, liability to third parties, and insurance requirements.  Like the other sections, this section has been expanded.  However, when viewed in light of Minnesota statutory and case law, there are several provisions that may not be enforceable.  Some of these are discussed in this section.

1.  Expanded section of laws that the Contractor is required to observe

In the 2014 Standard Specifications, MnDOT has expanded language on the specific laws with which the Contractor must comply.

Under §1701.1, a new section regarding the Data Practices Act, the 2014 Standard Specifications very broadly states that the Contractor is required to comply with the Data Practices Act “in the same manner” that MnDOT is required to comply with the statute.  It is doubtful that the recently released Minnesota Supreme Court decision, Helmberger v. Johnson Controls, Inc. ___ N.W. ___ (Minn. 2013), provides much assistance to contractors contracting with MnDOT.  In Johnson Controls, the court determined that a subcontract on a public school district was not subject to the requirements of the Minnesota Government Data Practices Act.  A critical fact in Johnson Controls was that the contract between the school district and the contractor did not contain any notice stating that the subcontract would be considered public data.  Although the court stated that there is nothing in the Data Practices Act that makes a contract between two private contractors public, it did not state that the contract between the public entity and the contractor could not have done so.  By including §1701.1 in the 2014 Standard Specifications, MnDOT appears to be filling, on its own, the gap that the Data Practices Act does not require of contractors.  This would appear to make documents and communications between the Contractor and its subcontractors public data.  However, data that is nonpublic under the statute remains nonpublic.  Prudent Contractors should segregate and mark confidential and proprietary documents as those can still be protected as nonpublic data under Minn. Stat. §13.37.

Section 1701.3, pertaining to the False Claims Act, is also a new section.  As written, this section states, “The provisions of the Minnesota ‘False Claims Against the State’ Act (Minnesota Statutes Chapter 15C) apply to the Contractor’s actions under this Contract.”  (emphasis added).  In the term “actions,” MnDOT includes claims, statements, and records.  This language is overbroad.  The False Claims Act pertains to Claims, which by definition involve a request or demand for money or property.  The Act does not pertain to all actions, statements or records as indicated in §1701.3.  Where every statement or action from the Contractor related to money or property is now subject to scrutiny under the False Claims Act, Contractors may want to qualify every statement as “to the best of Contractor’s reasonable knowledge.”

2.  Surface Openings, Traffic Safety, and Railroad Crossings

Increased permitting, traffic safety, and railroad crossing risks are placed on the Contractor in Sections 1704, 1708, and 1710.  In §1704, if the Proposal Package contains permit and related utility work, MnDOT will not pay for delays or damages resulting from openings in the highway.  Based on our request, MnDOT included language that allows the Contractor to be paid extra for utility work, but only if the Proposal Package does not contain the permit and related work.  However, MnDOT denied our request to add language permitting the Contractor to make a claim for additional time and money if any MnDOT decision to allow surface openings to others interferes with the Contractor’s work.  In §1708.1, MnDOT deleted language from the 2005 Standard Specifications requiring MnDOT to secure all necessary easements to permit the hauling of materials across the railroad tracks on a pre-existing private crossing when required by the Contract.  Contractors should request clarification before submitting a bid on what easements must be secured and whether MnDOT has secured them.

In §1708, Railroad Highway Provisions, the Contractor must submit its safety action plan and clearance variances to the MnDOT Manager of Rail Administration (and railroad) before it commences Work, but there is no time limit on when MnDOT must provide its review.  In §1710.5, Temporary By-Passes, MnDOT has deleted language requiring it to design, provide, install, maintain, and remove all necessary traffic control devices over the temporary by-passes provided for in the Contract.

3.  General Liability

Insurance and liability requirements are also expanded under the 2014 Standard Specifications.  Section 1712.4, General Liability, arguably creates strict liability by making Contractors responsible for damage to property for any “act, omission, neglect, or misconduct in the execution of non-execution of the Work.”  It may be noted that the Minnesota Supreme Court decision, Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695 (Minn. 2013), implied the term “negligent” before “acts” in a case involving insurance coverage for the “acts or omissions” of the subcontractor.  Thus, placement of the term “act” with “omission, neglect, or misconduct” could also suggest that “act” should be read to mean negligent act even though MnDOT would not agree to expressly include the term “negligent.” The only exception to the arguably strict liability standard of §1712.4 is if the Contract does not specify underground property, but this exception applies only if Contractor met its obligations under Minn. Stat. Ch. 216D, the Excavation Notice System statute.  The Contractor is obligated to restore the property to a condition equal or better to what was existing before the damage occurred at its own cost.

Although such a provision was included in the 2005 Standard Specifications, §1714.1– Responsibility for Damage Claims; Insurance, requires the Contractor to defend and indemnify MnDOT from any claims because of bodily injury or property damage on account of the operations of the Contractor and for several other categories.  The language of this indemnity requirement is not limited to the Contractor’s negligence or fault.  Under Minn. Stat. §337.02, an indemnity agreement in a building is unenforceable except to the extent that the underlying injury is attributable to negligence.  If MnDOT attempts to apply §1714.1 too broadly, Contractors will want to argue that this provision is not enforceable under Minnesota law.

In §1714.1, MnDOT also states that if no money is due under the Contract, MnDOT can hold the Contractor’s sureties liable until MnDOT “receives evidence that suits, actions, or claims have been settled.”  Sureties have objected to the language requiring sureties to essentially guaranty the indemnity, but MnDOT would not agree to change the language.

4.  Insurance

Entirely new to the 2014 Standard Specifications are the following specific insurance requirements:  Sections 1714.2 (Workers’ Compensation Insurance), 1714.3 (Commercial Liability Insurance), 1714.4 (Automobile Liability Insurance), and 1714.5 (Umbrella or Excess Liability Insurance).  Contractors should review the requirements with their insurance providers and risk management team to make sure that they are providing the required coverage.  Under §1714.7, another new section, MnDOT may terminate the Contract in accordance with §1808 if the Contractor fails to meet the insurance requirements.

At least one insurance requirement is probably not commercially available.  Under §1714.3, MnDOT requires that “Contractor shall maintain insurance to cover liability from operations under the Contract.”  CGL coverage is not so broad, and the Contractor should notify MnDOT, pursuant to Minn. Stat. § 337.05, subd. 3, that such coverage is not obtainable.

5.  Pollution, Stormwater Management and Erosion Control

 Not surprisingly, MnDOT has also expanded Contractor liability with respect to pollution, stormwater management, and erosion control.  On the Contractor’s obligation with respect to pollution, MnDOT has added lists of what may be considered pollution, requiring the Contractor to stop Work “in the vicinity,” notify the Engineer, and wait for the Engineer’s approval to resume Work in the affected area.  MnDOT’s lists, however, add more questions.  The lists of “indicators of contaminated soil, ground water, or surface water” and “indicators of regulated wastes” are far too general.  For example, a Contractor is required to suspend the project if it encounters an “odor” or a “can,” or “wood,” or “glass.”  So that Contractors would not have to stop Work for every possible item that could fall into the broad and general categories, we requested additional language that the requirements only apply if the Contractor reasonably believed that pollution was present.  MnDOT believed that our request to add language of Contractor’s reasonable belief of the existence of pollution was redundant.  In light of the overly broad language, Contractors would be wise to err on the side of caution and over-reporting.

Section 1700 take away – Contractors need to be aware of their expanded liability requirements as well as the requirements that may not be enforceable under Minnesota law.

Part 3 will conclude with a review of the scheduling and claim risk changes in 2014 Standard Specifications Sections 1800 and 1900.

[1] There is also an exception under Minn. Stat. §337.02 for “an owner, a responsible party, or a governmental entity [that] agrees to indemnify a contractor directly or through another contractor with respect to strict liability under environmental laws.”

This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2014 FWH&T