When a community is embroiled in a construction defect lawsuit, the challenge becomes making sure the claim is presented objectively, and the cost of the claim won't be more than the corrective work needed. This webinar includes best practices for preventing construction defects and offers alternatives to costly litigation.

1. presented by:
Mitchell H. Frumkin, PE, RS, CGP
President
Kipcon Inc.
800.828.4118
MFrumkin@Kipcon.com
Ditching Defect Drama :
Keeping Construction Claims
Objective

2. Mitchell H. Frumkin, PE, RS, CGP
Past President
CAI National
CAI National Research Foundation
NJ Chapter CAI
Chair Joint CAI/NAHB Task Force during…
Development of the Best Practices Report on
“Transition”
Instructor, CAI M-370 advanced level course,
“Managing Developing Communities”
Chair CAI National Reserve Professionals Committee
during…
Development of “National Reserve Study
Standards of the Community Associations
Institute”
Development of “Reserve Specialist (R.S.)
Designation
Author: Reserve Funds: How and Why Community
Associations Invest Assets (CAI)
Certified Neutral : American Arbitration Association
Kipcon.com
mfrumkin@kipcon.com
© Community Associations Institute

3. What Will I Be Talking About ?
• What is a Construction Defect ?
• Types of Claims
• The importance of cost estimates and how to
use them
• How to make sure the claim is presented
objectively
• Alternatives to litigation
© Community Associations Institute

4. What is a Construction Defect ?
© Community Associations Institute
“ a deficiency in the design or construction of a building or
structure resulting from a failure to design or construct in
a reasonable workmanlike manner, and /or in accordance
with a buyers reasonable expectation. “
Ref : International Risk Management Institute

5. There are Two Types of Defects
© Community Associations Institute
• Patent defects are defects detectable through
reasonable inspection.
• Latent defects are defects that are not
detectable through reasonable inspection and
are manifested over a period of time.

6. What are the Typical Causes
For Construction Defects ?
• Problematic Materials
• Not following the plans
• Poor Contract Agreements with
Subcontractors
• Poor supervision

7. The Most Prevalent Defects

8. Water Infiltration !
Roofing

9. Water Infiltration !
Facades

10. Water Infiltration !
Concealed
Membrane
Systems

11. Drainage

12. Pavement

13. Soundproofing

14. Mechanical Systems

15. Indoor Pools

16. Lack of Adequate Detailing
© Community Associations Institute

17. As Built Construction Does Not
Match Design Drawings
© Community Associations Institute

18. Unclear Detailing of Critical Areas
© Community Associations Institute

19. Poor Workmanship
© Community Associations Institute

20. As Built Construction Does Not
Match Design Drawings and Code
Violation
© Community Associations Institute

21. Improperly Installed Flashing
© Community Associations Institute

22. Improperly Installed Materials
© Community Associations Institute

23. Improper Design
© Community Associations Institute

24. What are the Standards
© Community Associations Institute
• Construction
• Not in conformance with the
design documents
• Architectural and
Engineering Plans
• Specifications
• Governing documents
• Not in conformance with good
workmanship

25. What are the Standards
© Community Associations Institute
Building codes
IBC, IRC, etc.
Performance Standards
Regulations Governing New
Home Warranties and
Builders Registration
Manufacturers literature

26. Causes:
Problematic Materials

27. Causes:
Not Following Plans

28. Causes:
Poor Contract Agreements With
Subcontractors

29. Causes:
Poor Supervision

30. Typical Solutions
• Correction of problems
• Money to have work completed correctly

31. Documentation of Defects
Should Include
• List of all deficiencies and the applicable standard with
specific references.
• Design drawing and detail
• Code and section
• Manufacturers detail
• Performance standard and section
• Location of deficiency
• A format which will easily allow an item by item response
• Agree and will correct
• Do not agree and reason
• Could not find
• Equivalency

32. Evaluate all claims for Strength
• Strong
• Deviation from code
• Deviation from design if not equivalent
• Safety
• Weak
• Deviation if equivalent
• Minor drainage even if it exceeds standard (what is
the damage ?)

33. Cost Estimates
• Do not prepare a cost estimate until after
response to the report is received
• Avoid setting unrealistic expectations

34. If you must litigate be prepared
• Cost estimates
• Expert reports
• Invasive testing
• Photographs
• Presentations
• Etc. etc.

35. Cutting edge strategies
• ADR, Mediation/Arbitration
• Third party reviews of reports

36. Cutting edge strategies
• Think about what is going on with a business
view and DO NOT make it personal !

37. Final Thoughts
• You do not want to litigate
• Be Objective
• Review claims in a business like manner
© Community Associations Institute

38. Please e-mail any
follow-up questions or
for a copy of this
presentation to:
Mitch Frumkin
mfrumkin@kipcon.com
Ditching Defect Drama :
Keeping Construction Claims
Objective

39. Alternatives to
Litigation
TIMOTHY J. DEHAUT, ESQ.,
LEEP AP
Construction Defects:
How to Evaluate if Your Claims Are O
39

40. Timothy J. DeHaut, Esq.,
LEED AP
 Construction and Real Estate Attorney –
focused practice on construction, land
use, development, community
associations, and sustainability.
 Represent owners, developers,
associations, design professionals,
contractors, and subcontractors.
 International construction dispute
resolution experience – few thousand to
hundreds of millions.
40

41.  Discourage litigation. Persuade your
neighbors to compromise whenever you
can. Point out to them how the nominal
winner is often the real looser – in fees,
expenses, and waste of time. As a
peacemaker, the lawyer has superior
opportunity of being a good man. There will
still be business enough.
Abraham Lincoln
41

42. Alternative Dispute
Resolution (ADR)
 Alternative Dispute Resolution (“ADR”) is the
process of resolving disputes outside of the
litigation and court process.
 ADR includes, inter alia:
 Negotiation
 Early Neutral Evaluation
 Mediation
 Conciliation & Med-Rec
 Arbitration
 BATNA & Decision Analysis Tools
42

43. Negotiation
 Parties attempt to negotiate the claim or dispute
between themselves, unassisted by a third party
neutral.
 Possible contract clause: “As a condition
precedent to any other dispute resolution
procedures, within fifteen (15) days after a
dispute arises between the Parties, the Parties’
representatives with authority to settle the
dispute shall meet to attempt to settle the
claim.”
43

44. Early Neutral Evaluation
 Expert evaluation of the strength and
weaknesses of the technical and legal
case.
 No binding effect.
 Confidential.
 Best and worst case alternatives to
facilitate a negotiated agreement.
44

45. Mediation
 Mediation is defined as a non-binding
negotiation carried out with the
assistance of a neutral third party who
helps bring about agreement.
 Agreement to mediation; selection of
the mediator; pre-mediation
conference; submissions/exchange;
mediation.
45

46. Benefits of Mediation
 When un-assisted negotiations fail, bringing in an
expert facilitator often yields a settlement.
 Quick and cost effective.
 Allows for creative solutions, including non-legal
solutions.
 Non-binding. Retaining control over the outcome.
 Confidential.
 Forum for emotional venting.
 If mediation fails, the dispute may proceed to
arbitration or litigation. Very little is lost from an
attempt to mediate beyond a relatively small
amount of time and money and regardless, the
preparations for mediation often save valuable
46

47. Conciliation & Med-Rec
 Conciliation - a process whereby parties attempt to settle their
dispute with the assistances of a facilitative third-party neutral; if
the parties fail to resolve their disputes after such facilitated
negotiation, the parties submit the dispute for evaluation by the
conciliator for a “recommendation.” Under most conciliation
rules, the recommendation is binding on the parties, unless
rejected by either party within a specified time-period. If the
recommendation is rejected by either party, no binding contract
is formed and the parties can resort to arbitration or litigation.
 Med-Rec – similar to conciliation except it is the parties’ decision
as to whether the recommendation has the potential to bind the
parties. Often in Med-Rec, parties choose that the
recommendation only serve to help the parties evaluate the
case themselves. In these cases the recommendation has no
contractual status and only serves as a reality check for the
parties.
47

48. Arbitration
 “Court without the wigs.”
 Benefits of Arbitration over Litigation:
 Cheaper.*
 Faster.*
 Reduced discovery.
 More knowledgeable decision-maker.
Choose experts in the construction field.
*in theory
48

49. Evaluating Your Claims
 Information, information, information – gather
what really happened from the people that
know. Abandoning the institutional knowledge.
 Documentation of the claims.
 Evaluating your Best Alternative to a Negotiated
Settlement (“BATNA”) – private and public.
 Legal, Expert, and Time Costs.
 Evaluating risk – liquidity, “Two in the hand,” etc.
49

50. Decision Tree Analysis
 Lawyers and mediators can use a
decision tree as a framework to provide
reality checks on the clients with
proposed hypothetical scenarios.
 Provides a framework for straightforward
communication regarding the realities of
paths taken.
50

51. 51

52. Questions & Comments
 Feel free to email or call with any questions:
 tdehaut@ghclaw.com
 Direct Dial: (732) 219-5488
52

53. By: Damon M. Kress, Esq.
Copyright 2015 McGovern Legal Services, LLC

54.  Most board members and developers understand that
nothing is perfect.
 Most board members and developers have reasonable
expectations about the transition process.
◦ Result: The overwhelming majority of transitions are resolved
without a lawsuit ever being filed.
Copyright 2015 McGovern Legal Services, LLC

55.  It happens for many reasons:
◦ A completely unresponsive developer.
 Very rare, but it can be a real problem.
◦ An issue that is “too big to settle.”
◦ A looming statute of limitations or repose.
 A growing concern.
 Limitations may be “tolled” in certain instances.
 Repose cannot be “tolled.”
Copyright 2015 McGovern Legal Services, LLC

56.  Litigation is more common when working with certain
materials.
 EIFS, Stucco, and MSV.
 Difficulty performing well anywhere other than the driest of
environments.
 Can create problems that are “too big to settle.”
 Often cause the types of damages that are currently covered by
insurance.
 Defects in certain systems are more likely to result in
litigation.
 Life-safe systems and assemblies.
 Quality of life systems.
Copyright 2015 McGovern Legal Services, LLC

57.  Litigation takes a significant amount of time.
 Litigation costs a significant amount of money.
 You need to be reasonably certain the case is “worth it”
before you decide to file your complaint.
 Otherwise, “only the lawyers will make money.”
Copyright 2015 McGovern Legal Services, LLC

58.  Approach transition like every other business decision.
◦ The first step is to perform your basic “due diligence.”
 Obtain your initial “transition reports.”
 Engineering assessment of the physical property.
 Engineer’s initial “cost to cure.”
 Engineer’s evaluation of the POS Reserve Schedule.
 Accountant’s “Benefits Derived Analysis.”
Copyright 2015 McGovern Legal Services, LLC

59.  Determine which issues the association will pursue
through litigation.
 Determine what additional investigation will be
necessary to develop each issue.
 Determine whether the association will perform the
additional investigation before or after filing the
complaint.

60.  Determine who to sue.
◦ Who is the developer?
 A large national homebuilder?
 Reasonably good records for the project.
 Reasonably good records regarding the sub-contractor’s insurance
carriers.
 A “one off, fly by night” developer?
 May have very little “paperwork.”
 It is amazing how much is still done on only a “handshake.”

61.  Determine how the Association will most likely get paid.
◦ There needs to be a “pot of gold” at the end of the rainbow.
Otherwise the association’s litigation will quickly devolve into an
“intellectual exercise.”
 Assess the availability of insurance coverage for each claim.
 Assess the developer’s ability to contribute toward settlement because it
may turn out to be the only source of money.
 The more money coming from insurance carriers generally translates into
a higher probability of negotiated settlement.

62.  Evaluate opportunities for recovering your attorney fees
and litigation expenses (i.e. expert fees) through your
litigation.
◦ We operate under the “American Rule.”
 Each side pays its own attorney fees and litigation expenses unless an
exception applies.
◦ The most common exception is a contract.
 Developers almost always include this provision in their contract with
their sub-contractors.
 Associations never enjoy this luxury.

63.  Without a contract you will need to fall under one of
the other exceptions (i.e. a statute or a Court Rule).
◦ Can be difficult to come by.
◦ However, if one is found they can provide significant leverage
during settlement negotiations.
 Challenge your counsel to come up with options!

64.  Keep an open mind.
◦ The overwhelming majority of litigations are resolved through
negotiated settlement.
◦ If handled correctly litigation is just another aspect of the
negotiation process.
 Negotiation should not stop for a lawsuit.

65. • Webinars
• Transition
• Wednesday March 18th (Register)
• Causes and Solutions of Water Infiltration in Your
Building
• Wednesday April 15 (Register)
• Third Wednesday of Every Month
• Seminars
• Condominium and HOA Insurance Issues
• March 25th 5 PM
• Metuchen Country Club
• In House at your office. You give us the topic and
we will be happy to bring lunch
Upcoming Events