The Expert:
David Toney, Partner and Member,
Executive Committee, Construction Team Co-Leader, Adams & Reese LLP
QUESTION: What are some emerging construction-defect and product liability trends you are seeing when it comes to manufacturers?
A: There are several emerging trends in 2023 concerning construction component manufacturers.
The most notable trend specific to manufacturers is that their largest customers have now largely decided upon a defense strategy of tendering to and/or adding their subs and suppliers, including the manufacturers, to any and all claims, cases, and matters.
For instance, some manufacturers never used to add or otherwise join their subs and suppliers to their claims, cases, or matters. However, company strategies have changed over the years. They now tender and/or make demand upon manufacturers for almost any claim, case, or matter they receive involving the manufacturer’s products.
A second observation is that, for the routine construction-defect claims, we have discovered that oftentimes the addendum (which includes limitations on recovery or modifications to indemnity provisions) is either not attached to the general contractor’s or distributor’s contract documents, or, if it is attached, it is not executed by the general contractor or distributor.
This has allowed contractors and distributors to rely on language in their contracts or agreements that is favorable to them and not to manufacturers. This has certainly put manufacturers in unfavorable positions—arguably owing defense, indemnity, and/or additional insured status in many instances—and weakened defenses in some cases.
Third, we have seen an uptick in delay claims since the COVID-19 pandemic began in 2020.
As for a general marketplace trend, we have seen both an uptick in delay claims (including liquidated damages claims) due to scarcity and/or sheer inability to supply product or meet prior agreed upon schedules, as well as defect claims related to material substitutions due to material unavailability.
Specific to manufacturers, while many of the delay claims received near the start of the pandemic were no doubt caused by the pandemic, we have seen some recent claims that do not appear caused by it, and are actually caused by other emerging factors. For instance, manufacturers may take on more orders than they can handle.
Secondly, scheduling departments are communicating changes in the schedule directly to the contractor or distributor. In these circumstances it appears the contractor or distributor is learning of the delay at the same time as manufacturer sales personnel assigned to the account. This, unfortunately, prevents the manufacturer sales personnel, who have the relationship with the customer, from preemptively reaching out to let them know there may be scheduling issues. Managing customer expectations is obviously key to overall business success, but also key in defense strategies throughout the claim, litigation, and arbitration phases.
In addition, the likelihood of claims and disputes over cyber attacks is becoming more common. As a result, cyber insurance is now more commonplace, and certainly advisable as part of a company’s risk management arsenal.
But in addition to cyber attacks causing supply chain issues that result in delay and other claims from customers, we are seeing increased disputes arise when payments are intercepted and otherwise go to bad actors on construction projects.