South Carolina Construction Law

Desk Book

Principal Editors

A. Bright AriailCalvin T. (Ted) Vick, Jr.

Contributing Authors

A. Bright Ariail Peden Brown McLeod, Jr.Henry W. Brown Lawrence C. MeltonMatthew E. Cox John T. MerrellJohn W. Davidson Tara E. NaufulW. Kyle Dillard Boyd B. (Nick)Emily R. Gifford Nicholson, Jr.Mason A. (Andy) F. Lee Prickett III Goldsmith, Jr. Franklin J. Smith, Jr. Neil S. Haldrup R. Patrick SmithM. Stokely Holder Joshua D. SpencerTownes B. Johnson III Taylor H. StairBryan P. Kelley Robert D. ThomasKeven K. Kenison Tracy T. VannN. Ward Lambert Calvin T. (Ted) Vick, Jr. J. W. (Jay) Matthews III James E. WeatherholtzKeith C. McCook

Published by the South Carolina BarContinuing Legal Education Division

ChapterIIPublicConstructionProjects‐StateandLocalDetailedTableofContents

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A. State Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 1. Overview & Threshold Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

a. History of South Carolina's Consolidated Procurement Code . . . . . . . . . 72 b. Resources / Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 c. Application of Procurement Code to Construction . . . . . . . . . . . . . . . . . . 73

(1) Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (2) Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 (3) Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 (4) Governmental Bodies, Political Subdivisions & Foundations . . . 77 (5) Construction or Not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

d. Basic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 (1) Validity of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 (2) Actual Authority & Equitable Estoppel . . . . . . . . . . . . . . . . . . . . . . 80 (3) Presumption of Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 (4) Project Delivery Methods v. Source Selection Methods . . . . . . . 82

e. Payment Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 (1) Little Miller Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 (2) Subcontractor Payment Protection Act . . . . . . . . . . . . . . . . . . . . . . . 87

f. Prompt Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 g. Illegal Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 h. Public Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 i. Public Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 j. Building Codes and State Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 k. Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

(1) Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

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2. State Construction - Excluding DOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 a. Organization of Procurement Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 b. Relationship of Code's Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 c. Office of the State Engineer (OSE) and the OSE Manual . . . . . . . . . . . . . . 97 d. Source Selection Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

(1) Qualifications Based Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 (2) Competitive Sealed Bidding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 (3) Negotiations After Unsuccessful Bidding . . . . . . . . . . . . . . . . . . . 100 (4) Competitive Sealed Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 (5) Emergency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

e. Project Delivery Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 (1) Design-Bid-Build (DBB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 (2) Construction Management (CM) . . . . . . . . . . . . . . . . . . . . . . . . . 108 (3) Construction Management At-Risk (CM/AR) . . . . . . . . . . . . . . . 108

(a) Procurement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 (b) Unsuccessful Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 (c) Pricing Pre-Construction Services . . . . . . . . . . . . . . . . . . . 110 (d) Pricing Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

(i) Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 (ii) Subcontractor Bidding . . . . . . . . . . . . . . . . . . . . . . 113 (iii) Cost or Pricing Data . . . . . . . . . . . . . . . . . . . . . . . . 113 (iv) Cost Reimbursement . . . . . . . . . . . . . . . . . . . . . . 114

(e) Subcontracting Process . . . . . . . . . . . . . . . . . . . . . . . . . . 115 (f) Subcontractor Listing & Substitution . . . . . . . . . . . . . . . . 115 (g) Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 (h) Fast Track / Phased Construction . . . . . . . . . . . . . . . . . . . . 116

(4) Design-Build (DB), Design-Build-Operate-Maintain (DBOM), and Design-Build-Finance-Operate-Maintain . . . . . . . . . . . . . . . . . . 117 (a) Design Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 (b) Proposal Development Documents . . . . . . . . . . . . . . . . . . 120 (c) Independent Peer Review (IPR) . . . . . . . . . . . . . . . . . . . . . 120 (d) Limiting the Number of Offerors . . . . . . . . . . . . . . . . . . . 122

(i) Pre-qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 122 (ii) Short Listing Prior to Discussions / Evaluation . . 122

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f. General Procurement Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (1) Adequate public notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (2) Pre-qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 (3) Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (4) Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 (5) Bid Withdrawal & Correction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 (6) Cost Reimbursement / Cost-Plus . . . . . . . . . . . . . . . . . . . . . . . . . . 133 (7) Cost and Pricing Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 (8) Contract Changes & Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

(a) Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 (b) Procurement Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 (c) Scope of the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

(9) Contract Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 g. Bid Shopping Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

(1) Subcontractor Listing and Responsiveness . . . . . . . . . . . . . . . . . 139 (2) Subcontractor Substitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

h. Construction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 i. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 j. Procurement Protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 k. Contract Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

(1) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 (2) Subcontractor Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 (3) Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (4) Settlement Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (5) Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

B. Local Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 1. The Interplay Between Local Government Law and the State

Procurement Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 2. When Does a Local Government Procurement Code Conflict

with the State Procurement Code? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 3. Judging the Sufficiency of Written Determinations Required

by Local Procurement Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 4. The Freedom of Information Act (FOIA) and Procurement

Selection Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 5. Bid Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 6. Payment Bonds and the Subcontractors Payment Protection Act . . . . . . . . . . . . . 178 7. Standing to Sue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 8. Mootness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

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Chapter I: Licensure of Construction Professions and Occupations...........1A. Contractors.......................................................................................1

1. The Contractor’s Licensing Board.......................................1 2. Definitions............................................................................2 3. “Qualifying Party” or “Certificate Holder”..........................2 4. “Total Cost of Construction” and Licensure Requirements.......................................................................2 5. Exemptions..........................................................................3 6. Examination Requirement....................................................4 7. Licensure and Standing to Sue.............................................6 8. Use of an Unlicensed Subcontractor....................................6 9. Licensure Standards and Basis for Refusal of License........7 10. Grounds for Discipline or Revocation.................................8 11. Qualifications: Technical Examination and Net Worth........9 12. Contractor’s License and Choice of Corporate Form........10 13. Residential Contracting Versus General Contracting.........12 14. Contractor Classifications and Subclassifications..............12 15. Potential Reciprocity..........................................................24 16. Joint Venture Bids..............................................................24 17. Acting as Prime Contractor................................................24 18. License Needed to Obtain a Building Permit.....................25 19. The Duty to Obtain a Building Permit: Contractors and Construction Managers............................25 20. Work That Does Not Require a Commercial Contractor’s License...........................................................25 B. Construction Managers...................................................................26 1. Definition...........................................................................26 2. Who is Not a Construction Manager..................................27 3. Licensure Requirement.......................................................27

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4. Oversight of Construction Managers.................................27 C. Residential Builders.......................................................................28 1. The South Carolina Residential Builders Commission......28 2. Definitions..........................................................................28 3. Licensure and Standing to Sue...........................................30 4. Licensure Requirements.....................................................30 5. Registration of Specialty Contractors.................................30 6. Powers of the Commission.................................................31 7. Residential Construction Standards...................................31 D. Architects.......................................................................................32 1. The South Carolina Board of Architectural Examiners.....32 2. Definitions..........................................................................32 3. Licensure Requirement for Individual Architects..............32 4. Certificate of Authorization for Architectural Firms and Choice of Business Form..................................33 5. Reciprocity.........................................................................34 6. Renewal Requirements......................................................34 7. Seal.....................................................................................35 8. Exemptions........................................................................35 9. Negotiation of Contracts and Bidding...............................36 10. Code of Professional Ethics...............................................36 11. Investigatory Powers of LLR and/or Architects’ Board.....37 E. Professional Engineers...................................................................38 1. The South Carolina Board of Registration for Professional Engineers and Surveyors...............................38 2. Definitions..........................................................................38 3. Engineer-in-Training and Certification..............................39 4. Professional Engineer and Licensure.................................40 5. License Requirement for Engineers and Penalty for Violations.........................................................41 6. Renewal..............................................................................42

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7. Practice of Engineering as a Firm......................................42 8. Temporary Licenses............................................................43 9. Licensure by Comity..........................................................44 10. Branch Offices...................................................................44 11. Practice by Firms Located in Foreign Countries...............44 12. Seals...................................................................................45 13. Exceptions to the Licensing Requirement.........................45 14. Rules of Professional Conduct...........................................46 15. Continuing Education Requirements.................................47 F. Surveyors.......................................................................................47 1. Definitions..........................................................................48 a. Tier A Surveyor......................................................48 b. Tier B Surveyor......................................................49 2. Unlicensed Surveying........................................................50 3. Eligibility Requirement......................................................50 a. Surveyor-in-Training..............................................50 b. Professional Land Surveyor Tier A........................51 c. Professional Land Surveyor Tier B........................51 4. Seals...................................................................................52 5. Exclusions..........................................................................53 6. Rules of Professional Conduct and Continuing Education...........................................................................54 G. Landscape Architects.....................................................................55 1. The Board of Landscape Architectural Examiners............55 2. Definitions..........................................................................55 3. Licensure Requirements.....................................................56 4. Seal.....................................................................................57 5. Exemptions........................................................................57 6. Practice by Partnerships and Corporations........................58 7. Grounds for Discipline or Revocation...............................60 8. Powers of Board.................................................................60

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9. Regulations Governing Registrations of Landscape Architects.........................................................61 H. Related Professions and Occupations............................................61 1. Asbestos Abatement...........................................................61 2. Blasting Contractors...........................................................62 3. Burglar and Fire Alarm Systems........................................63 4. Commercial Inspectors.......................................................63 5. Environmental System Operators......................................64 6. Fire Protection Sprinkler Systems.....................................64 7. Geologists..........................................................................65 8. Home Inspectors................................................................65 9. Real Estate Appraisers.......................................................66 10. Sanitarians..........................................................................66 11. Soil Classifiers...................................................................66

Chapter II: Public Construction Projects - State and Local........................71 A. State Procurement..........................................................................71 1. Overview and Threshold Issues.........................................71 a. History of South Carolina’s Consolidated Procurement Code..................................................72 b. Resources / Bibliography.......................................72 c. Application of Procurement Code to Construction...........................................................73 d. Basic Concepts.......................................................80 e. Payment Bonds......................................................85 f. Prompt Payments...................................................87 g. Illegal Immigration................................................88 h. Public Records.......................................................88 i. Public Meetings.....................................................89 j. Building Codes and State Buildings......................91 k. Ethics......................................................................93

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2. State Construction - Excluding DOT.................................95 a. Organization of Procurement Code........................95 b. Relationship of Code’s Rules.................................96 c. Office of the State Engineer (OSE) and the OSE Manual.....................................................97 d. Source Selection Methods......................................98 e. Project Delivery Methods....................................106 f. General Procurement Issues.................................124 g. Bid Shopping Restrictions...................................139 h. Construction Documents......................................145 i. Surety Bonds........................................................146 j. Procurement Protests............................................147 k. Contract Disputes.................................................148 B. Local Procurement.......................................................................155 1. The Interplay Between Local Government and the State Procurement Code.............................................155 2. When Does a Local Government Procurement Code Conflict with the State Procurement Code?............159 3. Judging the Sufficiency of Written Determinations Required by Local Procurement Codes..........................169 4. The Freedom of Information Act (FOIA) and Procurement Selection Committees.................................174 5. Bid Responsiveness..........................................................176 6. Payment Bonds and the Subcontractors Payment Protection Act...................................................................178 7. Standing to Sue................................................................186 8. Mootness..........................................................................194 Appendix A.......................................................................197

Chapter III: Contract Clauses........................................................................199 A. Introduction..................................................................................199 B. Claim Notice Requirements.........................................................199 C. Construction Schedule and Time for Completion........................201

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D. Differing Site Conditions.............................................................203 E. Indemnification............................................................................204 F. Limitation of Liability / Waiver of Consequential Damages.......207 G. Delay Damages and “No Damages for Delay” Clauses..............207 H. Payment Provisions......................................................................209

Chapter IV: Insurance....................................................................................213 A. Introduction..................................................................................213 B. The Three Insurance Policies Common to Construction.............215 C. Builder’s Risk (First Party Property)...........................................217 1. In General.........................................................................217 2. Policy Forms....................................................................219 3. Coverage..........................................................................219 4. Issues in Builder’s Risk Policies......................................220 a. “In the course of construction”............................220 b. Who is Insured?....................................................221 5. Exclusions........................................................................221 a. “Faulty or Defective Workmanship”....................222 b. “Design Defects”..................................................222 c. “Earth Movement”...............................................223 6. Typical Policy Sub-Limits...............................................224 D. Commercial General Liability (“CGL”)......................................226 1. In General.........................................................................226 2. The Insuring Clause.........................................................229 a. Coverage..............................................................229 b. The “Products-Completed Operations Hazard” Definition...............................................230 c. The “Your Work” Exclusions...............................231 3. History of ISO Policy.......................................................232 4. The South Carolina Cases................................................236 a. Overview..............................................................236

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b. Progressive Damage and Trigger of Coverage....240 c. Allocation By “Time on Risk” or “By Proof of Actual Damage”?.............................................241 5. Additional Insured...........................................................245 6. Indemnity.........................................................................246 7. Environmental Risk/Pollution..........................................248 8. Property Damage and Diminution in Value.....................248 E. Professional Liability/Errors and Omissions...............................248 F. Conclusion...................................................................................250

Chapter V: Claims Arising Out of Contract or Quasi Contract................251 A. Changes – Work Beyond the Scope of the Contract....................251 1. Formal Change Procedures/The “Changes” Clause........252 a. AIA A201 Changes Clause..................................253 b. Change Order/Agreed Changes...........................254 c. Construction Change Directive............................255 d. Order for Minor Change......................................256 2. Issues Related to Changes in the Scope of the Contract..256 a. Scope of the Contract...........................................256 b. Authority to Request the Change.........................259 c. Waiver of Formal Requirements: Oral Change Orders.....................................................261 d. Notice Requirements............................................262 e. Cardinal Change...................................................263 B. Delay, Interference, and Acceleration..........................................264 1. Timing of Performance....................................................264 2. Types of Delay.................................................................266 3. Compliance With Contract Notice Requirements.............266 4. Defenses – Cause of Delay...............................................268 5. No-Damage-For-Delay Clause.........................................270 6. Actual Damages or Liquidated Damages.........................271

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C. Wrongful Termination..................................................................275 1. Wrongful Termination by the Contractor.........................275 2. Wrongful Termination by the Owner...............................276 3. Doctrine of Avoidable Consequences..............................277 4. Contractual Termination for Convenience Clauses..........278 D. Express and Implied Warranties...................................................279 1. Express Warranties...........................................................279 2. Implied Warranties...........................................................279 a. Contractor’s Implied Warranties..........................279 b. Implied Warranty of Plans and Specifications.....280 3. Remedy for Breach..........................................................281 a. Damages...............................................................281 b. Notice and Opportunity to Cure as Condition Precedent to Suit..................................................281 E. Indemnity.....................................................................................282 1. Scope of Indemnity..........................................................283 a. Indemnifying an Indemnitee From Its Own Negligence...................................................283 b. Indemnity From Second and Third Party Claims..................................................................284 2. Scope of Liability.............................................................284 3. Right to Indemnity...........................................................285 4. Notice...............................................................................285 F. Implied in Law Contracts (Quasi Contract).................................285 1. Unjust Enrichment...........................................................286 2. Quantum Meruit...............................................................287 G. Consequential, Liquidated, and Punitive Damages.....................288 1. Consequential Damages...................................................288 2. Liquidated Damages........................................................291 3. Punitive Damages............................................................292 4. Betterment........................................................................295

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Chapter VI: Construction Defect Claims and Damages..............................299 A. Applicable Deadlines for Construction Defect Claims................300 1. Statute of Repose - S.C. Code Ann. § 15-3-640..............300 a. Running as To Specific Areas/Portions of a Project..................................................................301 b. Exceptions and Exclusions...................................301 c. As Applied To Actions for Contribution..............303 2. Statute of Limitations - S.C. Code Ann. § 15-3-530........303 a. The “Discovery Rule”..........................................304 B. Determining the Real Party in Interest.........................................304 1. Home Owners Association v. Individuals Owners...........305 2. Master Deeds and Common Elements.............................306 3. Liability between Common Owners and HOAs..............307 C. Potentially Responsible Parties....................................................308 1. Common Parties...............................................................308 a. Owners.................................................................308 b. Developers...........................................................309 c. Architects and Engineers.....................................310 d. General Contractors.............................................311 e. Subcontractors......................................................312 f. Suppliers..............................................................312 g. Sureties.................................................................312 2. Pros and Cons of Pursuing Various Types of Parties.......313 D. Causes of Action..........................................................................313 1. Breach of Contract...........................................................313 a. Existence of Contract...........................................314 b. Breach or Unjustifiable Failure to Perform..........315 c. Damages Resulting From Breach.........................315 2. Negligence.......................................................................315 a. Duty of Care.........................................................316

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b. Breach of Duty through Negligent Act or Omission..............................................................317 c. Proximate Damages.............................................317 3. Gross Negligence and Recklessness................................317 4. Breach of Implied Warranties..........................................318 a. Warranty of Habitability.......................................318 b. Warranty of Good Workmanship.........................319 5. Negligent Misrepresentation and Fraud...........................319 6. Unfair Trade Practices Act...............................................320 E. Defenses.......................................................................................320 1. Failure to Mitigate............................................................320 2. Breach of Implied Warranty of Plans and Specifications...................................................................321 3. Economic Loss Rule........................................................321 4. Notice and Opportunity to Cure Residential Defects......322 a. Residential Construction......................................322 b. Non-Residential Construction..............................323 5. Statute of Limitations.......................................................323 6. Statute of Repose.............................................................323 7. Other Defenses.................................................................323 a. Acceptance...........................................................323 b. Acts of Third-Parties............................................323 c. Arbitration............................................................324 d. “As Is”..................................................................324 e. Betterment............................................................324 f. Credit for Useful Life...........................................324 g. Breach of Contract...............................................324 h. Breach of Warranty of Plans and Specs...............324 i. Open and Obvious Conditions.............................324 j. Spoilation of Evidence.........................................325

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F. Third-Party Recovery...................................................................325 1. Indemnification................................................................325 a. Contractual Indemnity..........................................326 b. Equitable Indemnity.............................................326 2. Contribution.....................................................................328 G. Damages.......................................................................................330 1. Actual Damages...............................................................331 a. Cost of Repair Method.........................................331 b. The “Diminution in Value” Method.....................332 2. Consequential Damages...................................................334 3. Extraordinary Damages...................................................335 H. Conclusion...................................................................................336

Chapter VII: Design Professional Liability....................................................337 A. Introduction..................................................................................337 B. Design Professional Liability.......................................................338 1. Design Errors and Omissions—Standard of Care—Negligence........................................................340 2. Standard of Care—Gross Negligence...............................343 3. Requirement for Expert Testimony..................................343 4. Liability for Construction Administration.......................344 a. Job Site Observations...........................................344 b. Review of Shop Drawings...................................347 c. Certification of Payment Applications.................349 d. Construction Estimates........................................352 e. Project Completion..............................................354 5. Liability to Contractor and Subcontractor.......................355 6. Liability to Workers and Visitors.....................................356 7. Liability to Users..............................................................357 8. Liability to the Surety.......................................................358 9. Knowledge and Control of the Work...............................358 10. Implied Warranty of Plans and Specifications.................359

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C. Defenses.......................................................................................360 1. Failure to Comply with S.C. Code Ann. § 15-36-100......360 2. Statute of Limitations.......................................................362 3. Statute of Repose.............................................................364 4. Economic Loss Rule........................................................366 5. Limitation of Liability......................................................368

Chapter VIII: Payments....................................................................................371 A. Introduction..................................................................................371 B. Payments to Contractors, Subcontractors, and Suppliers............371 1. Pay-if-Paid Provisions Unenforceable.............................371 2. Statutory Timetables for Payments..................................372 3. Justifications for Withholding Payment...........................375 4. Interest on Late Payments................................................375 5. Exemptions from Application of S.C. Code Ann. §§ 29-6-10 through 29-6-50 (2011)........................376 C. Payments to Contractors, Subcontractors, and Suppliers............377 1. Pay-if-Paid Provisions Definitively Outlawed in South Carolina.................................................................377 2. Bond Provisions of the SPPA..........................................377 3. Ambiguity of Exemptions from SPPA............................378 D. Liens of Laborers and Others on Contract Price.........................378 1. Entitlement to Payment from Monies Received..............378 2. Criminal Penalties Associated with Failure to Pay Laborers, Subcontractors, or Materialmen out of Monies Received from the Owner.........................379 3. Waiving the Right to File Lien.........................................380 4. Payments Cannot be Withheld in Silence........................380 E. Standard Form Contract Documents and the Potential for Criminal Prosecution under South Carolina Law.........................381 F. Recovery of Attorneys Fees and Interest on Claims for Improvement of Real Estate.........................................................383

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1. Initial Burden to Prove Unreasonableness of Investigation is upon the Claimant..................................384 2. Conducting a Reasonable Investigation is the Key to Avoid Liability......................................................384 3. Attorney’s Fees Award for Defending Counterclaim are Recoverable................................................................385

Chapter IX: Mechanics’ Liens........................................................................387 A. Overview......................................................................................387 B. History of Construction Liens......................................................388 C. South Carolina Legislative History..............................................388 D. The Parties Involved....................................................................390 1. Generally..........................................................................390 2. Who is an Owner?............................................................390 3. The Landlord/Tenant Relationship...................................391 E. Persons Entitled to Lien Rights....................................................392 1. Generally..........................................................................392 2. Material Suppliers............................................................395 3. Rules of Construction......................................................397 4. Limitations.......................................................................397 a. Licensure Requirements......................................398 b. Mortgage v. Lien Priority and Future Advances..............................................................398 c. Priorities and Limitations on Subcontractors’ Liens, Sub-subcontractors’ Liens, and Suppliers’ Liens....................................................399 5. Multiple Lienors...............................................................401 6. Distribution......................................................................401 F. Property Affected by Lien............................................................402 G. Enforcing the Lien.......................................................................402 1. Notice of Filing................................................................402 a. 90-Day Filing Deadline.......................................403

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b. Statement of Account, Property Description, and Licensure Requirements...............................404 2. Service of Process............................................................411 H. Sanctions for False Statements/Frivolous Liens..........................412 I. Perfecting the Lien.......................................................................412 1. Foreclosure Action...........................................................412 a. Necessary Parties.................................................413 b. Venue...................................................................414 c. Lis Pendens Required..........................................414 d. Amendment of Pleadings.....................................414 e. Action at Law.......................................................415 2. Attorney’s Fees.................................................................415 J. Discharge of Record Lien............................................................418 1. Settlement........................................................................418 2. Transferring the Lien to a Cash or Surety Bond..............418 3. Failure to Perfect the Lien................................................419 4. Fraud................................................................................420 5. Discretionary Discharge by the Court..............................420 6. Unauthorized Practice of Law..........................................421

Chapter X: Bonds and Suretyship................................................................423 A. Introduction..................................................................................423 B. Performance and Payment Bonds................................................425 1. Performance Bonds..........................................................425 2. Surety’s Options on Principal’s Default...........................425 3. “Takeover” Agreements...................................................427 4. Payment Bonds................................................................428 C. Nature and Extent of Surety’s Liability.......................................428 1. General Principles............................................................428 2. What Can the Obligee Recover from the Surety in the Event of the Principal’s Default?...........................429 3. Who Can Recover from the Surety?................................430

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4. Loan Proceeds..................................................................433 5. Rented Equipment............................................................434 6. Material Not Delivered to the Site...................................437 7. Penal Amount of the Bond...............................................438 8. Disputes Concerning Default...........................................439 9. Surety’s Liability for Interest...........................................440 10. Surety’s Liability for Defects after Substantial Completion.......................................................................441 11. Surety’s Defenses.............................................................442 12. Surety’s Liability for Personal Injury Claims..................444 13. Joint Checks.....................................................................445 14. AIA Performance and Payment Bonds............................446 D. Surety’s Remedies........................................................................446 1. Remedies Against the Principal and Indemnitors............446 a. Reimbursement....................................................446 b. Exoneration..........................................................447 c. Quia Timet............................................................447 d. Subrogation..........................................................447 e. Specific Performance...........................................447 2. Remedies Against the Owner...........................................448 3. Liability of Engineers and Architects to Surety...............448 4. Liability of Principal’s Accountant to Surety...................449 E. Miscellaneous Bonds...................................................................449 1. Residential Home Builders..............................................449 2. South Carolina Public Service Commission....................452 3. Bid Bonds.........................................................................453 F. Arbitration....................................................................................454 1. Enforceability of Arbitration Clauses..............................454 2. Surety Bound by Obligee/Principal Arbitration...............454 3. Surety Not Entitled to Notice...........................................456

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G. Statute of Limitations for Sureties...............................................456 1. Actions Against the Surety...............................................456 a. General Principles................................................456 b. Little Miller Acts..................................................456 c. Procurement Code................................................457 d. Highway Construction Contracts..........................458 e. Sealed Instruments...............................................459 2. Actions by the Surety Against the Principal....................460 H. Recovery of Attorney’s Fees........................................................460 1. Right of the Surety to Recover from Principal................460 2. Recovery from Surety......................................................461 I. Bad Faith Claims Against Sureties..............................................463 J. Indemnity Agreements.................................................................466 K. Claims Against Governmental Entities........................................469 L. Statutory Construction.................................................................471

Chapter XI: Alternative Dispute Resolution.................................................473 A. Introduction..................................................................................473 B. Contracting to Arbitrate...............................................................473 1. Enforcing Arbitration Clauses..........................................473 2. Waiver..............................................................................474 C. Mediation.....................................................................................475 1. In General.........................................................................475 2. Enforcing a Mediated Settlement.....................................476 3. Arbitration Under South Carolina Law............................477 a. Initiating Arbitration............................................478 b. Multiple Party Consideration...............................479 D. Discovery During Arbitration......................................................480 1. Discovery Between the Parties........................................480 2. Third-Party Discovery......................................................481 3. Arbitration Award............................................................482

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4. Vacating an Arbitration Award.........................................482 5. Court-Annexed Alternative Dispute Resolution..............484 E. Federal Arbitration Act.................................................................485 1. FAA or the Arbitration Act?.............................................485 2. Construing a South Carolina Contract Under the FAA....487 3. Discovery Under the FAA................................................487 4. Vacating an Award Under the FAA..................................488 F. The American Arbitration Association Rules and Procedures.....489 1. Regular Track Disputes....................................................489 2. Large, Complex Construction Disputes...........................489

Chapter XII: A Survey of Labor and Employment and Workplace Safety and Health Law for Construction Lawyers.................491 A. At-Will Employment and Exceptions..........................................491 1. Employee Handbook Disclaimers....................................491 2. Federal Anti-Discrimination Laws...................................492 a. Title VII................................................................492 b. The Age Discrimination in Employment Act (ADEA)................................................................492 c. The Americans with Disabilities Act (ADA).......492 d. The Genetic Information Nondiscrimination Act (GINA)..........................................................492 e. Equal Pay Act.......................................................493 3. State Law Exceptions to At-Will Employment................493 a. Public Policy Exception.......................................493 b. Implied or Express Contract................................493 c. Jury Duty/Compliance with a Subpoena..............493 d. Smoking...............................................................494 e. Political Beliefs....................................................494 4. Harassment.......................................................................494 5. Retaliation........................................................................494

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B. Wage and Hour Laws...................................................................495 1. The Fair Labor Standards Act..........................................495 2. South Carolina Payment of Wages Act............................495 C. Independent Contractors vs. Employees......................................496 1. The Economic Realities Test............................................496 2. The Reid Test...................................................................497 3. The IRS 20-Factor Test....................................................498 D. Unemployment Claims................................................................500 E. South Carolina Workers’ Compensation Act...............................501 F. Federal and State Immigration Laws...........................................501 G. Recordkeeping.............................................................................501 1. Recordkeeping under Federal Law..................................501 a. Title VII and the Americans with Disabilities Act (ADA)...........................................................502 b. Age Discrimination in Employment Act (ADEA).........................................................502 c. Fair Labor Standards Act (FLSA)........................502 d. Immigration Reform and Control Act of 1986 (IRCA).................................................................503 2. Recordkeeping under South Carolina Law......................503 a. S.C. Payment of Wages Act.................................503 b. Employment Security Law...................................503 c. Workers’ Compensation Act................................504 H. The National Labor Relations Act (NLRA).................................504 1. Section 7...........................................................................504 2. Section 8(a)(1).................................................................505 3. Section 8(a)(3).................................................................505 4. Section 8(a)(5).................................................................505 I. Right-to-Work Law......................................................................505 J. The Family and Medical Leave Act of 1993 (FMLA).................506 K. Laws Applicable to Government Contractors..............................507

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L. Workplace Safety and Health.......................................................508 1. Application.......................................................................510 2. Standards..........................................................................511 3. Inspections.......................................................................513 4. Enforcement.....................................................................514 a. Willful..................................................................515 b. Repeated...............................................................515 c. Failure to Abate....................................................516 d. Serious..................................................................516 e. Other Than Serious..............................................516 f. De Minimis...........................................................516 g. Other Civil and Criminal Penalties......................516 5. Adjudication and Appeal..................................................517 a. Federal OSHA......................................................517 b. SCOSHA..............................................................518 6. Employer Defenses..........................................................518 7. Employee Conduct and Retaliation..................................519

Chapter XIII: The Basics of Bankruptcy Law for Construction Lawyers...521 A. General Information.....................................................................521 B. The Chapters................................................................................522 1. Chapter 7..........................................................................522 2. Chapter 11........................................................................523 3. Chapter 13........................................................................524 4. Chapter 12........................................................................525 5. Chapter 9..........................................................................525 6. Chapter 15........................................................................526 C. Why File Bankruptcy?.................................................................526 1. Voluntary Bankruptcy......................................................526 2. Involuntary Bankruptcy....................................................527

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D. The Bankruptcy Case...................................................................530 1. Notice of Commencement of the Case............................530 2. Schedules.........................................................................531 3. The Estate.........................................................................531 4. Exemptions......................................................................533 5. The Automatic Stay..........................................................533 a. Limitations on the Automatic Stay.......................536 b. Relief from the Stay.............................................538 6. Section 341 Meeting of Creditors....................................540 7. Claims/Proofs of Claim....................................................541 a. Late Filed Claims.................................................544 b. Claims Litigation..................................................545 c. Claims Trading.....................................................545 8. Motions to Value..............................................................545 9. Discharge.........................................................................548 E. Chapter 11....................................................................................548 1. First Day Motions............................................................549 2. Motions to Use Cash Collateral or to Incur Debt/Approve Financing..................................................549 a. Use of Cash Collateral.........................................549 b. Permission to Borrow Money..............................551 3. Unsecured Creditors Committee......................................552 4. Monthly Operating Reports.............................................552 5. Appointment of a Chapter 11 Trustee..............................553 6. Executory Contracts and Leases......................................553 7. Use, Sale, or Lease of Property........................................556 a. Sales Free and Clear.............................................557 b. Confirmation Process...........................................557 8. Post-Confirmation............................................................559 F. Chapter 13....................................................................................559 1. Chapter 13 Discharge.......................................................560

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2. Co-Debtor Stay.................................................................560 G. Avoidance Powers........................................................................560 1. The Strong Arm Clause....................................................560 2. Preferences.......................................................................561 3. Fraudulent Transfers........................................................564 H. Adversary Proceedings................................................................564

Index....................................................................................................................567

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6

South Carolina Construction Law Desk BookPrincipal Editors: A. Bright Ariail and Calvin T. (Ted) Vick, Jr.

Contributing Authors: A. Bright Ariail, Henry W. Brown, Matthew E. Cox, John W. Davidson, W. Kyle Dillard, Emily R. Gifford, Mason A. (Andy) Goldsmith, Jr., Neil S. Haldrup, M. Stokely Holder, Townes B. Johnson III, Bryan P. Kelley, Keven K. Kenison, N. Ward Lambert, J. W. (Jay) Matthews III, Keith C. McCook, Peden Brown McLeod, Jr., Lawrence C. Melton, John T. Merrell, Tara E. Nauful, Boyd B. (Nick) Nicholson, Jr., F. Lee Prickett III, Franklin J. Smith, Jr., R. Patrick Smith, Joshua D. Spencer, Taylor H. Stair, Robert D. Thomas, Tracy T. Vann, Calvin T. (Ted) Vick, Jr., and James E. Weatherholtz

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South Carolina Construction Law Desk BookPrincipal Editors: A. Bright Ariail and Calvin T. (Ted) Vick, Jr.

Contributing Authors: A. Bright Ariail, Henry W. Brown, Matthew E. Cox, John W. Davidson, W. Kyle Dillard, Emily R. Gifford, Mason A. (Andy) Goldsmith, Jr., Neil S. Haldrup, M. Stokely Holder, Townes B. Johnson III, Bryan P. Kelley, Keven K. Kenison, N. Ward Lambert, J. W. (Jay) Matthews III, Keith C. McCook, Peden Brown McLeod, Jr., Lawrence C. Melton, John T. Merrell, Tara E. Nauful, Boyd B. (Nick) Nicholson, Jr., F. Lee Prickett III, Franklin J. Smith, Jr., R. Patrick Smith, Joshua D. Spencer, Taylor H. Stair, Robert D. Thomas, Tracy T. Vann, Calvin T. (Ted) Vick, Jr., and James E. Weatherholtz

The South Carolina Bar CLE Division is pleased to introduce a handy reference for South Carolina lawyers who advise clients in the construction industry. Whether your practice revolves around construction law and its various nuances, or you have a client with the occasional need for construction-related services, every South Carolina lawyer that is confronted with a construction-related issue should have the new South Carolina Construction Law Desk Book. This book, with 13 chapters and more than 650 pages, is the only SC Bar – CLE publication that addresses construction law in South Carolina. Written by 29 contributing authors it covers all realms of construction law, from licensing requirements, bidding public projects, drafting and negotiating construction and design contracts, procuring the appropriate insurance or surety products, and best practices for securing payment for materials or services, to the resolution of construction and design disputes based in contract or tort.

A complete list of chapters in the South Carolina Construction Law Desk Book includes: • Licensure of Construction Professions and Occupations• Public Construction Projects – State and Local• Contract Clauses• Insurance• Claims Arising out of Contract or Quasi-Contract• Construction Defect Claims and Damages• Design Professional Liability• Payments• Mechanics’ Liens• Suretyship• Alternative Dispute Resolution• A Survey of Labor & Employment and Workplace Safety and Health Law for

Construction Lawyers• A Survey of Bankruptcy Law for Construction Lawyers

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ONLINE Visit www.scbar.org/cle.

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BY PHONE (803) 771-0333 or toll-free at (800) 768-7787.

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