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Change has Come FAIR CONTRACTS Indemnity / Duty to Defend David P. Ferrell James A. Smith, Jr. Stephanie Hachem, PE Nexsen Pruet, PLLC ACEC/NC Kimley-Horn July 27, 2019 With the passage of HB 871 into
law, Broad Form Indemnification and Duty to Defend Provisions in design contracts is not enforceable, so should no longer be a part of contract language that we sign. But, how? In March 2018, I sent an e-mail to Jim It started in March
2018. The Board voted to move forward with the initiative Sully (Mike Sullivan) came to town We were ready to eliminate onerous indemnification / duty to defend language! -- we just didnt know exactly how we were going to do it. ACEC/NC Task Force Formed
Stephanie Hachem Chair Kimley-Horn Jim SmithACEC/NC Gary HartongThe Wooten Company Richard Cook Kimley-Horn Joelle Jefcoat Perkins and Will David CrawfordAIA/NC Stephen SafranSafran Law Bill SmithStanford White An early key decision: hire a lobbyist As a result of the Task Force Recommendation and Board Approval David Ferrell joined our Task Force. ACEC led Initiative
Architects Coalition AIA was an impactful and committed partner Landscape Architects Surveyors Primary Sponsors: Representat
ive Arp (Union) and Senator Newton (Cabarrus, Union) Co-Sponsors: Reps Stevens (Alleghany, Surry, Wilkes), Reives (Chatham,
Durham), and Floyd (Cumberland) Key Supporters: Sen. Rabon (Bladen, Brunswick, New Hanover, Pender), Harrington (Gaston), Sawyer
(Iredell, Yadkin) Consistent and Controlled Message Broad Form Indemnification not insurable Strategies I over time we somewhat backed away from this one Foster Broad support by including all involved in construction projects Apply to Public and Private owners
Remove all exemptions Consistent and Controlled Message Amend current statute vs draft new statute? Strategies II David has joined us. Avoid Key Opposition Start with concurrent bills later decided to go with one Politically focus on impacts to small / DBE
firms The Process first phase Language to Bill Drafting Senate Bill Introduction Deadline (SB 569) House Bill Introduction Deadline (HB 871) Senate Judiciary Senate Rules House Commerce
House Rules Senate Floor (Twice) House Floor Cross-over Deadline (decision to run HB 871) Negotiations with Stake Holders The Process conclusion Senate Judiciary Senate Rules Floor Amendment on Senate Floor House Concurrence of Senate changes
Ratified Governor Cooper signed into Law (July 8, 2019) Effective August 1, 2019 So where were did the Contractors stand on this? Senate Judiciary (the First Time) Neutral or so we thought.
David hears the night prior to our bill going to Senate Judiciary Committee that AGC (Contractors) will oppose us. We proceed, and bill passes unanimously despite AGCs opposition Key presentations by Monty Irvin and Joelle Jefcoat Continued AGC Opposition Senate Floor (twice)
Pulled from the Agenda Back on Agenda It was recognized that ACEC had negotiated in good faith; the Contractors waited too long to voice opposition. Strategic Decision made with Senate Leadership & both bill sponsors It was decided to just run with one bill and because the House bill had already made crossover, we continued with HB 871. Meanwhile, companion bill in the House passed House Rules late in the evening.
House Rules House Floor David and Representative Arp got bill added to the House agenda that evening within an hour of passing House Rules. Companion bill passes on the House floor ~10:40pm! We made crossover. Numerous Stakeholder Meetings
Senate Judiciary (again) AGC still opposing. We decided we would move ahead with our original language if AGC couldnt come to agreement with us. AGC agrees to language that provides some clarification for them but didnt compromise what we wanted. HB 871 passes Senate Judiciary and Rules with amendment to follow AGC does not oppose!
Lengthy Floor Amendment was Highly Unusual Senate Floor Amendme nt Senate Rules Chair Support was critical Passed quickly and unanimously! What was so hard about that?! Current GS 22B-1 provides only limited
protection to design professionals: Current Law Loopholes and Gaps in Protections Loopholes in existing language regarding indemnity Applies only to indemnity claims arising out of personal injury or property damage not economic loss or damage Does not address duty to defend at all Exempts utilities, railroads, and NCDOT
from current indemnity language The Solution HB 871 Fair Contracts Eliminates Duty to Defend Limits Indemnity to Own Fault Eliminates Exemptions Applies to Public and Private Contracts
The Solution HB 871 Fair Contracts Eliminates Duty to Defend Design Professionals cannot be made to "defend" an owner or any other party against claims involving professional negligence The Solution
HB 871 Fair Contracts Design Professional is defined as: Engineer Architect Landscape Architect Surveyor Soil Scientist Geologist Limits Indemnity to Own Fault
The Solution HB 871 Fair Contracts Design professionals cannot be made to indemnify an owner or any other party if the design professional was not a "proximate" (direct) cause of the alleged damages or loss.
Includes claims for economic damages/loss as well as personal injury and property damage Limits Indemnity to Own Fault The Solution HB 871 Fair Contracts Does not change a design professionals ability to indemnify
an owner for damages caused by a design professionals own fault which could include an owners attorneys fees if found at fault Existing law Insurable under professional negligence policies Eliminates Exemptions The Solution HB 871 Fair
Contracts The existing exemptions to the current indemnity provisions of GS.22B-1 for NCDOT, railroads, and public utilities are eliminated (and do not apply to these new provisions). Applies to Public and Private Contracts The Solution
HB 871 Fair Contracts These protections apply to both public and private contracts Against public policy, void and unenforceable Goal: Eliminate these provisions from your contracts How? Contract negotiation front end Impacts to
Your Contracts Applies to Contracts entered into, amended, or renewed on or after the effective date (August 1, 2019) How to educate public/private entities How to Use the new Law Example of a Common Broad-Form Indemnity Provision
Now Illegal Engineer hereby agrees to indemnify, hold harmless, and defend Entity, its employees, agents, subcontractors and any other third party, God, and your mother, from and against all claims, costs, losses, and damages (including attorney fees) resulting from bodily injury, property damage, and economic loss. Engineer shall: (i) at its own cost, expense and risk, defend any and all claims, demands and suits defined in
Example of a Duty to Defend Provision Now Illegal this Contract that may be brought or instituted against any Indemnified Party by any third party, including but not limited to any governmental, state or local agency, or any employee of the Engineer and any party for whose acts they may be responsible; and (ii) reimburse the Indemnified Parties for any and all legal costs (including attorneys fees) and related expenses
incurred by any of them in connection herewith or in enforcing the indemnity granted in this Section With ACEC/NC PAC and ECNC we were well positioned for this endeavor having both was key to our success. How did we use our new advocacy entities? ECNC Although we did not need a huge financial
effort; ECNC positioned us to do so if needed. ACEC/PAC Question s?
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