The purpose of this whitepaper is to bring attention to a trend in K-12 and municipal construction contracts, which expands the time periods for law suits against construction professionals.
Introduction and Background
Under Colorado statute, the period of time within which a legal action for construction defects may be brought against a construction professional in Colorado is two years from when the claimant (or its predecessor in interest) discovers or in the exercise of reasonable diligence should have discovered the physical manifestations of a defect (the “Statute of Limitations”), but in no case may an action be brought more than six years after substantial completion of the improvement, unless the claim arises in the fifth or sixth year after substantial completion, in which event the action may be brought within two years of such date, i.e., up to eight years after substantial completion (the “Statute of Repose”). See C.R.S. § 13-80-104. While the triggering events differ for the Statute of Limitations and Statue of Repose, the periods are intended to run concurrently to limit the period of time an action may be brought against construction professionals for construction defects to, at most, eight years after substantial completion. Importantly, these limitations periods may be expanded by agreement.
Prior to 1986, Colorado law provided for a 10-year Statute of Repose. However, in 1986, Colorado’s legislature shortened the Statute of Repose time limit to the current six (or up to eight) year period. In 1986, Colorado also redefined the date the claim arises from the date the defectwas discovered or should have been discovered to the date the physical manifestation of a defect was discovered or should have been discovered. Therefore, after 1986, the two-year limitations period could begin to run when a claimant should have discovered the manifestation of a defect, even if the claimant did not recognize that a defect existed.
The reasons for these changes, as described by members of the Colorado legislature at the time, were as follows:
1. Relieve construction professionals of the prospect of potentially open-ended, indefinite liability for their acts or omissions;
2. Encourage the timely resolution of construction disputes while preserving property owners’ rights;
3. Encourage diligent investigation of the cause and extent of the problem;
4. Curb perceived abuses related to construction-defect litigation; and
5. Stabilize the costs of insurance and insurance products for construction professionals.
These changes have, in fact, helped to encourage the timely resolution of construction defect disputes, resulted in an efficient insurance market for commercial general liability and completed operations insurance coverage, and a competitive construction market – all of which help contribute to lower costs of construction in Colorado.
Recent Trend in the Wrong Direction
In recent years,there has been a trend in K-12 construction contracts (as well as other municipal and local government construction contracts) which expands the potential liability of construction professionals beyond the current Statutes of Limitations and Repose. Several school districts have expanded the Statute of Limitations to 6 years (after discovery of the defect) and the Statute of Repose up to 16 years (or in the case of Cherry Creek, a potentially unlimited Statute of Repose period). These school districts have also changed the language of the limitation period so that it does not begin to run until actual discovery of the defect (rather than the physical manifestation), thus, reversing the changes made by the legislature in 1986. A table summarizing examples from recent K-12 construction contracts is attached as Attachment 1. Relevant excerpts from these construction contracts are attached as Attachment 2.
It is important that construction professionals in Colorado be aware of these contract provisions because they greatly expand the liability of construction professionals and disrupt the industry standards on which construction professionals (and their insurers and other related industries) rely. Further, such negative trends tend to lead to inequitable risk shifting which is harmful to the industry. The reasons such contract provisions are harmful to the construction industry in Colorado include:
Potential expiration of insurance coverage. Completed operations periods under most commercial general liability policies are capped at the statute of repose or ten years. Therefore, a construction professional may be left without insurance coverage against a construction defect claim brought outside that period.
Destabilizing the insurance market. Longer and inconsistent limitations and repose periods destabilize the market for insurance in Colorado as insurers attempt to price the increased risk of such longer periods on a contract-by-contract basis.
Prejudices construction professionals’ ability to defend themselves. Construction professionals rely on project documentation and personnel to defend against defect claims. It will be more difficult to locate project documents and personnel (witnesses) (who may no longer be available or remember the project) to defend lawsuits filed up to 16 years or longer after substantial completion of a project.
Construction professionals are more likely to be blamed for improper maintenance. Construction professionals may face claims for issues which are, in reality, caused by improper or inadequate maintenance. The passage of time increases the difficulty in distinguishing between damages caused by improper maintenance versus improper construction.
Unfair to allow claimants to sit on their claims. A longer Statute of Limitations period means a claimant can sit on its hands and wait to bring an issue to the attention of a construction professional for up to six years after the claimant became aware of the issue, which runs counter to the public and industry interests in timely investigating and resolving problems.
Attachment 1
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School District
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Statute of Limitations
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Statute of Repose
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Lewis Palmer
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6 years
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10 years w/ extension of 6 years if discovered in 10th year
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Douglas
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6 years
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15 years after final completion
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Cherry Creek
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6 years from SC or date of discovery, whichever is longer
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None
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Adams
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6 years
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10 years w/ extension of 6 years if discovered in 10th year
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Aurora Public Schools
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6 years
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10 years w/ extension of 6 years if discovered in 10th year
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Weld
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6 years
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8 years w/ extension of 2 years if discovered in 5th or 6th year
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District 49
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6 years
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15 years from final completion and acceptance
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Attachment 2
Lewis Palmer
GC 59.00
LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than ten (10) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Douglas County
Short form contract – 10.2 Limitation of Actions – Any actions against the CM/GC, his employees or agents brought to recover damages for injury to person or defects in or damage to property, including the Work itself, caused by the administration, superintendence or efforts of the CM/GCor those under his control relating to this Project shall be brought within six (6) years after such claim for relief arises and is discovered by the Owner.
Regular General Conditions – GC – 53.00 LIMITATION OF ACTIONS
53.01 Any actions against the Contractor, his subcontractors, suppliers or others providing materials or services for the project, brought to recover damages for injury to person, damage to property or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than fifteen (15) years after the final completion and acceptance of the project.
Cherry Creek
13.4.3 shall be added and shall read as follows:
Notwithstanding any other provision of these General Conditions, the statute of limitations for the filing of any and all claims arising pursuant to the Work and Contract Documents shall be six (6) years from the date of Substantial Completion as defined in subparagraph 8.1.3 or the date of discovery of the claim, whichever is later, or such longer period as may be permitted by law.
ARTICLE 13 – MISCELLANEOUS PROVISIONS / 13.7 TIME LIMITS ON CLAIMS
13.7.1 Add the following to the end of the first sentence of the Paragraph: or the Date of Actual Knowledge of the Cause or Claim by the Owner, whichever is later.
Adams 12
GC 53.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than ten (10) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Aurora Public Schools
GC-54.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than ten (l0) years after the final completion and acceptance of the project; provided, however, that in any case where the cause of action arises during the tenth year, such action shall be brought within six (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
Weld County
GC–54.00 LIMITATION OF ACTIONS
Any actions against the Contractor, its subcontractors, suppliers, or others providing materials or services for the Project, brought to recover damages for injury to person, damage to property (including loss or damage to property on the Project itself), or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction, or observation of construction of the Project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than eight (8) years after the date of final completion and acceptance of the Project; provided, however, that in any case where the cause of–action arises during the fifth or sixth year, such action shall be brought within two (6) years after such cause of action arises and the nature and extent are fully discovered by the Owner.
District 49
GC – 53.00 LIMITATION OF ACTIONS
53.01 Any actions against the Contractor, his subcontractors, suppliers or others providing materials or services for the project, brought to recover damages for injury to person, damage to property or defects in materials caused by the design, manufacture, supplying, planning, supervision, inspection, construction or observation of construction of the project shall be brought within six (6) years after such claim for relief arises and the nature and extent are fully discovered. In no case shall such an action be brought more than fifteen (15) years after the final completion and acceptance of the project.
This whitepaper comes from Henry Bangert and our friends at Beltzer Bangert & Gunnell, LLP.
