Hotel Construction Defect Dispute
The following is an excerpt from an Interface Consulting work product issued for use in litigation, arbitration, or mediation (dispute resolution). Names, dates, and other information has been modified for client confidentiality purposes.
ABC, LLC v. Berkman Corporation Arbitration
On June 13, 1996, ABC, LLC (ABC), entered into a contract with Berkman Corporation (Berkman) for the construction of a Super Suites Hotel in Baton Rouge, Louisiana, for a contract price of....
In August 1997, Berkman notified ABC that Berkman believed it had completed all punchlist items, and that the remaining repair work consisted of warranty items….ABC responded that Berkman’s work and materials used were defective and that Berkman was responsible for repairing the damages caused by the defective work and materials. On October 28, 1997, the architect, D.W. Architects, PC, issued an extensive punch list to Berkman. This punch list clearly demonstrated that Berkman’s work on the Super Suites Hotel had defects and discrepancies and that significant corrective work remained to complete the project.
Berkman disagreed that corrective work remained on the project and filed for arbitration.... The main issues in this dispute are:
Berkman’s defective work, failure to perform the work in a “good and workmanlike manner” and failure to adhere to the drawings and specifications in accordance with the contract
Damages resulting from Berkman’s defective work
Responsibility for repair of damage and loss of revenue from unusable rooms
ABC’s entitlement to withhold retainage from Berkman
II. Summary of Opinion
It is our opinion that Berkman failed to follow the contract drawings and project specifications.... Berkman did not meet the quality of workmanship specified in the contract.... The hotel has suffered extensive damage as a result of defective work caused by Berkman’s failure to follow the specifications and drawings, as well as poor workmanship. This extensive damage has forced ABC to perform ongoing owner-initiated repairs at its cost and to incur lost revenues from having the rooms out of service. A walk-through of the hotel in July 1999 revealed that none of the October 28, 1998, punch list items had been addressed by Berkman....
III. Discussion of Opinion Basis
As the general contractor for this project, Berkman was responsible not only for the quality and methods of its actual work, but also for that of its subcontractors....
...Berkman represented to ABC that it was a quality contractor and it had an obligation as the general contractor on this project to ensure that these contract requirements were met. Berkman, however, continuously failed to meet….The following list of defects, directly attributable to Berkman, has severely reduced the quality and appearance of a hotel that is less than two years old.
Installation of non-compliant gutters, downspouts and building trim
Defective single-ply roofing
Defective gutter installation and paint application....
Installation of a defective fire protection system
Defective moisture protection of interior walls
Defective installation of marble paneling in bathrooms
Furthermore, these defects and the related damages have had to be repaired at an additional and excessive cost to ABC, while at the same time....
IV. Exterior Work
Berkman’s defective work has affected two (2) areas on the exterior of the building....The problems with these areas have led to serious water damage to the interior of the hotel.... The extensive water damage to the interior of the hotel and....
Non-compliant Gutters, Downspouts, and Building Trim
Berkman failed to install the correct gutters as specified by the contract drawings. As shown below, the contract drawings clearly indicate....
Comparison of Contract and Actual Drawings of Gutter
Berkman installed 26-gauge Ogee-style gutters with 3” x 4” downspouts, which were not the gutters specified in the contract drawings. This change was not approved by ABC. The gutters installed by Berkman are not able to sufficiently collect.... Water penetration into the wall caused extensive damage of the sheetrock, wall insulation, wallpaper and carpet in many of the guestrooms and damaged the conference room ceiling.... If Berkman had performed the work according to the specifications, overflow into the building would have been prevented.... As shown in the following diagram, there are eight (8) distinct areas where severe water damage has been observed.
ABC has taken temporary steps to help alleviate the burden on the gutter system; however, Berkman is responsible for the cost of reinstalling a gutter system that conforms to the drawings and specifications, and is responsible for the repair work associated with its initial defective installation....
Defective Paint Application on Gutters
The current gutter system is not the system that was specified in the contract and must be replaced. Additionally, the defective paint on the current gutter system has detracted from the appearance of the hotel. According to the project specifications, the exterior aluminum gutters are required to have....
Defective Single-Ply Roofing
The hotel has two (2) different types of roofing: a metal roof with standing seam panels and a mechanically fastened, single-ply roof. The metal roofing extends over the majority of the hotel, and the single-ply roof is limited to the areas above the conference room and above the covered driveway. Berkman defectively installed the single-ply roofing above the conference room and above the.... The following pictures illustrate the water damage that has occurred to the roofing over the covered driveway, both to the actual single-ply roofing and the underside of the covered driveway.
Single-Ply Roofing Damage
This water penetration has caused....
V. Interior Work
Berkman’s poor workmanship and disregard for the project specifications and drawings on the interior of the hotel have resulted in the incorrect installation of....
Defective Fire Protection System
Berkman has compromised the safety and reliability of the Fire Protection System by its careless installation and inadequate clean up of the system. The contract specifications require that both the materials and the installation of the fire sprinkler system comply with all existing fire codes and standards. To date, ABC has expended over....
In addition, as the following picture illustrates, the sprinkler heads were not properly protected from the acoustical ceiling spray....
The ceiling over-spray on the fire sprinklers may prevent the sprinklers from working properly. …which possibly may be the cause of the corrosion of the sprinkler heads that is occurring, as shown below.
Corrosion on Sprinkler Heads
This corrosion could prevent adequate water from passing over the sprinkler head and cause the system to malfunction. In their current condition....
Interior Moisture Penetration Damage
…This water has penetrated the inside walls and caused extensive damage to many guestrooms in the hotel. This water has destroyed the wallpaper and sheetrock in these rooms and damaged the wall insulation and, in some cases.... Examples of this damage are shown in the following pictures.
Moisture Damage Caused by Defective Gutters
It is clear that the water damage is affecting the wallpaper, has ruined the sheetrock and insulation, and is rotting the wood structure.
Defective Installation of Marble Paneling around Bathtubs
Berkman incorrectly installed the marble paneling (tub-surrounds) around the bathtubs in approximately 75% of the guestrooms. Berkman’s failure to securely install and.... This separation and resulting damage can be seen clearly in the following photographs.
Marble Paneling and Bathroom Moisture Problems
Wallpaper throughout the hotel was improperly installed by Berkman. The specifications specify that....
Defective Jacuzzi/Whirlpool Bathtub Support
…The locations of these incorrectly installed support columns are indicated in the diagram below.
Foundation Plan for the Hotel
Inadequate Interior Paint
VI. Discussion of Current Repair Costs
ABC has continually expended funds on the hotel as a result of Berkman’s defective workmanship. These funds have included increased insurance premiums because of the defective fire sprinkler system. The interim repair work performed by ABC has included repairs to the both the....
VII. Discussion of Repair Program
As Berkman has failed to provide quality workmanship on the hotel construction project, ABC has no confidence that Berkman would repair the defects to ABC’s satisfaction; therefore, ABC must take the responsibility to initiate the....
The repair schedule below balances the needs of the guests with the desire to reduce the costs of repair and increase the availability of rooms for occupancy.... The following Repair Work Shutdown Schedule for the interior repair work assumes that the essential exterior repair work has already been performed.
VIII. Quantification of Damages
The following is an estimate of the cost of damages incurred by ABC as a direct result of the defective work by Berkman. This cost includes estimates to repair known, remaining damaged, and defective work. Additional costs relating to the punch list items and additional fees suffered by ABC are not included in this total. In addition, this quantification does not address lost revenues or....
Appendix A - List of Documents Reviewed