As far as statutes of repose go, Colorado’s legislature has made it fairly beneficial for construction professionals (including architects, engineers, contractors, subcontractors, and inspectors) to protect their interests after completing a Colorado project. Under Colorado Revised Statute § 13-80-104, a construction defect action against a construction professional cannot be filed “more than six years after the substantial completion of the improvement to the real property.” Most other states have longer repose periods, ranging from seven to fifteen years.
However, Colorado’s statute of repose has no definition for “substantial completion,” leaving construction professionals—and their attorneys—to surmise the meaning on their own. In a recent decision, the Colorado Court of Appeals provided us that definition.
In Sierra Pacific Industries, Inc. v. Bradbury, --- P.3d ---, 2016 WL 4699116, COA No. 15CA1652 (Colo. App. 2016), a first-tier subcontractor, Sierra Pacific, supplied windows and doors for a condominium. Sierra Pacific hired a second-tier subcontractor, Bradbury, to install those windows and doors. Bradbury completed its work in 2002 but performed some repair work in 2004. Between 2004 and 2011, the windows and doors leaked, requiring further repairs. After the repairs were complete in 2011, the owner filed suit against the general contractor, and the general contractor, in turn, filed suit against Sierra Pacific. The owner, the general contractor, and Sierra Pacific ultimately settled the suit in 2014. Shortly after settling, Sierra Pacific filed an indemnity action against Bradbury seeking to recover the amount it paid for the faulty installation of the windows and doors.
Bradbury argued that Colorado’s statute of repose barred Sierra Pacific’s indemnity action because Bradbury had substantially completed its work no later than 2004 when it last performed any work on the windows and doors. Sierra Pacific argued that substantial completion did not occur until all repairs to the windows and doors were completed in 2011, making its claim proper under the statute of repose. The court agreed with Bradbury that the statute of repose barred Sierra Pacific’s indemnity claim. The court reasoned that “substantial completion” occurs when a subcontractor “finishes working on the improvement,” which could and will be different for each subcontractor. According to the court, this definition supports Colorado’s legislative purpose to relieve construction professionals of “potential indefinite liability for their acts or omissions.”
Sierra Pacific will likely cause early-completing construction professionals, like foundation subcontractors and architects, to rejoice. These professionals will be “off the hook” much sooner for potential negligence suits than their later-completing counterparts.
The state of affairs for general contractors is less clear. The Colorado court specified that a project will likely have discrete component parts that will be completed at different times. That being the case, a general contractor could effectively argue that its scope of work for an improvement to a discrete part of an entire project—such as the foundation work—could be substantially complete at the same time as its foundation subcontractor. Were this the case, a general contractor could have multiple and varying substantial completion dates depending upon when a particular subcontractor substantially completes its work. Thus, a general contractor’s risk of suit would be no greater than its corresponding subcontractors.
On the other hand, an owner may argue that a general contractor does not substantially complete its scope of work until the entire project is substantially complete. If this is the case, a general contractor will be unable to seek indemnity from an early-completing subcontractor for that subcontractor’s defective work if six years has run since substantial completion, leaving only the general contractor liable to the owner for any defects.
Nonetheless, it would behoove general contractors to collaborate with their subcontractors when negotiating their contracts to clearly define “substantial completion.” This collaboration will help all parties monitor deadlines for discovering defects and determine when the statute of repose begins and ends for each trade’s work.
After Sierra Pacific, general contractors and owners will want to manage their risks to account for this potentially increased risk that they will not be able to hold early-completing subcontractors liable. For example, quality control and quality assurance early on could be key for owners and general contractors. Owners and general contractors may seek to engage independent third parties to review work at all stages of a project to safeguard compliance with plans and specification at each phase, or to confirm that an architect’s drawings or an engineer’s report is accurate. Rather than waiting until a project is complete to determine if there is a defect in the foundation, for example, early project evaluation at various stages will help detect potential defects so that an owner and general contractor may timely assert claims against the proper parties.
Sierra Pacific also implicates some insurance policy considerations. Some policies might trigger liability upon a construction professional being liable for a defect. If, for example, a foundation subcontractor substantially completed its work over six years ago, it cannot be sued for any foundation defects, and its insurance company need not cover those defects. Such an outcome is great for subcontractors and their insurers but bad for owners and general contractors. Thus, owners and general contractors should read project insurance policies carefully to understand the scope of liability after Sierra Pacific.
It is unclear whether Sierra Pacific will be appealed or what the Colorado Supreme Court will do if it is appealed. If this case is appealed, the Colorado Supreme Court will interpret this statute on its own, giving no deference to the prior courts, which could lead it to a wholly different result. For now, the status of the law in Colorado creates new legal risks for project stakeholders. A construction professional should consult an attorney to determine its potential risks after Sierra Pacific.
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