Friday, March 1, 2019

But What About My Machines Just Sitting There? Fed Court Rules Only Some Idle Equipment Costs are Allowable in a Payment Bond Claim

In 2010, the United States Army Corps of Engineers (USACE) entered into an agreement with Hirani Engineering & Land Surveying, PC (Hirani) for the construction of a levee wall on the National Mall to prevent the Potomac River from flooding into Downtown Washington. Hirani in turn then subcontracted out most of the work to a single firm, American Civil Construction (ACC).  For the next two plus years, the project was plagued with delays, changes, and disputes and consequently USACE terminated Hirani in April of 2013.  ACC then vacated the work site in the days following the termination.  USACE made a claim on Hirani’s Performance Bond and its surety Colonial Surety Company (Colonial) hired a contractor team to complete the project.

ACC filed suit against Hirani and Colonial in April of 2014 in the United States District Court for the District of Columbia for $2,172,285.23 in damages, prejudgment interest, attorney's fees, and costs.  In turn, Colonial counter-sued in the amount of $723,049.14 for work ACC had failed to complete. The bulk of ACC’s requested damages fell under at Miller Act-Payment Bond claim against Colonial for work ACC claimed was performed but not paid for by Hirani.

In its bond suit, ACC claimed quantum meruit damages which contained $138,135.34 for costs related to idle equipment.  ACC identified the idle equipment costs as, "the standby costs of having its owned equipment idling at the site as part of the reasonable value of ACC's owned equipment furnished in connection with the Project."  ACC asserted the figure did not represent rental values or other profit opportunities the equipment could have been used for.

The Court began its analysis by stating the Miller Act allows a contractor who "furnish[es] labor or material in carrying out work provided for in a contract" to make payment bond claim.  The court then goes on to state that idle equipment costs “cannot be viewed as an indivisible whole.” The Court presented two scenarios to exemplify this.  The first is when a contractor brings machines to a site and uses them over the course of weeks, but not every day.  The second scenario is one in which a contractor brings equipment to a job sixty days before it is ultimately used in the execution of contract work.   

The Court differentiated the two scenarios by stating in the first, a contractor cannot be expected to remove equipment from a work site every time it is not used so long as there are other activities that require its use, but in the second, a contractor cannot claim equipment is “furnished” for “carrying out work” if the equipment is not used absent a reasonable explanation.  The Court drew examples from the claim pointing to a skid steer that was brought to the job site early and used throughout the course of the project, but not every day, and compared it to an excavator brought in December of 2011, used a few times in January of 2012, and then used only one more time while sitting onsite for the duration of the project.

In its decision, the Court examined a submitted schedule of equipment utilized and determined ACC was entitled to $38,897.62 for standby expenses for idle equipment.

United States ex rel. Am. Civ. Constr., LLC v. Hirani Eng'g & Land Surveying, P.C.

The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.

Thursday, January 31, 2019

Midwinter Meeting Lunch Presentation: Los Angeles Rams Stadium


Fantastic panel discussion about the Los Angeles Rams Stadium Project, currently under construction, including the unique and challenging aspects of the multi-billion dollar project.  Imagine placing two airplanes on 9 columns with only 1/8" tolerance!
Thank you to our speakers John D. Hanover, Partner, Alston & Bird; Richard C. Bach, Senior Vice President, Turner Construction Company; and Reed McMains, Vice President, Turner Construction Company. 


Monday, January 21, 2019

Economic Loss Doctrine - New from Rhode Island

The Rhode Island Supreme Court recently weighed in on the application of the economic loss doctrine to a construction dispute between two commercial entities. In Hexagon Holdings, Inc. v. Carlisle Syntec Inc. et al, --A.3d-- (Jan. 17, 2019 R.I.), the Court's majority framed the question as whether "the owner of a commercial building may circumvent [its] contractual privity with a general contractor by suing the subcontractor to evade application of the economic loss doctrine." The Court "answer[ed] this question in the negative." Accordingly, the Court affirmed that "summary judgment was appropriate as to [the owner]’s claim for negligence against [the subcontractor].")

The underlying issue in this case was a leaking roof.  Hexagon Holdings, Inc. ("Owner") had contracted with A/Z Corporation ("General Contractor") to build a facility at a business park in Rhode Island. The General Contractor in turn subcontracted with McKenna Roofing & Construction, Inc. ("Subcontractor") to install a specified roofing system manufactured by Carlisle Syntec Inc. The roofing began leaking immediately. Owner later sued the Subcontractor in contract and tort alleging that the roof was not properly installed and therefore sought to recover the cost of replacing the roof.  Owner opted not sue the General Contractor noting as its reasons: "judicial efficiency and not choosing to damage a relationship with somebody that [it] had a positive relationship with." The Subcontractor moved for summary judgment relying on the lack of privity (and that the Owner was not a third-party beneficiary of the roofing subcontract) to dismiss the claims sounding in contract and warranty and relying on the economic loss doctrine to dismiss the negligence claim. The Superior Court granted the Subcontractor's motion. The Owner appealed.

With respect to the contract and warranty claims, the Supreme Court agreed with the Superior Court - there was not sufficient evidence in the record creating a question of fact that the Owner was an intended as opposed to incidental beneficiary of the Subcontract.  Accordingly, the Court held that the contract claims were properly dismissed.  Note that there was a dissent that the Owner's third-party beneficiary status actually was a "triable issue of fact" based upon the information in the record.

As for the negligence claim, the Owner had pointed out that there was no privity between the Subcontractor and Owner, therefore the economic loss doctrine could not apply to bar the claim. The Subcontractor disagreed claiming that the economic loss doctrine did apply because Owner’s claim concerned "pure economic loss" and because the parties were engaged in a commercial transaction. The Court sided with the Subcontractor citing the New Jersey case, Spring Motors Distributors, Inc. v. Ford Motor Co., 489 A.2d 660 (N.J. 1985), which held that "[g]enerally speaking, tort principles, such as negligence, are better suited for resolving claims involving unanticipated physical injury, particularly those arising out of an accident. Contract principles, on the other hand, are generally more appropriate for determining claims for consequential damage that the parties have, or could have, addressed in their agreement." The Court noted that under the economic loss doctrine this Owner "clearly" did not have viable claim against General Contractor for negligence.  As such, the Court concluded that, here, where the Owner had "deliberately avoided suing the General Contractor, [the Owner was also] barred from asserting a lack of privity with [Subcontractor] to avoid application of the economic loss doctrine." Accordingly, the Court held that the negligence claim against the Subcontractor were properly dismissed. 

Katharine Kohm, Esq. is a committee member for The Dispute Resolver. She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.

Monday, January 14, 2019

Please remember to sign up for 2019 Midwinter Advocacy Practicum, which will take place on January 30, 2019 at 1:00 to 5:00 PST at the Millennium Biltmore Hotel.  Description and registration link below.

Advocacy Practicum–Advocacy in Writing the Perfect Brief: Tips From Expert Writers
Advanced Registration Only! Separate Registration Fee Required: Practicum Only - $325
If registering for the meeting - $200

The Forum is thrilled to be able to present an advocacy practicum dedicated to the elusive but laudatory goal of every construction lawyer—effective and crisp legal writing.

Bryan A. Garner’s extensive writing on the language of the law led The Green Bag to call him a "leading authority on good legal writing." A chorus of other publications—including The New York Times, Trial Magazine, and Harvard Law Review—have echoed that sentiment.
Garner is editor in chief of Black’s Law Dictionary and the author of many leading works on legal style, including Garner’s Dictionary of Legal Usage, The Elements of Legal Style, The Redbook: A Manual on Legal Style, The Winning Brief, Legal Writing in Plain English, and The Winning Oral Argument. He is co-author of two books with Justice Antonin Scalia, Reading Law: The Interpretation of Legal Texts and Making Your Case: The Art of Persuading Judges. He is also the author of Better Business Writing, a work focused on the art of communicating in the business world, published by the Harvard Business Review. His latest books are The Chicago Guide to Grammar, Usage, and Punctuation and The Law of Judicial Precedent, written with 12 judicial coauthors, including Justice Neil M. Gorsuch of the United States Supreme Court.

The second half of the Practicum shall be a panel discussion of leading legal writers who will discuss best practices for lawyers on how to present the most persuasive arguments and evidence to a court or arbitration panel. Anticipated panelists include the country's preeminent legal writing instructor, a federal judge and a leading construction lawyer. Since this program is a special event with limited seating, attendees must register for it separately.

Federal Circuit, Citing the Christian Doctrine, Holds That Performance and Payment Bonds Are Required for All Construction Contracts, Even When the Bonding Requirement Is Not Expressly Stated in the Contract

K-Con, Inc. v. Sec’y of the Army, 2018 U.S. App. LEXIS 31196 (Fed. Cir., November 5, 2018)

In September 2013 K-Con, Inc. (“K-Con”) entered into two contracts with the government to supply and construct pre-engineered metal buildings for a laundry facility and a communications equipment shelter.  The government issued both contracts using Standard Form 1449, entitled Solicitation/Contract/Order for Commercial Items.  The contracts’ terms did not contain any requirement to provide a performance or payment  bond.  Nor did they include FAR 52.228-15, which requires performance and payment bonds on construction contracts.

In October 2013 the government directed K-Con to supply performance and payment bonds before a notice to proceed could be issued.  K-Con initially refused but ultimately provided the bonds two years later.  The contracts were then adjusted to add the cost of the bonds.
K-Con submitted a claim under each contract for increases in costs for the two year delay, for a total value of $116,336.56.  The Contracting Officer denied the claim on the basis that the agreements were construction contracts, for which performance and payment bonds were mandatory pursuant to FAR 52.228-15, and that that provision was incorporated into the contracts pursuant to the Christian doctrine under which a court may insert a clause into a government contract by operation of law if that clause is required under applicable federal regulations.  G.L. Christian & Associates v. Unites States, 312 F.2d 418 (Ct. Cl. 1963).  K-Con appealed to the Armed Services Board, which affirmed the denial of the claims.  K-Con then appealed to the United States Court of Appeals for the Federal Circuit.

K-Con argued that the contracts were not construction contracts, but were commercial agreements which do not include mandatory bonding requirements.  The Court found the contracts ambiguous, because although commercial forms were used, the contracts included numerous references to construction activities.  These clear inconsistencies would have placed a reasonable contractor on notice that the contracts were patently ambiguous.  Thus, because K-Con failed to seek a clarification before the bid, it could not argue that its interpretation was proper.

K-Con also argued against application of the Christian doctrine.  The Court held that to incorporate a clause under the Christian doctrine, it must find both that the clause is mandatory, and that it expresses a significant or deeply ingrained strand of public procurement policy.
The Court noted that the Miller Act states that the contractor “must” secure bonds before a construction contract of a certain value is issued and that FAR 28.102-3(a) specifies that FAR 52.228-15 “should be inserted in the solicitations and contracts for construction.”  Thus, the Court found that bonding requirements were mandatory.

As to policy, the Court noted that the Miller Act was enacted to protect subcontractors and suppliers on government construction projects, and to ensure the government receives full performance at the agreed-upon cost.  Because government property cannot be subject to subcontractor and supplier liens, the bonds provide an alternative remedy to protect those who provide labor or materials on a federal project.  On that basis, the Court found that performance and payment bonds are “deeply ingrained” in government procurement policy.

Accordingly, the Court held that the bond requirements were incorporated by operation of law into the contracts despite the fact that these requirements were not stated in the agreements.

The author, John Conrad, is an associate in the Los Angeles office of the Pepper Hamilton Construction Practice Group.

Wednesday, November 21, 2018

Contractor Submits $4.5M Claim for Differing Site Conditions, Fed Court Rejects and then Imposes Liquidated Damages for $400K

The U.S. Court of Federal Claims shows contractors once again the dangers that can exist when pricing a performance specification and the importance of giving owner’s proper notice for change orders in CKYInc. v. Unites States of America. 

In 2012, the Government awarded CKY, Inc. a $6.4M contract to widen and rehabilitate the Urban Presidio Levee located in Presidio, TX.  The work required CKY to excavate existing materials in a series of benches and then infill the benches with new materials.  The contract contained a material testing specification which required the new fill material meet certain requirements.  The existing “benched” materials was further required to meet a performance specification as to moisture content and compaction rates.

During the bid process, the Government released Amendment 003 which contained questions and answers from bidders to the Government.  Within that document, the Government stated:
  •       “Due to contamination in situ and the Contractor’s excavation processes, [the Government] cannot state that excavated material will meet…requirements. The Contractor is required to meet the embankment specification regardless of the source of the embankment material.”
  •     “Question: Will removal and disposal of any unsatisfactory material from the existing levee embankment be paid as a separate item, as it is unknown how much material will be unsuitable for use in the new embankment? Government Response: No.”
Furthermore, the bid documents contained a geotechnical report for the existing ground conditions, but the report included the following disclaimer:  

“The data and report are not intended as a representation or warranty of continuity of conditions between soil borings nor groundwater levels at dates and times other than the date and time when measured. The [Commission] will not be responsible for interpretations or conclusions drawn there by the Contractor.”
During construction, CKY had difficulty achieving the subgrade requirements for moisture and density which resulted in schedule delays. CKY alleged at this time it was directed by the Government to place new suitable materials over the “unacceptable, non-constructible subgrade.”

In August of 2016, CKY filed a complaint in the U.S. Court of Federal Claims claiming costs for: (1) differing site conditions; (2) defective specifications; (3) constructive change; and (4) breach of an oral and implied-in-fact contract.

The Government moved for summary judgement contending CKY’s interpretation of the contract and specification were improper and CKY had not provided adequate notice of differing site conditions. It then filed a counter claim for liquidated damages.

The Court began its analysis by stating the primary issue in the dispute is the suitability of the subgrade material and CKY’s entire claim is based upon its contract interpretation that the subgrade was to be “acceptable and constructible.” 

The Court first examined the Government’s assertion CKY’s interpretation of the contract documents and specifications were incorrect.  The Court reviewed the items contained within Addendum 003 and the geotechnical report disclaimer and found that a reliable contractor could not have relied on the subgrade soil to meet the requirements of the specifications.  The Court elaborated that, “When all parts of the contract are assigned meaning and understood in their entirety, CKY’s reliance on its own interpretation of the constructability and suitability of the subgrade material was unreasonable.”

The Court next reviewed the differing site condition claim and CKY’s argument that “constructive notice” had been given to the Government.  The Court noted constructive notice is allowed only if “the Government is not prejudiced by a lack of written notice.”  The Court reasoned that since it took CKY over a year to submit a REA for the subgrade materials, the Government was prejudiced because it could have stopped construction to evaluate all options other than a $4.5M change order.

Finally, the Court found that as a result of finding CKY had no basis for a claim and the project being 225 days late, liquidated damages as identified in the contract were appropriate in the amount of $1,885 per day.

In conclusion, the Government was granted summary judgement and awarded $424,125 in liquidated damages.
The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.

Saturday, November 10, 2018

Ohio Supreme Court: Subcontractor Defective Work Not an "Occurence"

The Ohio Supreme Court, in Ohio Northern University v. Charles Construction et al. Slip Op. No. 2018-Ohio-4057, recently issued a decision impacting insurers and contractors in that state.  This Ohio outcome could eventually be adopted by courts or legislatures in other states.  In Ohio Northern, the Court held that defective work by a subcontractor is not within the meaning of an “occurrence” entitling a contractor to coverage under its commercial general liability policy.   By so deciding, the Court’s analysis ultimately ended at the issue of coverage, and did not reach the question of whether the policy’s “your work” exclusion was avoided by an exception under the Products-Completed-Operations-Hazard (PCOH) endorsement.  

The underlying facts involved the construction of a hotel and conference center.  After the project was completed, water leaks caused millions of dollars of damage.  The cause of the water infiltration was believed to be from the subcontractor’s defective work.  The owner filed suit against the contractor.  In turn the contractor submitted the claim to its insurer.   The insurer intervened and filed for declaratory judgment claiming that it had no obligation to defend or indemnify the contractor.  The trial court agreed, the appeals court reversed, and then the Ohio Supreme Court sided with the insurer.
The crux of Ohio Northern expanded the holding of a 2012 case, Westfield v. Custom Agri Systems, 979 N.E. 2d 269 (Ohio 2012).  In that earlier decision, the Court observed that a CGL policy provides coverage for property damage and personal injury caused by an occurrence, but held that a contractor’s own defective work was not an “occurrence.”  Applying that same analysis here, the Court again focused on the plain language of the definition of “occurrence” under the policy: “An accident, including continuous or repeated exposure to substantially the same generally harmful conditions.”  The undefined word, “accident,” the Court said necessarily meant “fortuitous” and that a subcontractor’s defective work is not fortuitous. Rather the defective work is a known business risk that the contractor can control and manage.  In sum, although the water leaks caused property damage and the damage was discovered after the project was complete (which would trigger the PCOH), the prerequisite linchpin was an “occurrence” and that element was missing.
The Court acknowledged that other jurisdictions have gone the opposite direction from its conclusion about subcontractor defective work not being fortuitous.  It also noted that after a similar decision in Arkansas, that state legislature stepped in to pass a statute requiring any CGL policy sold in that state to include “faulty workmanship” within the definition of occurrence.  For Ohio contractors, beyond waiting for the Ohio general assembly to possibly consider new piece of legislation, they may wish to contact their brokers and explore options for defective work endorsements.  Contractors outside of Ohio may want to consider the same to stay ahead of any future decisions in their states.

Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.

Sunday, September 23, 2018

When a CM Issued Owner-Disputed Subcontractor Progress Payments, It Did so at Its Own Risk and Cannot Recover Costs Ohio Appeals Court Rules

In early 2004, Manley Architectural Group (MAG) entered into an architectural services agreement with Dr. Steven Santanello (Santanello) for a $1.6 million, 5,800 s.f. home complete with stable and riding area, sitework, pond, tennis court, and outdoor pool.  During contract formation, MAG also presented Santanello a cost savings option of utilizing it as a construction manager (CM) during construction. This would be done lieu of Santanello hiring a general contractor with Santanello holding all of the subcontracts. MAG’s CM services would include, “work[ing] directly for [Santanello] bidding out to the subcontractors and suppliers on your behalf and managing the entire construction process...Added benefits are we have more involvement in the details from start to finish, you have access to all of the subcontractor bids and we can make sure the construction is performed properly.” Santanello elected for the CM option presented by MAG.

During the course of construction, the barn project suffered water infiltration problems at the roof as well as water level retention issues at the pond project.  At that time Santanello stopped paying progress invoices submitted by MAG.  A number of years after construction was finished, MAG filed suit against Santanello for breach of contract to which Santanello filed a counterclaim for breach of contract based upon improperly supervising the construction of the pond and barn. 

A bench trial was held and the trial court found the CM agreement did not make MAG a guarantor of the subcontractor’s work on the roof and pond. Furthermore, it found Santanello was in privity with the subcontractors and ultimately remained responsible for performance and deficiencies in the work.  But, it also reasoned MAG had a responsibility to monitor the work and inform Santanello of any non-conforming work.  

The trial court ultimately found MAG was owed compensation by Santanello for: 1) payments it made to subcontractors on MAG’s behalf, 2) unpaid design fees, and 3) unpaid CM fees with total interest in the amount of $224,270.  The court then found MAG was in breach as to monitoring of the roof installation at the barn awarding Santanello the cost of a replacement roof with inflation in the amount of $160,000.  Each party cross-appealed with Santanello asserting error in the award of payments to subcontractors and MAG claiming error in the award of the cost of the roof (among other errors).

The Tenth Appellate District Court first analyzed the payments MAG issued to subcontractors in the amount of $55,577.  The Court pointed to MAG's statements that it paid the subcontractors to keep them engaged and working so the project could be completed. It "made the decision on its own to start to pay some of these people just to get them back to finish the work."  The Court found that MAG did not have the authority to issue payments on the behalf of Santanello because in the CM arraignment MAG suggested, Santanello was to act as the de facto general contractor and hold all the subcontracts.  The Court further pointed to the fact that liens had been attached to the property by subcontractors and thus there was a remedy for disputes between them and Santanello.  Ultimately the Court reduced the damages award to just the design and CM fees in the amount of $27,179.

The Court next reviewed MAG’s cross-assignment of error that it was liable for the $160,000 cost for the barn roof.  The Court examined the trial court’s definition that MAG’s CM services do not require it to be the ultimate guarantor of the work, but then the trial court ultimately required MAG to guarantee the roof work by imposing all liability for leaks on it.  The Court again pointed to the record and MAG’s efforts to identify and correct the defective work going so far as hiring additional roofing companies and making structural changes to the work.  The Court found these remedial actions satisfied MAG's CM responsibilities and since it was not responsible for the ultimate installation, it should not be held responsible for a new roof system. Accordingly the Court vacated the $160,000 damages award to Santanello.


The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  

Saturday, September 15, 2018

Divided Massachusetts Supreme Judicial Court Holds Statute of Repose Bars Alleged Unfair and Deceptive Acts Claims Against Contractor

The Supreme Judicial Court of Massachusetts in Bridgwood v. A.J. Wood Construction, Inc., 2018 WL 4100644 (Mass. 2018) held that statute of repose barred the homeowner's claims that the defendant contractor and subcontractor had committed unfair or deceptive acts (per Mass. Gen. Law c. 93A, s. 2) by failing to perform electrical work in compliance with statutory building and home improvement standards.
In 2001, the Newburyport, MA homeowner contracted for a renovation including the replacement of several ceiling light fixtures.  The defendants failed to obtain the proper permits to do so nor arranged for an inspection of the electrical wiring.  This electrical work was not performed to code, but the homeowner was unaware of the non-compliance until the concealed wiring caused a substantial fire in and damage in 2012.  The homeowner filed suit in 2016.
In Massachusetts, home improvement contractors are governed, in part, by Mass. Gen. Law c. 142A, s. 1 et seq.  Mass. Gen. Law c. 142A, s. 17 lists a number of prohibited acts including: "violation of the building laws of the commonwealth or of any political subdivision thereof."  Id. c. 142A, s. 17(10).  This law has some teeth because "[v]iolations of any of the provisions of this chapter shall constitute an unfair or deceptive act under the provisions of [Mass. Gen. Law c. 93A]," which carries penalties in addition to direct damages, including the potential for double and treble damages along with attorneys fees.  Here, the Bridgwood homeowner "claim[ed] that the defendants failed to perform the electrical work in compliance with those standards and, therefore, committed unfair or deceptive acts." Bridgwood, 2018 WL 4100644, at *2.
For their part defendants argued the homeowner's claim was barred by Massachusetts's 6-year statute of repose of tort claims set forth in Mass.  Gen. Law. c. 260, s. 2B.  The statute of repose is not tolled until the cause of action accrues.  Rather, in Massachusetts, the statutory trigger is substantial completion of the project or when the work is "open[] for use." Id.
The homeowner disputed the application of the statute of repose, instead arguing that only the 4-year statute of limitation under c. 93A, triggered "when the cause of action accrued," is the controlling timeline.  The homeowner emphasized that "because the relief available under G. L. c. 93A is 'sui generis,' neither wholly tortious nor wholly contractual in nature, the [tort-based] statute of repose does not apply." Bridgwood, 2018 WL 4100644, at *4. 

The Court disagreed explaining first that a "plaintiff to avoid the statute of repose by relabeling what is essentially a tort claim as a claim under [ ] c. 93A" and instead courts must look at the "gist of the action" to determine whether tort or contract based.  Bridgwood, 2018 WL 4100644, at *4.  Here because the homeowner's "claim is essentially that the defendants failed to perform the electrical work in compliance with the standards set forth in [a state statute and building code], [i]t is indistinguishable from a claim of negligence. Therefore, it sounds in tort and, having been commenced well beyond the six-year deadline, is barred by [the statute of repose]." Id.

The Chief Justice filed a dissent  joined by two other justices that rejected the majority's analyses of c. 93A caselaw and disputed that the legislature intended (or even contemplated) that the prior-enacted statute of repose would control the later-enacted consumer protection statutes.

Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.


Thursday, August 16, 2018

But There’s a Catch—California’s Wage-Credit Restrictions on IAFs Still Stand

*Thanks to Rebecca D. Takacs, a construction litigator, with Oles Morrison Rinker &Baker LLP in Oakland, California.  Rebecca is a member of the Division 1 Publication Committee.  Her contact information is below.  Enjoy the post!   

The California Legislature passed Senate Bill 954 in 2016 ( for the express purpose of prohibiting payments to industry advancement funds as wage credits on public works projects where such credits were not expressly required by collective bargaining agreements. Plaintiff-Appellants Interpipe Contracting, Inc. and Associated Builders and Contractors of California Cooperation Committee, Inc. (“ABC-CCC”) challenged the amendment to the labor code’s wage-credit limitation in Interpipe Contracting, Inc. v. Becerra (9th Cir., July 30, 2018, No. 17-55248) 2018 WL 3613378 (

Interpipe Contracting, Inc., is a pro-open shop contractor that prior to SB 954 went in effect took wage credits for contributions to ABC-CCC. ABC-CCC is an industry advancement fund that opposes project labor agreements on public works projects in favor of open shop arrangements. The plaintiff-appellants challenged SB 954 after Interpipe stopped making payments to ABC-CCC due to the new restrictions on wage-credits.  

SB 954 was intended to have a large effect on the construction industry in California. The Bureau of Labor Statistics estimates that just under 15% of construction industry labor nationally is union labor or union represented. ( SB 954 was intended to prevent employers from funding industry advancement funds that might support efforts contrary to workers interests. At the time of SB 954’s passage, industry opponents considered the SB 954 to be an outright ban on contributions to industry advance funds that might advocate for open shop policies.  

The lower court action challenged the constitutionality of SB 954 and sought a preliminary injunction. The district court denied the request for injunctive relief and dismissed the case on the basis that SB 954 was not preempted by federal labor laws and did not violate ABC-CCC’s free speech or equal protection rights.  

The United States Court of Appeals for the Ninth Circuit was presented with two issues: (1) whether the National Labor Relations Act (“NLRA”) preempted SB 954, and (2) whether SB 954 violated the First Amendment and the Fourteenth Amendment’s Equal Protection Clause by limiting industry advancement funds’ speech in the form of fundraising. The Ninth Circuit affirmed the lower court. 

The Ninth Circuit outlined the current state of prevailing wage requirements in California. Prevailing wages are either all cash wages or a combination of cash wages and benefits including: (1) health and welfare, (2) pension, (3) vacation, (4) travel, (5) subsistence, (6) apprenticeship or other training, (7) worker protection and assistance programs or committees, (8) industry advancement and administrative fees, provided they are required within the locality, and (9) other similar purposes to the above categories.  Cal. Lab. Code § 1773.1(a). In 2004, credits expanded from the first six categories to include industry advancement fees. The restrictions on industry advancement fees arose in 2016 with the passage of SB 954. The thrust of plaintiff-appellants challenge relied on Machinists v. Wisconsin Employment Rel. Comm'n, 427 U.S. 132 (1976). The Machinists doctrine bars states from interfering with the collective bargaining process and regulating non-coercive labor speech by an employer, employee, or an employee’s union. State minimum labor standards are generally saved from preemption by the NLRA. The Ninth Circuit held SB 954 was a legitimate minimum labor standard that does not regulate labor speech. The distinction hinged on the fact that a restriction on funding an employer’s speech was not an unlawful regulation of the speech itself.  

ABC-CCC argued it had a First Amendment right to receive monetary contributions from wage-credits. The Ninth Circuit rejected ABC-CCC’s theory holding that the First Amendment does not establish a right to receive funds necessary for speech. The Ninth Circuit evaluated whether SB 954 was viewpoint discriminatory toward open shop advocates. Relying on the recent Supreme Court case of Janus v. American Federation of State, County, and Municipal Employees, Council 31, et al., 138 S.Ct. 2448 (2018) (, the Ninth Circuit found SB 954 to be facially neutral and rejected ABC-CCC’s discrimination arguments. 

Finally, the Ninth Circuit rejected the equal protection claim by ABC-CCC because SB 954 did not regulate industry advancement funds and it was not an employer.  

Rebecca D. Takacs is a contributing writer to The Dispute Resolver. She practices construction litigation at Oles Morrison Rinker & Baker LLP in Oakland, California. She may be contacted at

Friday, August 3, 2018

Consequences for Exceeding the Limit…Maybe…

By: I’Ashea Myles-Dihigo
Leitner, Williams, Dooley & Napolitan

Sometimes I speed…okay, most times I speed.  Not anything dangerous, but I do keep up with the flow of traffic on the interstate.  Don’t judge.  With a daily commute into the office that is always over an hour, any bit of time savings is justified in my opinion.  

While I may be able to justify exceeding the speed limit as I travel down the interstate, the Tennessee Court of Appeals has recently clarified the effects of exceeding the monetary limits of your general contractor’s license in its holding in Pickens v.  Underwood.  In that case, timing was everything.  
General contractor, Pickens, entered into a contract to construct a house for the Underwoods. Pickens v. Underwood, No. E2017-02120-COA-R3-CV, 2018 Tenn. App. LEXIS 322, at *2-3 (Ct. App. June 12, 2018).  The parties entered into their contract on June 2, 2008. Id.   The dispute over final payment arose on May 9, 2009.  Id. at *3.  At the time the parties entered into the contract, Pickens’ limit on his contractor’s license was $350,000, yet at the time the project was complete, the final bill was over $670,000.  Id.  When the Underwoods failed to pay for the work, Pickens filed suit for breach of contract, unjust enrichment, promissory fraud and mechanics’ and materialmen’s lien. Id.  

The Underwoods counter sued for fraud, cost overruns, violations of the Tennessee Consumer Protection Act and for entering into a contract in excess of the contractor’s license limit. Id. The complaint in this matter was filed on July 21, 2009. Id. at *32.  Counsel for Pickens agreed to stipulate that he was an unlicensed contractor and thereby agreed to limit his damages to actual documented expenses.  Id. at *3.  The trial court disagreed with the stipulation and confirmed that Pickens, though over the monetary limit of his contractor’s license, was licensed for purposes of Tennessee Code Annotated §§ 62-6-101, et seq. Id. at *4.  The Underwoods appealed. 

The Court of Appeals affirmed. They reasoned that just prior to the filing of the parties’ complaint, the Legislature made a substantive change to Tennessee Code Annotated § 62-6-103 which governed the monetary limits on contractors’ licenses. Id. at *32.  The effect of the amendment expanded the limitation of actual documented expenses to any contractor required to be licensed under the statute and rules whereas before the limitation only applied to unlicensed contractors. Id.  

The Court held that the date the parties entered into the contract was controlling regarding which statute should apply in the case. Id. When Pickens entered into the contract and performed the work, he was not subject to the limitation because he was properly licensed under the old Tenn. Code. Ann. § 62-6-103.  The Court declined to apply the new code changes retroactively to the pre-existing contract.  Therefore, his recovery would not be limited to actual documented expenses as reflected in the new schematic. Id. at *33. 

While it is never a good idea to exceed the monetary limits of your contractor’s license, if you happen to find yourself in that position, you may still be able to recover the full contractual price as damages.  Based on the holding in Pickens, the Court will look to the law in effect at the time of the contract to determine whether or not your recovery is limited.

Wednesday, August 1, 2018

Federal Government Escapes Liability in Class Action Seeking Recovery of Damages Caused by Hurricane Katrina

This post comes from Mike Lane, a new contributor to the Dispute Resolver.  Mike practices construction law at Riess LeMieux, LLC in New Orleans, Louisiana.  Thanks, Mike!  Enjoy everyone.


In St. Bernard Parish Government, et al. v. United States, No. 2016-2301, 2018 WL 1882913 (Fed. Cir. April 20, 2018), the Parish of St. Bernard and property owners in the City of New Orleans filed a class action suit against the federal government under the Tucker Act, 28 U.S.C. § 1491, for an alleged taking of property following Hurricane Katrina.  The plaintiffs claimed the federal government failed to maintain or modify the Mississippi River-Gulf Outlet channel (MRGO), which led to an increased storm surge that resulted in significant damage to their property.  The Court of Federal Claims ruled in favor of the plaintiffs and awarded a total of $5.46 million.  The United States Court of Appeals for the Federal Circuit reversed, holding the plaintiffs failed to show a causal link between the operation and maintenance of the MRGO navigation channel and the damages allegedly sustained. 

The Army Corps of Engineers (Corps) built the MRGO navigation channel in 1968 to increase commerce by providing a direct connection between the port of New Orleans and the Gulf of Mexico.  In addition to operating and maintaining the navigation channel over several decades, the Corps built several flood mitigation projects adjacent to the MRGO, including a vast levee system.  The plaintiffs contended that the levees would not have been breached, or would have held out longer and caused less damage to their property, if the Corps had properly maintained or modified the MRGO channel.  After a trial in December 2011, the Court of Federal Claims found a government taking occurred under the theory of inverse condemnation.  Specifically, the court ruled that the “continued operation of, and failure to maintain and modify MRGO caused erosion, increased salinity, wetlands loss, and a funnel effect, which in turn caused increased storm surge.”  After a separate trial on damages in November 2013, the Court of Federal Claims awarded the plaintiffs $5.46 million.  The federal government appealed both judgments.

The United States Court of Appeals for the Federal Circuit reversed the trial court decision, concluding that the plaintiffs failed to demonstrate that the Corps’ operation and maintenance of the MRGO navigation channel caused their alleged damages.  In so holding, the court focused on two errors by the lower court.  First, the trial court erred in finding that the failure to maintain or modify the MRGO served as a proper basis for a takings action.  The government cannot be liable for inaction in a takings claim; it may only be liable for affirmative acts.  Although the government’s failure to act may give rise to a tort claim, it “cannot be the basis of takings liability.”

The court next turned to whether any affirmative acts of the federal government proximately caused the damages of which the plaintiffs complained.   The plaintiffs argued that the construction and operation of the MRGO should be the only activity considered, not the separate flood mitigation projects constructed by the Corps in the same time period.  The court rejected this approach and held that the government’s separate flood mitigation projects must also be taken into account in the takings analysis.  On this point, the plaintiffs “failed to present evidence comparing the flood damage that actually occurred to the flood damage that would have occurred if there had been no government action at all.”  In other words, the “causation analysis must consider the impact of the entirety of government actions that address the relevant risk [i.e., flooding].” 

The appeals court ultimately held that the separate flood mitigation projects constructed by the federal government, composed primarily of the levee system, may have placed the plaintiffs in a better position than if the government had done nothing at all.  After noting the absence of supporting evidence and expert testimony, the court reversed the trial court judgments and ruled that the plaintiffs failed to prove their property damage was greater than the damage that would have occurred had the government not built the MRGO or the levee system in the first place. 

This decision clarifies that a claimant’s burden of proving causation in a takings cause of action against the federal government may only rely on affirmative acts of the government and must take into consideration all government acts related to the pertinent risk of harm. 

Saturday, July 28, 2018

No Damages for Delay Clause? How About Damages for a Cardinal Change? Steel Erector Claims its 301 Day Delay Constitutes an Abandonment of the Subcontract and CA Fed Court Agrees.

Sauer Incorporated (Sauer) entered into a design-build contract with the U.S. Army Corps of Engineers for the design and construction of the Operational Readiness Training Complex at Fort Hunter Ligget, California.  Sauer then executed a subcontract with Agate Steel, Inc. (Agate) for the structural steel (install only) scope of work. The subcontract required that Agate provide all labor, materials, equipment, and tools required to complete the ‘Structural and Miscellaneous Steel (Erection)’ scope of work.  The subcontract also contained a ‘no damages for delay’ clause that provided Agate’s sole remedy for a delay on the project was a commensurate extension of time and Agate waived any rights to financial claims based upon delay.

The scope of work required Sauer to provide structural steel to Agate in accordance with the plans and specification through Sauer’s fabricator. Additionally, the contract specifically called for steel stairs to be delivered fully assembled and ready for final install by Agate. The subcontract also contained references to the project schedule with a defined duration of 121 days for Agate’s work.  

During the execution of the work, Agate experienced numerous delays and disruptions claiming significant revisions to the contract drawings resulted in changes to the steel fabrication and erection sequences; that Sauer’s fabricator delivered hundreds of non-conforming pieces of steel to the project which then required field modifications; the contract documents underrepresented the amount of steel clips required for the work by 4,000 pieces; and the steel stairs were delivered in pieces which the required labor intensive field fabrication.  As a result of these delays, Agate’s installation duration ultimately was 422 days, a 301-day delay.

As a result, Agate filed suit against Sauer for: 1) breach for outstanding contract balances plus unpaid change orders in the amount $649,739; 2) breach for delay and disruption in the amount of $698,253 in extended field & office overhead plus attorney’s fees; 3) unjust enrichment for the reasonable value of materials it had not been paid for; and 4) breach of good faith and fair dealings for lost revenues, profits and opportunities for the extended duration it was onsite.  Sauer moved to dismiss the second, third and fourth claims.

The Court began its analysis of Agate’s claim for delay and disruption by identifying the subcontract did include a valid 'no damages for delay' clause as allowed in federal contracting.  Agate argued that the kind of delay it experienced throughout the project was not within the contemplation of the parties when the contract was formed, and the ‘no damages for delay’ clause should not be enforceable. The Court pointed to Sauer’s inability to properly schedule trades, unwillingness to process change orders, and numerous design changes as detriments to Agate’s efficient work flow and found them as a plausible basis to seek relief for a delay and disruption claim.

The Court also addressed Agate’s argument that the ‘no damages for delay’ clause is unenforceable because through its actions, Sauer abandoned the subcontract.  Agate points to California case law that states, “[P]rivate parties may impliedly abandon a contract when they fail to follow change order procedures and when the final product differs substantially from the original." Amelco Electric v. City of Thousand Oaks, 27 Cal. 4th 228 (2002).   

In its review of whether the contract was abandoned, the Court again pointed to the facts that the subcontract stipulated Sauer would furnish complete and correct steel, but numerous field modifications were required due to design changes and incorrectly fabricated materials.  The Court further acknowledged the 4,000 steel clips installed not depicted in the contract documents, stairs pieces that arrived loose and required field assembly contrary to the subcontract, and Sauer not adhering to the contractual process for change order work.  Agate alleged that those "foregoing, cardinal changes to the Erection Subcontract and material departures from the reasonable expectations of the Parties, at the formation of the Erection Subcontract, constitute abandonment of the Erection Subcontract."

The Court found the totality of these allegations was sufficient to show the contract had been abandoned and the ‘no damages for delay’ clause was not enforceable.  The Court allowed the claims to proceed beyond the pleading state without a determination of damages.

Based upon the finding that the subcontract was abandoned, the court then found Agate’s third claim of unjust enrichment in quasi-contract could precede because no contract existed between the parties and relief could be sought in equity. 

The fourth claim of breach of good faith and fair dealings was dismissed.  

Rai Indus. Fabricators, LLC v. Fed. Ins. Co. (N.D. Cal., May 2, 2018)

The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He may be contacted at 781.786.8916 or

Saturday, July 21, 2018

Practice Tip: Clawback Agreements

As construction attorneys, we're no strangers to voluminous productions of client documents and communications, both in electronic and hardcopy formats, during discovery.  Even with proper safeguards in place during document review, there exists the possibility that some privileged material may accidentally slip over to an opposing party.  Production of such material to a third party, especially an adversary, runs the risk of waiving attorney-client privilege or attorney work product privilege.

Rule 502(b) of the Federal Rules of Evidence creates somewhat of a safety net for inadvertent disclosures, but requires compliance with a number of steps that, without a prior agreement between the parties, the compliance could be challenged.  Fed. R. Evid. 502(b) ("disclosure does not operate as a waiver in a federal or state proceeding if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26 (b)(5)(B) [concerning inadvertent production of trial preparation materials].") Note also that the term "inadvertent" is not defined.

Clawback agreements, pursuant to Federal Rule 502(d) & (e) and equivalent state rules, are aimed at avoiding waiver of privileges without having to resort to proof under Rule 502(b). See Fed. R. Evid. 502(d) ("A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court—in which event the disclosure is also not a waiver in any other federal or state proceeding."); Fed. R. Evid. 502(e) ("An agreement on the effect of disclosure in a federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.").  Likewise, scheduling orders under Rule 16 of the Federal Rules of Civil Procedure contemplate the Court approving the parties' clawback agreement in this regard ahead of time.  Fed. R. 16(b)(3)(iv) ("The scheduling order may . . . include any agreements the parties reach for asserting claims of privilege or of protection as trial-preparation material after information is produced, including agreements reached under Federal Rule of Evidence 502"). 

Here's the concern with clawback agreements - in the event of a dispute between parties, a court, depending on the circuit or state, may not be willing to enforce a generally stated agreement unless it explicitly speaks to the Rule 502(b) standard.  For example, in IRTH Solutions, LLC v. Windstream Communications, LLC, No2018 WL 575911 (S.D. Ohio Jan. 26, 2018), the district court confirmed the magistrate judge's decision that, per Federal Rule of Evidence 502(b), the defendant had waived its attorney-client privilege by twice producing 43 privileged documents to plaintiff’s counsel notwithstanding that the parties had a clawback agreement.  Though the defendant's counsel did not dispute that the production of the 43 documents was "reckless," the defendant's counsel argued that the clawback agreement should trump the requirements of 502(b), which avoids waiver only upon an "inadvertent" disclosure.  The district court disagreed instead focusing on whether the parties' agreement even spoke to dispensing with Fed. R. Evid. 502(b)(2) requirement to "take reasonable steps to prevent disclosure."  The Court noted that "the clawback agreement [in IRTH] lacked any language to support a finding that the parties came to an understanding that there would be no pre-production review [and] [m]oreover, the email memorializing the parties' clawback agreement also contained a provision requiring the parties to provide privilege logs  . . . [indicating to the Court] that the parties did in fact contemplate meaningful pre-production privilege review."  Accordingly, the Court concluded that the defense had waived the privilege by producing the documents notwithstanding the clawback agreement. 

The IRTH case recently was granted an interlocutory appeal to the Sixth Circuit to answer the question "what is the legal standard for determining whether a clawback agreement displaces the test under Rule 502(b) for evaluating if an inadvertent disclosure of privileged documents constitutes waiver of the attorney-client privilege? Defendant argued that a clawback agreement, no matter how cursory, always prevails, such that an inadvertent disclosure does not waive the privilege."
Therefore additional guidance in this circuit is forthcoming.  However, regardless of the circuit or state, drafting clawback agreements so each  Rule 502(b) element is identified and addressed is a good rule of thumb to avoid the possible waiver of privileges.

Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island. 

Bienvenue a Montreal!

Forum's Fall Meeting Oct. 4-5, 2018
Mark your calendar, make your reservations, and check those passports - The ABA Forum on Construction Law’s Fall Meeting is traveling to the historic city of Montreal, Canada on October 4-5, 2018. With direct flights from many U.S. cities, Montreal is easy to get to, and offers a wonderful cosmopolitan venue in the largest French-speaking city in North America.

To Register:

Program Overview
Our program, It’s Lonely At the Top: Building a Successful Team with the Owner, takes a 360° view of a project and focuses on best practices for building a successful project team and how to address the inevitable challenges that arise. Topics include:
  • project delivery: who’s using what, and the implications for your project
  • public private partnerships (PPP)
  • effectively assessing risk and negotiating contract and subcontract clauses
  • construction financing and insurance/bonding
  • tips and best practices in proactively addressing delays and disputes as the owner
  • effective dispute resolution tactics and technical considerations when facing the owner
  • grappling with corruption in procurement and construction ethics and evolving practices
We are also honored to host a special plenary featuring a conversation with The Right Honourable Beverley McLachlin, who was the 17th Chief Justice of the Supreme Court of Canada, the first woman to hold this position, the longest serving Chief Justice in Canadian history and a co-author of The Canadian Law of Architecture and Engineering.

Beyond the Program
But there is MORE! Stay right in the heart of the city at the LeCentre Sheraton Montreal Hotel, steps from historic sites, the Underground City, charming Old Town, and the nearby vistas of Mount Royal.  Take advantage of the favorable exchange rate for great shopping on nearby Saint Catherine Street.  Join your colleagues at the celebrated Windsor Station for a Welcome Reception soirĂ©e!

Monday, July 9, 2018

Subcontract Provision Requiring Subcontractor to Pass Through its Claims Does Not Prevent the Subcontractor From Suing to Recover Against Miller Act Bond

Pinnacle Crushing & Constr. LLC v. Hartford Fire Ins. Co., 2018 U.S. Dist. LEXIS 67965 (W.D. Wa. Apr. 23, 2018)

The Army Corps of Engineers (the “Corps”), as owner, and Cherokee General Corporation (“CGC”), as prime contractor, entered into a contract (the “Contract”) in connection with work at the Yakima Training Center (the “Project”). CGC subcontracted with SCI Infrastructure (“SCI”) for certain work related to the Project (the “SCI Subcontract”), and SCI subcontracted with Pinnacle Crushing & Construction, LLC (“Pinnacle”) (the “Pinnacle Subcontract”). CGC obtained a Miller Act payment bond (the “Bond”) from Hartford Insurance Co. (the “Surety”) to provide coverage for labor and materials supplied in carrying out the work.

After the Corps terminated the Contract with CGC, CGC submitted a claim under the Contracts Disputes Act. As required by the SCI Subcontract, CGC asserted SCI’s pass through claims against the Corps, which included amounts allegedly owed to both SCI and Pinnacle.

Separately, SCI and Pinnacle sued CGC and the Surety to recover under the Bond for the work they performed under the subcontracts, but for which CGC had not paid them.

CGC and the Surety moved to dismiss or stay the claims arguing that the Surety was not liable to SCI and Pinnacle under the Bond because their damages were the responsibility of the Corps and were being resolved through the Contract Disputes Act process, and the claims were not ripe because that process was still pending. SCI and Pinnacle opposed, arguing that any contract provisions requiring them to wait before pursuing their Miller Act claims were invalid under the Act, and that a stay would be prejudicial because the claims process will take years to resolve.

The Court held SCI and Pinnacle’s Miller Act claims were ripe because they had alleged a specific injury in fact (i.e., they were owed money for completed work on the Project) and had satisfied the condition precedent to bringing a Miller Act claim (i.e., they had still not been paid 90 days after completing their work).

The Court rejected CGC and the Surety’s argument that SCI and Pinnacle were precluded from bringing a Miller Act claim because, under the subcontracts, they agreed that their claims would be resolved by the dispute resolution process set forth in the Contract (i.e., as pass through claims in CGC’s claim against the Corps). Courts construe the Miller Act liberally to protect subcontractors, and any waiver of Miller Act rights must be clear and explicit, in writing, signed by the person whose right is waived, and executed after that person has furnished labor or material used in performing the contract. The SCI Subcontract did not clearly waive SCI’s Miller Act rights because it did not contain any explicit statement that SCI was waiving those rights. Even though, in the Pinnacle Subcontract, Pinnacle agreed not to pursue any independent litigation, including under the Miller Act, Pinnacle did not waive its Miller Act rights because it had not yet furnished labor or material to the Project at the time it signed that Subcontract.

The Court also declined to order a stay pending resolution of the pass through claims against the Corps because neither Pinnacle nor SCI waived their Miller Act rights under their respective subcontracts. A provision in the Pinnacle Subcontract requiring a stay of Miller Act claims pending the resolution of pass through claims did not warrant a stay because the provision was an impermissible waiver of Pinnacle’s right to sue under the Miller Act, not an agreement as to the timing of bringing a Miller Act claim. The Court reasoned that if Pinnacle were to be delayed until the final determination of the administrative action, it might lose its ability to return to court to enforce its Miller Act rights.

Article originally posted July 5, 2018 on Constructlaw by Emily D. Anderson, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.

Friday, June 29, 2018

One Out of Eight Ain’t Bad: NH Court Rules First Reservation of Rights on Final Release for Project Long Claims is Enough to Sustain Lien Rights

Design/builder IPS-Integrated Project Services (IPS) entered into a subcontract with Fraser Engineering (Fraser) for work on a new pharmaceutical manufacturing facility in Portsmouth, NH.  Fraser signed the contract in February of 2016 for the mechanical and plumbing scopes of work in the amount of $5,312,100.00.  During the course of contract negotiations starting in the fall of 2015, IPS and the owner made Fraser aware that it may be required to accelerate its work on the project for certain schedule considerations.  In December of 2015 IPS directed Fraser to institute an overtime program for the project which ended up lasting for months.  During this time, IPS and Fraser were in communication about the costs and labor inefficiencies associated with such a prolonged overtime schedule. Ultimately Fraser worked an additional 59,845 manhours on the project.

Fraser’s subcontract contained two provisions related to additional work it might experience during the execution of the project.  The first required Fraser to report any unforeseen conditions resulting in a change and any failure to provide IPS notice would result in the waiver of claims for time or money.  The second provision required Fraser to submit conditional lien waivers with each monthly requisition of which Fraser submitted eight throughout the project. The first of the seven waivers Fraser submitted contained no reservation of rights related to the additional manhours for the IPS-directed acceleration, the eighth and final did. 

At some point Fraser submitted a claim for over $4 million of which $3,324,083.30 was related to labor inefficiencies due to the owner and IPS directed acceleration. Fraser further contended it was owed $1,554,867.29 in retainage and unpaid contract balances.  On January 26, 2017, Fraser filed a motion for and was granted an ex parte attachment to perfect a mechanic’s lien in Rockingham County Superior Court.  After objecting to the attachment in state court, the defendant removed the matter to federal court.

IPS argued that Fraser waived its lien rights by executing waivers throughout the project before finally reserving its rights for the acceleration claim on its final requisition. The Court rejected IPS’s lien waiver argument by pointing out in the record IPS had actual knowledge when the seven lien waivers were submitted that Fraser would seek additional costs related to the directed acceleration.  The Court identified Fraser’s numerous communications with IPS between December 2015 and August 2016 that it was experiencing labor inefficiencies due to the directed acceleration.  

The Court also discussed due to the “remedial nature” of the mechanic’s lien statute, it could not state with certainty the N.H. Supreme Court would “ignore the defendant’s awareness of the labor inefficiencies and strictly enforce the lien waivers.” 

Finally, the Court found that IPS made no attempt to separate costs for the additional work Fraser experienced between the seventh lien waiver in May 2016 and the eighth and final lien waiver in August 2016. Since IPS does not dispute the work was actually completed, it is impossible for the Court to reduce the lien amounts for work prior to May 2016.

Ultimately the Court found the lien enforceable in the amount of $4,917,122.20.

The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He may be contacted at 781.786.8916 or