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Archive for the ‘Construction & Design Professional’ Category

Amendments To Pennsylvania’s CASPA Will Change The Landscape Of Payment Disputes

Posted on: August 3rd, 2018

By: Jonathan Romvary

Anyone who has ever done any amount of work as a contractor or who has represented them in collections cases has learned from hard experience that it can be all but impossible to get paid for one’s work. In Pennsylvania, there is the Contractor and Subcontractor Act (CASPA) was introduced in 1994 as a complement to the Pennsylvania Mechanic’s Lien Law and was intended to provide contractors (and subcontractors) with additional remedies against those owners/contractors withholding payment for their services. However, the landscape of these payment disputes is likely to significantly change as a result of recent legislation.

Last year, a Pennsylvania state representative introduced a bill, which sought to substantially amend the act and for the first time since 1994, provide further protections for contractors against those withholding funds for the work. That bill has languished in the House Commerce Committee since last year. Nonetheless, a similar bill amending CASPA was referred to the state senate and in June 2018, Governor Tom Wolf signed the bill into law as Act 27. Amongst the numerous amendments to CASPA, Act 27 now provides:

  • If an owner fails to adhere to the terms or withholds payment, contractors and subcontractors may stop performance of the work (subject to contractual limits);
  • There is no permissible waiver of any provision of CASPA;
  • Failure to provide the contractor with a 14 day written notice of a deficiency results in a waiver of the right to withhold payment for the deficiency and requires full payment of the invoice;
  • If a party alleges an invoice contains an error, that party must pay the correct amount on the date payment would otherwise be due otherwise it will be an improper withholding; and,
  • Withholding retention for longer than 30 days after final acceptance of the work generally qualifies as improper withholding.

These new changes are scheduled to take effect on October 10.

Without question, these changes increase the negotiation power of contractors and subcontractors, however, more importantly, the changes reinforce the need for owners and contractors to maintain clear payment records as only clear payment records will provide owners and contractors a sufficient defense in any payment dispute. Owners, contractors and subcontractors involved in payment disputes need to be aware of their respective obligations and rights.

Anyone in the construction industry that has questions about these amendments and how they may affect their business or current projects, please contact Jonathan Romvary at [email protected].

Cyberrisks to Contractors and Securing Proper Coverage

Posted on: June 29th, 2018

By: Barry Brownstein

Increasingly sophisticated hackers have targeted personal and business data held by companies like Target Corp., Sony Corp., Equifax Inc. and Yahoo Inc. during the past decade. The construction industry is just as susceptible to these risks as any other industry.  As construction projects increase in size and there is more sharing of data related to buildings and projects, and as more of that sharing becomes electronic, cyberrisks increase as well.

Contractors and their business partners hold personal information about their clients and employees, and they are increasingly using more electronic means to exchange data and survey construction projects. A significant threat for companies in the construction industry comes from the open and increasingly connected network between those in charge of a project and their various subcontractors and business partners, who need swift and seamless access to plans and other sensitive data to do their part of the work.

Many companies in the construction industry assume that since they have policies that cover losses stemming from physical and property damage, any infiltration into their systems that result in the loss of access to sensitive information is covered by such insurance.  However, most commercial general liability policies carve out cyberthreats from coverage.  While contractors can still make claims under more traditional policies and may find that some of their losses are covered, relying solely on these protections may be dangerous and result in uncovered losses.

Specialized cyberinsurance can fill in the gaps left by commercial general liability policies that do not account for losses caused by damage to virtual information systems, and ensure that any damages, injuries or delay caused by downstream contractors or business partners are covered as well. Once policies are in place, contractors need to revisit them regularly to account for changes in the cyberthreat landscape as they relate to the construction industry.

If you have any questions or would like more information, please contact Barry Brownstein at [email protected].

Little Miller, Big Implications

Posted on: June 20th, 2018

By: Samantha Skolnick

In Georgia, when an individual performs work on a state construction project, they can file a lien for non-payment.  The lien is against the project through Georgia’s Little Miller Act. The claim itself is not against the state or county’s actual property. The claim is against a posted bond, and is a “Bond Claim” or “Little Miller Act Claim.”

In a recent decision by the Eleventh Circuit, the Court affirmed summary judgment for the surety based on Georgia’s one-year statute of limitations for little miller act claims. Strickland v. Arch Ins. Co., No. 17-106102018 WL 327443 (11th Cir. Jan. 9, 2018) (rehearing denied Apr. 4, 2018).

Strickland was tasked with providing sand to a paving company (“Douglas”) for the Georgia Department of Transportation (“GDOT”) as they worked on a road improvement project (the “Project”).  Arch Insurance Company (“Arch”) was the surety who issued payment and performance bonds for Douglas.  In 2007, GDOT declared Douglas in default and they were removed from the Project.  The surety brought in another company to complete the work on the Project. Strickland did not supply any sand after Douglas was removed from the Project.

GDOT determined that the Project was substantially complete in August of 2010 and in September 2010 made its punch list. The new contractor brought on by the surety finished the punch list in September 2011.  In March 2012, GDOT accepted Project maintenance responsibilities and made semi-final payment to Arch in July 2012.

In September 2012, Strickland directed a demand for payment on Arch’s payment bond.  Arch acknowledged the claim but requested additional documentation, which was not provided by Strickland.  In 2014, Strickland filed a lawsuit against Arch. The trial court concluded that there was no dispute that the project was completed and accepted in September 2011.  With that ruling, Georgia’s one-year statute of limitations on payment bond claims barred Strickland’s action and consequently Strickland appealed.

The Appellate Court rejected Strickland’s arguments, holding that “completion” and “acceptance” used in the statute relate to the actual work on the project and are not dependent on the ending of future contractual duties or on the public owner’s internal policies and procedures.

The main takeaway: under Georgia law, the date a public owner states that the project is “completed” or “accepted” does not dictate whether the statute of limitation is running.  Georgia’s one-year statute of limitations under Georgia’s Little Miller Act begins when the actual work is substantially completed. Punch list items do not need to be finished.

If you have any questions, please contact Samantha Skolnick at [email protected].

 

Pay-When-Paid Clauses: A Cautionary Tale

Posted on: March 28th, 2018

By: Jake Carroll

With the recent surge of construction projects in Georgia, the memories of owner and developer bankruptcies following the 2008 financial crisis may have grown dim. Nevertheless, material suppliers and subcontractors must remember that when the pace slows down, their contracts could leave them without remedy or recourse to seek payment.

One of the most common issues in construction disputes is whether a general contractor is obligated to pay its subcontractor before the general contractor has received payment from the owner for the work. Most construction subcontracts address this problem and attempt to make the owner’s payment to the general contractor a condition precedent to the general contractor’s obligation to pay the subcontractor. Typically, these clauses are known as “pay when paid” clauses because they condition the general contractor’s obligation to pay the subcontractor upon receipt of payment by the owner.

Georgia appears to adhere to the rule that if the contract makes payments from the owner a condition precedent to the general contractor’s obligation to pay, then the general contractor’s obligation never arises if the owner becomes insolvent and never makes a payment. See Vratsinas Constr. Co. v. Triad Drywall, LLC, 739 S.E.2d 493 (Ga. Ct. App. 2013). Thus, if an owner fails to pay a general contractor due to the owner’s bankruptcy, the subcontractor also remains unpaid. What’s more, the provisions of the automatic stay in Bankruptcy cases may prevent the subcontractor from claiming or enforcing its rights under Georgia’s mechanic lien statutes—depending on the specific circumstances of the Project. See 11 U.S.C. 362. When combined, these circumstances leave the unpaid subcontractor with limited legal remedies and could lead the subcontractor to consider its own option for relief under the Bankruptcy code.

In order to avoid these potential payment issues, all parties in the construction process should carefully review their contracts for “pay when paid” clauses during the contract negotiation and drafting phase of the Project. And despite subcontractors’ limited bargaining power in modifying the terms of its subcontract, full awareness of the contract terms should allow the subcontractor to mitigate risk on its Projects. For advice on specific language or for questions regarding general construction contract terms and conditions, contact Jake Carroll at [email protected] or any member of the FMG Construction Practice Group.

 

Cumis Counsel Limited: Insurer-Appointed Counsel Requires Actual Conflict of Interest

Posted on: February 9th, 2018

By: David G. Molinari

The California Third District Court of Appeals has ruled that the right to Cumis counsel, independent counsel paid by the insurer (San Diego Federal Credit Union v. Cumis Insurance Soc’y, 162 Cal. App. 3d 358 (1984)) requires an actual as opposed to a potential conflict.  In Centex Homes v. Saint Paul Fire & Marine Insurance Company, (Case C081266, January 22, 2018) the Court of Appeals concluded that Cumis counsel is not required absent a reasonable likelihood of an actual conflict when an additional insured carrier accepts a tender of a developer/general contractor’s defense subject to a reservation of rights and appoints defense counsel.

In Centex Homes the homeowners sued developer for construction defects.  Developer tendered the defense to the insurer of a subcontractor involved in the project as an additional insured.  The insurer provided an attorney to defend the developer under a reservation of rights against any claims not covered by the subcontractor’s policy.  Developer hired their own attorney who filed a cross-complaint against the subcontractors, including the subcontractor under whose policy the developer was being defended.  The developer argued that the case presented a “potential” conflict of interest that required the appointment of independent counsel under Cumis.

The Third District Court of Appeals ruled otherwise.  The court concluded to the extent Cumis suggests a potential conflict arises wherever the insurer reserved its right to deny coverage being sufficient to require the appointment of independent counsel, the plain language of California Civil Code Section 2860 limits the Cumis right.  Under Civil Code Section 2860 the conflict must be actual, not merely potential.  The insurer-appointed counsel in Centex Homes was in no position to control the outcome in the case which focused on causation.  On the issue of causation, the insurer and the developer had the same interests defending the underlying claim.

Further, the developer argued independent counsel was required because the insurer-appointed counsel had a conflict of interest under Rule 3-310 of the Rules of Professional Conduct: “Avoiding Representation of Adverse Interests.”  Again, the Court of Appeals determined otherwise.  The court concluded that while generally conceptualized, defense counsel represents the interests of both the insurer and the insured, they are not necessarily both clients in the matter as contemplated under the Rules of Professional Conduct for conflicts of interest.  As the Court of Appeal viewed Rule 3-310 (C), the rule was not intended to apply to the relationship between an insurer and a member of the bar when the insurer’s interest is as an indemnity provider and not a direct party to the action.  In Centex the court concluded there was no actual conflict of interest presented in the case.

Centex Homes may signal the limitation and narrowing of the right to independent counsel in construction litigation.

If you have any questions or would like more information, please contact David Molinari at [email protected].