Subcontractor Charged For Having Its Own Lien Bonded Off

Based on subcontract language, a Minnesota appeals court has held that the prime contractor could charge its lien bond premium against the sub who filed the lien. Arising from a power generation station project, the prime and a sub pursued breach of contract claims against each other. The sub also filed a lien, which was bonded off by the prime. The underlying case was decided largely in favor of the prime, including the cost of the lien bond. The sub appealed that issue, among others.

Subcontract language included the following: “Should there be any … lien asserted before or after final payment is made that arises from [the sub’s] Services, [the sub] shall reimburse [the prime] for any costs and expenses, including attorneys’ fees, costs and expenses, incurred by [the prime] in satisfying, discharging or defending against any such … lien … provided [the prime] is making payments or has made payments to [the sub] in accordance with the terms of this Agreement.” In conjunction with its decision that the prime owed no more money to the sub, the court also found that payments had been made per the subcontract. Thus, the sub owed the prime for the cost to bond off the sub’s own lien. This decision might not hold up under the laws of many other states, but the Minnesota court enforced the subcontract terms on this point. The case is Corval Constructors, Inc. v. FPD Power Development, LLC, 2015 Minn. App. Unpub. LEXIS 259 (Mar. 23, 2015).

Interplay of General Liability and Pollution Liability Coverage

An explosion caused by release of natural gas from a damaged pipe caused personal injury and property damage. Resulting lawsuits against the contractor whose crew damaged the pipe were defended by the contractor’s general liability (GL) carrier, which sought contribution for both defense and indemnity from the contractor’s pollution liability (PL) carrier. The PL carrier agreed to pay half of the defense, but claimed there was no coverage and thus no obligation to share in the indemnity costs. The trial court ruled against the PL carrier, but the intermediate appeals court reversed. On further appeal the Wisconsin Supreme Court held that an explosion caused by release of natural gas came within the bounds of the PL policy, and the PL carrier is liable for its share of the indemnity.

Two points of dispute were (a) whether escape of natural gas was a pollution condition, and (b) if so, whether the personal injury and property damage were “caused” by that pollution condition. The first point focused on whether escaping gas was an “irritant” or “contaminant.” The Wisconsin high court, using a dictionary definition, found that escaping natural gas is a contaminant, as it “renders the surrounding ground and air space impure or unclean because natural gas is extremely flammable and explosive.” The gas also occurred in concentrations above those “naturally found in the environment” (a term within the PL definition) at the point of escape from the damaged pipe.

Continue reading Interplay of General Liability and Pollution Liability Coverage

Arbitration Award Stands Despite Apparent Error of Law

A federal appellate court has reminded the business community that a mistake of law by an arbitration panel will not ordinarily be grounds to overturn the award. The arbitration concerned a terminated financial services consultant, who filed for arbitration almost two years after the termination. Initial claims were arguably based on the wrong state’s laws, and proposed amendments to conform the pleadings with applicable (Florida) law were denied.  Yet the arbitration panel appeared to apply the correct state law, just in a manner that the respondent thought was contrary to state law – specifically a one-year statute of limitations and a civil rights act that would apply to an employee but not an independent contractor. The district court had vacated the award on the grounds that the arbitrators exceeded their powers.

The federal Court of Appeal directed reinstatement and confirmation of the arbitration award. Its decision notes a “high hurdle for finding reversible error by the arbitrators.” It also discusses the standard of “manifest disregard of the law” sometimes invoked in an effort to vacate an arbitration award, but did not apply that standard here (and noted as an aside that standard would not have changed the outcome).

Continue reading Arbitration Award Stands Despite Apparent Error of Law

Prevailing Wage Violation Invites Unsuccessful Bidder’s Tort Claim

Failing to pay prevailing wages on a public works project can have consequences beyond labor code penalties and claims for unpaid wages.  Contractors who “unlawfully deflate their labor costs” by intentionally violating prevailing wage laws in order to win contracts are also subject to tort claims by the second lowest bidder for interference with prospective economic advantage.  Traditionally, the disappointed second bidder’s only recourse has been to challenge the bid process or the bid itself for irregularities via a bid protest.  But under the tort theory of interference, the runner-up can seek tort damages from the winning bidder if it can establish that the winning bid was the result of the contractor’s manipulation of the bidding process.

The recent case of Roy Allan Slurry Seal, et al. v American Asphalt South, Inc. (2/20/2015) 2015 Cal App Lexis 164, illustrates this point.  In Roy Allan, two slurry seal contractors brought five separate actions against a third contractor after finishing second on 23 public works road sealing projects involving almost $15 million in contract work in five counties in Southern California.  Plaintiffs filed complaints in each county, alleging that they would have been awarded the contract as the lowest bidder in each instance had the defendant’s bids included labor costs based on paying the prevailing wage.  They asserted a tort cause of action for intentional interference with prospective economic advantage, as well as claims for defendant’s alleged violations of California’s Unfair Practices Act (“”UPA”) and Unfair Competition Law (“UCL”).

Continue reading Prevailing Wage Violation Invites Unsuccessful Bidder’s Tort Claim

No Equitable Adjustment for Contractor with Penny Bid

Believing actual quantities of rock removal would be far less than the engineer’s estimate, the contractor bid a penny per cubic yard of rock removal on a water main extension project. Of course, other bid items could then be inflated and yet the contractor would – and did – remain the low overall bidder. But the estimated 1,000 cy of rock turned out to be an actual amount of 2,524 cy. The contractor sought an “equitable adjustment” in the unit price, from $.01/cy to $220/cy. (Expressed in percentages, that’s a 2,199,900% increase!) The contractor later reduced the request to a mere $190/cy, but the town denied any adjustment. The lower court agreed.

The Massachusetts Appeals Court was polite, taking eight pages to reach what most would consider a foregone conclusion. It held that the statutory differing site condition clause “is designed to protect contractors from unknown and unforeseen subsurface conditions, not from the consequences of their decisions to bid a unit price for the performance of the work that is wholly unrelated to their anticipated cost to perform the work. In such circumstances it defies logic to invoke ‘equity’ as a basis for adjustment to the contract price.” So the contractor would receive $25.24 for the rock removal, as it had bid. A just and equitable outcome. The case is Celco Construction Corp. v. Town of Avon, Mass. App. Ct. No. 13-P-1880 (Mar. 2, 2015).

Contract Disputes Act Deadline for Contracting Officer Decision – Can’t Keep Extending

The government when faced with a complex contractor claim may extend the deadline for the Contracting Officer’s response to a date beyond the original CDA 60-day period. What happens when the CO seeks to extend the deadline a second time? The Court of Federal Claims confirmed that the CO does not get a second bite at the time extension apple.

Under the CDA, if no response is provided within 60 days the claim is deemed denied.  But the CO may within the original 60-day period designate a later date by which the response will be provided, and there is no “deemed denial” after the original date in that situation. On a La Jolla lab project, the contractor’s $26.8 million claim was received by the CO on August 23, 2013. On October 21, 2013, the CO notified the contractor that the response would be issued “9 months from the date of this letter.” When the contractor objected to  the length of the delay, the CO provided a timeline to justify issuing a decision by July 15, 2014. But then, on July 8, 2014, the CO issued another letter stating that the final decision would be issued by March 15, 2015 – another eight months! The contractor filed suit, and the government moved to dismiss on the grounds that there had been neither a final or deemed decision by the CO, and thus a predicate for the CDA lawsuit had not been met.

Continue reading Contract Disputes Act Deadline for Contracting Officer Decision – Can’t Keep Extending

Attacks on Prevailing Wage Laws – Where’s the Tipping Point?

News reports this week cover legislative action in four different states to reduce the scope of prevailing wage laws on public projects. Whatever your opinion on prevailing wage laws – love them, hate them, or somewhere in the middle – the effort to reduce the reach of those laws appears to be gaining momentum.

The Las Vegas Review-Journal reported on Nevada Senate passage of a bill to exempt school and university construction projects from prevailing wage laws. In Kentucky, the River City News ran an article on a Senate bill to exempt public schools from the prevailing wage law. The Charleston Daily Mail (West Virginia) ran an opinion piece, citing pending legislation in WV and supporting a modification of that state’s prevailing wage law. And in Indiana, as reported by ENR, the House Labor Committee has voted to repeal the state prevailing wage law and eliminate the boards that establish prevailing wage amounts.

Legislation in four states is not a tidal wave. But laws passed in a few states to reduce the breadth or impact of prevailing wage laws will likely result in more efforts to do the same in a greater number of states. Gradual reduction in the scope of prevailing wage laws is much more likely than outright repeal.

Statute of Repose Not Tolled by Builder’s Occupancy of House

Is the New Hampshire eight-year statute of repose tolled (extended) when the original builder occupies a house for four years? The NH Supreme Court has said no. Drouin Builders built the house in 2001 and conveyed it to sole shareholder Michael Drouin. He lived there and later sold the house in 2005. The new homeowners noticed problems in 2008 but did not file suit until 2011. The homeowner’s lawsuit claimed defective work in the original construction. Faced with a motion for summary judgment, they argued that the statute of repose was tolled during the period of time Drouin occupied the house.

The NH law provides that an action to recover damages arising from the original construction must be brought within eight years after substantial completion. There is other language in the statute which provides that claims arising from negligence in the “repair, maintenance or upkeep” are not subject to the statute of repose. But the successor homeowners claimed that the problems arose from the original construction and not from any repair, maintenance or upkeep. The NH high noted: “We agree with the majority of courts addressing the issue that, when a builder-owner is sued for his construction-related activities, the statute of repose applies. To interpret the statute of repose otherwise would be contrary to the legislature’s intent in enacting it – which was to protect the building industry. “ Thus, there was no tolling in this situation, and the homeowners were simply too late to file suit. The case is Ingram v. Drouin, 2015 N.H. LEXIS 11 (Feb. 15, 2015).

Mechanic’s Lien Amount Shall Not Include Attorneys’ Fees

The Utah Supreme Court has held that a mechanic’s lien does not include attorneys’ fees incurred by a contractor even when the lien statute allows recovery of reasonable legal fees. The court distinguished between the right to recover attorneys’ fees, and the amounts that could be considered in asserting the lien claim. The lien would be limited to the “value of service rendered, labor performed, or materials or equipment furnished”  – the language in the Utah statute.

The subcontractor, 2 Ton Plumbing, filed its initial lien claim for $7,470. Based on the right to recover attorneys’ fees, 2 Ton amended its lien claim twice, with the second amended notice for $38,714. Along the way the defendant successor owners stipulated to the original unpaid amount of $7,470 (owed by the original contractor), but argued that the lien was not supposed to cover legal fees. They also argued that attorneys’ fees of $44,857 awarded by the trial court were excessive in relation to the original amount sought. Amen to that.

Continue reading Mechanic’s Lien Amount Shall Not Include Attorneys’ Fees

President Orders Federally Funded Construction Projects To Plan For Flood Risks From Climate Change

On January 30, 2015, President Barack Obama signed an executive order requiring all federally funded construction projects to take into account flood risks linked to climate change.  Federal agencies will now be required to account for the impact of possible flooding from rising sea levels resulting from global warming by meeting one of following three requirements:

  • Use the best-available climate science.
  • Build two feet above the 100-year (1 percent annual chance) flood elevation for standard projects and three feet above for critical buildings like hospitals and evacuation centers.
  • Build to the 500-year (0.2 percent annual chance) flood elevation.

The objective of the new policy is to build federal buildings and highways at safe distances away from flood areas that are expected to deteriorate as a result of climate change. “By requiring that Federally funded buildings, roads and other infrastructure are constructed to better withstand the impacts of flooding, the President’s action will support the thousands of communities that have strengthened their local floodplain management codes and standards, and will help ensure Federal projects last as long as intended,” the White House Council on Environmental Quality said in a fact sheet.

Rachel Cleetus, the lead economist and climate policy manager with the Climate and Energy Program at the Union of Concerned Scientists, called the President’s action common sense. Below is Ms. Cleetus’ statement.

“This should be one of the least controversial executive orders the president has ever released. Why would the federal government build or repair buildings in ways that continue to put communities at risk? And why would we waste taxpayer dollars rebuilding in ways that are likely to result in repeated future flooding damages? This executive order is simply common sense. In fact, many communities across the country already recognize this and have issued building design guidelines that call for two feet of freeboard above the 100-year base flood elevation.

“This standard hasn’t been substantially changed in 37 years. Meanwhile, flood losses have increased and will continue to get worse with climate change, which is increasing flooding risks by contributing to higher seas and more severe storm surge along our coasts, and also heavier rains in some parts of the country. At the same time, more development in coastal areas is putting more people and property at risk.

“We’re also now seeing flooding on sunny days. Flooding during high tides—something that rarely occurred in the past—is now common in some places on the East and Gulf coasts of the U.S. Tidal flooding is expected grow to the point that sections of coastal cities will flood so often they’ll become unusable in the near future, according to a study the Union of Concerned Scientists released in October. Most of the 52 coastal towns we looked at could see a tripling in annual tidal floods in 15 years and a tenfold increase in 30 years.

“It’s bad policy to rebuild in ways that perpetuate our risk of flooding and to sink taxpayer dollars into risky rebuilding efforts. Federal funds should instead be spent on making coastal communities more resilient to sea level rise and coastal flooding.”

To read the Executive Order, click here.

To read the Federal Flood Risk Management Standard, click here.

To read the White House Council on Environmental Quality fact sheet, click here.