Photo of Daniel E. Fierstein

Daniel E. Fierstein is Co-Editor of Construction Law Now and an Associate in the Firm's Construction Group. He focuses his practice on construction law and counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals. Dan represents these clients at all phases of construction from contract negotiation through project closeout.

Dan can be reached at dfierstein@cohenseglias.com or 215.564.1700.

By now, you have probably heard enough from us about the new changes to the Pennsylvania Mechanics’ Lien Law. If a newsletter article and several blog posts were not enough, here is one more reminder that the long-anticipated Pennsylvania State Construction Notices Directory is up and running. Already, owners have been active in registering searchable projects. Continue Reading It’s Official: PA Construction Notices Directory Is Up and Running

The new — and much anticipated — Pennsylvania State Construction Notices Directory (“Directory”) is expected to go live this December 31. With this rollout, the PA legislature will have established a statewide directory system for owners to list projects and create a new lien notice requirement for projects in excess of $1.5 million. The Directory for the Pennsylvania Mechanics’ Lien Law, which was signed into law in October 2014, provides the following important changes:  Continue Reading PA Construction Notices Directory Goes Live December 31, 2016

Arbitration has become a very common and effective way to resolve construction disputes in lieu of traditional litigation, and it is easy to understand why:

  • The parties can select arbitrators with construction expertise who speak their language and are more likely to understand complex construction issues than a general court of law.
  • Arbitrations are characteristically speedier from inception to award.
  • Discovery (the parties’ exchange of information and taking of depositions) is often more truncated and can, therefore, be less costly.
  • Arbitrator awards are typically binding and not normally subject to an appeals process that tends to add more time and cost to the outcome.

We would be remiss, however, if we did not mention that arbitration is not for everyone.  Parties are often required to pay filing and other administrative fees that are considerably more expensive than the cost of court filings, and they must also pay the arbitrators, who typically bill by the hour (feel free to insert your own generic lawyer joke here).  In the construction context, we find that owners, developers, and public entities often will elect litigation over arbitration.

The finality of the award cannot be overstated.  This article about a recent federal court decision – in which a party discovered after the award that one of the arbitrators failed to disclose a number of serious charges that included the unauthorized practice of law – drives the point home.  Under the Federal Arbitration Act, courts may only vacate an arbitration award under very limited and extreme circumstances:

  • the award was obtained by corruption, fraud, or undue means;
  • there was evident partiality or corruption in any of the arbitrators;
  • the arbitrators were guilty of misconduct for refusing to hear evidence relevant and material to the dispute; or
  • the arbitrators exceeded or imperfectly executed their powers.

In other words, a court will not disrupt an arbitration award simply because the arbitrators may have “gotten it wrong.”

It can be strange and counterintuitive to think about how a dispute should be resolved when signing a contract.  Most parties to a construction contract are, understandably, thinking about the excitement of starting a new project, how to build the project cooperatively and safely, and how to manage it in a way that will be profitable to the companies involved.  It is nonetheless important to think about dispute resolution while negotiating your construction contract.  This is so because the decision to arbitrate or litigate is often one that is made within the contract document itself rather than by the election of the parties after the dispute has arisen.  If a dispute develops, the language of the contract will have important implications for how your dispute is decided, who will decide it, and how much time and money it will cost to resolve.

Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men. Tony also serves as an arbitrator on the Roster of Neutrals for the American Arbitration Association.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Last week, the Supreme Court of Pennsylvania  issued a decision which has important consequences for all members of the construction industry involved with public works projects. In Clipper Pipe & Service, Inc. v. The Ohio Casualty Insurance Co., the Court held that the Contractor and Subcontractor Payment Act (CASPA), which is a statute that addresses when payments are to be made on construction projects and provides remedies for noncompliance, does not apply to public works construction projects. The Court’s decision means that, when working on public projects, the contractor-friendly remedies under CAPSA are not available to contractors and subcontractors, who must now rely exclusively on the less favorable and less certain relief under Pennsylvania’s Prompt Payment Act (PPA).

Court, vintage scales and dollar sign.

Prior to the Court’s decision, it was unclear whether CASPA applied to nonpayment claims on public works construction projects because the courts were divided. After the Supreme Court’s decision in Clipper Pipe, CASPA’s favorable remedies are no longer available to contractors or subcontractors on public works projects.  Those remedies are only available on private construction projects in Pennsylvania.

By clarifying the applicability of CASPA, the Court’s holding has practical consequences for all construction project participants. CASPA and the PPA have important differences that affect the rights of owners, contractors, and subcontractors (which includes second-tier subcontractors/suppliers). The most important differences involve the penalty, attorney’s fees, and interest provisions of the respective statutes.

CASPA requires a court to impose a penalty of one percent (1%) per month on a party who has wrongfully withheld payments. The PPA provides a court with discretion to award an additional one percent (1%) penalty if the court determines that the nonpaying party acted in an “arbitrary” or “vexatious” manner in withholding the payment(s) in question. The CASPA penalty, unlike the PPA penalty, is not discretionary.  Therefore, an unpaid contractor has a better chance of recovering additional damages under CASPA than under the PPA for wrongful withholding of payments.

CASPA also mandates an award of reasonable attorney’s fees to the substantially prevailing party in litigation or arbitration. The court is permitted, but not required, to award attorney’s fees under the PPA to the prevailing party, if the party withholding payment acted in bad faith. Although a contractor has a higher burden under CASPA (“substantially” prevailing party), if it meets that standard, the court must award attorneys’ fees.  Under the PPA, if a contractor meets the lower standard (“prevailing party”), a court can still decide not to award attorney’s fees, even if the court determines that the nonpaying party acted in bad faith.

In addition to these remedies, under CASPA, unpaid contractors or subcontractors can recover interest at a rate of one percent (1%) per month on any unpaid amount that is considered late under the contract or statute. Conversely, the PPA’s rate is determined by the Secretary of Revenue and thus, is less clear and fluctuates (currently, the rate is .25% per month).

Given the differences between the two payment statutes, those defending against payment claims on public projects – which can include owners, contractors, or, in some instances, subcontractors – will view this decision as a good one because the more favorable CASPA remedies are no longer available.  Those prosecuting such claims – which can include contractors or subcontractors – may perceive it as weakening their ability to induce payment.

It is important for owners, contractors, and subcontractors to know ahead of time what potential costs and legal standards apply to their construction projects.  These legal standards affect the likelihood of recovering costly expenses such as attorney’s fees, which, in turn, influences business decisions involving payment disputes.  While members of the construction industry will view this decision differently, they can all agree that the Court brought clarity to this previously unresolved issue.

Jason C. Tomasulo is Senior Counsel at Cohen Seglias Pallas Greenhall & Furman PC. He focuses his practice on construction law and represents owners, general contractors, subcontractors, suppliers and sureties.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Patrick Cullen, a summer associate with Cohen Seglias, contributed to this post.

When it comes to the Pennsylvania Mechanics’ Lien Law (Lien Statute), the Pennsylvania legislature was quite active in 2014.  In July, Governor Corbett signed into law certain changes to the Lien Statute affecting residential lien rights and lien priority.  We previously covered these changes.

Change Ahead Sign

On October 14, 2014, Governor Corbett signed into law additional changes to the Lien Statute in the form of House Bill 473 (HB473).  HB473 had been written, voted against, rewritten, and voted against some more going all the way back to June 2013 when we first covered the proposed changes.

The new amendments to the Lien Statute provide for the creation of a State Construction Notices Directory (the Directory) that will serve as a statewide system for registering and tracking construction projects within the Commonwealth costing in excess of 1.5 million dollars.  The legislation is designed to provide a centralized system for owners, contractors, subcontractors, and suppliers to notify each other that projects registered on the Directory have commenced and that furnishings of labor, materials, and equipment are being made by subcontractors.

Now, if an owner elects to register a project on the Directory (by filing a Notice of Commencement), subcontractors will be required to file a Notice of Furnishing with the Directory within 45 days after commencing work or first providing materials to the jobsite.  Under the changes, subcontractors that fail to substantially comply with these requirements forfeit their lien rights.  This front-end notice requirement is in addition to the existing back-end notice requirement in the Lien Statute requiring subcontractors to serve the owner with a notice of intent to lien at least 30 days before filing.

As we previously reported, one touted benefit of the law is that owners and contractors will be able to reconcile their payments with the list of subcontractors and suppliers registered on the Directory.  This centralized system will help owners and contractors ensure that lower-tiered contractors and suppliers have been paid.

As a product of the new amendments, subcontractors must carefully review their contracts for notice that the project in question will be registered with the Directory.  If the subcontract does not contain such a notice, subcontractors should nonetheless check the Directory out of an abundance of caution.  Suppliers will also need to monitor the Directory vigilantly for Notices of Commencement so that they file timely Notices of Furnishing and protect their lien rights.

With the Directory to be operational by December 31, 2016, members of the Pennsylvania construction industry have some time to study the new changes to the Lien Statute and modify their business practices accordingly. We welcome your comments and questions on these new changes to the Lien Statute.

Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Rolled Blueprints and gavel of justice

On July 9, 2014, Pennsylvania Governor Tom Corbett signed a bill (S.B. 145) into law that amends the Pennsylvania Mechanics’ Lien Law of 1963 (the “Lien Law”). The new law took effect on September 8, 2014 and affects subcontractor lien rights on residential construction projects as well as the order of lien priority between mechanics’ liens and open-end mortgages.

Liens on Residential Property

Under the new law, an unpaid subcontractor no longer has lien rights if all three of the following conditions are satisfied:

  1. The property owner or tenant has paid the full contract price to its general contractor;
  2. The property is or is intended to be used as the owner’s or tenant’s residence; and
  3. The property in question is a one or two unit residential property or townhouse.

In other words, this amendment protects homeowners from having to pay twice for the same work (e.g., where the owner pays the general contractor but the general contractor fails to pay its subcontractor). The new law includes a procedure through which an owner can discharge or reduce the amount of the mechanics’ lien by petitioning the court and proving that he or she has paid the full contract price to the general contractor.

Changes to Lien Priority

Through S.B. 145, the Pennsylvania Legislature has also changed how the Lien Law addresses the question of lender priority. As we have blogged previously, “priority” refers to who gets paid first if a property encumbered with multiple mortgages, mechanics’ liens, or the like is sold. Before the new law was passed, a mechanics’ lien could enjoy priority over a mortgage if the work in question began before the bank recorded the mortgage and the loan proceeds secured by the mortgage were used, in part, for non-construction costs.

With the new changes to the Lien Law, these open-end mortgages will enjoy priority over a mechanics’ lien claim as long as at least 60% of the loan proceeds are used to pay the “costs of construction” (which is defined in S.B. 145 very broadly to encompass just about every conceivable construction cost including taxes, bonding, and permits). These changes appear to be the legislature’s response to situations like the one in which the Pennsylvania Superior Court encountered in the case of Commerce Bank/Harrisburg, N.A. v. Kessler. In Kessler, a contractor’s mechanics’ lien was given priority over a bank’s open-end mortgage on the property in connection with a construction loan because not all of the proceeds from the loan were used to cover the costs of construction.

What Do These Amendments Mean to Players in the Construction Industry?

For subcontractors, the risk of nonpayment on residential projects increases because the homeowner may be able to demonstrate that it paid the general contractor in full. In those instances, the subcontractor’s recourse will most likely be limited to a breach of contract lawsuit against the general contractor. It is important for all members of the construction industry to note that this new protection to owners is limited to residential properties where the owner intends to use it as his or her residence.

Lenders and title companies will likely celebrate the changes to the Lien Law because it effectively overrules the Kessler decision and defines “costs of construction” more broadly such that open-end mortgages in connection with construction loans are likely to enjoy priority over a mechanics’ lien claim under most circumstances.

As is evident from these amendments, the Lien Law is a powerful and complicated statutory remedy that affects the rights of most participants in a construction project including lenders, owners, contractors, subcontractors, and suppliers. These latest changes remind us how challenging it can be to balance and navigate the competing rights and interests of each player. Anyone with questions regarding these new changes or the Lien Law generally should feel free to contact Cohen Seglias.

Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

By: Jennifer M. Horn, Daniel E. Fierstein and Katherine Tohanczyn

As many federal government contractors know, the False Claims Act (FCA) is a tool used by the federal government to deter fraud. Those found to have knowingly submitted false information to the government in violation of the FCA stand to suffer the imposition of fines, forfeiture of improperly obtained proceeds, and, in some instances, incarceration.

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Recently, in the largest reported fraud case involving a disadvantaged business enterprise (DBE) in the country’s history, a Pennsylvania federal judge ruled against a government contractor in a $136 million DBE fraud claim brought by a former employee and whistleblower under the FCA. In that case, Schuylkill Products, Inc. (SPI), a Pennsylvania-based concrete bridge beam manufacturing company, conspired with and used Marikina Construction, Corp. (Marikina) as a “DBE” front to procure millions of dollars of federally funded DBE-designated work.

What Is a DBE Program?

Like many governmental agencies, the U.S. Department of Transportation (DOT) has a DBE program, which attempts to increase the participation of DBEs in state and local procurement. The DOT seeks to accomplish this goal by requiring state and local agencies receiving DOT funds to establish goals and requirements for the participation of DBEs (small businesses owned and controlled by socially and economically disadvantaged individuals, such as businesses owned by minorities and women). Contractors working on these transportation projects must make a good-faith attempt to meet specific DBE participation goals as a requirement of federal funding and can do so by subcontracting work that is actually performed and installed by a certified DBE.

The Schuylkill Products Case

In Schuylkill Products, SPI, its wholly owned subsidiary (CDS Engineers), and Marikina, a Connecticut-based contractor certified in Pennsylvania as a DBE, created a scheme through which Marikina subcontracted work to SPI that was federally mandated to be performed by a DBE. SPI employees, pretending to be Marikina employees, performed the work and received the profits. In order to give the appearance of compliance with the DBE rules to the federal government, PENNDOT, and the general contractor, SPI used Marikina business cards, email addresses, stationary, and decals in order to create the appearance that Marikina was performing the work.

Judge Rambo of the United States District Court for the Middle District of Pennsylvania found that this conduct fell squarely within the scope of the FCA and constituted clear violations of the FCA. Accordingly, the United States (and the former employee who initiated the FCA lawsuit) are entitled to monetary damages (the Court has not yet ruled upon the amount).

What Is the Takeaway from Schuylkill Products?

Schuylkill Products serves as a forceful reminder of the power of the FCA. The government, through its agencies and the private individuals that are permitted to enforce the FCA, monitors DBE compliance very carefully.

On the one hand, these programs provide excellent opportunities for small businesses to compete for government contracts on a more level playing field. On the other hand, the maze of rules and regulations that govern these programs must be taken seriously and followed carefully. In the face of this landscape, government contractors and contractors looking to enter the government contracting arena should consult with a construction attorney to ensure that their particular corporate structure, behavior, and contract comports with the rules.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Katherine Tohanczyn is a Summer Associate in the Construction Group of Cohen Seglias.

Counterintuitive as it may seem, courts can exert significant influence by deciding not to consider a case. The Supreme Court of Pennsylvania did just that on April 1, 2014 when it decided not to consider an appeal in the Berks Products Corp. v. Arch Insurance Co. case (Berks). The underlying case involved a material supplier’s payment bond claim against a surety who issued bonding for the general contractor (GC) on a public school project for the Wilson Area School District.

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The Berks Decision and the “Safe Harbor” Provision

In Berks, the surety, Arch Insurance Company (Arch), was ordered to pay the bond claim of a supplier, Berks Products Corp. (Berks), even though the GC had paid its subcontractor for all of the materials that Berks supplied on the project. The subcontractor did not pay Berks in full for its materials and eventually went bankrupt, which led Berks to file its claim against the payment bond that Arch issued on behalf of the GC.

The Commonwealth Procurement Code (Code), which governs the award and administration of most public construction projects in Pennsylvania, contains a provision commonly referred to as the Safe Harbor Provision. The Safe Harbor Provision protects GCs and sureties from future claims if the GC has paid its subcontractor in full, even if the subcontractor has failed to pay a supplier.

The Berks decision is monumental (perceived by some members of the construction industry positively and, by others, negatively) because the Commonwealth Court concluded that the specific language in the GC’s payment bond required Arch to pay Berks’ claim even though the GC paid its subcontractor for all of Berks’ materials. In other words, according to the Court, the language in the payment bond waived the protection of the Code’s Safe Harbor Provision.

Likely Implications

With the Supreme Court’s recent denial of Arch’s Petition for Allowance of Appeal, the practical implications of Berks will now become a permanent reality in the absence of new legislation. The implications for public projects are likely to include the following, some of which could increase the costs and risks of doing business for companies at all tiers in the construction industry:

  • In light of the perception of sureties that the Safe Harbor Provision could be under attack, they will likely reexamine the language of their payment bonds to make sure the language is in lockstep with the Safe Harbor Provision and does not contain the Berks language . Sureties may also reevaluate the risks and costs of providing bonding in Pennsylvania.
  • Sureties and GCs may even take steps to pursue legislative changes because of what they perceive as unintended consequences of Berks on the Bond Law and the Safe Harbor Provision.
  • Second-tier contractors/suppliers like Berks are obviously pleased with the result and will continue to assert bond claims even where GCs have paid subcontractors in full, using Berks as their authority.
  • GCs may take additional steps to avoid the fate that Arch (as indemnified by the GC) has suffered in Berks that include: (i) confirming that their payments are making their way to lower-tiered subcontractors by way of releases and actual verification of payment, (ii) increasing their use of joint check agreements, and (iii) requiring their subcontractors to obtain bonding for the project.

We will be expanding our coverage of this case and the effects it may have on the construction industry in the next volume of our newsletter, Construction in Brief, which will be available electronically within the next couple of months. If any of our readers have questions about Berks and its implications for the industry, please feel free to contact us.

Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

A recent case before the Appellate Division of the Superior Court of New Jersey (Morris County Improvement Authority and Somerset County Improvement Authority v. Power Partners Mastec, LLC) involving solar construction has shed light (pun intended) on the complications associated with projects that are publicly and privately owned and financed, especially with regard to municipal mechanics’ liens and private construction liens. As the parties in MasTec learned the hard way, the intersection of public and private lien rights can wreak havoc on contractor and subcontractor lien rights. All bidders are wise to consider the ramifications prior to submitting a bid.

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New Jersey Lien Law: A Tale of Two Statutes

Before we get into the particulars of the MasTec case, recall that New Jersey has two lien statutes: (1) the Municipal Mechanics’ Lien Law (MMLL) and (2) the Construction Lien Law (CLL). The MMLL applies to public projects and allows subcontractors and suppliers (not contractors) to have a lien placed upon the project funds for the unpaid amount of work it performs. The CLL, on the other hand, permits contractors, subcontractors, and suppliers to place a lien against the relevant privately owned property interests for the unpaid amount of work it performs.

The MasTec Project P3 Financing Structure

In the MasTec case, the Morris County and Somerset County Improvement Authorities (the Authorities) hired SunLight General Capital, LLC (SunLight) to design and construct about seventy solar energy generating systems (SGF’s) on properties owned or occupied by government entities in Morris, Somerset, and Sussex Counties. Seventy percent of the Project was to be funded by taxable municipal bonds, and the remaining thirty percent was to be financed privately through SunLight; a classic public-private partnership arrangement.

Under this public-private partnership, the Authorities would own the SGF’s and lease them to SunLight for a minimum of fifteen years (after which SunLight would have the option to purchase the SGF’s for a nominal price). Meanwhile, SunLight contracted with MasTec to build the SGFs, and MasTec was to be paid with funds generated from the municipal bonds. Confused? You should be, because it’s confusing.

When Payment Was Withheld, MasTec Filed Two Types of Liens

Project delays ensued, and MasTec, concerned it would not be paid monies owed for its work, filed approximately $50 Million of liens under both of the New Jersey Lien Statutes. First, MasTec filed one set of liens under the MMLL against $50 Million of the public funds generated from the municipal bonds. A trial court, however, ruled that the liens were invalid because MasTec was not a “subcontractor” as the term is defined in the MMLL. Next, MasTec filed a second set of liens under the CLL against SunLight’s leasehold interest in the SGF’s, including SunLight’s rights to draw down the project funds from the municipal bonds.

Unfortunately for MasTec, the Appellate Division ruled against it with respect to both sets of liens. With regard to MasTec’s municipal mechanics’ liens, though the Court agreed with MasTec that it is a “subcontractor” under the MMLW, it also concluded that another statute, the County Improvement Authorities Law, protects County Improvement Authorities like the Morris County and Somerset Improvement Authorities from municipal mechanics’ liens.

As for MasTec’s construction liens, the Court held that such liens could attach to SunLight’s leasehold interest on the properties but not on the municipal bond funds. In so holding, the Court reasoned that bond funds are not “real property” under the CLL. This ruling undermines the force and effect of MasTec’s construction liens because the liens will have no effect on the disbursement of the municipal bond funds.

Proceed with Caution: In This Developing Area of the Law, Liens May Not Have the Expected Effect

This intersection of public and private interests is a relatively new and untapped area of the law that, as demonstrated in MasTec, can wreak havoc on contractor and subcontractor lien rights and must be carefully considered prior to bidding. The MasTec case teaches that when public and private interests intersect, the application and effect of lien law is impacted.

This case is particularly interesting because of the complicated array of public and private contractual relationships. On the one hand, the Improvement Authorities, which own the SGF’s, publicly bid the project with seventy percent of the funds to come from the public. On the other hand, the Improvement Authorities leased the SGF’s to the private developer and thirty percent financier in SunLight.

We will continue to monitor this case, as MasTec could petition the New Jersey Supreme Court to consider an appeal of these issues. It is also interesting and worth noting that MasTec and SunLight are currently embroiled in arbitration to determine which party is responsible for the delays and cost overruns that took place during construction.

In the meantime, all parties involved in similar P3 financed projects should reassess the force and effect of New Jersey’s lien statutes as avenues for recovering payment.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate. 

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

 

As we reflect upon the past year, few in the Delaware Valley will forget the fateful day in June when a building located at 22nd and Market Streets collapsed in the midst of demolition work performed by contractor Griffin Campbell, which claimed six lives. In an effort to improve safety and prevent such tragedies from recurring, the City of Philadelphia took swift action in an effort to improve the process through which contractors obtain demolition permitting.

building permit.jpgIn the City’s latest effort to improve upon safety, Philadelphia’s Licenses and Inspections Department (L&I) has issued new permitting and licensure requirements that took effect last week. The new requirements apply to all contractors conducting business in the City of Philadelphia. Permit applicants will be required to provide a Tax Clearance form and a Certificate of Insurance, and license holders will be required to clearly display license information on the job site and on business materials.

Applications for Construction and Demolition Permits

In the past, Philadelphia has required Tax Clearance certifications for limited situations such as zoning appeals. Now, the rules require all permit applicants to provide a Tax Clearance form certifying that the applicant is in compliance with, or intends to work with the City to cure any violations of, the tax and regulatory provisions of The Philadelphia Code. Contractors can obtain the Tax Clearance forms at the Department of Revenue’s website.

Permit applicants also must provide Certificates of Insurance to demonstrate appropriate insurance coverage for the work to be performed. These certificates are available from a contractor’s insurer, and must contain the following basic information:

  • indicate current general liability, workers’ compensation and automobile liability coverage;
  • reflect minimum general liability coverage of $500,000;
  • describe the type of operations/work covered by the insurance;
  • name the City of Philadelphia as Certificate Holder and an Additional Insured; and,
  • include contact name and phone number of the contractor’s insurance broker or agent.

Display of License Information

In addition to the new tax clearance and insurance certificate requirements, contractors should also be aware that recent changes to Title 9 of the Philadelphia Code have made display requirements significantly more stringent. Philadelphia Code Section 9-1004 lays out the requirements for trade license holders, including for all contractors, registered master plumbers, electrical contractors, warm air installers and fire suppression system contractors. The Code now requires all licensees to display their license number in the following places:

  • each job site;
  • business signage;
  • advertisements;
  • stationery / correspondence;
  • proposals and contracts; and,
  • all company vehicles when used during the course of business.

The Code requires the displays to be at least two (2) inches high and clearly visible. Unauthorized transfer or sharing of license numbers or failure to display required license information may result in license suspension, fines, or license revocation.

In addition to public health and safety, another reason for these additional requirements is the generation of revenue to offset compliance and enforcement activities. Though the City, through a spokeswoman for L&I, has acknowledged that the new requirements would not have prevented contractor Griffin Campbell from obtaining a permit to demolish the property at 22nd and Market Streets, these latest requirements represent a continued effort to shore up construction safety in the City. They also present new hoops through which City contractors must jump in order to obtain permitting for City construction and maintain and valid license to perform work in the City. For more information about how these requirements affect you and your business, feel free to contact us.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Catherine Nguyen is an Associate in the Construction Group and concentrates her practice in the area of construction litigation. She has represented clients in construction litigation, contract disputes, landlord-tenant matters and consumer protection cases.