A New York appellate court issued a decision in 2016 that serves as an important reminder to all tiers of the construction industry: courts take the notice provisions in your construction contracts very seriously. In the Schindler Elevator Corp. v. Tully Const. Co., Inc. case, the Appellate Division dismissed a subcontractor’s claim in its entirety because emails and letters that the subcontractor provided to the prime contractor did not comply with the strict notice provision in the prime contract. Continue Reading New York Case Reminds Us That Some Courts Take Notice Provisions Very Seriously
On February 11, join Roy Cohen, Ed Seglias, and Jackson Nichols at the Sheet Metal and Air Conditioning Contractors National Association (SMACNA) Mid-Atlantic Chapter in Greenbelt, MD for their presentation, “Ignorance is not Bliss: Construction Contract Provisions You Need to Know.” They will discuss provisions that allocate risk for different site conditions, and examine contract provisions addressing payment, indemnity, change orders, and termination. Their presentation will also cover Mechanic’s Liens in DC and Maryland.
For more informationa, and to register for this event, please visit the SMACNA Mid-Atlantic website.
Roy S. Cohen is the Founder and President of Cohen Seglias, as well as a Shareholder and member of the Board of Directors. In his practice, Roy represents clients involved in every facet of the construction industry, including construction managers, general contractors, municipal authorities, private developers, major trade contractors, architects, engineers and sureties.
Ed Seglias is the Vice President of Cohen Seglias as well as a Shareholder and a member of the Board of Directors. He is also the Managing Partner of the Firm’s Delaware office and a Partner in the Firm’s Construction Group. Ed concentrates his practice in construction law and commercial litigation and has successfully tried numerous construction and commercial cases in the mid-Atlantic region.
Jackson S. Nichols is an Associate in the Firm’s Commercial Litigation and Construction Groups and represents clients in every stage of litigation, including motion practice, discovery, pre-trial preparation and trial practice and appeals. As a member of the firm’s Commercial Litigation group, Jackson assists clients in developing solutions to business disputes.
On January 21, 2016, Please join us for Ed Seglias and Jason Copley‘s seminar, “Ignorance is not Bliss: Construction Contract Provisions You Need to Know,” for the General Building Contractors Association (GBCA) in Philadelphia, PA.
This seminar will focus on key provisions in the standardized contract forms that often affect the risks and outcomes on a typical commercial construction project. For example, Ed and Jason will discuss provisions that allocate risk for differing site conditions, hazardous materials, delays beyond the contractor’s control and defection or omissions in design drawings. They will also examine contract provisions addressing payment, indemnity, scope changes and termination. Finally, they will review notice provisions, dispute resolution provisions and some bonding and warranty provisions to provide some general guidance about these terms.
To register for this event, click here.
Edward Seglias is the Vice President of Cohen Seglias Pallas Greenhall & Furman PC as well as a Shareholder and a member of the Board of Directors. He is also the Managing Partner of the Firm’s Delaware office and a Partner in the Firm’s Construction Group. Ed concentrates his practice in construction law and commercial litigation and has successfully tried numerous construction and commercial cases in the mid-Atlantic region.
Jason A. Copley is the Managing Partner of Cohen Seglias Pallas Greenhall & Furman PC and a Partner in the Firm’s Construction Group as well as a Shareholder and member of the Board of Directors. Jason focuses his practice on representing contractors, subcontractors and owners in the areas of construction and commercial litigation and maintains offices in both Philadelphia and Harrisburg.
Please join us tomorrow, 11/4, for Shawn Farrell‘s presentation “Construction Disputes: Lessons Learned” at the Carpenters’ Company of City and County of Philadelphia’s Master Builder Dialogues.
Shawn Farrell has over 20 years of experience litigating construction disputes, and will share the lessons he learned to demonstrate how an effective project management team can identify and manage the risks associated with construction contracts without the need for litigation. This seminar will instruct participants on the realistic application of contract terms, payment statutes, lien law, and bond rights to construction operations, with the objective of maximizing profit and minimizing the time to close out a project.
For more information and to register, please visit the Carpenters’ Company’s website.
Please join us for Ed Seglias‘ presentation at the Design-Build Institute of America Tri-State Chapter Inaugural Event on October 6, 2015 in Philadelphia. Ed and Kevin Peartree of Ernstrom & Dreste will discuss and compare form contracts commonly used in Design-Build Projects including AIA, Consensus Docs and EJCDC Design-Build Forms. Their discussion will highlight the benefits and risks associated with the standard forms for owners, contractors and designers alike. Talking points include:
- How do the different forms address: Early Phases of a Design-Build Project, Setting the Price, Standards of Care, Performance Guarantees, Site Information, Responsibilities of the Owner, Contractor, and Designer, and Ownership of Documents.
- What the design-build subcontractor should look for: Performance Based Contract, Scope of Work, Incorporation by Reference, and Flow-Down Clauses.
- What you need in a Design-Build Teaming Agreement: Structure of the Team, Risk/Reward Sharing, Design-Builder and A/E Services, and Risk Allocation.
For more information and to register, please go to the DBIA Website
Contractors and subcontractors must be particularly vigilant in protecting their lien rights in these uncertain economic times. Despite an investment of time and labor into a project, contractors and subcontractors may be faced with a defaulting owner, or even worse, an owner who files for bankruptcy before paying for the construction work. To fully protect itself from an owner who defaults on payment, a contractor or subcontractor must file a mechanics’ lien against the owner’s property once the work has been completed.
What does it mean to perfect a lien?
In Pennsylvania, a mechanics’ lien must be “perfected” by the contractor or subcontractor. Perfection simply means that the contractor or subcontractor has closely followed the law, taken all of the necessary steps, and filed the correct papers with the court. Because the steps vary from state to state, it is crucial that a contractor or subcontractor be aware of the law of the state where the project is located.
In Pennsylvania, the right of a contractor or subcontractor to file a lien on the property of a non-public construction project is governed by the Pennsylvania Mechanics’ Lien Law of 1963, as updated. To “perfect” a lien in Pennsylvania, a contractor or subcontractor must take each of the following steps:
- First, the contractor or subcontractor must file a claim with the local state court within 6 months after the contractor or subcontractor completed its work. It is important that the lien be filed in the Court of Common Pleas where the project is located.
- Second, the contractor or subcontractor must serve written notice of the filing upon the owner within 1 month after filing. Third, the contractor or subcontractor must file a proof of service with the same court within 20 days of service upon the owner.
- In addition, Pennsylvania law requires that a subcontractor provide a preliminary notice to the owner before it can proceed with the lien perfection process. This requirement does not apply to a contractor.
Why does perfection matter?
Perfection matters because in Pennsylvania once a lien is perfected the contractor or subcontractor has rights, even if the owner later files for bankruptcy. This is an unusual wrinkle under Pennsylvania law, because usually once a bankruptcy is filed—no one can sue the owner. If a contractor or subcontractor has perfected a lien before the bankruptcy begins, that contractor or subcontractor might still be able to proceed in court against the owner.
In New Jersey, the process to perfect a mechanics’ lien is much more involved.
Although nobody is immune from the effects of the downturn in the economy, contractors and subcontractors are especially vulnerable in these uncertain times. Even after investing time and labor, contractors and subcontractors face the possibility of not getting paid. To fully protect itself from a defaulting owner, a contractor or subcontractor must file a mechanics’ lien against the owner’s property once the work has been completed.
What does it mean to perfect a lien?
Because the steps regarding mechanics’ liens vary from state to state, and for residential and commercial liens, it is crucial that a contractor or subcontractor be aware of the law of the state where the project is located. In New Jersey, a mechanics’ lien must be “perfected” by the contractor or subcontractor. Perfection simply means that the contractor or subcontractor has closely followed the law, taken all of the necessary steps, and filed the correct papers with the court.
In New Jersey, construction lien rights are governed by the New Jersey Construction Lien Law. To “perfect” a lien on a New Jersey residential project, a contractor or subcontractor must take each of the following steps:
- First, the contractor or subcontractor must file a Notice of Unpaid Balance and Right to File Lien. This Notice should be filed within 50 days of the last day of work in order to ensure there is enough time to file the lien within 90 days.
- Second, a Notice and Demand for Arbitration must be submitted to an arbitrator for a factual determination as to the value of the lien. The arbitrator must render a decision within 30 days of receipt of the Demand for Arbitration.
- Third, the contractor or subcontractor must file a lien claim with the clerk of the county where the work was completed within 10 days of receipt of the Arbitration Decision. The lien claim amount must be limited to the amount determined by the arbitrator. Not only must the lien claim be filed within ten days after the decision is received, it must also be filed within 90 days after the work has been finished. The Lien Law provides a form that can be used to ensure the lien claim is properly drafted.
- Finally, the contractor or subcontractor must serve the lien claim on the owner within 10 business days after filing it with the county clerk.
If the contractor or subcontractor has performed the work, it is likely that an arbitrator will make a factual determination that a lien can be filed. Problems sometimes arise because the contractor or subcontractor cannot control how quickly the arbitrator makes a decision.
Why does perfection matter?
For a lien to be perfected, the contractor or subcontractor must complete all of the above-outlined steps of the lien process. In New Jersey, this is important because once a lien is perfected, the contractor or subcontractor has rights even if the owner later files for bankruptcy. Unlike other states, if a project is residential, New Jersey’s process for perfection requires submission of a claim to an arbitrator. Arbitrators are not always quick to decide claims. If a claim is currently awaiting decision by an arbitrator, and the owner files bankruptcy before the arbitrator makes a decision, the contractor or subcontractor will lose all lien rights. This is true even though the contractor or subcontractor cannot control how quickly the arbitrator decides the claim. Simply starting the perfection process is not enough to protect lien rights. Currently, legislation to both modify and clarify the New Jersey Construction Lien Law is pending before the New Jersey Senate Commerce Committee.
We will continue to monitor and report on this pending legislation.
The New Jersey Superior Court recently issued an opinion that serves as a cautionary tale for all parties in a construction project who perform work without complete, signed copies of their contracts on hand. In the case of City of Union City v. AC Construction Corp., the Court addresses the dangers to parties who proceed with construction work when the terms of their contract are ambiguous, unidentified, and in draft – not final – form.
In reality, many contractors, eager to meet tight schedules and start a project, proceed with the work without signing their contracts or having complete copies of all of the documents that make up the contract. The danger of this is that if a dispute arises over issues such as the quality or scope of work, the situation is made much worse by the lack of a signed contract that clearly identifies and attaches every document that makes up the agreement.
Background of the Case
The Union City case involved the construction of an amphitheater. During the course of construction, AC Construction Corp. (AC), the contractor, encountered contaminated soil at the project site that required significant remediation. A dispute arose between Union City and AC regarding the excess costs of the soil remediation.
Union City and AC could not agree to the terms of their contract or even what documents comprised their agreement. Specifically, the parties could not agree as to what the dispute resolution procedures in the contract actually provided for – litigation or arbitration. In litigation, Union City’s preference, the parties would appear before a judge or jury in a court of law. In arbitration, AC’s preference, disputes would be resolved by an individual or panel of selected arbitrators, some of whom could be experts in construction. Since the contract was unclear, the parties were forced to litigate the question of which dispute resolution procedure applied – litigation or arbitration – rather than litigate the main dispute – contaminated soil remediation.
The Court concluded that AC not only failed to satisfy its burden of proving that the parties agreed to arbitrate – not litigate – any dispute, but that the contractor also failed to establish what documents actually made up the contract agreement itself. The Court concluded that a “significant factual dispute existed” with regard to the precise terms of the agreement between Union City and AC, and remanded the case for further proceedings, pointing to the absence of a signed contract that attached and incorporated all documents. The Court also found it significant that some of the documents were marked “draft” not final. In the end, the contractor in Union City remains in limbo. AC will be forced to participate in additional proceedings about the dispute resolution issue while the heart of the dispute – soil contamination and remediation – remains unresolved.
Outcome of the Union City Case
This decision illustrates the dangers of sloppy contracting. All parties – owners, contractors and subcontractors – must thoroughly review and understand what documents comprise their contracts and ensure that all parties sign any agreements before work begins. The Union City case makes clear that when a dispute occurs, parties who understand the force and effect of their agreements are much better equipped to defend and ultimately resolve disputed issues than those who fail to sign and retain complete copies of their contracts. Although this case dealt with the dispute resolution clause of the parties’ agreement, a similar, unfortunate outcome could result with many of the other provisions typically contained in a construction contract.
When payment for good work performed on a construction project is delayed, contractors, subcontractors, and suppliers alike must act quickly to preserve their mechanics’ lien rights in Maryland. A mechanics’ lien is a way for contractors,subcontractors or suppliers whose work improved the value of a property to receive payment. The lien, when established, attaches to the property which serves as security for the unpaid amounts due to the contractors, subcontractors or suppliers. If critical deadlines are missed, however, these parties will forever lose their right to payment. Preservation of mechanics’ lien rights is particularly important in this economy where the risk of default and/or non-payment is especially high.
What Must Happen To Establish A Mechanics’ Lien in Maryland?
In Maryland, the right of a “contractor” or “subcontractor” to file a lien against an “owner” – specially defined terms under Maryland law that include suppliers – is governed by the Maryland Mechanics’ Lien Statute. To establish a lien in Maryland, a contractor or subcontractor must do the following:
- First, a contractor or subcontractor doing work or furnishing materials at a project site must give a written Notice to Owner or Owner’s Agent of Intention to Claim a Lien within 120 days of performing the work or furnishing the materials. The Notice must contain the following information:
- The amount due and owing
- A brief description of the work done and/or materials furnished
- The time the work was performed and name of the person to whom the materials were furnished
- The description of the property
- Second, within 180 days of performing the work or furnishing the materials, the contractor, subcontractor, or supplier must file a petition to establish the mechanics’ lien, with a sworn affidavit. An attorney must file the petition for the contractor in the Maryland county where the property is located.
- Third, after the petition is filed, the Court will issue a Show Cause Order and schedule a show cause hearing to determine whether probable cause exists to establish the lien or interlocutory order. Probable cause is measured as the likelihood that a reasonable judge would establish the lien and the show cause hearing serves as a “mini-trial” on the contractor’s entitlement to the lien.