Author Archives: Corey Giroux

About Corey Giroux

Mr. Giroux’s practice focuses on representing the business interests of general contractors, construction managers, subcontractors, suppliers, owners, tradesmen and other business entities in litigation and other matters in New Hampshire and throughout New England.

Why Revocable Trusts Aren’t Just for the Wealthy

By on November 2, 2015

Trusts have long been considered the domain of the wealthy.  After all, most everyone has heard the term “trust fund baby” used to describe a child from an affluent background.  While trust planning remains popular with the affluent, more and more ordinary people are recognizing the benefits of the use of revocable trust planning to achieve their estate planning goals. 

So, why is this happening?  Simply put, revocable trusts have advantages that cannot be replicated through the use of wills alone.  Because property and assets held in trust are non-probate assets, assets that would otherwise be subject to the probate process are not subject to probate when held in trust.  Because assets held in trust are not subject to the probate process, trust assets remain private and are not ordinarily subject to public disclosure. 

Trusts offer other advantages.  Trusts can be used very effectively to control asset distributions.  Trusts can help ordinary people set up distribution plans for their children or other intended beneficiaries that distribute assets over extended periods of time, for specific purposes and with specific assets.  While children are ordinarily entitled to receive assets passing by will at age 18, that period can be prolonged through the use of a revocable trust.  Parents can manage the distribution of their assets to their children through the use of a trustee to control distributions over time, in amount and for the particular purposes set out in the trust.  This planning is frequently employed to avoid giving unfettered access to assets to children at age 18, when many, if not most, are ill-prepared to manage and maintain significant assets.

In addition to the benefits for your family, trusts are very effective tools to manage your assets in the event of your disability or incapacity.  In the event that you become incapacitated or disabled, a trustee or trustees named in your trust will manage the assets in your trust for your benefit.  This can be achieved without court-ordered conservators or guardians that might otherwise be necessary and whose appointment requires filings and hearings before the probate court.

Revocable trusts are flexible.  Trusts can be amended, or even revoked, relatively easily.  Trusts can and should be amended to reflect the changing circumstances of one’s family over time and to capture other advantages occasioned by changing laws.  Once in place, amending a revocable trust is ordinarily straightforward and inexpensive. 

While trust planning tends to be somewhat more expensive in terms of upfront costs, it can be significantly more efficient, in time and money, than probating an estate.  This is especially true in states like New Hampshire, where the probate process is complicated and burdensome.  For estates containing significant assets, probate administration is likely to be time-consuming, expensive, and extended in duration.  As a result, you’re well-advised to consider trust planning as part of your overall estate plan. 

While everyone should maintain a comprehensive estate plan, including wills, powers of attorney, advanced health care directives and the like, more people are considering revocable trusts to achieve their estate planning goals.  Like each element of a comprehensive estate plan, whether or not a trust is right for you and your family should be considered in light of your circumstances and planning goals.  Consult with your estate planning attorney to consider your circumstances and estate planning objectives.

Five for Fighting:  Subcontract Provisions Every Subcontractor Must Know to Get Paid

By on September 2, 2015

While there are any number of subcontract provisions that subcontractors must be aware of in order to negotiate subcontracts favorably, the following five provisions are critical to insuring that your business gets paid for the work it performs.

Lien Provisions

Did you know that it’s perfectly legal to relinquish your statutory right to a mechanic’s lien in New Hampshire?  If you did, give yourself a small pat on the back.  All too often, however, subcontractors – especially those new to working in New Hampshire – fail to appreciate that they can waive their right to assert or maintain a mechanic’s lien through their subcontract.  Worse still, it is often the case that subcontractors learn this valuable piece of information at the very worst time:  when they need to secure a mechanic’s lien for delinquent payment on a project.

In order to avoid this painful result, have your subcontracts reviewed carefully in-house or by your attorney, with a specific focus on any provision or language that relates to waiving or relinquishing the right to assert, maintain or perfect a lien or an attachment against the owner or its property.  If you see it, don’t accept it.  The mechanic’s lien is a very useful tool to make sure you get paid in New Hampshire, and you shouldn’t give it away before you start your project.   

Retainage Provisions 

Most every project contains a retainage provision, so how different could they be?  If you treat retainage provisions interchangeably, you may go a long time before you get paid that all important final five to fifteen percent of your contract balance.

Retainage provisions are like Skittles:  many flavors and some are better than others.  For example, if you’re a subcontractor that performs work early on in a project, it will be beneficial to negotiate retainage reductions based on acceptance of your scope of work by the project owner.  If you accept a common retainage provision that simply calls for the owner to withhold ten percent until the completion of the project, and you’re responsible for clearing the site and preparing for building or paving, it may be years before your final retainage payment becomes due, let alone gets paid.  Surely, that final ten percent looks better in your pocket than the owner’s.  As a result, it’s imperative that you closely monitor the retainage provision in each subcontract you execute.

Retainage isn’t intended to be an annuity that you receive years after you perform your work, but instead should provide the owner some security that you’ll finish your scope of work after you’ve been paid the majority of your contract balance.  If you focus on negotiating a retainage provision that fairly accounts for your scope of work and its timing in connection with the overall project, you shouldn’t need to wait extended periods of time to receive the final payment you’re owed. 

Change Order Provisions

There are virtually as many change order provisions as there are subcontracts.  It seems that every general contractor or construction manager that doesn’t utilize an AIA subcontract document creates its own change order provision.  With so many iterations of a provision meant to capture the same thing, more or less, what should your company be looking for? 

In short, to maximize your chances of getting paid for extra or change work, subcontractors should strive to negotiate change order provisions that come as close as possible to mirroring the reality of performing work on a project.  More often than not, that reality is a fast-paced project with a limited schedule where changed or extra work cannot wait weeks for signed change orders from executive level corporate representatives.  As a result, subcontractors are best served by negotiating change order provisions whose terms are not unduly burdensome, restrictive or otherwise difficult to satisfy. 

For instance, the author recently reviewed several subcontracts which directed that only the company president or another board level executive were authorized to approve a change in scope.  This is hardly practical for a subcontractor.  Ordinarily, a general contractor’s executives are not in the field regularly, and do not have the kind of “hands on” knowledge of a project that a project manager or superintendent possesses.  Worse still, executives are not readily available to subcontractors, as a general matter.  As a result, it’s not difficult to anticipate the difficulties that a subcontractor is likely to face when trying to balance the need to perform change order work, to maintain the project schedule and to secure the appropriate written authorization to perform the work.  These competing interests often lead to subcontractors performing work before they are authorized to do so according to the terms of their subcontracts, based on spoken assurances from onsite representatives of the general contractor.  This, in turn, exposes the subcontractor to the risk that the general contractor or the owner will reject the change order and that a fight will be necessary to get paid.

Because the competing interests in performing the work, meeting the schedule and securing appropriate authorization for changes in scope exist on so many projects, subcontractors are best served by negotiating change order provisions that mirror, as closely as possible, the anticipated conditions in field.  Doing so will go a long way toward insuring that you’ll be paid for your extras.  To the extent that you have any doubt regarding what steps are necessary to make sure you’re complying with the change order provision in your subcontract, you’re well advised to speak with your construction attorney.

Pay if Paid Provisions

Construction lawyers frequently discuss the concept of “risk allocation” with their clients.  So what is risk allocation?  At is core, risk allocation is concept used to describe how the parties to a contract divide or allot the various risks attendant to a particular contract. 

 A “pay if paid” provision is a tool used by general contractors and constructions managers to reallocate the risk of nonpayment, that for many years, was borne by the general contractor or construction manager.  A “pay if paid” provision operates exactly as it sounds.  That is, it’s a provision that conditions payment to a subcontractor for work it performs on the upstream contractor first receiving payment from the owner, or from the party upstream from it.  In other words, if the general contractor doesn’t get paid from the owner, the general contractor has no obligation to make payment to its subcontractor, regardless of whether the subcontractor fully and dutifully performed its work.

Does it make sense for a subcontractor to accept a “pay if paid” provision in its subcontract?  The answer is unequivocally no.  The vast majority of subcontractors have no ability to determine the financial solvency of the owner or the dependability of its construction financing.  Furthermore, a subcontractor has no direct contract with the owner, as the general contractor does, which thereby limits the subcontractor’s potential legal remedies if the owner elects not to pay for any number of reasons that have nothing to do with the subcontractor.  Because of these issues and others, subcontractors should be reticent to execute any contract that contains “pay if paid” language.  Because “pay if paid” language can be difficult to discern from other kinds of risk allocation devices, such as “pay when paid” and similar provisions, if you have any doubt about what your contract specifies seek the advice of your construction attorney.

Attorney’s Fees Provisions

Last, but certainly not least, subcontractors must understand what the attorney’s fees provisions mean in their subcontracts.  Like all of the foregoing types of provisions, there isn’t a one size fits all remedy.  What stands out about the importance of an attorney’s fee provision is that in some very important instances, the only way to enforce or determine your rights with respect to each of the kinds of provisions discussed above, is to employ the services of an attorney.  And that costs money.  So, if you don’t have an adequate provision of this kind, you’ll be forced to decide whether or not to pursue claims for payment (or other claims) based not upon whether you’re entitled to be paid, but rather by how much you’ll have to spend to get paid.

This isn’t lost on some less scrupulous general contractors.  In some instances, if a general contractor knows you’ll have to spend enough money to chase payments you’re owed that it becomes throwing good money after bad, they’ll simply pocket the money you should be paid and force you to bring suit against them.  This is no way to keep your projects profitable.

In order to make sure that you don’t fall victim to this scenario, insure that your contract has an attorney’s fees provision that calls for your fees to be paid in the event that you need the services of an attorney to enforce your rights under your subcontract.

So what do you do when the general contractor won’t agree to an attorney’s fee provision that runs in your favor?  In that instance, you negotiate what is known as a “prevailing party” provision.  A “prevailing party” provision calls for either party to a contract to receive their attorney’s fees and other costs from the other side in the event that a particular party prevails in an arbitration or lawsuit.  As is the case with each of the foregoing kinds of provisions, the devil is in the details of the provision.  Nevertheless, if you’re diligent about reviewing (or having someone else review) the language of any proposed attorney’s fee provision, you’ll be much less likely to learn that your subcontract only gives the general contractor the right to recover its attorney’s fees. 

If you master the foregoing five kinds of provisions, or engage your construction attorney to help you do so, you will negotiate better subcontracts before you get started and you’ll almost certainly forestall a variety of construction disputes before they have the opportunity to ripen.  Should you have questions regarding any of the information presented here, you’d be well advised to contact your New Hampshire or Massachusetts construction attorney.

Subcontractors: Do You Really Know What You’ve Waived in Your Lien Waiver?

By on April 27, 2015

Many subcontractors treat lien waivers interchangeably:  that is, if you’ve seen one, you’ve them all.  More and more, treating lien waivers in this manner could lead to significant and costly consequences.  Increasingly, general contractors and construction managers are providing subcontractors and suppliers with a new breed of lien waiver.  Unlike traditional lien waivers that sought only to protect the owner from the prospect of unwanted labor and materials (mechanic’s) liens cropping up on their projects, many new “lien waivers” are crafted with the intent for the subcontractor to agree to far more than a simple waiver of its lien.

In New Hampshire, and other jurisdictions, it’s well-settled law that contractors and subcontractors may waive their right to assert or perfect a mechanic’s lien by contract.  Savvy owners, developers and general contractors have long drafted contracts with this in mind.  As more and more subcontractors rejected provisions that limited or restrained their right to assert mechanic’s liens, owners, developers and general contractors have started to shift additional waiver language from subcontracts into lien waivers.  As an illustration, consider the following, taken in part from a lien waiver recently reviewed by the author:

 “In consideration of receipt of payment, the undersigned irrevocably and unconditionally releases and waives any and all mechanic’s liens or other liens or right to claim any and all mechanic’s liens or other liens against [the property].  Additionally, the undersigned waives and releases any and all other claims against the Owner, the property or the Contractor, or any other claims of any kind whatsoever in connection with the Subcontract and the property.  The undersigned shall defend, indemnify and hold harmless the Owner and Contractor against any lien, bond, claims or suits in connection with the materials, labor and everything else in connection with the subcontract.”

In this instance, the subcontractor waived not only its right to assert a mechanic’s lien or any other lien upon accepting payment, but the subcontractor also waived its right to assert ANY claim related to the contract or the property.  Furthermore, the subcontractor has affirmatively agreed to indemnify the owner and contractor for any claims connected to the materials, labor or “anything else in connection with the subcontract.”  Among other things, this means that contractor has agreed to pay the general contractor and the owner for any costs they might incur in dissolving a lien on the project arising from the subcontractor’s sub-subcontractors or suppliers or in resolving any other claim or lawsuit connected with the sub-subcontractor or material supplier’s involvement in the project.  This so-called “waiver,” contains substantially more than a waiver of the subcontractor’s right to claim a lien in consideration of its partial payment on the subcontract.  

Some lien waivers go a step further.  Consider the following language, taken in part, from another lien waiver recently reviewed by the author:

 “In consideration of the receipt of the payment above, the receipt and sufficiency of which are hereby acknowledged, [the subcontractor] releases and forever discharges [the contractor and owner] of and from any and all claims, causes of action, liabilities and other obligations respecting payment for, upon or by reason of work, labor and/or materials furnished through the date shown below to the construction project.”

At first blush, this provision appears ordinary enough.  A more thorough consideration of the highlighted language, however, reveals that the provision is carefully calculated to insure that each month the subcontractor waives its right to pursue payment for all work performed before the date the lien waiver is signed. 

So why is this a problem?  To the extent that the subcontractor signing such a lien waiver performed extra work, change order work or has disputed work that occurred prior to signing the lien waiver, and the subcontractor accepts the payment referenced in the lien waiver without carving an exception for the added, changed or disputed work, the subcontractor has agreed to relinquish its right to any further payment, a lien or a claim for payment for that work.  In other words, the subcontractor has agreed not to be paid anything further for work performed through the date the lien waiver is signed, regardless of whether the subcontractor is otherwise entitled to payment.  In tying the subcontractor’s waiver to a particular date in time, rather than to an agreed upon amount to be paid, this waiver extinguishes any claim for payment for any work performed that wasn’t included in the subcontractor’s payment for which the lien waiver was signed.  This subtle, but very important distinction, can prove costly when the subcontractor fails to appreciate its impact on its right to payment.

Other lien waivers seek to make the subcontractor a trustee, converting the funds paid to the subcontractor into trust funds for the benefit of its subcontractors and suppliers, by agreement.  Take the following example:

 “The undersigned [subcontractor] acknowledges and agrees that it is receiving the funds paid in consideration of this payment application as a trustee, and said funds will be held in trust for the benefit of all subcontractors, materialmen, suppliers and laborers who supplied work for which the beneficiaries or their property might be liable, and that the [subcontractor] shall have no interest in such funds until all these obligations have been satisfied in full.”

In this instance, rather than taking payment as the rightful owner of the funds paid, the subcontractor accepts payment as a trustee for its sub-subcontractors and materials suppliers, installing affirmative obligations and fiduciary duties on the subcontractor to its sub-subcontractors and suppliers, which otherwise do not exist.  By virtue of the language in this provision, the subcontractor has agreed to restrict its discretion and ability to use the funds paid to it for its work as it deems necessary, replacing its discretion with the affirmative obligation to hold and distribute the funds paid to its subcontractors and suppliers on behalf of the owner and general contractor.  In a perfect world, every subcontractor would pay each of its sub-subcontractors and suppliers in full out of each payment it received on a project.  In the real world, there are often good business reasons for subcontractors to withhold some or all of the payments claimed due by its sub-subcontractors and suppliers, or to apply certain portions of the payments it receives elsewhere.  This language removes the subcontractor’s discretion to do so.

With increasing frequency, developers, owners and general contractors employ “lien waivers” intended to do much more than insure that mechanic’s liens aren’t perfected against a property after payment has been made.  Instead, this new breed of “lien waivers” is intended to create “knowing” waivers of subcontractors’ affirmative rights after they have signed their subcontract.  These “lien waivers” are intended to rewrite the bargain to which the parties agreed in their subcontract by downshifting the owner’s and general contractor’s desired contractual terms into a lien waiver when it might otherwise have been rejected in the subcontract.  It’s no longer sufficient for subcontractor’s to review only the proposed subcontract and scope of work.  Subcontractors must review proposed lien waivers carefully to insure that the lien waivers aren’t an agreement not to be paid.  If you have any questions or concerns regarding the provisions of your lien waivers, consult your construction attorney for a thorough assessment of the risks and exposures.

 

New Hampshire Supreme Court Upholds Statute of Repose Against Constitutional Challenge, Barring Claims Against Subcontractor and Design Professional

By on March 16, 2015

On February 20, 2015, the New Hampshire Supreme Court issued an opinion in the case of Jillian Lennartz v. Oak Point Associates, P.A., & a. In Lennartz, the plaintiff sought to recover for a personal injury suffered in 2009 which was alleged to have resulted from the faulty design or installation of a vent pipe in a laboratory facility on which construction had been substantially completed in 2003. In order to attempt to recover damages for the alleged injuries, the plaintiff brought suit against the subcontractor and design professional in 2012.

At the trial court, the defendants sought and were granted summary judgment on the basis of NH RSA 508:4-b, I, New Hampshire’s statute of repose. Among other things, the statute of repose bars actions to recover damages for injuries to person, property or economic loss arising out of a deficiency in the creation of an improvement to real property through the design, construction or inspection of the improvement, if the claims for damages are not brought within eight years from the date of substantial completion. At its core, the statute of repose is intended to prevent businesses in the construction industry from exposure to claims for injuries suffered many years after completing work on any particular project.

In this instance, the plaintiff’s injuries were alleged to have been suffered before the repose period expired, but the plaintiff brought suit against the defendants only after the eight year period from the date of substantial completion had expired. Among other arguments, the plaintiff principally argued that the statute of repose was unconstitutional as applied to her on an equal protection under the law basis, because her injuries were suffered before the repose period expired, but were barred only because her suit was filed after repose period expired. That plaintiff argued that this ran afoul of equal protection in so far as it prevented her from redressing injuries alleged to have occurred before the statute’s expiration, while others similarly injured that filed sooner would not have been barred by the court from proceeding with suit against the defendants.

The New Hampshire Supreme Court disagreed, holding the statute of repose constitutional as applied to the plaintiff’s claims because the statute is substantially related to an important governmental interest in protecting and relieving those in the construction industry from limitless liability under the discovery rule, which otherwise might infinitely suspend the limitations clock from running on the applicable limitations period until an injured party discovers its injury or should discover its injury in the exercise of reasonable diligence.

The Lennartz decision is an important one for those involved in the construction industry because it reaffirms an important limit to liability for builders and design professionals against claims brought long after the completion of a project. The decision should instill contractors, subcontractors and design professionals working in New Hampshire with further confidence that they will not be subject to liability for alleged defects decades after completion.