Tag Archives: subcontractor

Punch List and Remedial Work May Not Extend the 120 Day Period to Secure a Mechanic’s Lien in New Hampshire

By on February 8, 2016

A recent ruling in the Rockingham County Superior Court offers further guidance to contractors regarding the extent of the right to maintain a mechanic’s lien in New Hampshire.  In the matter of Fabcon Precast, LLC, v. Zirkelbach Construction, Inc., et al. Strang Scott attorney Corey N. Giroux secured a discharge of the plaintiff’s mechanic’s lien as untimely for its client, Zirkelbach Construction, Inc., of Florida, despite the plaintiff performing work within the statutory 120 period to perfect a mechanic’s lien.

The plaintiff, Fabcon Precast, LLC, secured a mechanic’s lien against the subject project, on an ex parte basis, in September of 2015.  Fabcon completed its scope of work on the project in January of 2015, and issued a sworn payment application to the general contractor indicating that it had completed 100% of its scope of work on the project at that time.  Subsequently, in May of 2015, Fabcon returned to address punch list items related to its scope of work.  While on site to complete the punch list work, Fabcon’s workers performed some limited work that they had failed to perform initially that was properly part of Fabcon’s original scope of work on the project.

In order to secure a mechanic’s lien against the project, it was necessary for Fabcon to perfect its mechanic’s lien within 120 days of its last date of work on the project.  Thus, in order for its September 2015 attachment to be proper, Fabcon relied upon the punch list work and other work performed in May of 2015 to support its right to the mechanic’s lien.  Fabcon argued that its punch list work, and the “new” work performed – that is, the work it failed to perform that was part of its subcontract — was sufficient to support its mechanic’s lien pursuant to NH RSA 447, New Hampshire’s mechanic’s lien statute.

On behalf of its client, Strang Scott argued that the September 2015 lien was defective because Fabcon’s work in May of 2015 was insufficient to support the mechanic’s lien and therefore insufficient to extend the 120 day statutory period to perfect its lien.  In particular, it was argued that Fabcon’s sworn payment application in January 2015, which averred that Fabcon had completed 100% of its work in January 2015, commenced the running of the 120 period for Fabcon to perfect its lien, despite the subsequent performance of punch list, remedial, or original scope work by the plaintiff.  The Court agreed. 

The Court directed the plaintiff “could have preserved its right to extend the lien by representing [in January] that it still needed to complete some work.”  “Because it represented that the work was 100% complete, the Court finds that the work performed …. was remedial.  The 120 days [to perfect the plaintiff’s lien] began to run on January 15, 2015.”

This ruling should be instructive for subcontractors and general contractors alike.  Subcontractors should be careful to avoid representing to general contractors that they have fully completed their scope of work if punch list or other work remains to be performed on their subcontracts.  General contractors should take care to insure that their payment applications contain sworn statements from subcontractors as to the extent of the work performed or which payment is sought.  Contractors with questions regarding the extent, duration or nature of their mechanic’s lien rights would be well-advised to consult with their New Hampshire construction attorney.

Subcontractor’s Indemnification with General Contractor: Is it Void?

By on November 9, 2015

In most construction projects, general contractors require subcontractors to indemnify the general contractor for the subcontractor’s negligent actions.  Meaning, if the subcontractor’s negligence causes injury to a third-party and that third-party sues the general contractor, the subcontractor agrees to defend the general contractor.  Often times, general contractors will attempt to go a step further and seek indemnification from the subcontractor for injuries beyond the subcontractor’s control.  In Massachusetts, such provisions are void.   

The Massachusetts statute, MGL 149 § 29C, provides the following:

Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property, including without limitation any road, bridge, tunnel, sewer, water or other utility line, which requires a subcontractor to indemnify any party for injury to persons or damage to property not caused by the subcontractor or its employees, agents or subcontractors, shall be void.

A contractual indemnification clause is valid against a subcontractor where the clause is limited to indemnification for injuries or damages that were caused by the subcontractor.  See Collins v. Kiewitt Constr. Co., 2 Mass.L.Rptr. 416 (Mass.Super. 1994).  Moreover, there is nothing in MGL 149 § 29C that specifically prohibits a proportionate indemnification in subcontracts (e.g. a subcontractor can be required to indemnify a general contractor for the subcontractor’s “share” of the fault).  However, MGL 149 § 29C specifically prohibits provisions that “obligate a subcontractor to provide indemnification for losses that it in no way caused.”  N. Am. Site Developers, Inc. v. MRP Site Dev., Inc., 63 Mass.App.Ct. 529, 535 (2005).

If you are a general contractor, it is important to review the contracts you have with your subcontractors.  If drafted in contravention of MGL 149 § 29C, your indemnification provision may be rewritten by a court, which can have unpredictable consequences.  If you are a subcontractor, you should carefully review the contract with your general contractor to ensure that the general contractor is not attempting to force you into an indemnification that is otherwise unenforceable.  If you have any questions or concerns about the indemnification provision in your contract, you should contact a Massachusetts construction lawyer. 

 

Perfecting Payment Bond Rights: Providing Adequate Notice Under Section 29

By on September 14, 2015

The Massachusetts Payment Bond Statute, Mass. Gen. Laws c. 149, § 29 (“Section 29”), provides subcontractors and material suppliers on public construction projects with the added security of filing claims against the general contractor’s surety when seeking damages. However, subcontractors and material suppliers must follow the strict requirements of Section 29 in order to recover on a payment bond. One requirement is that sub-subcontractors (i.e. a subcontractor’s subcontractor) must provide timely, written notice of their claim to the general contractor providing the bond.

Subcontractors who have direct contractual relationships with general contractors do not need to submit written notice of claims prior to filing suit. Direct subcontractors are covered under Section 29 for work performed, or materials supplied, once payment is 65 days overdue. Subcontractors and material suppliers that do not have direct contracts with general contractors must provide written notice to the general contractors within 65 days after last providing labor or material on projects.

Sounds simple enough, so what’s the catch?

The statute specifically requires written notice to be sent to the general contractor’s office and served through registered or certified mail or by a sheriff or constable. The written notice must also include the amount of the claim and the name of the subcontractor for whom the sub-subcontractor or material supplier performed work. Failure to provide such notice within 65 days bars that sub-subcontractor or material supplier from recovering damages on the payment bond.

Additionally, Massachusetts Courts will not recognize written notices sent before work is complete. In order for notice to be “timely” under Section 29, it must be given after the last date of work or delivery. Written notice sent before the last date on which labor or material are supplied are considered premature. Such notice will not meet the requirements of Section 29 and is fatal to any subsequent bond claim.

Section 29 is a very useful device for recovering overdue payment on public construction projects. However, sub-subcontractors and material suppliers must be careful to ensure that they closely follow all of the notice requirements of the statute. Seek the advice of a Massachusetts construction attorney for more detail.

By Jennifer Lynn

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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.

Do You Have a Contract You Can Lien On?

By on July 21, 2015

To file a mechanic’s lien in Massachusetts, a contractor must have a written contract with the property owner (or owner’s authorized agent).  Subcontractors and material suppliers must show that written contracts exist for their labor and materials as well.  Although this may seem like a rather simple requirement, in some instances whether a written contract exists is not entirely clear.

In 1996, the legislature amended Mass. Gen. Laws c. 254 (the mechanic’s lien statute) to define “written contract” as “any written contract enforceable under the commonwealth.” This means courts can rely on standard contract law to determine whether a written contract is sufficient for a mechanic’s lien.  Taking into account the new amendment, the appellate court in Harris v. Moynihan Lumber of Beverly, Inc., concluded that a memorandum or writing sufficient to satisfy the Massachusetts statute of frauds should also meet the requirement of a written contract for purposes of the statute. The statute of frauds requires a writing “signed by the party to be charged,” in the event that a contract cannot be performed in less than one year’s time. The requirements of the statute of frauds are less stringent than the pre-1996 standard of “an entire and continuing arrangement in writing.”

On many occasions since 1996, Massachusetts courts addressed the question of what constitutes a written contract for purposes of establishing a valid mechanic’s lien.  While the cases have led to disparate results, several rules have emerged.  First, in order for a contract to be enforceable, the terms need not all appear on the same document.  Taken together, however, the series of writings must contain the essential terms of a contract, such as price, quantity, time of performance, and type of material or services.  Noreastco Door & Millwork, Inc. v. Vahradahatu of Massachusetts, Inc. (finding that a one-page cover sheet “original proposal” and a one-page reply memorandum did not constitute a contract for the purposes of the mechanic’s lien statute).  The purpose of this requirement is to ensure project owners have adequate notice of contract terms, so they may make informed choices to protect their interests.  Second, at least one of the documents being used as evidence of a contract must be signed by the party against whom the contract is being enforced (note that e-mail acceptance may be sufficient for a signature).  Third, the connection between the papers may be established by oral evidence, which, taken together with the content of the documents, shows the intent of the parties was to form a contract.  In Moynihan Lumber, Inc., the court found that a series of documents including a sales contract, credit application, and price quotations taken together constituted a contract for mechanic’s lien purposes.  In contrast, that same year the court in Nat’l Lumber Co. v. Fort Realty Corp., found no sufficient written contract because the documents lacked information on the price and quantity of the supplies, which is necessary information for owners to possess in order to protect their interests.  In Scituate Ray Precast Concrete Corp. v. Intoccia Const. Co. Inc., however, a series of signed delivery tickets and their corresponding invoices satisfied the statute of frauds and met the requirements of the mechanic’s lien statute, provided that the person signing for the deliveries was authorized to do so.

The best case scenario is for all parties to sign a single document with clear terms. The realities of the construction industry frequently do not allow that luxury.  When a fully signed contract with containing all the necessary terms hasn’t been executed, it is important to consult with a Massachusetts construction attorney to determine whether the documents you have are sufficient to support your mechanic’s lien.

Proposed Bill Targets “Wage Theft” in Massachusetts

By on May 26, 2015

Strang Scott has previously written about both the Wage Act, the Massachusetts law protecting the earnings of workers, as well as the independent contractor statute, which governs the classification of workers as either employees or independent contractors. Violating the Wage Act and independent contractor statute can have significant real-world consequences. One consequence is a state investigation of wage theft. “Wage theft” is a broad term signifying an employer’s illegal retention of earned wages. The Boston Globe recently reported that “wage theft” is rampant throughout the construction industry. Wage theft often incurs in conjunction with the misclassification of workers as independent contractors, particularly at the subcontractor level where many workers are paid in cash. According to the Globe, the Massachusetts attorney general’s office has issued 253 wage-related citations to the construction industry alone over the last eighteen months, totaling more than $1.6 million in penalties and unpaid wages. The Attorney General’s office views investigating and prosecuting wage theft as a priority.

Employers who commit wage theft or misclassify their workers do so at substantial risk. Any worker is free to file a complaint with the Attorney General’s office, which will conduct a preliminary investigation or allow the worker to file a private law suit. Should the Attorney General ultimately find that a violation occurred, penalties start at $10,000 for non-willful violations, and $25,000 for willful violations. Repeat violations incur higher penalties, and willful violations may be further punished by debarment, preventing offending companies from seeking public contracts.

Current Massachusetts law holds the employer and the employer’s owners and/or managers liable for wage-related violations, but the legislature is considering expanding on current law. State Senator Sal DiDomenico has filed a bill to address the wage theft problem. Among other provisions, the bill (currently known as S.966) will hold “lead companies” responsible for wage violations. “Lead companies” are defined as any business entity that obtains or is provided workers directly from a labor contractor or indirectly from a subcontractor. In other words, should this bill become law, first tier subcontractors and general contractors would share liability for wage issues, include wage theft and independent contractor misclassification. Opponents of the bill have highlighted the potentially unfair burden the legislation would place on honest general contractors, and it is unknown if the bill will ultimately become law. However, all employers (particularly subcontractors, general contractors, and other entities operating in the construction industry) should properly classify all of their existing workers and be advised that the legislature may increase their direct liability for unpaid wages and misclassified workers. Employers should consult with their counsel to ensure that all workers are properly paid and classified.

 

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.

E-mail Acceptance Can Constitute Contract for Massachusetts Mechanic’s Liens

By on March 9, 2015

The Massachusetts Superior Court recently held that electronic communications and signatures — no less than physically signed documents — can constitute a “written contract” for general contractors, subcontractors and construction material suppliers, within the meaning of the Massachusetts mechanic’s lien statute, G. L. c. 254. In Clean Properties, Inc. v. Riselli (“Clean Properties”), the parties mainly communicated via e-mail. The defendant, a property owner, sought to discharge the mechanic’s lien levied against her property for work performed by the plaintiff, a contractor. Because the parties never executed a paper contract, the property owner argued that the contractor could not meet the mechanic’s lien statute’s requirement of a written contract. The court held otherwise.

Applying the Uniform Electronic Transactions Act (UETA) adopted by Massachusetts in 2004, the court held that, where there is a clear intent between parties to conduct their business via electronic means, an enforceable contract can be formed when one accepts a written offer via e-mail. Thus, in certain circumstances, an electronic signature — such as one’s name at the end of an e-mail — can have the same legal effect as a physical signature on paper. See G.L.c. 110G, §7(b) (“contracts may not be deemed unenforceable solely because electronic records were used in formation.”).

In Clean Properties, the parties’ e-mail correspondence made clear that each intended to enter into a contract. Specifically, the court held that the contractor had extended an offer by attaching contract terms to an e-mail with instructions for the property owner to respond, if desired, with an acceptance. The property owner replied as instructed and included her name at the end of the e-mail. Because this reply formed a contract under the UETA, the court concluded that the parties’ e-mail communications sufficed to establish a written contract within the meaning of G. L. c. 254. Contractors and construction material suppliers should still be diligent in getting formal contracts signed. However, this is a positive sign for the future use of electronic communications in negotiating construction contracts.

The case is Clean Properties, Inc. v. Riselli (Salinger, J.) (Middlesex Superior Court) (Docket No. MICV2014-04742) (June 18, 2014).

Independent Contractors and Employees in Massachusetts

By on February 23, 2015

It is increasingly common for employers to use “independent contractors” in addition to, and sometimes instead of, employees. Independent contractors tend to cost less for the employer, as the employer is not required to cover payroll taxes, unemployment insurance, benefits (including health insurance, a benefit that many employers are now required to provide), and other expenditures required for employees. Misclassifying workers, however, can lead to significant civil and criminal penalties under Massachusetts law, including monetary fines and imprisonment. Both business entities and management may be targeted, and violators may be barred from obtaining public works contracts.

Massachusetts state law (M.G.L. c. 149, s. 148B) governs the distinction between an “independent contractor” and an “employee.” Massachusetts uses a three-part test for determining independent contractor status, and begins with the presumption that an individual is an employee, not an independent contractor. The employer bears the burden of proof that the individual was properly classified. To be properly classified as an independent contractor, each of the following prongs must be met:

A. The first prong is freedom from control. Under this prong, the individual must be free from control and direction in connection with the performance of their services, both under a contract for the performance of that service and in fact. The burden is on the employer to demonstrate that the individual’s services are performed with minimal direction or control. Best practices here for employers include avoiding micromanaging employees and ensuring that an independent contractor agreement is in place.

B. The second prong is that the individual’s service is performed outside the employer’s usual course of the business. The statute does not define “usual course of business,” and there is not a lot of case-law on the topic. At a basic level, the employer must not be in the same business as the independent contractor.

C. The final prong is that the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. Employers should ask themselves if the individual in question is willing and able to provide their services to other employers.

A good example of a true independent contractor is an accountant that services a construction company. The construction company is in the business of construction, and employs a variety of tradesmen and project managers to accomplish its core business objectives. The company would hire an accountant to handle tax filings and provide general tax advice. Here, all three prongs are met: presumably, the construction company would not provide any control over the accountant’s duties, and instead just set a goal, such as “complete and file the company’s taxes.” The accountant is outside of the company’s usual course of business, as the company handles construction, not accounting. Finally, the accountant is in an independent occupation and business. The accountant likely works for a separate accounting business, formed for the purpose of providing accounting services to the general public.

Massachusetts has very strict standards for independent contractor classification and employers should be careful to evaluate those standards when classifying their own employees. Some employers balk at the added costs of employees and seek alternative solutions. Unfortunately, there is no exception for short term workers or anything of that nature, but employers may be able to use a temp agency, where the individual in question is an employee of that agency. Another potential option is to have the individual in question incorporate their business, and then contract with that business (with the individual being an employee of their own company). Although there is merit to that approach, there are a number of associated pitfalls and employers should tread lightly.

Misclassifying an employee as an independent contractor can lead to significant civil and criminal penalties, and the Attorney General is not shy about prosecuting such violations. The Attorney General’s office is empowered to investigate possible independent contractor misclassifications, and individuals who believe they have been misclassified are able to file complaints with the Attorney General’s office as well as file their own private lawsuits against their employers. Further, misclassifying an employee often coincides with the violation of other state laws, such as the Wage Act overtime laws and minimum wage laws, making a misclassification a potentially very expensive mistake. The information provided here is just a summary. Employment laws, and their interpretation by courts and government agencies, are constantly in flux. Before making any important employment decisions, it is best to consult with an employment lawyer to minimize the chance of unpleasant legal actions or regulatory scrutiny.