Strang Scott partner, Chris Strang, co-authored and article with Brendan Carter from the Associated General Contractors of Massachusetts that was published recently on the cover of the American Bar Association’s “Under Construction” quarterly newsletter. The article details a case where Strang Scott prevailed against the Commonwealth of Massachusetts, successfully arguing that the awarding authority has a duty to ensure the validity of payment bonds provided by general contractors on public construction projects in Massachusetts. The case was a matter of first impression in Massachusetts courts.
Since the early 1900’s, Massachusetts courts have held that a contractor cannot recover on the contract itself without showing complete and strict performance of all terms or, in the event the contract cannot be completed fully, that the contractor substantially performed and attempted, in good faith, to perform fully. Under this rule, if the court finds that the contractor intentionally departed from the specifications of the contract, the contractor is prohibited from recovering under the contract, forfeiting its right to contract damages.
The Massachusetts Supreme Judicial Court (SJC) will hear arguments this week requesting the forfeiture rule in construction cases to be overturned. The appellant in G4S Technology LLC v. Mass. Tech. Park Corp., SJC-12397, appeals a prior summary judgment ruling, wherein the trial court denied the contractor’s claims for approximately $10 million in delay-and-impact damages on the basis of the forfeiture rule. Despite ultimately completing the project, it was determined that the contractor paid some of its subcontractors late and submitted false certifications. Those actions were in breach the contract, and the trial court determined that those actions were sufficient to deny the contractor’s claims.
The SJC will consider whether Massachusetts should adopt an alternative standard that considers whether a breach was an uncured, material breach that alleviates the non-breaching party’s obligation to pay and weigh a breaching party’s lack of good faith or willfulness, among other factors to be considered by the court. This multi-factor analysis is applied currently by Massachusetts courts in other contract disputes, but not in connection with construction disputes.
Should the forfeiture rule be overturned, it would have wide-reaching consequences and create greater flexibility in arguing an entitlement to damages on breach of contract claims. Contractors would be wise to keep track of this case as it proceeds. If you have questions concerning your rights in connection with a construction dispute, consult an experienced Massachusetts construction attorney.
In a recent decision, D5 Iron Works, Inc. v. Danvers Fish & Game Club, Inc., & Others, the Appeals Court of Massachusetts ruled that an owner’s promise to make payment to the subcontractor did not excuse the subcontractor’s failure to timely file suit.
In the case, the general contractor was delinquent in paying the subcontractor. The subcontractor timely filed a Notice of Contract as well as a Statement of Account . Nevertheless, Massachusetts lien law requires that a lawsuit be filed within 90 days of filing the Statement of Account.
According to the Subcontractor, the project owner represented that the subcontractor would be paid. The subcontractor testified that it relied on that representation in not timely filing the lawsuit.
Consistent with its prior decisions, the court ruled that mechanic’s lien statutory deadlines are to be strictly enforced, and denied the subcontractor’s claims.* This case stands as a fresh reminder that the statutory deadlines for mechanic’s lien filings are enforced strictly, and not generally subject to extension or modification by private agreement. Contractors and subcontractors should take care to observe deadlines ardently in order to avoid losing their mechanic’s lien rights.
*At the time of this article, it remains unclear whether either party will appeal the decision, which went unpublished.
The White House recently released its “Legislative Outline for Rebuilding Infrastructure in America.”
In the preamble to the outline, The White House requested that Congress act to implement the infrastructure program in short order through new legislation. In broad strokes, the outline calls for new spending to stimulate $1.5 trillion dollars in infrastructure investments, from federal and state governments, agencies and localities, to address American infrastructure projects.
Should the program be implemented by Congress in any meaningful way, it would mean a boon for public construction projects and contractors. Contractors would be wise to keep a careful eye on this proposed legislation as it develops.
The Regulation of Business Practices for Consumer Protection Act, commonly referred to by its statutory chapter number, “Chapter 93A,” is a frequently utilized statute that provides individual consumers and businesses with a right to bring legal action and recover damages if they are harmed by an unfair business practice. Under the statute, “unfair or deceptive acts or practices” or “unfair methods of competition” committed while conducting business in Massachusetts permit the harmed party to recover their actual damages, or a statutory minimum of $25 per offense (whichever is greater), and up to three times such damages for knowing and willful violations of the statute, plus an award for reasonable attorneys’ fees and the costs of the lawsuit. Chapter 93A creates harsh penalties, with a wide-reaching scope, to deter unfair business acts, however, it does have limitations.
Previously, we explained the prohibition on Chapter 93A recovery with regard to a party’s decision to litigate a dispute, rather than settle with the opposing party.
A second limitation on recovery under Chapter 93A relates to the timing of when a party’s legal fees are incurred. Recently, the Suffolk County Superior Court considered the issue of whether pre-litigation attorneys’ fees are recoverable under Chapter 93A in Beninati, et al. v. Borghi, et al. The court awarded double damages to one of the plaintiffs under Chapter 93A. The defendants who were found liable under Chapter 93A then moved the court to reduce the attorneys’ fees award by $170,000 for fees incurred prior to the filing of the lawsuit, relating to “extensive settlement discussions.” The court agreed that pre-litigation fees are not recoverable under Chapter 93A, stating that it “is aware of no authority that permits the award of fees incurred before the litigation began and that do not bear directly on its preparation.” Accordingly, the court excluded the pre-litigation attorneys’ fees from the award.
This case is just one example of the importance of understanding the process of litigating claims and the implications of dealing with an adverse party. Depending on the circumstances of a dispute, it can be wise to initiate litigation sooner to ensure large portions of incurred attorneys’ fees are ultimately recoverable from the party causing the harm. To learn more about scope and application of Chapter 93A, contact an experienced Massachusetts litigation attorney.
The Massachusetts Attorney General’s Bid Protest Unit (“AG”) recently decided that when an awarding authority seeks references not listed by the sub-bidder, it must give the sub-bidder the opportunity to respond when such reviews are negative.
In the case, the Barre Housing Authority (“BHA”) sought public bids for a panel replacement project. BHA checked the references for the low sub-bidder, but also reached out to an unlisted public entity for which the sub-bidder had previously performed work. That public entity gave the sub-bidder a negative review, which caused BHA to reject the low sub-bidder’s bid.
The sub-bidder filed a bid protest. Pursuant to Massachusetts public bidding laws the AG’s office conducted an investigation and held a hearing. The AG decided that while BHA reaching out to references not listed by the sub-bidder was not improper, by doing so they implicitly created an obligation to offer the sub-bidder a chance to rebut the negative reference.
The AG ordered BHA to reconsider its decision to reject the low sub-bidder, in light of the ruling. Should you have questions concerning your rights as a bidder, you’d be well-advised to consult with an experienced construction attorney versed in public bidding protests.
The Occupational Safety and Health Administration (OSHA) recently extended, for the second time, the enforcement deadline for compliance with electronic reporting of injury and illness data through its Injury Tracking Application (ITA) until December 15, 2017.
The new rule took effect January 1, 2017, and required certain employers to submit injury and illness information electronically through the new tracking application. The information required to be submitted to OSHA remains largely unchanged from the information already required to be kept under current regulations. In other words, the primary difference is that it must be submitted through the ITA rather than through traditional methods.
In late November, the deadline was pushed back again to December 15, 2017. Despite the second delay in enforcement it appears that the rule will eventually begin enforcement, even amid speculation that the rule might be scuttled entirely. For the time being, construction employers should be prepared to submit their 300A and related forms electronically for years 2016 and forward electronically by December 15, 2017 to insure compliance with the new rule and avoid exposure to citations.
The Massachusetts Retainage Act limits the amount of retainage allowed for private construction projects, and imposes mandatory processes for reaching the date of substantial completion, submitting punchlists and completing punchlist items, and submitting applications for payment and obtaining payment of retainage.
The Act applies to all construction contracts signed after November 4, 2014, for privately owned projects where the original contract price with the owner is at least three million dollars and the general contractor, subcontractors, or design professionals would have mechanic’s lien rights , but exempts residential housing projects of one to four units.
Limit on Retainage
Under the Act, no more than five percent retainage may be withheld from any progress payment. Among other things, this prohibits frontloading retainage amounts for a portion of the project, with less held at the end.
The Act defines substantial completion as the stage in the project when the work required under the general contractor’s contract with the owner is “is sufficiently complete … so that the project owner may occupy or utilize the work for its intended use.” Substantial completion may apply to the entire project or to a phase of the project, but only where the project owner has expressly allowed substantial completion for defined phases.
In order to reach substantial completion, the general contractor must submit a form for notice of substantial completion, as contained in the Act, to the owner within fourteen days of reaching the stage when the general contractor believes the project is substantially complete. Then the owner has fourteen days to accept or reject the general contractor’s notice. Should the owner fail to timely respond to the notice, the owner is deemed accept to general contractor’s work as substantially complete. If the owner accepts the notice, the date of substantial completion is set and is binding upon all related aspects of the contract. If the owner rejects the notice, it must notify the general contractor in writing of the rejection and include the factual and contractual basis for the rejection and a certification that the rejection is made in good faith. The Act permits an expedited process for the general contractor to dispute the rejection under the contract’s dispute resolution procedures. Alternatively, the general contractor can resubmit a form for notice of substantial completion to the owner for new approval.
Submission of Punchlists and Completion of Punchlist Items
Within fourteen days after acceptance (whether express or deemed accepted) of the notice of substantial completion, or the final and binding resolution of a dispute, the owner must submit a written punchlist “describing all incomplete or defective work items and deliverables” to the general contractor. The owner’s punchlist must be certified as made in good faith.
The general contractor has an additional week after the owner’s deadline expires, or twenty-one total days after acceptance, to submit a punchlist to each subcontractor from whom the general contractor is holding retainage “describing all incomplete or defective work items and deliverables required,” which may include items in addition to the owner’s punchlist. The general contractor’s punchlist to its subcontractors and suppliers must be certified as made in good faith. General contractors, subcontractors and suppliers are permitted to dispute punchlist items directed to them.
Submitting Applications for Payment and Obtaining Payment of Retainage
The general contractor, subcontractors and suppliers from whom retainage is held may submit written applications for payment of retainage no sooner than 60 days following the date of substantial completion. Each contractor shall use the form required by their contract to apply for payment of retainage. Alternatively, the project owner and general contractor may allow for earlier submission dates. An application for payment of retainage must include the punchlist, along with a written list identifying which items have been completed, repaired or delivered, and a certification that the application is submitted in good faith.
Applications for retainage must be paid within thirty days of receipt, minus any withholdings described below. For each tier of contract below the prime contact with the owner, the time period for paying retainage is extended by seven days.
Should the owner or contractor seek to withhold payment of retainage, they are limited to (1) the value of incomplete, incorrect or missing deliverables as either agreed upon by the parties or, if no agreement is reached, no more than two and a half percent of the total adjusted contract price; (2) one hundred and fifty percent of the reasonable cost to complete or correct incomplete or defective work items; and (3) the reasonable value of claims and any costs, expenses, or attorneys’ fees incurred as a result of the claims (but only when permitted by the terms of the contract).
Retainage, or any portion thereof, cannot be withheld unless the party seeking payment receives, before the date payment is due, a written explanation “of the incomplete or defective work items and incomplete, incorrect or missing deliverables, the factual and contractual basis for the claims and the value attributable to each incomplete or defective work item, deliverable and claim.” The explanation of withholding must also be certified as made in good faith.
Moreover, the Act prohibits the owner from holding any portion of retainage due to subcontractors or suppliers that are not the subject of the owner’s claim against the general contractor, unless the owner has declared the general contractor in default under its contract.
As the foregoing makes plain, the Act requires all parties to a project to adhere to strict guidelines in connection with withholding, and later releasing retainage. In order to gain a full understanding of how the Act and other statutes govern Massachusetts construction projects, and how to preserve your rights under those statutes, contractors would be wise to consult with a Massachusetts construction attorney regarding their specific contract and situation.
On October 19, 2017, OSHA released interim enforcement guidance for its Respirable Crystalline Silica in Construction Standard. This standard began full enforcement on October 23, 2017.
The Interim Enforcement Guidance issued refers to the standard promulgated on September 23, 2017. Initially, rather than issue citations for violations of the standard, OSHA’s compliance officers were instructed to assist employers making good faith efforts to comply with the new standard for the first 30 days of its enforcement. With the new Guidance issued on October 19, full enforcement of the new standard was rolled out on October 23. Accordingly, employers in the construction industry, and particularly those where substantial silica exposures may be encountered, should be cognizant that full enforcement of the standard will now be enforced by compliance officers.
The Respirable Crystalline Silica in Construction Standard established a new exposure limit for respirable crystalline silica at 50 micrograms per cubic meter of air as a weighted average during a worker’s an eight hour shift. This new permissible exposure limit is five times lower than the prior limit for respirable crystalline silica.
Because prolonged and intense exposure to crystalline silica is known to cause cancer, and crystalline silica is byproduct of many construction activities and materials, such as concrete, rock, mortar and sand, OSHA’s Respirable Crystalline Silica in Construction Standard is intended to limit such exposures. Many safety measures can be installed and protective equipment can and should be used to avoid intense or prolonged exposures to crystalline silica. Contractors frequently involved in operations where such exposure is likely should be careful to provide all necessary safety measures, safety equipment and personal protective equipment necessary to comply with the new standard.
If you have questions regarding OSHA’s new guidance, your compliance with other OSHA safety standards, or in connection with your rights after a citation has been issued, you are well-advised to consult with counsel familiar with OSHA matters.
Damages for work performed under a construction contract may be awarded under a variety of legal theories. One such theory is the principle of quantum meruit, which, when established, allows for an award of the reasonable value of goods or services as compensation for the value of “enrichment” those goods or services provide. Generally, one must demonstrate both good faith and substantial performance in order to recover on the theory of quantum meruit.
Recently, the Massachusetts Appeals Court reversed an award of damages on a quantum meruit claim after homeowners terminated their contract prior to completion of work.
In Pinecone Construction, Inc. v. Sridhar, the trial court awarded quantum meruit damages to a contractor, reasoning that while the contractor’s work intentionally departed from the contract specifications, the work was “structurally sound” and was used in completing the project. As a result, the court concluded that “equity demands” that the contractor recover the value of its labor and materials provided prior to termination. On appeal, the Appeals Court reversed, determining the trial court’s reasoning to be circular, and held that as a matter of law a contractor cannot recover quantum meruit damages without showing both good faith and substantial performance, without regard to any benefit or enrichment conveyed to the homeowners. Because the trial court found the contractor’s intentional departure from contract specifications tantamount to bad faith, the damages award was overturned and the homeowners were separately awarded damages for the cost of completion and under the Massachusetts Home Improvement Contractor Act and Mass. Gen. Laws Chapter 93A.
While Pinecone Construction is an unpublished opinion, it should stand as a cautionary tale to contractors – failure to perform work in good faith can bar even equitable recovery for work performed. If you have questions regarding your ability to recover damages for your work on a home improvement contract or other construction work, you should contact an experienced construction lawyer to determine your rights and assess your potential remedies.