Tag Archives: construction

Proposed Changes to The Retainage Law for Massachusetts Private Construction Projects

By on June 30, 2015

*with contributions from Christopher D. Strang

In November 2014, the Massachusetts Legislature passed Mass. Gen. Law c. 149, § 29F, entitled “Payment of Retainage in Private Construction Projects” (“The Retainage Law”).  The Retainage Law reduced the amount of retainage that can be withheld on many large private construction projects. It also provides deadlines for paying retainage amounts and methods for determining the date of substantial completion.  The Massachusetts Senate recently held hearings on proposed Bill Number 1006, which seeks to amend the statutory language of this law.

Under the changes proposed in Bill 1006, The Retainage Law would be limited in its application and would only control the amount of retainage withheld on certain private construction projects. Below is an explanation of the standards The Retainage Law currently sets forth, followed by an explanation of the changes Bill 1006 proposes.

Projects Covered by The Retainage Law

The Retainage Law applies to all private construction contracts entered into after November 6, 2014 valued over $3 million dollars, with the exception of residential projects for four or fewer units.

Limitations on Retainage

Retainage is specifically limited to 5% of each periodic payment. Contracts that either waive, limit or subvert the 5% retainage cap may be void and unenforceable under the statute.

Notices of Substantial Completion

Under The Retainage Law, general contractors must submit a “Notice of Substantial Completion” to the owner within 14 days of determining that it has achieved substantial completion. The statute defines “substantial completion” as the stage in the project where the project work is sufficiently complete as to permit the owner to occupy or utilize the premises for its intended use. Substantial completion may be applied to the project as a whole or to a phase of the entire project where the contract permits substantial completion for project phases.

The owner then has 14 days to notify the general contractor whether it accepts or rejects the Notice of Substantial Completion. To reject it, an owner must notify the contractor in writing and include “the factual and contractual basis for rejection,” along with a certification that the rejection was made in good faith. Rejection of the Notice of Substantial Completion permits the contractor to utilize the dispute resolution procedures provided for in the contract, which must begin within 7 days after the rejection (unless the contractor later resubmits a Notice of Substantial Completion). If the owner fails to deliver notice of its rejection within 14 days, or fails to comply with the requirements of Section 29F(d), the date indicated by the contractor in the Notice of Substantial Completion will be deemed accepted by the owner.

The owner has 14 days from the date the Notice of Substantial Completion is accepted to submit a written punchlist to the contractor. The punchlist must describe all incomplete or defective work items and deliverables required of the contractor, and include a certification that it is made in good faith. A “Deliverable” is defined by Section 29F(a) as “a project close-out document that shall be submitted by the [contractor] seeking payment of retainage under the [contractor’s contract] for construction; provided, however, that a lien waiver or release, which is a deliverable, shall comply with chapter 254; and provided further, that ‘deliverable’ shall not include any document affirming, certifying or confirming completion or correction of labor, materials or other items furnished or incomplete or defective work.” The contractor must then pass on a written punchlist to each subcontractor it is holding retainage against within an additional 7 days (or 21 days after the date the Notice of Substantial Completion is accepted), detailing all incomplete or defective work items and deliverables. The punchlist to the contractor’s subcontractors may include items beyond those on the owner’s punchlist and must also include a certification that it is made in good faith. Both the general contractor and subcontractors are permitted under The Retainage Law to dispute the items listed on punchlists.

Applications for Payment of Retainage

General contractors and subcontractors must submit a written application for payment of retainage within 60 days after the date of substantial completion for a final and binding resolution regarding a disputed date. This application must include a written list of all punchlist items that were completed, repaired, and delivered, and must be certified by the submitting party that it was made in good faith.

The owner then has 30 days to provide payment of retainage to the contractor. When providing payment of retainage, owners are permitted to withhold portions of the retainage to cover incomplete or defective work, limited by the following:

  • for incomplete, incorrect or missing deliverables, either (a) the value of the deliverable, as mutually agreed upon in writing between the owner and contractor or (b) if no value has been agreed upon, the reasonable value of the deliverables, not to exceed 2.5% of the total adjusted contract price;
  • 150% of the reasonable cost to complete or correct incomplete or defective work items; and
  • the reasonable value of claims and any costs, expenses and attorney’s fees incurred if the claim is allowed under the contract.

Portions of retainage may only be withheld where the contractor seeking payment received a detailed punchlist from the owner prior to the date payment is due. The time period for payment under an application for payment is extended by a period of 7 days for the contractor at each tier of contract below the general subcontractor. Contractors may submit further applications for payment of retainage as work is completed on the project. The Retainage Law specifically prevents owners from withholding retainage payments otherwise due to subcontractors where the general contractor is not in default. General contractors have 7 days to forward retainage payments to subcontractors.

At a minimum, The Retainage Law requires applications for payment of retainage to be submitted at least once a month. Rejection of an application is also subject to dispute resolution procedures, which may be initiated 30 days after the rejection of an application for payment of retainage.

Bill No. 1006 – Proposed Changes to The Retainage Law

Bill 1006, if passed, will dramatically change the scope and effect of The Retainage Law. It would add exemptions for construction projects which are financed or supported, in whole or in part, by state or federal mortgage assistance, special taxing arrangements, tax credits, grants, issuance of bonds, loans, loan guarantees, debt, or equity assistance.

It also proposes removing the sections relating to notices of substantial completion and applications for payment of retainage entirely. Bill 1006 would reduce The Retainage Law to the following content: (1) retainage is limited to 5% of the contract price and (2) contracts which require or permit retainage in excess of 5% of the contract price will be void and unenforceable insofar as any such excess is concerned.

Impact of The Retainage Law and Bill No. 1006

Citing practical issues with meeting the deadlines set forth in The Retainage Law, some project developers and owners have articulated a desire to remove large portions of it. In particular, they cite the 14-day limitation to accept or reject the date of substantial completion as impractical and unachievable. Some general contractors criticize the additional 7 days for paying subcontractors, and for completing and forwarding punchlists. Some also claim the law does not adequately consider the complexity of communication between multiple parties on large projects.

Bill 1006 alters the language that retainage may not exceed 5% of “any progress payment” to state that retainage may not exceed 5% “of the contract price.” While the amount would equal out at the end of the project, the proposed changes would arguably allow an owner or higher tiered contractor to withhold more than 5% from any single payment, so long as the amount equals 5% of the total contract price. Such a change could negate the benefit contractors receive through larger progress payments throughout a project, but would have no impact on the amount of retainage outstanding at the end of the project.

Whether Bill 1006 will be enacted and what additional changes, if any, are to be made to the Retainage Law will be determined over the next several months. It is clear that there is significant interest in creating consistency in retainage guidelines for the construction industry.

The foregoing information is a general summary regarding proposed changes to retainage in private construction projects in Massachusetts. If you are uncertain about anything regarding the amount of retainage withheld on a project or the process of obtaining payment for retainage amounts, contact your construction attorney to ensure the necessary steps are taken to achieve the best possible outcome.

 

Avoiding Fatal Errors When Submitting Bids on Public Construction Projects

By on June 18, 2015

Those who perform public work in Massachusetts know the phrase “lowest, responsible and eligible” bidder well, as it applies to the standard for awarding subcontracts on public construction projects subject to the bid statutes.  However, as many subcontractors have experienced, some of the bid requirements to be considered an “eligible” bidder are in fact waivable by the awarding authority.

 The nuances of public bidding are that some bid requirements, even those that are statutory, are waivable by the awarding authority.   For instance, the bidding statute requires that a sub-bidder must include its certificate of eligibility and update statement with its bid to establish prequalification.  However, the Attorney General (“AG”) has held that a bidder can actually submit its certificate of eligibility after the opening of the bids.  Yet, failure to submit the update statement at the time of bid opening necessitates automatic rejection of the bid.  Why this discrepancy?  In evaluating whether an awarding authority has the discretion to accept a bid that fails to include a certificate of eligibility at the time of bid opening, the AG reasoned that awarding authority can verify contemporaneously whether a bidder is DCAM certified.  Therefore, there is no harm in allowing a bidder to submit its certificate a few hours later.  Conversely, allowing a bidder to furnish its update statement after bid opening would result in an unfair advantage because the update statement, unlike DCAM certification, cannot be independently and instantaneously verified.  Allowing a bidder to submit a document that is entirely within the bidder’s control, like the update statement, could result in “two bites of the apple,” as the saying goes, because the bidder could decide after bid opening whether to submit the document based on whether the bidder still wants the job. 

So how does one determine which deviations from the bid requirements would be minor enough to warrant an awarding authority to use its discretion to accept an otherwise non-complying bid?  It all comes down to whether or not a bidder would have an unfair advantage which would undermine the purpose of the competitive bidding statute to obtain the lowest price for work that competition among responsible bidders can secure.  For instance, as explained above a certificate of eligibility submitted late is not unfair as there is no upper hand gained by a certificate-less bidder.  Conversely, a bidder is not allowed to submit bid security a few hours late.  The AG explained allowing a bid bond to be submitted even a few hours late could upset the balance of fair bidding as some bidders could abuse such leniency by submitting a low bid without a bid bond and then have second thoughts after the opening and nullify their bid by never filing a bond.  Below is a brief summary of bid requirements that the AG has determined require rejection by the awarding authority, and those for which the awarding authority may use its discretion in determining whether to reject.  It’s important to recognize that an awarding authority is not compelled to overlook “waivable” bid requirements.

Bid Requirements which the AG has held may be waived by the awarding authority, in its discretion: 

1.  Minor clerical errors.

–Such clerical errors much be minor enough that they are obvious and deceive no one.

2.  Failure to submit non-statutory items where bid documents do not make submission mandatory.

–These include items which do not go to the scope of work or price of the work.

3.  Noncompliance with discretionary minority requirement.                                                         

4.  Failure to acknowledge addenda which do not go to price and scope.

–Such addenda must be small or insignificant as to be a minor deviation.

5.  Update statement with an omission.

 –Massachusetts Courts have held that even if a contractor makes an intentional misrepresentation on the update statement, the awarding authority still has the discretion to terminate, but is not required to terminate the contract.

6.  Submitting certificate of eligibility after bid opening.

There are certain deviations from the bid requirements that mandate bid rejection by the awarding authority:

1.  No bid bond.                                                                                                                                            

2.  No signature on bid.                                                                                                                                  

3.  Failure to submit update statement.    

4.  Failure to timely submit bid.                                                                                                                

5.  Bids that are incomplete, obscure, or contain conditions.

–For example, failure to bid on materials specified in bid documents; failure to acknowledge addenda which affect price and scope of work; or not bidding on the amount of material specified.  Another pitfall would be a bidder who put conditions on the bid price or does not comply with specifications but tries to change them.

Of course, the statute also provides modes of protesting the award of a contract.  A bidder can chose to go to either Superior Court, or to the Attorney General’s office to protest a bid award. Because these issues are often very fact specific, bidders that may have been aggrieved by the awarding authority or other parties in the bid process should consult their construction attorney to determine whether there are grounds for a bid protest, and to provide the bidder with guidance on the bid protest process.

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).