Strang, Scott, Giroux & Young, LLP, is honored to announce the selection of Christopher Strang as a 2018 Super Lawyer by the Massachusetts edition of Super Lawyers. Mr. Strang has been recognized for his outstanding work in construction litigation for the tenth consecutive year, first as a Rising Star and then as a Super Lawyer. The Super Lawyers selection team chooses only 5% of eligible attorneys as Super Lawyers, and only 2.5% of eligible attorneys as Rising Stars. Both lists are the result of a process that includes a statewide lawyer survey, independent research, and peer reviews.
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.
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.
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.
Traditionally, general contractors on Massachusetts state-level public construction projects employed one of two types of risk allocation provisions in payment clauses in their subcontracts with subcontractors: a “pay-if-paid” or a “paid-when-paid” clause. This changed, however, due to a 2004 Massachusetts court decision that largely did away with condition precedent payment clauses commonly referred to as “pay-if-paid” clauses. While the differences between the two clauses may not jump off the page, the use of one rather than the other had a significant impact on a subcontractor’s right to collect payment from the general contractor.
“Pay-if-paid” clauses create a condition precedent to payment. That is, a subcontractor has no right to be paid for completed work until or unless the general contractor received payment from the owner. “Pay-when-paid” clauses create no such condition precedent to subcontractor payment. Rather, a “pay-when-paid” clause is a timing provision; that is, the general contractor has a ‘reasonable time’ to obtain payment from the project owner, but in the event the owner does not pay the general contractor within a ‘reasonable time’ the subcontractor retains the right to collect payment from the general contractor for its work. Ambiguous contract language often complicated the subtle, yet substantial, difference between the two types of clauses, leading to high stakes contract interpretation disputes.
In 2004, Massachusetts did away with the distinction between “pay-if-paid” and “pay-when-paid” clauses on state-level public construction projects. In, Framingham Heavy Equip. Co., Inc. v. John T. Callahan & Sons, Inc., 807 N.E.2d 851, 855 (Mass. App. 2004), the court reasoned, that absent express contract language, if “payment to the subcontractor is to be directly contingent upon the receipt by the general contractor of payment from the owner,” then the default interpretation of subcontract payment provisions, “should be viewed ‘only as postponing payment by the general contractor for a reasonable time after requisition … so as to afford the general contractor an opportunity to obtain funds from the owner.’” This decision virtually eliminated “pay-if-paid” in favor of “paid-when-paid” clauses on Massachusetts state-level construction projects.
While the holding in Framingham is generally good news for payment-seeking subcontractors, the issue remains, however, as to what a “reasonable time,” is to afford general contractors before general contractors must make payment to subcontractors should the owner not pay. In Framingham, the court determined that where the payment issues originated in December 1998 and continued through March 1999, that by the end of April 1999, “the general contractor had exceeded any reasonable period of time,” and thus the subcontractor’s claim for payment for completed work could not be defeated even though the owner had yet to pay the general contractor for the subcontractor’s work.
There has been no subsequent case in Massachusetts that further defines the “reasonable time” standard to determine when general contractors must pay subcontractors when the general contractor objects to making payment as a result of a “pay-when-paid” clause. Thus, subcontractors should be keenly aware of any developments in the law regarding what constitutes “reasonable time” for payment in connection with these provisions. If you have questions regarding payment issues on state-level public construction projects you should contact a Massachusetts construction lawyer.
As a general rule, parties to private contracts are afforded wide latitude to dictate and negotiate the terms as they see fit. While this notion of “freedom of contract” is an entrenched tradition within American law it is not without its limitations. The Prompt Pay Act, enacted in 2010, is one such limitation that every Massachusetts sub-contractor and contractor should have an acute awareness of.
In effect the Prompt Pay Act requires that standard state provisions be incorporated into otherwise private construction contracts with an original valuation of over three million dollars. The Prompt Pay Act specifically affects the interpretation of payment clauses in such contracts.
As a reminder, “pay-if-paid” clauses create a condition precedent to subcontractor payment. That is, a subcontractor has no right to payment for completed work until the general contractor has received payment from the owner. “Pay-when-paid” clauses create no such condition precedent to subcontractor payment. Rather, the general contractor has a ‘reasonable time’ to obtain payment from the project owner, but in the event the owner does not pay the general contractor within the ‘reasonable time’ the subcontractor still has the right to seek payment from the general contractor. Ambiguous contract language often complicates the subtle, yet substantial, differences between the two types of clauses leading to high stakes contract interpretation disputes.
In 2004, Massachusetts did away with distinction between “pay-if-paid” and “pay-when-paid” clauses on state-level public construction projects. Framingham Heavy Equip. Co., Inc. v. John T. Callahan & Sons, Inc., 807 N.E.2d 851, 855 (Mass. App. 2004). Thus with regard to Massachusetts state-level public construction projects “pay-if-paid” causes have been effectively eliminated in favor of “paid-when-paid” clauses.”
Federal-level public construction projects, on the other hand, have not completely eliminated the distinction between “pay-if-paid” and “pay-when-paid” contract clauses. On federal-level public construction projects “pay-if-paid” language included in a subcontract could complicate subcontractor recovery in relation to the principal contractor. The limited amount of Federal case law on the issue, however, leads to the inference that Federal Courts disfavor allowing “pay-if-paid” clauses to operate in the federal-level public construction context.
The Prompt Pay Act directs that, on private construction projects valued at over three million dollars, payment clauses be interpreted as “pay-when-paid,” thus effectively eliminating “pay-if-paid” in most instances. Specifically, and with very narrow exception, “[a] provision in a contract for construction which makes payment to a person performing the construction conditioned upon receipt of payment from a third person that is not a party to the contract shall be void and unenforceable.” MGL c. 149 sec. 29E (e).
This statutory language is a clear attempt, in the name of the broad public interest, to provide protections to subcontractors by endeavoring to ensure swift payment for work provided in order to keep construction projects moving and companies afloat by regulating cash flow.
Smith Ironworks, Inc. v. Torrey Co., Inc., Not Reported in N.E.3d (2014), is the only Massachusetts case to discuss the Prompt Pay Act at any length. Even so, it is an arbitration decision as discussed in Smith, and not the Court itself, that provides the limited interpretation of the Act. In Smith, the subcontractor applied for payment from the contractor for work provided on a private project. Disputes as to the actual amount owed existed, however, rather than actively reject the request for payment, the contractor did not respond at all. Pursuant to the terms of the Prompt Pay Act the request for payment was deemed approved after the statutorily prescribed time passed without formal rejection. The parties submitted to voluntary arbitration and an arbitrator found that the contractor was liable to the subcontractor for the amounts submitted, plus interest, as the contractor failed to properly respond to the request for payment as prescribed by the Prompt Pay Act. The contractor was deemed liable even though it had not been paid in full by the owner.
To reiterate, while Smith details an outcome favorable to a subcontractor by application of the Prompt Pay Act, that outcome is not of true precedential value. Questions remain as to the effectiveness of the Prompt Pay Act. Specifically, questions regarding the true parameters and enforceability of payment timelines and the exact remedy for non-compliance. Thus, subcontractors should keep an eye towards the development of the law in this area and strive to understand how the Prompt Pay Act may apply to various projects. If you have any questions about payment issues on public construction projects you should contact a Massachusetts construction lawyer.
Companies operating or conducting business in Massachusetts are aware of an all-too-familiar statute, Massachusetts General Laws Chapter 93A. This statute provides individual consumers and businesses a right to bring legal action if they are harmed by an unfair business practice. The statute eloquently, although perhaps ambiguously, states that a violation shall exist when a company commits an “unfair or deceptive act or practice, or unfair method of competition,” against another who is engaged in commerce within the Commonwealth. Violations can cover a litany of topics, such as a company that unfairly demands more money to complete its contract obligations after having already executed the contract (Anthony’s Pier Four, Inc. v. HBC Associates, 411 Mass. 451), or where insurance providers fail to offer a fair and equitable settlement amount within the required time period (Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486), or against landlords who fail to provide habitable units to their residential tenants (Haddad v. Gonzalez, 410 Mass. 855). Although Chapter 93A is far-reaching, it does have its limitations.
Recently, Strang Scott attorneys Cole Young and Jennifer Lynn argued to the Massachusetts Appeals Court that litigation tactics alone are not unfair or deceptive acts or practices, such that they violate Chapter 93A. Agreeing, the Appeals Court held that demanding payment under a contract, filing suit, and continuing to litigate a claim over a disputed amount is a simple contract dispute and nothing more. Aggregate Industries – Northeast Region, Inc. v. Hugo Key & Sons, Inc., 90 Mass.App.Ct. 146 (2016). Said another way, the Appeals Court held that plaintiffs should not be punished for deciding to litigate, rather than accepting a lower settlement amount. The Appeals Court went on to hold that the unfair or deceptive practice must arise from an independent act of trade or commerce, “not tangentially from litigation concerning that conduct.”
The precedent of this case will be far-reaching and provides security to companies and businesses who choose to file suit, as opposed to being forced into settlement for fear of committing an “unfair” act. Because the breadth of Chapter 93A can be complicated and nuanced, potential litigants should speak with an experienced Massachusetts litigator.
Most construction project owners require general contractors to provide periodic lien waivers from subcontractors and material suppliers to verify they received payment. This is generally a good thing, as it helps ensure payment is flowing down to the proper parties. Lien waivers, however, can become the source of conflict when parties can’t agree on their terms.
Lien waivers frequently become contentious because they are presented for the first time when payment is due. Almost inevitably the lien waiver will contain terms that are inconsistent with or in addition to existing contract terms, and every day spent negotiating the particular language of the lien waivers delays payment already due. Delayed payments have a ripple effect, as contractors rely on prompt payments to keep up with labor and material costs, and to keep the project running on schedule.
Among the most common sticking points is waiver language that is simply too broad. Payment is being made in exchange for labor and materials provided on a project through a particular date. Yet owners often propose lien waivers that try to force contractors to release much more than that. Commonly owners propose clauses that require the payee to promise to indemnify the payor for other liens filed on the project, among others. Of course, the party holding the money maintains some unfair leverage to force the other to sign away rights not contemplated when negotiating the original contract in order to get paid.
To prevent disruptive disputes during the course of construction, prudent parties should review and negotiate the actual lien waiver forms as appendices to contracts, prior to signing anything. This practice is wise for contracts between owners and general contractors as well as between general contractors and subcontractors or material suppliers. It is also always best to have a construction attorney review your contracts and lien waivers to fully understand the rights and responsibilities included in them.
On August 1, 2016, the Occupational Health and Safety Administration (“OSHA”), will raise the limits of its maximum penalties for the first time in nearly twenty-six years.
Current maximum penalties for “serious,” “other than serious” and “posting requirement” penalties will increase from $7,000.00 per violation to $12,471.00 per violation. Penalties for failure to abate hazards or violations will increase from $7,000.00 to $12,471.00 per day for each failure to abate the condition subsequent to the abatement date. Finally, the maximum penalties for “willful” or “repeat” violations will increase from $70,000.00 to $124,709.00 per violation.
All contractors, and especially those with a history of violations or alleged violations with OSHA, would be wise to insure that all personal protective equipment, tools and equipment are OSHA compliant in advance of the changes in maximum penalties. If your firm hasn’t recently revisited its safety procedures, practices and documentation, now is the time to review your firm’s safety program in order to avoid exposure to increased maximum penalties for OSHA violations set to take effect.
For contractors in states that operate their own, state run, “mini-OSHAs,” OSHA has required that those agencies adopt maximum penalties that meet or exceed those imposed by OSHA. Accordingly, contractors operating in states with “mini-OSHA” agencies should be mindful to consider whether they’re subject to penalties for any violation that may exceed the penalty that OSHA might impose for any similar violation.
Of course, the best way to avoid an increased OSHA penalty for a violation is to refrain from committing any violation. As a practical matter, violations frequently occur despite your firm’s best efforts and dedication to providing a safe and compliant work environment. If OSHA requests to inspect your work site or office, you’d be well-advised to immediately contact an attorney experienced in OSHA practice to help guide your firm through the process and to achieve best results.
Email is an indispensable tool for contractors that can streamline communication regarding the many facets of a construction project that aren’t strictly found in a project’s plans and specifications, or in the relevant contract documents. When used well, email can be invaluable to document the course of a project. When it’s disregarded or treated haphazardly, email can fail for its essential purpose – meaningful communication – or worse still it can be used to turn your own words against you. The following are several considerations when using email to communicate regarding your construction project.
Who is my audience?
This isn’t a trick question, but it is more nuanced than it might initially seem. In the first, instance, the obvious audience for each email is its addressees. Those addressees, however, may be only the first audience for your email. If a dispute arises regarding your project, you should anticipate that the audience for your email might grow exponentially to include corporate principals, engineers, architects, attorneys, arbitrators, judges or juries. As a result email correspondence regarding your project should be limited to professional matters, focused on the subject matter to be addressed and as clear as possible regarding the subject matter being addressed. When developing your email practices, it’s important to remember that your audience could extend beyond the initial addressees. This should help you to focus your message on the relevant considerations for your communication and help you avoid sending emails that you’ll later need to explain.
Why am I sending this email?
If you can answer this question succinctly, you’re off to a good start in drafting an effective project email. The “high-level” answer to this question generally should be reflected in the subject line of your email. The details that follow in the email should be limited to addressing the matter(s) in the subject line. Discussion of matters unrelated to the expressed subject should be avoided and saved for another email, letter or conversation. Consider writing a new email, with a new subject line, when your message no longer addresses matters in the subject line, rather than continuing a chain of email that has gone off point. If you follow this practice, you’ll help the recipient to quickly identify the reason for your email, prioritize your email among the many received on a given day and help both you and your recipient to refer back to the email, or chain of emails, later regarding the particular issue(s) addressed. As a side benefit, you’ll appear focused, organized and professional in your communication regarding the project.
Conversely, if you can’t answer this question, whatever you intend to write is probably best left unsaid, or at least, unrecorded. Among the reasons you should avoid sending a project email are anger, annoyance, personal reasons, sarcasm or humor. Nobody like a humorless person, but email is tone-deaf or worse – susceptible to multiple tones. Like a diamond, email is forever. Once you’ve pressed “send,” it’s safe to assume that your email will be part of the project record forever. And like a diamond, it’s for “better or worse.”
When is an email (or letter) absolutely necessary?
There are instances when it’s critical to communicate to another party with email or a letter.
Deviations from plans, specifications or the contract: Each time you’re asked or told to do something beyond the scope of work or that differs from the plans, specifications or your contract, you should confirm what you’re asked or told to do in writing. An email confirming your prior communication(s), your understanding of what’s been requested and your intended resolution of that matter is critical to documenting your project accurately and favorably. An email or letter addressing these matters achieves at least three important objectives; it provides a contemporaneous record of the event, it provides the requesting party notice of your intentions and it provides the party receiving your correspondence the opportunity to respond, to object or to further clarify the information you’ve provided.
Particularly with respect to change directives from an owner or general contractor, often it will not be enough to correspond with the opposing party regarding the change, and other steps will need to be taken. It is important, however, to use the email as a means to establish the circumstances of the change request, your understanding of what has been requested and how and when you intend to address the request. These matters can significantly affect the likelihood that you’ll be compensated for change requests later if a dispute regarding your performance arises.
Disputes: Because your project communication is a significant piece of the overall record of a project, it’s critical to fill in details regarding matters of dispute with your communications. For the reasons previously noted, your email communications can be used to reflect and confirm oral communications between parties whose positions and recollections may differ and change over time. An email confirming the contents of a recent discussion, particularly regarding matters in dispute, can prove invaluable to establishing the circumstances, your actions and your position if a dispute ripens into arbitration or litigation. Your contemporaneous email correspondence can serve as a powerful and credible tool to establish your version of the events regarding any dispute.
Setting the Record Straight: For the same reasons that the record of events created in your email can be used to support your version of events, it is vital to respond to inaccurate recitations of conversations or events from another party. In the long hindsight of a project, inaccuracies that go unchallenged by simple omission become more difficult to discredit. This is not to say that you must respond vigilantly to each and every minor inaccuracy. Rather, it is important that you do not let another party’s version of events control the written narrative of the course of the project. Long before any matter becomes contentious, you’re well served by addressing, in writing, significant inaccuracies in another party’s written narrative of events that are important to explain your actions or address historical inaccuracies. Sometimes it will be important to make sure the record is accurate as to whether something was done on a Monday or Tuesday, but more often than not, it’s more important to know in what sequence a particular task was performed or whether a certain discussion took place before or after certain work was performed.
It’s not essential that you resolve whose version of events are correct: generally, you’ll be able to verify what happened by other means as well. It is crucial, however, that your version of events exists in the written record so as to avoid the scenario where only your testimony is left to challenge the other party’s testimony and their unchallenged written version of events that you failed to address contemporaneously. Under those circumstances, it is significantly more difficult to establish your version of the events or challenge the credibility of another party whose testimony is corroborated by a written record of the events.
Developing consistent email practices can be a powerful, if underappreciated tool in the contractor’s toolbox. In addition to developing clear and credible records of your projects, you’ll be prepared to address questions regarding the performance of your work in a consistent and compelling way. Better still, you may limit or avoid disputes through consistent application of your good email practices. And for those disputes that can’t be avoided, when you sit down with your construction attorney to discuss the matter and review your records of the project, it’s likely that you will have a better prepared project file than your opposing party.