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.
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.
A recent Massachusetts Appeals Court decision made clear that the burden of proof relative to the operation of lease option clauses falls on the party seeking to exercise the option regardless of which party moves to enforce their rights pursuant to the lease. In Patriot Power, LLC v. New Rounder, LLC, et al. (2016), a commercial landlord initiated an action for declaratory judgment and breach of contract against a tenant alleging that the tenant did not properly exercise its contract option to terminate its tenancy.
At trial, the jury was instructed that the landlord bore the burden of proof relative to the claim that the tenant had not properly exercised the lease termination option. The landlord objected to the instruction and subsequently lost the case. On appeal, the court sided with the landlord and reversed the ruling on the grounds that the jury instruction regarding the burden of proof was erroneous and prejudicial.
The court held that the fact that the landlord initiated the action for declaratory relief did not shift the burden to the landlord on the underlying action. The court cited a line of cases supporting the proposition that, “one relying on a condition to avoid contractual obligation has the burden to prove the occurrence of the condition.” A proposition made stronger when the facts are such that, “the contractual obligation actually requires an affirmative act by the party seeking to end the obligation.”
As applied to the facts in Patriot Power it is clear that the tenant bore the burden of proof. The lease termination option required the tenant to mail timely notice of such termination in order to relieve the tenant of further contractual obligation. Thus, the tenant needed to prove it had, in fact, complied with the terms of the lease rather than the landlord needing to prove non-compliance. Lease termination option clauses are common in many Massachusetts commercial leases. Both commercial landlords and tenants should read their leases carefully in order to fully understand the obligations and provisions contained within.
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.
In the matter of City of Rochester v. Marcel Payeur et al., the New Hampshire Supreme Court had occasion to consider whether the common law doctrine of Nullum Tempus Occurit Regi (literally “time does not run against the king”) tolled the the statute of limitations against breach of contract claims against private entities filed by municipalities.
The doctrine of Nullum Tempus derives from common law and serves to protect the public’s interest in public rights and revenue and against injury to public property and lands. The policy underlying the doctrine suggests that it is in the public’s interest to toll the statute of limitations for claims asserted by the government because the government is in a disadvantaged position to enforce the public’s rights against injury vigilantly, as the government’s agents are too few in number and too occupied with ordinary governmental duties to prevent or redress injuries to public rights seasonably.
In the instant matter, the City of Rochester engaged the primary defendant to recoat a public water tank, to modify the tank and to install a mixer in the tank. After the work was performed, the tank developed a leak. During the investigation of the leak, the City of Rochester determined that in addition to improper modification work, the tank was constructed improperly when it was built. The construction of the tank was completed in 1985. Following its investigation, the City of Rochester filed suit against the contractor that performed the repair and modification work and the contractor that built the tank in 1985, among others. The company that initially built the tank moved to dismiss the claims against it citing the statute of limitations found in NH RSA 508:4. The Superior Court agreed with the company, and dismissed the claims against it as time barred. The City of Rochester appealed.
On appeal, the New Hampshire Supreme Court affirmed the trial court ruling. In the opinion, the court reasoned that the public policy rationale supporting Nullum Tempus was inapplicable to municipal contracts, because municipalities function like private parties in the contracting context. The court determined that municipalities are not disadvantaged in their contractual relationships and are equally equipped as private parties to enforce the terms of their agreements. Accordingly, the court concluded that public policy ends advanced by Nullum Tempus were not served by application of that doctrine in connection with municipal contracts with private entities.
Additionally, the court resolved that applying Nullum Tempus in this circumstance would undermine the public policy interests supporting the statute of limitations. Namely, that permitting municipalities to assert claims against contractors on an almost limitless basis would be contrary to the policy end of providing defendants timely notice of claims against them, which protects defendants from stale claims. Further, the court noted that in this context, Nullum Tempus would likely subject contractors to claims that would be unduly difficult to defend, costly, and time-consuming, due to faded memories, lost or destroyed evidence and witnesses that may be dead, unavailable or simply not able to be located after a long passage of time. In short, the court determined that the policy interests supporting the application of statute of limitations were more compelling in this context than those supporting Nullum Tempus. Accordingly, the court affirmed the Superior Court’s dismissal of the claims as time barred.
The decision in City of Rochester is a favorable one for contractors and subcontractors. Not only does it reaffirm contractors’ expectations regarding the duration of their potential exposures, it signals the New Hampshire Courts’ intention to treat municipalities more like private entities in contracting. For contractors, this decision should provide more certainty that municipalities will be held to the terms of the agreements they reach with private entities performing work for them. Contractors, however, should anticipate that sophisticated municipalities will take additional steps to limit future exposures of this kind in light of the court’s decision. As a result, contractors should exercise care in reviewing the terms of contracts with municipalities subsequent to this decision. In order to limit exposure and fully understand the risks associated with any municipal contract, contractors should review proposed contracts with their New Hampshire construction attorney.
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.