Tag Archives: subcontractors

The White House Proposes $1.5 Trillion Infrastructure Development Program

By on February 12, 2018

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.     

 

New Hampshire Supreme Court Refuses to Extend Statute of Limitations for Municipalities in Public Construction Context

By on January 6, 2017

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.

Contractors Beware:  OSHA Penalties Set to Increase on August 1, 2016

By on July 27, 2016

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.

Show Me the Money: Getting Paid on Federal Public Construction Projects

By on July 18, 2016

It is imperative that subcontractors and material suppliers seeking payment for completed work on federal-level public construction projects be aware of the paradigm of laws and policies that exist governing such matters. To start, The Miller Act, codified as 40 U.S.C. §§ 3131-3134, exists to provide subcontractors on federal-level public construction projects a means by which to secure their right to payment in an analogous manner to how M.G.L. c. 149, § 29 operates to provide Massachusetts subcontractors and material suppliers on state-level public construction projects a means by which to secure the same. Specifically, the Miller Act requires general contractors on federal projects to provide performance bonds and payment bonds to the awarding authority where the prime contract exceeds $100,000. (for a comprehensive overview of subcontractor Miller Act rights see, “Federal Subcontractors – Understanding the Basics of Your Rights Under the Miller Act.”). 

While the legal framework behind federal-level public construction projects and state-level public construction projects often operate in tandem it is imperative to note that Federal law and Massachusetts law treat the enforceability of “pay-if-paid” and “pay-when-paid” subcontract clauses somewhat differently. This distinction is one that subcontractors need be wary of when entering into public construction contracts.

“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 the fraught distinction between “pay-if-paid” and “pay-when-paid” clauses on state-level public construction projects. See, 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. Thus, 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, particularly on Miller Act projects.

According to Federal Courts in both the First and Ninth Circuits, “the Miller Act is ‘highly remedial in nature,’ and should be construed and applied liberally to ‘effectuate the Congressional intent to protect those whose labor and materials go into public projects.’” United States ex rel. J.H. Lynch & Sons v. Travellers Cas. & Surety Co. of Am., 783 F. Supp. 2d 294, 296 (D.R.I. 2011) quoting, United States ex rel Walton Tech., Inc. v. Weststar Eng’g, Inc., 290 F.3d 1199, 1209 (9th Cir. 2002). Furthermore, according to the reasoning of the Ninth Circuit, because the Miller Act itself conditions payment, not on whether prime contractor is paid, but rather, whether the subcontractor has performed AND whether the statutory amount of time to bring a Miller Act claim has passed, it then follows that the terms of the Miller Act trump subcontract “pay-if-paid” language absent a “clear and explicit” waiver on the part of the subcontractor. Of particular note, the Ninth Circuit, specifically states, and the District Court of Rhode Island, located in the First Circuit, specifically quotes, the following language; “A subcontractor that has performed as agreed need not await the Government’s payment of the contractor before initiating an action under the Miller Act against the contractor or the surety.” United States ex rel Walton Tech., Inc. v. Weststar Eng’g, Inc., (9th Cir. 2002); United States ex rel. J.H. Lynch & Sons v. Travellers Cas. & Surety Co. of Am., (D.R.I. 2011).

The law is far from settled regarding the enforceability and distinction between “pay-if-paid” and “pay-when-paid” subcontract clauses on federal-level public construction projects. While there is some guidance on this issue in the context of the Miller Act, the distinction between the two clauses may still prove thorny for subcontractors seeking to enforce their right to payment.  Thus, subcontractors should keep an eye towards the development of the law in this area as it is likely that more distinct legal trends will begin to emerge. If you have any questions about payment issues on public construction projects you should contact a Massachusetts construction lawyer.

Contractors: Do You Know Your Rights Under the New Hampshire Residential Construction Defect Dispute Resolution Statute?

By on April 12, 2016

New Hampshire has enacted a dispute resolution statute for residential construction defect claims made by homeowners that, among other things, provides contractors notice and opportunity to resolve alleged construction defects prior to a disgruntled owner instituting litigation against them.  Despite its obvious benefits to residential contractors, many contractors fail to preserve the right to rely on the statute in contracts with homeowners.

The residential construction dispute resolution law’s stated purpose is “to encourage the out-of-court resolution of disputes between homeowners and contractors relative to residential construction defects.”  NH RSA 359-G encourages the resolution of residential construction defect claims by mandating a procedure that homeowners must follow prior to instituting litigation against a contractor, provided that the contractor preserves its right to rely on the statute in its written contract with the owner.

Assuming the right to rely on RSA 359-G has been preserved, the homeowner must provide notice of any claim of an alleged defect to the contractor no later than sixty days prior to filing an action against the contractor in court.  The homeowner’s notice to the contractor must contain a description of the alleged defect(s) “in detail sufficient to explain the nature of the alleged construction defect and the result of the defect … [and] provide to the contractor any evidence in possession of the homeowner that depicts the nature and cause of the construction defect.”  In other words, the homeowner’s notice must contain more than a simple notification to the contractor that there is a problem.  In so doing, the statute requires homeowners to provide contractors with adequate notice of the actual issue(s) for which the homeowner claims a defect and not simply a notice that there are alleged defects in the work.

Provided that the contractor receives adequate notice from the homeowner, the contractor must, within 30 days, respond in writing to the homeowner disclosing any information the contractor has regarding the specific alleged defects and:

  1. Offer to settle the claim made by making repairs, paying money to the homeowner or both, without performing any inspection of the claim;
  2. Offer to inspect the claim; or
  3. Reject the claim.

Generally speaking, if a contractor offers to inspect the claim, the contractor will have 15 days to do so and then another 15 days to provide written notice to the homeowner of the contractor’s findings from the inspection.  In the written notice the contractor must:

  1. Make a written offer to fully or partially remedy the construction defect at no cost to the homeowner, and provide the anticipated schedule to complete repairs;
  2. Make a written offer to settle the claim by payment;
  3. Make a written offer to resolve the issue by payment and repair; or
  4. Issue a written statement that the contractor will not remedy the defect.

After the homeowner elects to accept or reject the offer made by the contractor, the matter may proceed with payment, repairs or to the courts if the contractor rejects the claim and the homeowner disagrees.

Importantly, if the homeowner accepts the contractor’s offer to remedy the alleged defects and the contractor does so, the homeowner is barred from later bringing suit against the contractor for issues related to the defect.  Similarly, provided that the contractor has preserved its right to assert 359-G, this dispute resolution mechanism provides the exclusive remedy for homeowners to utilize in the first instance.  Actions filed in court prior to exhausting the remedies in 359-G shall be stayed until such time as the homeowner has complied with the statute. 

RSA 359-G provides contractors and homeowners with a great tool to resolve disputes before they ripen into time-consuming and costly litigation.  The statute provides a common sense framework for the parties to a residential construction contract to address perceived deficiencies in the work in a prompt and orderly fashion without initial resort to a legal process that is ill-equipped to deal with residential construction defect issues efficiently.  Savvy contractors and homeowners do well by insisting that RSA 359-G be incorporated into their contracts. 

It is important to note that RSA 359-G contains many other meaningful timing, notice and additional requirements that are beyond the basic operation of the statute addressed here.  In order to gain a full understanding of the statute, how to preserve your rights under the statute, and how the statute operates in any particular situation, homeowners and contractors would be wise to consult with a New Hampshire construction attorney regarding the particulars of the situation. 

Strang Scott Prevails In Arguing that Public Awarding Authorities Have a Duty to Verify Validity of Payment Bonds

By on January 21, 2016

A Superior Court judge recently ruled in Kapiloff’s Glass, Inc. et.al. v. University of Massachusetts (UMASS), et.al., MICV2014-08766, that Massachusetts awarding authorities on public construction projects do, in fact, have a duty to confirm that the payment bonds submitted by general contractors are valid.

Strang Scott brought suit on behalf of four subcontractors who provided labor and materials on the University of Massachusetts at Lowell Dry Lab Renovations construction project. The general contractor failed to pay the subcontractors in full, so the subcontractors requested copies of the payment bond from the awarding authority. Soon after filing suit, the subcontractors learned that the general contractor was filing for bankruptcy, and that the payment bond was fake.

As discussed in a previous article, Strang Scott, in a case of first impression, argued that awarding authorities on public construction projects have statutory obligations under M.G.L. c. 149, s. 29 to verify that the payment bonds provided to them by general contractors are legitimately issued by sureties registered with the Massachusetts Division of Insurance. The University of Massachusetts argued that it was not an officer or agent of the Commonwealth within the meaning of the statute. The court ruled that this defense was “neither logical nor in accord with common sense.”

The court decision explained in great detail the remedial nature of the statute, and how its express purpose is to protect subcontractors, and not the Commonwealth. It cited many prior court decisions opining that the statute should be construed liberally to accomplish its intended purpose of getting subcontractors and material suppliers paid for their work.

Whether courts will find additional duties for awarding authorities on public construction projects in the future is uncertain, nor do we know whether the University of Massachusetts will appeal this decision. However, at least for now, this decision provides some comfort for subcontractors and material suppliers that some form of payment security should exist when they perform public work.

Bidding in the Wrong Place at the Right Time

By on September 22, 2015

The Massachusetts Attorney General Bid Unit recently held that an awarding authority should not re-bid a project where the original bid documents were confusing as to the address for submitting bids.

The Town of Weston solicited bids for an exterior duct work construction project. The Invitation to Bid listed one address, and the Instructions to Bidders listed a different address. In response to questions received on “addresses and dates” Weston issued Addendum 1, listing a third different address. Confusing things even more, it turns out that this third address in the Addendum was also a mistake. Two bidders submitted bids at the address listed in Addendum 1, while four others submitted bids at the address listed in the Instructions to Bidders.

The Attorney General decided that Addendum 1 overrode contrary bid documents, regardless of it actually being a mistake. The decision deemed the low bidder at the address listed in Addendum 1 as entitled to the contract, and ruled that the project should not be re-bid.

Bidders should use caution in reviewing addendums thoroughly and follow instructions accordingly. A full copy of the decision can be found here:  In Re: Town of Weston: Exterior Duct Repair, September 11, 2015, http://www.bpd.ago.state.ma.us/.

 

Five for Fighting:  Subcontract Provisions Every Subcontractor Must Know to Get Paid

By on September 2, 2015

While there are any number of subcontract provisions that subcontractors must be aware of in order to negotiate subcontracts favorably, the following five provisions are critical to insuring that your business gets paid for the work it performs.

Lien Provisions

Did you know that it’s perfectly legal to relinquish your statutory right to a mechanic’s lien in New Hampshire?  If you did, give yourself a small pat on the back.  All too often, however, subcontractors – especially those new to working in New Hampshire – fail to appreciate that they can waive their right to assert or maintain a mechanic’s lien through their subcontract.  Worse still, it is often the case that subcontractors learn this valuable piece of information at the very worst time:  when they need to secure a mechanic’s lien for delinquent payment on a project.

In order to avoid this painful result, have your subcontracts reviewed carefully in-house or by your attorney, with a specific focus on any provision or language that relates to waiving or relinquishing the right to assert, maintain or perfect a lien or an attachment against the owner or its property.  If you see it, don’t accept it.  The mechanic’s lien is a very useful tool to make sure you get paid in New Hampshire, and you shouldn’t give it away before you start your project.   

Retainage Provisions 

Most every project contains a retainage provision, so how different could they be?  If you treat retainage provisions interchangeably, you may go a long time before you get paid that all important final five to fifteen percent of your contract balance.

Retainage provisions are like Skittles:  many flavors and some are better than others.  For example, if you’re a subcontractor that performs work early on in a project, it will be beneficial to negotiate retainage reductions based on acceptance of your scope of work by the project owner.  If you accept a common retainage provision that simply calls for the owner to withhold ten percent until the completion of the project, and you’re responsible for clearing the site and preparing for building or paving, it may be years before your final retainage payment becomes due, let alone gets paid.  Surely, that final ten percent looks better in your pocket than the owner’s.  As a result, it’s imperative that you closely monitor the retainage provision in each subcontract you execute.

Retainage isn’t intended to be an annuity that you receive years after you perform your work, but instead should provide the owner some security that you’ll finish your scope of work after you’ve been paid the majority of your contract balance.  If you focus on negotiating a retainage provision that fairly accounts for your scope of work and its timing in connection with the overall project, you shouldn’t need to wait extended periods of time to receive the final payment you’re owed. 

Change Order Provisions

There are virtually as many change order provisions as there are subcontracts.  It seems that every general contractor or construction manager that doesn’t utilize an AIA subcontract document creates its own change order provision.  With so many iterations of a provision meant to capture the same thing, more or less, what should your company be looking for? 

In short, to maximize your chances of getting paid for extra or change work, subcontractors should strive to negotiate change order provisions that come as close as possible to mirroring the reality of performing work on a project.  More often than not, that reality is a fast-paced project with a limited schedule where changed or extra work cannot wait weeks for signed change orders from executive level corporate representatives.  As a result, subcontractors are best served by negotiating change order provisions whose terms are not unduly burdensome, restrictive or otherwise difficult to satisfy. 

For instance, the author recently reviewed several subcontracts which directed that only the company president or another board level executive were authorized to approve a change in scope.  This is hardly practical for a subcontractor.  Ordinarily, a general contractor’s executives are not in the field regularly, and do not have the kind of “hands on” knowledge of a project that a project manager or superintendent possesses.  Worse still, executives are not readily available to subcontractors, as a general matter.  As a result, it’s not difficult to anticipate the difficulties that a subcontractor is likely to face when trying to balance the need to perform change order work, to maintain the project schedule and to secure the appropriate written authorization to perform the work.  These competing interests often lead to subcontractors performing work before they are authorized to do so according to the terms of their subcontracts, based on spoken assurances from onsite representatives of the general contractor.  This, in turn, exposes the subcontractor to the risk that the general contractor or the owner will reject the change order and that a fight will be necessary to get paid.

Because the competing interests in performing the work, meeting the schedule and securing appropriate authorization for changes in scope exist on so many projects, subcontractors are best served by negotiating change order provisions that mirror, as closely as possible, the anticipated conditions in field.  Doing so will go a long way toward insuring that you’ll be paid for your extras.  To the extent that you have any doubt regarding what steps are necessary to make sure you’re complying with the change order provision in your subcontract, you’re well advised to speak with your construction attorney.

Pay if Paid Provisions

Construction lawyers frequently discuss the concept of “risk allocation” with their clients.  So what is risk allocation?  At is core, risk allocation is concept used to describe how the parties to a contract divide or allot the various risks attendant to a particular contract. 

 A “pay if paid” provision is a tool used by general contractors and constructions managers to reallocate the risk of nonpayment, that for many years, was borne by the general contractor or construction manager.  A “pay if paid” provision operates exactly as it sounds.  That is, it’s a provision that conditions payment to a subcontractor for work it performs on the upstream contractor first receiving payment from the owner, or from the party upstream from it.  In other words, if the general contractor doesn’t get paid from the owner, the general contractor has no obligation to make payment to its subcontractor, regardless of whether the subcontractor fully and dutifully performed its work.

Does it make sense for a subcontractor to accept a “pay if paid” provision in its subcontract?  The answer is unequivocally no.  The vast majority of subcontractors have no ability to determine the financial solvency of the owner or the dependability of its construction financing.  Furthermore, a subcontractor has no direct contract with the owner, as the general contractor does, which thereby limits the subcontractor’s potential legal remedies if the owner elects not to pay for any number of reasons that have nothing to do with the subcontractor.  Because of these issues and others, subcontractors should be reticent to execute any contract that contains “pay if paid” language.  Because “pay if paid” language can be difficult to discern from other kinds of risk allocation devices, such as “pay when paid” and similar provisions, if you have any doubt about what your contract specifies seek the advice of your construction attorney.

Attorney’s Fees Provisions

Last, but certainly not least, subcontractors must understand what the attorney’s fees provisions mean in their subcontracts.  Like all of the foregoing types of provisions, there isn’t a one size fits all remedy.  What stands out about the importance of an attorney’s fee provision is that in some very important instances, the only way to enforce or determine your rights with respect to each of the kinds of provisions discussed above, is to employ the services of an attorney.  And that costs money.  So, if you don’t have an adequate provision of this kind, you’ll be forced to decide whether or not to pursue claims for payment (or other claims) based not upon whether you’re entitled to be paid, but rather by how much you’ll have to spend to get paid.

This isn’t lost on some less scrupulous general contractors.  In some instances, if a general contractor knows you’ll have to spend enough money to chase payments you’re owed that it becomes throwing good money after bad, they’ll simply pocket the money you should be paid and force you to bring suit against them.  This is no way to keep your projects profitable.

In order to make sure that you don’t fall victim to this scenario, insure that your contract has an attorney’s fees provision that calls for your fees to be paid in the event that you need the services of an attorney to enforce your rights under your subcontract.

So what do you do when the general contractor won’t agree to an attorney’s fee provision that runs in your favor?  In that instance, you negotiate what is known as a “prevailing party” provision.  A “prevailing party” provision calls for either party to a contract to receive their attorney’s fees and other costs from the other side in the event that a particular party prevails in an arbitration or lawsuit.  As is the case with each of the foregoing kinds of provisions, the devil is in the details of the provision.  Nevertheless, if you’re diligent about reviewing (or having someone else review) the language of any proposed attorney’s fee provision, you’ll be much less likely to learn that your subcontract only gives the general contractor the right to recover its attorney’s fees. 

If you master the foregoing five kinds of provisions, or engage your construction attorney to help you do so, you will negotiate better subcontracts before you get started and you’ll almost certainly forestall a variety of construction disputes before they have the opportunity to ripen.  Should you have questions regarding any of the information presented here, you’d be well advised to contact your New Hampshire or Massachusetts construction attorney.

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.