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In May of last year, we discussed an opinion in U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC.  If you recall, this case involves a three way payment dispute between a supplier, Thyssenkrupp, a subcontractor, Tessa Structures, and a general contractor, Vista Contracting.  As discussed in the prior post, Thyssenkrupp did not get paid on a federal project and filed a Miller Act bond claim against all of the appropriate parties and a breach of contract claim against Tessa Structures.  Tessa Structures then cross claimed against Vista Contracting for indemnification and contribution.  Vista Contracting moved for a stay pending mediation and/or arbitration of the cross claim.

Of course, the contract between Vista Contracting and Tessa Structures required mediation between subcontractor and contractor in one place and arbitration of any claim relating to the subcontract.  In the opinion (U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC) the U. S. District Court for the Eastern District of Virginia in Alexandria considered the interaction of the two seemingly contradictory clauses.  In doing so, the Court considered other courts’ opinions as to the application of the Federal Arbitration Act to mandatory mediation clauses.  After running through these opinions, the Court eventually determined that there was no need to talk about these distinctions given the broad nature of the arbitration provision of the contract.

In short, the Court determined that the broad language (i. e. any claim) required a stay despite Tessa Structures making the argument that its claim could not be determined until after the Court determined the validity and value of Thyssenkrupp’s claim.  The Court, as Virginia state and federal courts are want to do, looked at the plain language of the agreement and tossed this seemingly logical and practical issue aside.

The takeaway?  Look at dispute resolution provisions in your construction contracts very carefully. I have discussed arbitration clauses in the past and only like them in the right circumstances.  In this case, Tessa Structures got caught in a practical bind by moving forward with the broad mandatory arbitration language in its contract.  These clauses will be enforced, an properly so in most instances.  Should you, as a contractor or subcontractor, find yourself faced with such a provision, an experienced construction attorney can assist you in negotiating a more equitable clause.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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I have discussed on several occasions the fact that construction contracts matter.  The words in them matter and, in Virginia (as well as other states), most provisions, if not all will be enforced to the letter.  Recently, the Western District of Virginia federal court ruled in a way that reminded me of another reason for a well drafted contract.

In Rockingham Precast, Inc. v. American Infrastructure – Maryland, Inc. the Western District of Virginia Court considered a motion to transfer venue to Maryland filed by American Infrastructure.  The plaintiff, Rockingham Precast, a Virginia based company sued in Virginia.  American Infrastructure conceded that VA could be a proper forum for the lawsuit but argued that the form was much to inconvenient and costly for the party and non-party witnesses and that the cost made the forum an unfair place to try the case.

The Court disagreed and basically stated that non-party witnesses can be deposed in lieu of live testimony and that moving the case to MD would only inconvenience Rockingham Precast in the same way that VA inconvenienced American Infrastructure.  In short, the plaintiff’s choice of venue tips the scales of a virtual tie.

Now, how, you may ask, does this non-contract related decision illustrate that a good contract can help?  Read the first paragraph of this post.  Contracts will be enforced in Virginia.  This last axiom applies to jurisdictional and forum selection provisions.

While this court broke the tie with the plaintiff’s choice of forum, the outcome could have been quite different.  If the parties had a forum selection provision in their contract, the Court would have enforced it, regardless of where Rockingham Precast filed the case.  This would be true even if both companies were Virginia companies and every event of the transaction occurred in Virginia.  With a forum selection clause stating that Maryland would be where any suit had to be filed, American Infrastructure would have had an easy time getting the case moved.  Without it, American Infrastructure and not Rockingham Precast had to bear the additional travel and witness expenses, a not insignificant burden.

Of course these provisions cut both ways.  Because the contractual forum choice will be enforced, all contractors, subcontractors and suppliers should consult with an experienced construction attorney to assure that their contracts are written in the most advantageous fashion possible.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Musings takes a step off of the green construction and marketing train to discuss an interesting decision from the City of Richmond, Virginia Circuit Court.

As Musings has discussed on several occasions, the economic loss rule in Virginia states that where a loss occurs that relates in any way to a contract, the injured party cannot recover for tort related damages.

For example, in what is now an infamous case in Virginia construction circles, the Virginia Supreme Court held that an owner cannot recover for fraud even if a contractor lied about materials used to build a baseball diamond.  The Court decided that the contractor would not have had a duty to tell the truth if it weren’t for the contract and, therefore, the economic loss rule applies.

Betco Construction, Inc. v. NWJ Chesterfield Apartments, LLC gives some hope to contractors who are seemingly staring down the barrel of this harsh “economic loss” rule.  In Betco, the Plaintiff, a Virginia construction company, claimed that it was fraudulently induced to execute a contract by statements of the Defendant about its corporate status.  Betco plead that the Defendants signed a construction contract and several change orders under the name of a company that no longer existed.

After initially invoking the economic loss rule in dismissing the fraud claims, and allowing Betco to amend its complaint, the court reconsidered and allowed the claim to go forward.  The Court at least thought that the Amended Complaint stated enough to get the Plaintiff contractor off of first base.

This case is interesting given the seemingly unwavering and expanding dedication to the economic loss rule in Virginia.  Contractors, subcontractors and their counsel would do well to learn the circumstances of this case.  The key component, in my opinion, is that the Court must have held that the defendants had a duty to properly state their corporate status prior to execution of the contract.

The take away?  I believe it is two-fold.  1.  Always be honest in your dealings with contracts and construction.  The economic loss rule does not protect those that induce others to enter construction contracts through dishonesty or misrepresentation of facts outside of the contract.  2.  Make sure that you, as a construction professional, look at all the circumstances surrounding execution of your contract when seeking avenues of recovery.  Betco gives you at least a glimmer of hope that you could recovery for fraud if you can find facts showing a duty outside of the contract. Of course an experienced construction attorney can help you ferret out proper facts to show such a duty.

As always, I welcome your comments below.  Please subscribe to keep up with the latest Construction Law Musings.

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For this week’s Guest Post Friday here at Musings, we welcome back a good friend and fellow construction attorney, Scott Wolfe Jr.  Scott is a construction attorney who practices law through his firm Wolfe Law Group in California, Washington, Oregon and Louisiana.  He is also the founder of Zlien, a nationwide preliminary notice and mechanic’s lien filing service. He is the author of blogs Construction Law Monitor and the Construction Lien Blog.

A few years ago I wrote a blog post that is quite popular on our Construction Lien Blog, titled “Filing A Lien Is A Discipline, and Not A Knee Jerk Reaction.”  I love the title to this post, because it expresses a real truth about successfully making a mechanics lien claim.

Regardless of where you are furnishing labor or materials, the act of filing a mechanics lien is more than just shooting off a lien affidavit after you’re already owed money. For most in the construction industry, and in most jurisdictions, mechanic lien claims are something that develop over time. Unfortunately, this development often starts with the moment you begin furnishing to the project.

Since writing that “knee jerk” article, I’ve thought (and written) about the concept even further. Successfully filing a mechanics lien claim actually requires companies to employ some sort of “lien policy,” focusing on compliance with all notice requirements and lien deadlines.  And the start of preparing such a lien policy is an understanding of what I call the mechanics lien ecosystem, or the “life of a mechanics lien claim.”  

I’ve broken it down into three steps: Preserve, Perfect, Enforce.  

Preserve

Every state and the territories (and Canada!) all have mechanics lien statutes, providing to contractors, subcontractors, suppliers and professionals the right to file a lien against the property where materials and/or labor are furnished.

However, to quality for this lien protection, construction participants must take certain actions to preserve these rights.  These preservation requirements will change depending on where you’re furnishing, but they always require some action at the start of providing services or materials. Here are the most common preservation requirements:

Preliminary Notices / Notices to Owner by Those Who Did Not Contract With The Owner

When states are referred to as “notice states,” that is typically because they’ve adopted this very traditional notice requirement, which mandates that all parties who have no contractual privity with the property owner send a “preliminary notice” or “notice to owner” to the property owner within a specific number of days after first furnishing labor or materials.

These prelim notices are usually required within 10-45 days from first furnishing of materials or labor (check your state’s rules), and must contain certain information within the notice and be sent by a certain method (usually certified mail with return receipt requested).  Those who fail to send their notice on time will forfeit their lien rights, with limited exceptions.

Notices Required by General Contractors

While most states’ notice requirements focus on those who did not contract with the owner, there are some laws out there that require notices from only those who contracted with the owner.

Some examples include:

1. Louisiana requires general contractors to file a Notice of Contract before commencing work to qualify for lien rights.
2. On certain residential and commercial projects, Washington requires the delivery of a Model Disclosure Statement.
3. On Residential projects in Idaho, Iowa, Louisiana & Oregon, a Notice of Lien Rights must be provided to the owner.
4. In Utah, general contractors must file a “Notice of Commencement” at the start of work.

Failure to send these notices will also result in a forfeiture of lien rights.

Perfect

Preserving your mechanic lien rights requires compliance with certain notice prerequisites that apply when starting to furnish labor and/or materials. These notices must be delivered before any accounts are ever overdue, and indeed, before anyone is even owed money.  

The perfection requirements, however, come on the other side, when the contractor, supplier or professional has performed its work and is now due payment.

If lien rights were preserved, a contractor, supplier or professional can “perfect” it’s lien claim by filing the same with the county recorder or clerks office. Depending on your state, the filing can go by a number of names: Notice of Claim, Claim of Lien, Construction Lien Claim, Mechanics Lien Claim, Statement of Claim and Privilege, etc.  It’s all the same.  These are all documents that outline what work you performed, where, for who and the amount owed to you.

When filing your mechanics lien claim, it’s important to be very careful. Since these claims encumber real property, courts typically require strict compliance with the lien statutes, which means you better have all the required information in your claim.  There are lots of traps for the inexperienced, with the most common mistakes being a failure to identify the property with the legal property description and not including all of the statutorily required data.

Properly preparing and recording your mechanic lien claim, and then serving a copy of the same on the property owner and all other required parties within the statutory required time frame, will act to perfect your mechanic lien rights, and a mechanics lien claim will then encumber the property…until your deadline to enforce it.

Enforce

The third and final step in the life of a mechanics lien is the enforcement of the same.  One common misconception about liens is that they will encumber the property until paid.  That’s not true. After a mechanics lien claim is perfected by recording, it only remains enforceable for a specific period of time.

Therefore, if the mechanics lien doesn’t produce payment after filing, then you will be required to file a lawsuit to foreclose upon or enforce the claim.

Again, each state is different as to when this foreclosure action is necessary.  California, for example, is on the short end requiring a foreclosure lawsuit within 90 days from when the mechanics lien is filed. Ohio is on the long end, giving lien claimants 6 years from filing to have the lien enforced.  If there’s an average out there, it’s probably between 8 and 12 months.

While the timing is different, the general requirement is the same: After a certain period of time, you’re required to file a lawsuit to foreclose on the lien. Therein, you’ll need to prove your case and demonstrate you are owed the money you claim.  If you win, the court will order the property sold to pay your debt.

Scott and I welcome your comments below.  Also, please subscribe to keep up with this and other Guest Post Friday Musings.

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As we enter 2012 expectations for the new year are in all of our thoughts.  The best laid plans are made and possibilities seem endless.  New Year’s resolutions will be made (and possibly broken).

As a construction attorney here in Virginia, if I could ask contractors and subcontractors to make (and keep) one resolution for 2012 it would be to set expectations for a construction project before, during and after the project.  More construction claims and lawsuits arise out of poorly managed expectations for the project.  Everything from a poor explanation of the costs and benefits of green building to the simple failure to draft a solid contract with a well defined scope of work can lead to claims and conflicts that can only make attorneys happy.

Contractors (and even subcontractors and suppliers) must manage expectations through education of those “upstream” of them on the job site to avoid shock on the part of those with the money.  Such education takes many forms, I’ve listed several key ones  here (you will notice that many are are the same things that we lawyers love to see in contracts).

• A solid contract with a well defined scope of work.
• Written Change Orders!
• A pre-construction “educational” meetings
• Consistent communication throughout the project with status updates, etc.
• Resolving issues as close to their occurrence as possible
• E-mail confirmations of field changes
• Payment “reminder” letters

Setting realistic and understandable expectations for a project, and reinforcing them on a regular basis throughout, keeps all of the players in a commercial or residential construction project on the same page.  Following these relatively simple steps will keep expectations in line and avoid most issues on a construction job site.

I hope you have a great 2012.  Resolving to keep expectations and reality in line during construction will help.

I am happy to hear any other items that should be added to the above list in a comment or e-mail.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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As reported recently in ENR Magazine, among other publications, the ConsensusDOCS folks have updated their contract forms.  Why is this news?

First of all, it’s only been around three and a half years since these documents were officially released and this release is about 18 months sooner than anticipated (the original revision cycle was to be 5 years).  Why the revision? According to my friend and counsel to ConsensusDOCS, Brian Perlberg, one major rationale is that

the economics of the construction industry today looks nothing like it did [in 2007]

Among the changes are several terminology changes (“constructor” instead of “contractor” for instance), the addition of mandatory green building design as a basic service (these forms already have a Green Building Addendum)  if included in the Owner’s plan and the ability to provide for prevailing party attorney fees (before both sides of a dispute bore their own fees).

A couple of other notable provisions allow an Owner to audit a contractor’s books and a better placed and defined definition of Contract Documents.  These are not all of the changes, and the revisions are fairly extensive.

I recommend that you review the ENR article, any sample forms, and consult with a construction attorney to determine how these changes affect your present use of the ConsensusDOCS (if you use them) or if you should consider using them for your projects.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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For this week’s Guest Post Friday at Construction Law Musings I welcome Matthew Evans.  Matt is the owner of Law Offices of Matthew S. Evans, III, LLC located in Annapolis, Maryland.  He has practiced construction, real estate and land use law in Maryland and D.C. for thirteen years.  Prior to opening his own firm in May 2011, Mr. Evans was a partner at a mid-sized firm in Anne Arundel County, Maryland. Mr. Evans lives in Historic Annapolis (only three short blocks from his office) with his wife Margaret, and three children, Matthew (5), Bo (4) and Peyton (2). 

Some of the most common calls I get are from irate contractor or subcontractor clients who have not been paid demanding that I “lien the property”.  Many times after calming the client down, I determine, to their dismay, that they are not entitled to a mechanic’s lien. In Maryland, the mechanic’s lien law is driven by statute, which contains specific requirements which must be met before the client is entitled to a lien.

The first question is whether the contractor or subcontractor is entitled to a lien for the work performed.  Under Maryland law, “every building erected and every building repaired, rebuilt, or improved to the extent of 15 percent of its value is subject to establishment of a lien…for the payment of all debts.”  It’s easy when dealing with new construction.  No matter how small your portion of the work, the property is subject to the establishment of a lien. It is more difficult to determine entitlement when there is either a total or partial renovation or other work.  The question becomes how do you determine the value of the building, and whether it has been improved “to the extent of 15 percent of its value.”  Believe me, I have seen creative and some not so creative methods of calculation used by counsel to prove that certain work does or does not meet the requirment.

The second determination that needs to be made is who is the “owner” of the property.  It is imperative to determine the correct owner or your lien claim may fail.  Sometimes the name of the “owner” in the contract documents is not the legal title owner of the  property.  Typically this is easily ascertained  through a title search.  However, even a title search can be deceiving.

In a case I tried many years ago, I represented a subcontractor who had performed about a million dollars’ worth of work on a new commercial distribution facility.  After there was a dispute over payment, I filed the requisite papers against the owner of the real property to establish a lien against the property.  The defense answered that I had no right to claim a lien because I had not proceeded against the proper owner.  As it turned out, the general contractor had contracted to build the facility for a tenant of the property who had executed a 99 year lease with the title owner of the property.  Turns out, in that instance, the “owner” is the tenant and my client was only entitled to a lien to the extent of the tenant’s interest. The owner is not always the owner.

Another question is whether or not your lien opportunity is barred by time.  In Maryland, a subcontractor (any contractor or material supplier who has not contracted directly with the owner) must serve a “Notice of Intention to Claim a Lien” on the owner of the property “within 120 days after doing work or furnishing materials”.    Whether a contractor or subcontractor, the petition for mechanic’s lien must be filed “within 180 days after the work has been finished or the materials furnished”.  One would be surprised at the number of issues that arise over when the last date of work occurred.  Does doing work or finishing work include going back 2 months later to fix a minor “punch list” item?  Calculating the real last date of work can be complex and is extremely important.

Finally, the required contents of the both the Notice of Intention to Claim a Lien and the Petition for Mechanic’s Lien are set forth specifically in the Maryland Code.  If certain information is omitted, a lien claim will fail.  The Maryland Code also requires that “copies of material papers or parts thereof, if any, which constitute the basis of the lien claim” be attached to the Petition when filed.  I have made many arguments in court on both sides regarding whether the attachments are sufficient to comply with the law.

This article only touches the tip of the iceberg so to speak on potential pitfalls in the mechanic’s lien process in Maryland. The mechanic’s lien in Maryland can be an effective tool to collect outstanding debts for your construction clients.  However, contractors must hire competent construction counsel who have experience in obtaining mechanic’s liens.  Some of the most experienced and knowledgeable attorneys I know (in other areas of the law)  contact me with questions about the mechanic’s lien process.  My advice to them is refer it to experienced construction counsel.  There are simply too many mistakes that can be made. The bottom line is don’t try this at home.

As always, Matt and I welcome your comments below.  Also, please subscribe to keep up with this and all of the Guest Post Fridays here at Musings.

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I wish all of my friends, family, readers of, and contributors to Musings a safe, healthy and productive 2012.

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As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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For this week’s Guest Post Friday here at Musings, we welcome Alex Levin. Alex is a writer for several surety organizations. Although much is unknown about them, surety bonds are a necessary requirement for many small businesses to open and are required on almost all major construction projects.

With an unemployment rates holding steady around 9%, the effects of the recession are still surrounding us. The construction industry, one of the hardest hit, still struggles to recover. But, what many want to know is if the worst is behind us. Has the construction industry hit the bottom, and as we ring in a New Year can we look forward to more job opportunities and projects for contractors?

Some fear we’ve only just begun to dig ourselves out from the rubble and more struggles are imminent. In fact, the Engineering News Record reports the level of unemployment for construction is at a record high of 16% compared to 7% in 2007.

Within the last two years bankruptcies have overwhelmed the industry and there is evidence that there could be many more closures for the New Year. One warning sign? Much of the work currently being completed by contractors are only backlog projects from the construction industry’s busiest years of 2005 to 2007. This means new work isn’t coming in and many are struggling to complete work from years prior. Due to this, several companies are most likely headed for voluntary closure or, in the worst case bankruptcy.

In North Carolina alone, Carolinas AGC reported a 40 percent total monetary loss in contract awards from 2010 to 2011. As companies aren’t bringing in income, many financial construction supporters, such as surety agents, will be expected to finish work that their bonded principals simply cannot complete. Banks providing construction loans, project owners and subcontractors expecting payment are others also subject to face losses in this declining industry.

But, some are optimistic. The Associated General Contractors of Las Vegas reports the average hours worked and hourly wages for construction workers have spiked in recent months. Although major projects may not be awarded, this small increase in prosperity gives hope to one of the areas most affected by the recession. In 2006, 92,000 construction jobs were cut. While the projects contractors are focusing efforts on are unlike the typical megaresorts that once were the main source of employment for Vegas contractors, an increase in small buildings has allowed many to continue working.

Another source demanding workers is in refurbishing and remodeling. In fact, MGM Resorts International reported spending $78 million within the third quarter and expects to spend $275 million for the year. Their projects include remodeling the Bellagio and MGM Grand and unveiling eight new food outlets within their properties.

Some also feel the bottoming out of the industry means opportunity for new businesses and partnerships.  Contracting companies that are profitable during times of a weakened economy are in prime position to create smart mergers. Bonding companies and banks can also help prompt an upswing within the industry by financially supporting these new acquisitions. As the debate between the optimists and pessimists wages on, it appears that time will be our indicator of what lies ahead for the future of construction.

As always, Alex and I welcome your comments below.  Also, please subscribe to keep up with this and all of the Guest Post Fridays here at Musings.

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Wow! Another year has passed and 2012 is just about upon us!  I hope all of you had a great year and I look forward to a wonderful 2012 here at Musings.

As I sit here reflecting (or “Musing”) this day after Christmas, I am amazed at how quickly the first full calendar year of my solo practice has passed.  It seems like only yesterday that I was announcing the move and receiving the great response to that move.  Now, with that first full year under my belt, I am more sure than ever that my move was a great one.  Solo practice really suits me, and also lends itself well to my area of practice, construction law.  Where having a staff of one may have its outward limitations, the flexibility and sense of piloting my own ship more than makes up for this apparent limitation.  Judicious use of the cloud (through Clio, my Blackberry Playbook, my ScanSnap scanner, and other web based technology) makes this apparent lack of administrative support almost a non-factor.

I’ve also found that my potential client base (contractors, subcontractors and other construction professionals) find my solo status to be a strength rather than a weakness.  More flexible billing options, being a fellow business owner, and the responsiveness linked with a smaller structure are factors that my construction clients have seen as a bonus.  In short, those worries that I may have had relating to my move are no longer there.

This year I was honored to be named to both the Virginia Super Lawyers Rising Stars and the Virginia Business Legal Elite in Construction Law.  Add this to my new membership on the Board of Governors of the Virginia State Bar’s Construction Law and Public Contracts Section and appointment to the Executive Committee of the Richmond Chapter of the AGC of Virginia and this was a great year over all.  Thank you to all of you that were involved with these great honors.

On the Construction Law Musings front, the year has been an interesting one as well.  There was big news in 2011.  As my readers know in spades, the construction economy has been rocky to say the least.  The Virginia General Assembly made some key changes that will affect Virginia construction projects.  We found out that the Chinese Drywall claims in Virginia will be a sticky situation (also search Musings for “Dragas” for more on this issue).  Also, with the economy the way it is, sticking to the letter of your contract documents and getting written change orders is even more imperative.  I encourage you to peruse the various pages of Musings for some of the other 2011 developments in Virginia construction law.

Of course, 2011 would not have been such an interesting year here at Construction Law Musings without the wonderful Guest Post Friday contributions.  These posts ranged from IPad apps to green building to insights into federal contracting and claims.  These last few links are only a few of the great posts and perspectives provided by the wonderful guest contributors to this construction law blog.  Thank you to everyone that contributed (and continues to contribute) to the Guest Post Friday series here at Musings, this blog would not be the same without you.

Thank you to all of you who read and comment to this blog on a regular basis.  Your thoughts and support keep me going when the creative juices seem dry.  The encouragement provided by the knowledge that folks are out there reading is a real blessing.

Most importantly, and saving the best for last, thank you to my wonderful wife and great kids for the support, laughter and encouragement throughout 2011.  That support and love made the good times sweeter and the inevitable and occasional struggles worthwhile.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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