Category Archives: Law Notes

Unlicensed Contractor & his partnership take a hit (Law Note)

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man banging head against wallImagine being told that you will not be paid for a house you constructed pursuant to a contract with homeowners.  And imagine that the reason for not getting paid had to do with whether or not you signed a contract “on behalf of” your partnership or whether you simply signed your individual name.  This is the exact case that Ron Medlin, partner in Ron Medlin Construction, is facing thanks to a recent North Carolina Supreme Court case, Ron Medlin Construction v. Raymond A. Harris, __ N.C. __, (December 20, 2010).

Ron Medlin entered into a contract with the Harris’ for the construction of a home not to exceed $604,800.  Of note, Medlin did not have a licensed general contractor’s license, as is required.  However, Ron Medlin Construction, a partnership, was appropriately licensed as a general contractor, and the partnership performed the work relating to the construction of the residence.

When litigation arose over cost overruns, the Harris’ claimed they did not need to honor the contract because it was with an unlicensed contractor.  Under North Carolina law, any person who performs work in excess of $30,000 needs to be appropriately licensed or he cannot recover for his work in the Courts.  (See Brady v. Fulghum, 309 N.C. 580, 586, 308 S.E.2d 327, 331 (1983)).  The partnership argued that it did not have a contract with the Harris’, yet it performed work in constructing the residence and, therefore, was entitled to recover a just amount under a theory called quantum meruit.  The Court held that the partnership ratified Ron Medlin’s individual acts, and as such the partnership was bound by the (unenforceable) contract and could not recover. 

The Court held, as a matter of law, that:

a contract for the construction of a home or building executed by a partner in a licensed partnership engaged in the construction business is the contract of the partnership unless the remaining partners can show that the partner was not authorized to act on behalf of the partnership and, if not so authorized, the partnership did not ratify the contract.

Moral of the story?  It is important that you follow the rules in signing and performing under construction contracts, as well as in maintaining your proper corporate formalities.  It might even be worth having your attorney review your construction contract before you sign it.    Unless, that is, you don’t mind that chance that you may end up performing some of your work for free.

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Photo:  “361/365 days -it feels good to stop” by badjonni via Flickr/Creative Commons license.

Personal Assets at Risk Despite Corporate Formalities (Law Note)

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checking the plumb of a trussMany people establish business entities to protect themselves from personal liability.  In a ruling last week, however, the NC Court of Appeals  held that despite such corporate formalities, contractors can be personally liable for their own negligence.

The case, White v. Collins Building, Inc., __ N.C. App. __ (January 4, 2011), involves a new home constructed by developer AEA and purchased by the Whites.  AEA contracted with Collins building, Inc. to build the residence.  Collins Building is a one-member company owned by Edwin Collins, president, sole-shareholder, and qualifier for the company.  When the Whites began to experience alleged construction defects, they sued all involved, including both Collins Building Inc. and Edwin Collins, individually.

Edwin Collins moved to dismiss the lawsuit against him individually, and his motion was granted.  On appeal, the Court held that the dismissal was in error, and that Edwin Collins could be found individually liable to the Whites because the alleged negligence was his own action.   While noting that it was a case of first impression for the construction context, the Court pointed out that “It is well settled that an individual member of a limited liability company or an officer of a corporation may be individually liable for his or her own torts, including negligence.”

The Court stated that a properly formed and maintained business entity may provide a shield or “veil” of protection from personal liability, but that the protection was not absolute.   The Court also contrasted this situation to one in which the parties had contracted with each other; there the claim is usually a contractual one only, so if the Whites had contracted directly with Collins Building, Inc. to build their residence, they likely would not have a cause of action against Edwin Collins individually.

This case shows that, whilecorporate formalities are  important to protecting yourself from individual liability,  they are not a guaranty.

Share your thoughts, questions, or comments below.

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Photo copyright Defense.gov.

 

Tues Tip: Prepare for new ADA Standards

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ADA sign   The Americans with Disabilities Act (“ADA”) has been a standard in construction since its was signed into law by President George   H.W. Bush in 1990.  However, there are significant new changes coming, thanks to a new Department of Justice Rule and Standards.  The new Rule becomes effective in a little over two months– on March 15, 2011.  The new Standards are not mandatory until next year (March 15, 2012).  Buildings can currently be constructed to meet either the current or the 2010 Standards; however, the 2010 Standards will become mandatory next year.

According to the Department of Justice, some of the changes that design for new construction will need to accommodate include:

1. Reach Range Requirements (Section 308)

The reach range requirements have been changed to provide that the side reach range must now be no higher than 48 inches (instead of 54 inches) and no lower than 15 inches (instead of 9 inches). The side reach requirements apply to operable parts on accessible elements, to elements located on accessible routes, and to elements in accessible rooms and spaces.

2. Water Closet Clearances in Single User Toilet Rooms (Sections 603, 604)

In single-user toilet rooms, the water closet now must provide clearance for both a forward and a parallel approach and, in most situations, the lavatory cannot overlap the water closet clearance. The in-swinging doors of single use toilet or bathing rooms may swing into the clearance around any fixture if clear floor space is provided within the toilet room beyond the door’s arc.

3. Common Use Circulation Paths in Employee Work Areas (Sections 203.9, 206.2.8)

Under the 1991 Standards, its was necessary to design work areas to permit an employee using a wheelchair to approach, enter, and exit the area. Under the 2010 Standards, it will be necessary for new or altered work areas to include accessible common use circulation paths within employee work areas, subject to certain specified exceptions.

4. Location of Accessible Routes (Section 206)

All accessible routes connecting site arrival points and accessible building entrances now must coincide with or be located in the same general area as general circulation paths. Also, where a circulation path is interior, the required accessible route must also be located in the interior of the facility.  [Editor’s note: this requirement will help meet the Universal Design principle of equitable use by all persons.]

These are just some of the many changes.  The DOJ ADA website offers several fact sheets and the actual regulations, so take some time to review it if you have not already.

Questions about the Americans with Disabilities Act?  Comments about how these changes will affect your projects and how you are adapting plans to accommodate these coming changes?  Drop me a line in the comment section below.  Also, be sure to enter your email to get delivery of posts direct to your email inbox to be sure you never miss a post.

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Photo:  “Minneapolis Road to Freedom 71“by Transguyjay via Flickr/Creative Commons License.

Pay when Paid & Pay if Paid

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pay here signRecently I was contacted by several readers asking questions about “Pay when Paid” clauses.  For those of you who may have missed it, I’ve previously addressed Pay When Paid issues in my April 29, 2010 post, Pay When Paid Clauses in the NC Construction Contract.

For a good discussion of the application of N.C. Gen. Stat. 22C-2, the Court of Appeals opinion American Nat. Elec. Corp. v. Poythress Commercial Contractors, Inc., 167 N.C.App. 97, 101, 604 S.E.2d 315, 317 (2004) is worth a read.

In that case, the electrical subcontractor sued the general contractor for delay claims. The contract provided that the contractor would only be liable to the subcontractor for delays if the contractor was compensated for such delays by the owner.  While such a term is clearly a “pay if paid” provision, the Court called the provision a “pay when paid,” and declared it unenforceable in North Carolina.  It seems likely, therefore, that the Court would find that both provisions have the same legal effect in North Carolina– that is, both are unenforceable.

One time when a “pay if/when paid” provision could be enforceable?  Residential construction of fewer than 12 units.

As always, consult your local attorney because such clauses very widely in their enforceability from state to state.

Questions or comments on “pay when paid” or “pay if paid”?  Drop me a line in the comments section, below.

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Photo: “Pay Here” via Freefoto.com / Creative Commons License. 

 

State Construction Project Terms (Guest Post)

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Eileen Youens

Eileen Youens

Today’s Guest Post is from Eileen R. Youens.  Eileen is  Assistant Professor of Public Law and Government at the UNC School of Government, where her areas of interest include public contract law, including purchase contracts, construction contracts, conflicts of interest, and disposal of property.

 The ABCs of IFBs, ITBs, RFPs, RFOs, and RFIs

What’s the difference between an IFB, and RFP, and an RFQ, and what are they anyway?  As I’ll explain in more detail in this post, what name you give a solicitation document—the document you use to solicit bids or proposals—is not as important as the process you use to award the contract.  And the North Carolina General Statutes usually dictate which process you’re required to use.

The Four Types of Documents

There are four main types of solicitation documents: (1) those used for bidding, where price is the primary factor; (2) those used to request proposals focusing on factors other than price; (3) those used to ask for someone’s qualifications; and (4) those used to gather information from potential bidders or proposers before starting the bid or proposal process.  I’ll explain below when local governments can use each of these four types of documents.

The First Type: Bids

Under North Carolina law, local governments are required to bid out purchases of “apparatus, supplies, materials, and equipment” (what I like to refer to as “stuff”) costing $30,000 or more, and contracts for construction or repair costing $30,000 or more.  (Local policies may require bidding on other types of contracts or for contracts costing less than $30,000.)  The bidding statutes, G.S. 143-129 (formal bidding) and G.S. 143-131 (informal bidding), require that these contracts be awarded to the lowest responsive, responsible bidder.  This “award standard” is what distinguishes bidding from other contracting methods.  To solicit bids, public entities usually use Invitations to Bid (ITBs) or Invitations for Bids (IFBs). For informal bids or for purchases or construction costing less than $30,000, local governments may also use a request for quotes (“RFQ” – not to be confused with another RFQ: the request for qualifications, discussed below).

The Second Type: Requests for Proposals

North Carolina local governments have the option of using a request for proposal process for the purchase of information technology goods and services (G.S. 143-129.8).  This process allows local governments to establish their own evaluation criteria (i.e., evaluating vendors based on how well their product meets your entity’s needs, rather than focusing primarily on price), and award the contract to the vendor “that submits the best overall proposal.”  I say that this is an option because if you’re purchasing IT “stuff” that costs $30,000 or more, you can either (1) bid it out (formally or informally, depending on the cost), or (2) use the request for proposal process described in G.S. 143-129.8.  On the other hand, if you’re contracting for IT services, those services don’t fall under the bidding laws, so you can either (1) use the request for proposal process described in G.S. 143-129.8, or (2) use any process you want to use, or no process at all (simply selecting the firm you’d like to work with), unless your local policy requires a specific process for the procurement of services.  Note that if you’re using grant funding, you must comply with the terms of the grant.  (For example, if the grant requires you to bid out IT goods instead of using a request for proposal process, then you have to comply with the grant.)

The North Carolina statutes refer to requests for proposals in two other situations.  First, G.S. 143-64.17A requires that all public entities in North Carolina use a request for proposal process for the procurement of guaranteed energy savings contracts (GESCs).  The statutes governing GESCs (G.S. 143-64.17 through G.S. 143-64.17K [scroll down to “Part 2. Guaranteed Energy Savings Contracts for Governmental Units”]) set out a specific request-for-proposal process and specific evaluation criteria that must be used for these types of contracts.  Second, the statutes allow North Carolina local governments to use a request for proposal process for contracts for the construction, design, operation, and maintenance of solid waste management facilities and sludge management facilities.  The statute governing these contracts is G.S. 143-129.2.

As I mentioned above, local governments are not required to bid out services (aside from design services—discussed below).  In fact, the General Assembly has decided to let local governments choose how to procure services.  Many local governments use requests for proposals to procure services, as a way of seeking competition while considering factors in addition to price.  When a local government uses a request for proposals to procure services, the local government decides how the proposals are evaluated, what the timeline is, whether to advertise or not, and whether to open proposals in public or not.  In other words, when procuring services, it’s up to each government to decide what process will best balance its needs for (1) good quality services, (2) value, (3) transparency, (4) efficiency, and (5) fairness.  (As I mentioned above, if you’re using grant funding, you’ll need to comply with the terms of the grant; if the grant requires a competitive process for awarding contracts for services, you’ll have to comply with those terms.)

So the term “request for proposals” (RFP) covers a range of solicitation documents.

The Third Type: Qualifications-Based Selection

G.S. 143-64.31 (sometimes referred to as the “Mini-Brooks Act” because it’s based on a federal law called the “Brooks Act”) requires local governments to procure architectural, engineering, surveying, or construction-management-at-risk services—regardless of the contract amount—by focusing on qualifications rather than price.  (Note that local governments can exempt themselves from this process.) So when people solicit these services, they often use a “request for qualifications” (RFQ).

You can also use qualifications-based solicitation (or some variation thereof) for other types of services.  Again, since the general statutes don’t require the use of a specific process (or any process) for procuring services, the process you use is up to you (as long as you comply with your local policies or grant terms, if you’re using grant funding).

The Fourth Type: Information Requests

Another acronym you may see is RFI—a “request for information.”  RFIs are not used to procure goods or services directly, but instead are used to solicit information about purchases or projects you’re planning to procure in the future.  For example, if you know you’re going to have to buy some new police cars next year, and it’s been a while since you’ve bid out police cars, you could send out RFIs to several car dealers or manufacturers to find out what new features are available and what models might best meet your needs.

The Bottom Line

William Shakespeare really said it best:

“What’s in a name? That which we call a rose

By any other name would smell as sweet.”

In other words, the substance of the document is more important than what it’s called.  If you’re soliciting firms to perform architectural services, your solicitation document must ask for qualifications instead of price, even if you call it an IFB.  And if you’re bidding out a $1.2 million construction project, you have to award the contract to the lowest responsive, responsible bidder, even if you call your solicitation document a rose an RFP.

Eileen and I welcome your thoughts and questions in the comments section, below.

[hat tip to Mike Purdy, of Mike Purdy’s Public Contracting Blog, for bringing Eileen’s post to my attention]