Tag Archives: contractor

Is your Contractor’s Surety Company financially strong? (Guest Post)

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Today we have a guest post from JW Surety on how to find bonding companies, check their solvency, and see how each surety company compares to one another.  As the design professional of record, the architect is often faced with reviewing the bid applications and paperwork, including bonding information.  With the increasing number of failing companies, including insurance companies, over the past few years, checking the bonding company’s financials makes good sense.

Much is unknown about surety bonds and, more importantly, what bond types are required in order to start your shop. The following three steps can help customers [Ed. note: or architects conducting due diligence] determine the best surety company for their bonding needs:

hand signing surety bond application

1)     Are they licensed?

As required by law, surety organizations must be licensed in order to operate as per their state guidelines. These licensing requirements are strict and involve background investigations into each company’s history. The benefit for customers is knowing that those surety companies which are licensed to operate are not only qualified, but they are ethically secure to practice. Those beginning the surety search can look through the U.S. Department of Treasury’s list of licensed companies to get a better understanding of which companies to reach out to.

2)     How are they classified?

Customers should get a firm understanding of how each surety company ranks in comparison to each other. To help make this process more manageable, consumer protection organizations do their own investigation and analysis and publicize their findings for others. Although there are several of these agencies, one of the most respected is Dun & Bradstreet, who offer their findings for a nominal fee. Customers can search through thousands of surety companies, gauge how long they’ve been operating, and assess which agencies they believe are most reputable for their bond needs.

3)     Is a surety broker a more viable option?

Brokers are similar to surety bond companies in that they are able to produce and distribute bonds. Typically, these individuals have established relationships with several high-level surety bond organizations, and can help advise customers on what types of bonds to secure, and how much it will cost them up front and annually. Often times individuals prefer the one-on-one relationship brokers offer. Customers interested in finding a reputable surety bond broker should look through the directory of the National Association of Surety Bond Producers.

Thanks JW Surety, for your guest post.  Welcome to my new subscribers this week!  Please contact me with any of your thoughts or concerns regarding construction law, and I’ll address them in upcoming posts.

Photo (c) JW Surety

Don’t Go Changing (My Date of First Work): The NC Court of Appeals Upholds Contractor Lien Rights (Guest Post)

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Today  [note: this article originally published August 17, 2011], a guest post by Bonnie Keith Green, a construction lawyer and litigator with Shumaker, Loop & Kendrick, LLP, in Charlotte, North Carolina.  Bonnie represents general contractors, subcontractors, materialmen, suppliers, and sureties in construction disputes. 

Through her involvement with the National Association of Women in Construction and the ACE Mentor Program, Bonnie developed a particular interest in representing minority and women-owned construction companies.  She currently chairs a joint committee of the North Carolina Bar Association’s Construction Law Section and the United Minority Contractors of North Carolina.  

Bonnie and the firm of Shumaker, Loop & Kendrick, LLP, represented Superior Construction Corporation from the beginning of the case (discussed below) through the appeal.

Green, BonnieIn a recent victory for contractors, a unanimous three-judge panel of the North Carolina Court of Appeals held that a contractor’s signing of a partial, interim lien waiver did not change the contractor’s date of first furnishing and that the contractor’s lien rights continued to relate back to the date of first furnishing, or first work on the project.

The decision is Wachovia Bank National Association, LLC and Preserve Holdings, LLC v. Superior Construction Corporation and Western Surety Company.

Superior was the general contractor and contracted with the original owner, Intracoastal Living, LLC, to construct a condominium development known as “The Preserve” in Oak Island, North Carolina. Superior began work on April 22, 2005.  Approximately one month later, Intracoastal, the owner, and Wachovia, the construction lender, executed a loan agreement and promissory note and recorded a deed of trust on the property.  During construction, Superior submitted regular pay applications, including its first two pay applications, dated May 11, 2005 and June 9, 2005.  Consistent with industry practice, these pay applications contained partial lien waivers.

Two years later, after failing to receive all payments due from the owner,Superiorfiled a claim of lien on the property, stating that it first furnished labor and materials to the project on April 22, 2005.

Wachovia eventually foreclosed on the project, also due to non-payment by Intracoastal.  In a separate lawsuit, Wachovia brought a declaratory judgment action, asking the court to rule that its deed of trust had priority overSuperior’s lien.  The case was transferred to theNorth Carolina Business Court.

Preserve Holdings, which was formed by a prior owner of Intracoastal, placed an upset bid during Wachovia’s foreclosure, and obtained title to the property, along with all of improvements made bySuperior.  Preserve Holdings was required to post a cash bond in the amount of approximately $950,000.00, because the status of Superior’s lien was uncertain.  After its purchase, Preserve Holdings replaced Wachovia as the plaintiff in the declaratory judgment litigation.  Superior’s bonding company, Western Surety, also claimed entitlement to the cash bond because of payments it made to subcontractors on Superior’s behalf.

The issue for the North Carolina Business Court in the declaratory judgment action was whether Superior’s lien related back to its date of first work and had priority over Wachovia’s subsequently-recorded deed of trust, thus entitling Superior to the cash bond; or alternatively, whether Superior had waived its lien rights by signing the partial, interim lien waivers along with its pay applications, placing its lien behind the deed of trust in priority, and thus entitling Preserve Holdings to the cash bond.

The North Carolina Business Court considered the language of the interim lien waivers and held that they unambiguously waived Superior’s right to lien the property for any work “up to and including” the date of signing the waiver.  The Business Court held that this language resulted in a change to Superior’s date of first work and placed Superior’s lien after Wachovia’s deed of trust.

The Court of Appeals reversed, ruling that Superior’s date of first work did not change because of the execution of partial, interim lien waivers.  Interestingly, the Court of Appeals looked at the exact same language as the Business Court, and also held that the lien waivers were unambiguous.  The Court of Appeals, however, held that the lien waivers unambiguously did not change the date of first furnishing.

The Court of Appeals focused on the language “on account of” contained in the lien waivers, holding that the “on account of” language indicated a causal connection between the contractor’s lien waiver and the specific payment being received by the contractor in exchange for its lien rights.  This causal connection meant that the lien waiver was only for that particular payment and did not waive Superior’s rights as to future work or retainage.

The Court of Appeals’ holding is more consistent with the construction industry’s long-standing practice of using partial, interim lien waivers—and the parties’ (at least the contractor’s)—intent in this instance.  The Court of Appeals’ decision may well be viewed as controlling precedent in any future cases involving similar lien waivers.  There is a need for caution, however.  Contractors, subcontractors, materialmen, and suppliers are cautioned to have lien waivers reviewed by their lawyers and to add language explicitly stating that the partial waiver of lien rights in exchange for payment does not alter or change the date of first furnishing and does not waive lien rights for future work or retainage.

The ruling comes at a time when the status of legislation to overhaul North Carolina’s lien laws is uncertain.  House Bill 489, which was introduced during the 2011 General Assembly, and would have required all parties to use standard, form lien waivers, has been referred to a Study Commission.  It may be considered for passage later this year, or possibly during the short session in 2012.  While the legislation is on hold at the moment, the Court of Appeals’ decision is favorable for contractors.  In these difficult economic times, any victory such as this in favor of the enforcement of contractors’ lien rights is a welcome development.

Bonnie and I welcome your thoughts and opinions on the case in the comments section, below.

Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

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wine and cheese

Reader Mailbag:

For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction.  Dave writes:

I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 – a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.

The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.

My position is the word “stringent” according to Websters means “rigidly controlled, enforced, strict, severe.” The two specifications are written by Underwriter’s Laboratory and precisely decribe each type of tank clearly and without ambiguity for the purpose of rigidly controlling the qualities of the product. Consequently the two specifications are equally stringent. Stringent does not mean more expensive or what the pre-bid intent of the owner.

Is this sound reasoning, does it fall under Spearin and is there another defense I should take?

What Dave is experiencing is a poorly-constructed contract.  Obviously, the goal in a set of construction documents is to not have any conflicts.  However, between specifications, drawings, shop drawings, contract language, addendum, and change orders, the goal of absolute consistency in contract documents is impossible extremely hard to meet.

The usual way around this very likely problem is to state the order of precedence of the various contract and construction documents, so that in the event of a conflict between two provisions, everyone knows which one prevails.  In the absence of any contract language stating the order of precedence, the parties are forced to argue contract law principles such as mutual mistake, which party is considered the contract drafter (and hence, disfavored), and other technical legal issues that numb the mind are only exciting to those of us crazy enough to go into the legal profession.

Sure, you can have wine without cheese, but why would you?  The two should go together, in the same way that an order of precedence clause should go with any construction contract.

Dan has also raised the issue of “more stringent” requirements.  In general, when a contract contains instructions that are susceptible to two or more reasonable interpretations, these are considered “ambiguities”.  There is generally a duty on the contractor to point out conflicts between the documents.  However, where a conflict between the documents is not noticed by any party prior to the bidding, the plans arguably are defective under the Spearin doctrine.

So, back to Dan’s question.  Dan– your situation is a mess!  I agree that your reasoning on the stringent requirements is sound; whether or not a Court will agree with your position remains to be determined.  Time to hire a good construction lawyer in your jurisdiction to negotiate a resolution to your situation!  (I see that you are in Arizona.  If you don’t have a lawyer, let me know and I’ll try to get you a recommendation or two).

Have you ever encountered a contract like Dan’s?  Did it cause any problems with conflicting documents later on?  How did you handle the situation?

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 Photo:  054/365: Wine, cheese and crackers via Addison Berry/Creative Commons license. 

Planning Ahead for Additional Compensation

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money for additional services for construction administration

Does your designer contract have provisions in it for additional compensation in the event the construction project takes longer than the parties anticipate?  If you use the AIA 201 (2007) general conditions for the Contractor, it may.  The AIA provisions include:

 

§ 1.1.2 THE CONTRACT

The Contract Documents form the Contract for Construction. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. The Contract may be amended or modified only by a Modification. The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Contractor and the Architect or the Architect’s consultants, (2) between the Owner and a Subcontractor or a Sub-subcontractor, (3) between the Owner and the Architect or the Architect’s consultants or (4) between any persons or entities other than the Owner and the Contractor. The Architect shall, however, be entitled to performance and enforcement of obligations under the Contract intended to facilitate performance of the Architect’s duties.

The language that I bolded is very important language.  It may provide a mechanism to recoup additional service fees for extended construction administration services.  Note, however, that I said “may.”

If your fees are based on a set number of construction days, what happens if the project gets extended?  Do you simply go without pay for extra months of CA services?  Do you re-negotiate with the Owner at that time?   You should consider this issue in advance to avoid disputes later on.

Best practice?  A clause in the Owner-Designer contract that states that additional services compensation will kick in after a certain date,  at a set value per month.

If you wait until the issue comes up during the final phase of construction, you have much less bargaining power.  You also run the risk of the Owner claiming errors and omissions against you when you present a bill for extra services.  Deal with the issue up front, in much the same way that unit prices for rock overages are provided for upfront in the contractor’s contract.

Do you have experience with getting additional compensation after construction delays?  What worked best for your company?  Share below. 

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 Photo (c) Freefoto.com via Creative Commons license.

Follow your Change Order Requirements

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 check markIt is extremely important that you follow your written contract requirements.  No where is this more evident than in the change order process.

Most contracts have an explicit provision for the payment for additional work– and they generally require a written, signed change order (or change directive) before the work is performed.  Can you get by with verbal agreements for additional work? Sometimes yes, sometimes no.  Will it be much harder to get paid for additional services without a signed change order? You bet.  So why put yourself through that trouble?

Often times parties begin to “waive” formal requirements for written change orders, and construction projects are often on tight deadlines where stopping work to get a fully executed change order would bog down the schedule.  However, you run the risk of throwing yourself on the mercy of the Court when you don’t play by the contract rules.

A new case out of the Eastern District of Virginia demonstrates this fact very clearly.  In Artistic Stone v. Safeco, 2010 WL 2977894 (E.D.Va July 27, 2010), the Court held that the requirement that change orders be in writing was to be strictly construed and the subcontractor in that case could not recover for verbal change orders that violated the written change order requirement.  The Court held that where there is a method to ensure recovery of additional extra work in the written contract, the subcontractor could not recover additional money when it failed to follow that method.

“Written change order requirements maintain order and predictability in the construction business, and are meant ‘to avoid subsequent disagreement, and prevent just such a controversy as has arisen in this case.  For this reason, ‘where there is a method under the contract by which a party can insure the recovery of the cost of extra work, that party is not entitled to recovery where it fails to follow that method.'” Artistic Stone Crafters at 5.   [Internal citations omitted.]

A North Carolina court would likely concur.

To ensure you can fully recover for extra work, make sure it is authorized.  Follow the contract.  If circumstances make it so you cannot always follow the contract terms, document the situation as best as you can.  A follow-up email, confirming a verbal change order, would at least provide written evidence you can present in Court, should it come to that.  Otherwise, arguments can and will be made that the person who gave the change order wasn’t authorized to do so, and you may be stuck with no recovery for the extra work.

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Photo “white check mark on blue- acrylic on canvas” by kylemac via Flickr via Creative Commons license.