Professional Documents
Culture Documents
Substantial Completion Blues
Substantial Completion Blues
Substantial Completion Blues
Inside:
Announcement Case and Legislative Updates By State Florida Georgia Mississippi New York South Carolina Virginia Federal Case Update Mark Your Calendar In the News Construction Tips: Lien Waivers: What Do They Really Mean? 3 3 3 3 4 4 4 5 5 5 6 6
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owner should be allowed to occupy and enjoy the building without any further disruptions (with punch list items confined to the exterior of the building, for example). The beneficial occupancy definition certainly makes perfect sense if one is talking about a brand new, vanilla office building in the suburbs with one tenant. However, it makes absolutely no sense when talking about a hotel or residential project. On a residential or hotel project, the idea of punch list work being performed in an occupied hotel room or an occupied apartment is unthinkable to the developer and the resident. If the owner cannot turn the hotel room or apartment over to the resident to be enjoyed without plumbers doing punch lists, then the project cannot generate revenue for the owner. Being able to occupy the project, or receiving a certificate of occupancy, has no particular relevance to this owner or developer. Other projects pose similar problems. If the issue is the construction of retail shell space, how much work has to be completed by the landlords contractor in order for the tenant to accept the premises for fixturing? If the issue is interior retail tenant space, how much work has to be completed by the contractor for the retailer to open for business? What does the lease say about the work that has to be completed, and when? In these circumstances, that may be the most important question. All of these questions must be answered if the definition of substantial completion in the construction contract is going to be accurate and useful in preventing a dispute at the end of the project. For some of our clients that develop or construct many different types of projects, we often suggest that they leave the substantial completion definition blank in their form contracts. The hope is that the project manager will look at this issue along with all of the other business terms, and come up with a definition that makes sense for the particular project involved. This definition may need to be very detailed and contain a laundry list of items bearing on the issue of substantial completion. This could include specific site work items (site lighting, paving, etc.) that have nothing to do with the building itself, but which bear on the issue of substantial completion, at least a substantial completion that meets the expectations of the developer. In the apartment example, one should determine what common area work has to be completed in order to achieve substantial completion, above and beyond completion of the residential units. As noted above, the difficulty of determining when substantial completion has been achieved can have enormous consequences. Delay damages, payments and retainage releases are almost always tied to substantial completion. As a result, a lot of money is riding on whether substantial completion has been achieved on a particular project, and by what date. It is therefore critical that the parties to the contract avoid, if at all possible, arguing about the definition of substantial completion and what has to be done to achieve that status on the project. Deborah Cazan
ANNOUNCMENT
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The Construction and Government Contacts Group is pleased to announce the relocation of one of its attorneys, Brook A. Clark, to the firms New York office where she will join partner Daniel J. ONeill as the second attorney from the Construction and Government Contracts Group in that office. For many years, Alston & Bird has represented national and international clients who have engaged our services to handle transactional and adversarial matters throughout the Northeast. The relocation of Ms. Clark allows the Construction and Government Contacts Group to enhance its ability to provide local support to clients who need business and adversarial advice on construction and government contracts matters in New York City and throughout the Northeast.
Georgia
Georgia Legislature Enacts General Contractor Licensing Statute The Georgia Legislature recently enacted a contractor licensing scheme designed to cover both residential contractors and general contractors. O.C.G.A. 43-41-1 et. seq. The law will go into effect when appropriations are budgeted for the licensing board, which did not occur during the 2004 legislative session. The definition of contracting is very broad and includes not only performing the construction or the management of the construction of improvements to real property for an owner, but also merely offering to undertake such services for, or submitting a bid to, an owner. The definition also includes contracting work performed by a construction manager at risk. Generally, residential contractors must obtain a license if they contract directly with an owner for a value over $2,500 or receive a fee over $2,500. However, no minimum dollar amount appears in the statue for general contractors. The statute prescribes both criminal penalties and civil sanctions for failure to comply with the statue. Notably, like most jurisdictions, an unlicensed contactor may not enforce its contract. An unlicensed contractor also loses all lien and bond rights it may otherwise have had. Contractors who perform construction work in the state of Georgia should play close attention to the new contractor licensing requirements and should take steps to ensure they will be in compliance when the statute becomes effective.
Mississippi
Mississippi Supreme Court Requires Contractor to Prove Objective and Subjective Impossibility to Prevail on Defective Design Claim In Evan Johnson & Sons Constr., Inc. v. State, the Mississippi Supreme Court held that the state and its architect were not liable on the contractors defective design claim because the contractor failed to prove the impossibility of constructing the building according to the design. The contractor believed that it could not build the roof in accordance with the plans and specifications. Despite the contractors objections, the state instructed the contractor to install the roof as designed. After the contractor attempted to build the roof in a manner contrary to the plans and specifications, the state rejected the contractors work. The contractor sued the state and the architect alleging defective design. The court rejected the contractors defective design claim because the contractor failed to prove both subjective and objective impossibility. Because [the contractor] failed to prove any other contractor was unable to comply with the original design and specifications and because [the contractor] failed to attempt to construct the roof according to the original design and specifications, the contractors claim for defective design was without merit. 877 So. 2d 360 (Miss. 2004)
New York
Failure to File Notice of Lending Costs Bank $1.9M The New York Court of Appeals recently reminded banks of the importance of filing a Notice of Lending. In Aspro Mechanical Contracting Inc. v. Fleet Bank, N.A., 7, the court ordered Fleet to pay a group of subcontractors $1.9 million dollars that it had applied to its mortgages on a residential housing project. Fleet loaned Berry Street Corporation $12 million dollars secured by the assignment of Berrys rights in a development contract with the New York City Housing Authority (NYCHA). Fleet applied NYCHAs payments to its outstanding mortgages on the property. Several unpaid subcontractors (including Aspro) sued Fleet, alleging that the Bank had diverted trust assets in violation of the states lien law. The court found that Fleet was a trustee of the funds received from NYCHA, and had a fiduciary duty to use those funds to pay for improvements to the property. Fleet breached that duty by using trust funds to repay its own mortgages and was therefore liable for the subcontractors claims. Fleet could have avoided liability entirely if it had filed a Notice of Lending with the county clerk. By doing so, it would have notified trust beneficiaries that trust assets were being used to discharge Berrys debt. 805 N.E.2d 1037 (N.Y. 2004)
South Carolina
Right to Compel Arbitration Not Waived By Delay, Pre-Trial Activity and Litigation Costs In Patten Grading & Paving, Inc. v. Skanska USA Building Inc., two attorneys from Alston & Birds Construction and Government Contracts Group successfully argued an appeal before the U.S. Court of Appeals for the Fourth Circuit. The appellate court reversed the lower courts ruling that the contractor had waived its contractual right to compel arbitration when it waited eight months after commencing litigation before moving to compel arbitration. In reversing, the court of appeals assessed several facts raised by the subcontractor and relied upon by the district court, including the contractors alleged eight-month delay in moving to compel arbitration, limited pre-trial activity and discovery, and the subcontractors incursion of $5,800 in litigation costs, and concluded that taken in isolation and together, these facts did
not constitute actual prejudice sufficient to demonstrate waiver of the right to compel arbitration. 380 F.3d 200 (4th Cir. 2004)
Virginia
Suretys Notice of Claim Against Principal, Coupled With Right and Opportunity to Defend, Sufficient to Bind Surety To Judgment by Default Entered Against Principal In American Safety Casualty Ins. Co. v. C.G. Mitchell Construction, Inc., the Supreme Court of Virginia held that a judgment by default entered against the principal on a payment bond as a discovery sanction was binding and conclusive on the surety for purposes of summary judgment. Relying on the Eleventh Circuit Court of Appeals decision in Drill South, Inc. v. International Fid. Ins. Co., 234 F.3d 1232 (11th Cir. 2000), the Virginia Supreme Court announced that a general rule has emerged whereby a surety is bound by any judgment against its principal, default or otherwise, when the surety had full knowledge of the action against the principal and an opportunity to defend. 601 S.E.2d 633 (Va. 2004)
Stephen M. Reams is speaking on Construction Project Finance and the Impact of NAFTA at the Trilateral Symposium at Universidad Pan Americana, November 10-11, 2004, Guadalajara, Mexico. Brian K. Fielden is presenting Managing Risk in Hotel Development and Construction at the Academy of Hospitality Industry Attorneys November 2004 Meeting, November 11-13, Dallas, Texas. Robert L. Crewdson and Brian K. Fielden will present Managing Risk in Hotel Development and Construction at the Americas Lodging Investment Summit, January 18-20, Los Angeles, California.
Partners John I. Spangler III, William H. Hughes, Jr., and Robert L. Crewdson were all recognized in Best Lawyers in America 2005-2006 in the area of construction law. Robert L. Crewdson presented Construction War Stories II -- Another Year, More Stories at the 2004 ICSC U.S. Law Conference in Hollywood, Florida. Jonathan D. Crumly, Sr. presented Evidence in the 21st Century: a Construction Lawyers Guide at the May 2004 American Bar Association Forum on the Construction Industrys Annual Meeting in Scottsdale, Arizona. William H. Hughes, Jr. presented A Practical Course of Action for Claim Prevention and Avoidance at the national conference of the Construction Management Association of America (CMAA) in San Antonio, Texas on September 13, 2004. Robert L. Crewdson and William H. Hughes, Jr. made presentations at the Institute for Continuing Educations Construction Law for the General Practioner seminar in Atlanta on October 14, 2004. Mr. Crewdson also chaired the seminar. Associate John S. Ducat III co-authored written materials. Jonathan D. Crumly, Sr. co-authored Preventing War Over Mold Claims, an article appearing in the July 2004 New York Law Journal. Jonathan D. Crumly, Sr. was quoted extensively in a front page article in August 30, 2004, edition of the South Carolina Lawyers Weekly reporting on the Patten Grading decision (see Case Updates for details of the decision).
IN THE NEWS
In these cases, it is important that a contractor read the waiver form, and understand the difference between a lien waiver and a claim waiver. When the waiver releases contract claims as well as lien rights, the company signing the waiver will have released its right to recover costs or damages for pending change orders or delay claims that are otherwise being submitted or processed on the project. The waiver could result in an inadvertent and unintentional release of claims under the contract that are otherwise entirely valid. These waivers are enforced according to their terms like any other legal document, particularly because waivers are sworn documents. Courts are loath to allow an attack by a contractor on its own sworn lien waiver. Therefore, when signing a waiver that includes a release of contract claims (as well as lien rights), a contractor should carefully list and exclude those claims and matters that are still pending. Most owners find the list of excluded claims to be acceptable, as their main intent in using the claim waiver is to obtain information on claims that might be in the offing. Owners should ensure that this list of claims is as specific as possible to preclude any argument as to what is included in that claim at a later date. Another issue regarding lien waivers that requires careful attention is the issue of whether the state in which the project is located has restrictions on the type of waivers that can be used. For example, in the South, Georgia and Florida have statutory lien waiver forms, and the statutes generally provide that all waivers must be substantially in the form provided in the statute to be effective. In the West, Arizona and California have very strict requirements on the form of a lien waiver. There are a few other states with similar requirements. If a waiver contrary to the terms of these statutes is used, it will be deemed unenforceable. Most of the statutory waiver forms are merely waivers of lien, and not claims. While these statutes often do not speak to the issue of whether claim waivers can be included in a waiver form (and there are no cases bearing on this issue at the present time), Arizona and California do, in fact, prohibit claim waivers. Other states, like Florida and Georgia, do not seem to prohibit claim waivers, although there are no cases that would permit a final answer to this question. Additional states will likely pass lien waiver form provisions in the future, and a contractor going into any state for the first time should always check to make sure their form complies with any statute that exists. Owners and contractors should pay careful attention to the lien waivers used on every project they undertake. If statutory lien waivers are required, the parties should ensure they have the proper forms. They should read and analyze the lien waivers to obtain a clear understanding of what rights and claims are being waived every month. If owners and contractors pay close attention to statutory requirements, and the contents of lien waivers, they can avoid unintended and potentially devastating consequences. Aubrey B. Waddell
This Construction Law Review is published by Alston & Bird to provide a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered advertising under the applicable court rules.
John I. Spangler, III Practice Group Chair 404-881-7146 jspangler@alston.com Jeffrey A. Belkin 404-881-7388 jbelkin@alston.com Deborah Cazan 404-881-7667 dcazan@alston.com Brook A. Clark 212-210-9462 bclark@alston.com Robert L. Crewdson 404-881-7291 rcrewdson@alston.com Jonathan D. Crumly, Sr. 404-881-7336 jcrumly@alston.com Daniel F. Diffley 404-881-4703 ddiffley@alston.com John S. Ducat III 404-881-4934 jducat@alston.com Brian K. Fielden 404-881-7496 bfielden@alston.com J. Andrew Howard 404-881-4980 ahoward@alston.com William H. Hughes, Jr. 404-881-7273 bhughes@alston.com Daniel J. ONeill 212-210-9522 doneill@alston.com Stephen M. Reams 404-881-7731 sreams@alston.com Aubrey B. Waddell 404-881-4932 awaddell@alston.com
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