It is readily apparent that – if a project is delayed – the contractor is losing money. The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc. Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time. Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.” Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003). “As a result, there are at least nine formulas that have been used,
A recurring problem in the construction industry is the failure of owners to issue timely payments. The problem not only affects contractors but also the subcontractors and/or suppliers who have to wait for the money to pass through the project’s general contractor and/or a higher tier subcontractor. Most contractors are aware of their right to secure payment of the monies owed through a mechanic’s lien (private work) or by filing a payment bond claim (public work or private work if applicable) but there are statutory rights of which contractors should be aware.
Connecticut General States § 42-158i defines a “construction contract” as “any contract for the construction, renovation or rehabilitation in this state on or after October 1, 1999, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor” but excludes contracts between a contractor and any local, state, or federal government, and it excludes contracts for building residential structures with less than 4 units. Id.
According to § 42-158i,
On October 1, 2004, acting through its Department of Administrative Services (“DAS”), the State of Connecticut implemented a prequalification program for all contractors bidding on certain public projects. 2003 Ct. ALS 215, 1. Specifically, “[t]he DAS Contractor Prequalification Program (C.G.S §4a-100) [(the “Program”)] requires all contractors to prequalify before they can bid on a contract or perform work pursuant to a contract for the construction, reconstruction, alteration, remodeling, repair or demolition of any public building or any other public work by the state or a municipality, estimated to cost more than $500,000 and which is funded in whole or in part with state funds, except a public highway or bridge project or any other construction project administered by the Department of Transportation.” DAS website, http://www.das.state.ct.us/cr1.aspx?page=10. On October 1, 2007, the Program was expanded to apply to subcontractors whose contract exceeded $500,000. http://www.das.state.ct.us/fp1.aspx?page=111. Still, questions remain as to whether an apparent low bid submitted by a DAS prequalified contractor may be rejected by a public owner and/or its construction manager and the information that a bidder may have to submit to be awarded a project can be unduly burdensome and repetitive.
According to DAS,
In recent years, Owner Controlled Insurance Programs (“OCIP”) have become more prevalent in public and private construction projects. An OCIP “is a class of ‘wrap-up’ insurance that provides coverage for many construction project participants under one program.” Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 767 (Conn. 2013). Such programs typically include commercial general liability insurance and worker’s compensation insurance. In general, OCIPs reduce a project’s overall cost because the owner does not have to pay the multiple layers of duplicative administration associated with the general contractor and each subcontractor having its own insurance coverage. The general understanding is that the project owner benefits from the savings but a recent Superior Decision reminds us that contractual duties and obligations are derived from the plain language of the contract and not what may reasonably inferred.
In Elevator Serv. Co. v. Reg’l Scaffolding & Hoisting Co., 2013 Conn. Super. LEXIS 687 (Conn. Super. Ct. Mar. 27, 2013), Elevator Service Co., Inc. (“Elevator Service”) and Regional Saffolding & Hosting, Inc. (“Regional Scaffolding”) entered into an agreement pertaining to a project known as the Royal Bank of Scotland (the “Project”). The issue before the court was whether Elevator Service had to pass along to Regional Scaffolding a discount that it received through the subject project’s OCIP.
The Connecticut Appellate Court recently handed down a decision that should have all subcontractors carefully reviewing their subcontracts. In Suntech of Connecticut, Inc. v. Lawrence Brunoli, Inc., 143 Conn. App. 581 (2013), Suntech of Connecticut, Inc. (“Suntech”) agreed to “provide glass doors, glass, glazing, an aluminum framing system, and a metal framing system” as a subcontractor on a state project. Id. As a result of an error in the plans and specifications, Suntech incurred substantial additional costs. Typically, when an error in the plans and specifications results in a contractor incurring additional costs, the contractor is entitled to a change order but that is not what occurred in this case.
The Suntech decision appears to go against two principles of Connecticut construction law. First, in Southern New England Contracting Co. v. State, 165 Conn. 644, the Connecticut Supreme Court issued a decision consistent with the Spearin doctrine which states that, because the contractor agrees to build the project in accordance with the plans and specifications, the contractor will not be held responsible for damages should the plans and specifications end up being defective. Second, while not conclusively determined,
Under Connecticut law, an owner should pay its general contractor within 30 days of having received the general contractor’s application for payment; the general contractor, in turn, is required to pay its subcontractors and suppliers within 30 days of having received payment from the owner; and the subcontractors should then pay their sub-contractors and suppliers within 30 days of having received payment from the general contractor and so on down the line. See Gen. Stat. § 49-41a and Conn. Gen. Stat. § 42-158j.
The provisions in § 49-41a and § 42-158j are substantially similar except that:
1.) Only private owners are required to make payment to their general contractors within a specified number of days after receiving an application for payment; and
2.) The statute only applies to public projects for which a payment bond is required, which is any public works project whose contract amount exceeds $100,000.
Both statutes also have similar enforcement procedures. Either a subcontractor on a public project to which the statute applies or general contractors and subcontractors on a private project can make demand for payment by way of registered or certified mail and, within 10 days,
Construction Contract disputes are complicated legal matters. Both sides usually have valid points to make. The winner is determined by the application of relatively complex facts to the law. Such cases often involve information beyond the knowledge and understanding of the average juror. Although it is true that most judges do not have a construction background either, judges have likely heard a prior construction case; and, as trained jurists, have a good understanding of the legal arguments that are being raised. In addition, judges are being paid to pay attention to your case. Conversely, the average juror has no understanding of construction or the law; typically does not want to be serving as a juror; and is missing out on a day’s pay. In light of the foregoing, I almost never recommend that my clients request a jury.
There is one area, however, where choosing a jury may be the right choice. Until relatively recently, it was understood that a contractor had no claim for damages arising out of a bid protest. See Lawrence Brunoli, Inc. v. Town of Branford, 247 Conn. 407, 412 (1999) (holding that the only remedy to be afforded unsuccessful bidders under the municipal bidding statutes is injunctive relief);
As most contractors are aware, in Connecticut, you have 90 days after the last day that you supply labor and/or materials to file a mechanic’s lien. Many other states have the same or a similar requirement pertaining to when a mechanic’s lien can be filed. The question that is often asked is which “last day” starts the clock.
In a common scenario, additional work is performed more than 90 days after what was originally thought to be the last day worked and the contractor then claims that the second last day starts a new 90 days clock to file a mechanic’s lien. Sometimes such mechanic’s liens are upheld but they are typically invalidated. The reason is that the typical scenario involves a contractor – who has not been paid – realizes that his time to file a mechanic’s lien has expired so he returns to the site to perform a minor punchlist item that was inadvertently left undone initially. Generally speaking, to restart the mechanic’s lien clock, a contractor must perform substantive work that was authorized by the owner or someone rightfully acting on the owner’s behalf. The most recent guidance on this issue was provided by the Connecticut Appellate Court in Cianci v.
Under Connecticut Law, “a mechanic’s lien shall not continue in force for a longer period than one year after the lien has been perfected unless the party claiming the lien commences an action to foreclose it.” Conn. Gen. Stat. § 49-37. Similarly, “[w]henver a bond has been substituted for any [mechanic’s] lien . . . , unless an action is brought to recover upon the bond within one year from the date of recording the certificate of lien, the bond shall be void.” Thus, in both instances, the law requires a lawsuit to be commenced within one year of the mechanic’s lien having been recorded or the right to make a claim on the lien or a bond substitute therefor is gone. In Connecticut, a lawsuit is commenced when the Writ, Summons and Complaint is served upon the defendant by a marshal. Yet, recently, a Superior Court Judge refused to dismiss an action on a bond substituted for a lien that was not served until after the one year time limit had expired. See Frank Lill & Son, Inc. v. O&G Indus., 2012 Conn. Super. LEXIS 2844 (Conn. Super. Ct. Nov. 26, 2012)
The Lill decision is surprising because it is often said that,
The Connecticut courts have often been schizophrenic in their interpretation of Connecticut mechanic’s lien law. On one hand, the courts refer to mechanic’s liens as a right created by statute and, therefore, must be strictly interpreted. On the other, the courts refer to mechanic’s liens as remedial in nature and, therefore, should be liberally construed. Based upon some recent decisions, it appears that that deadline to record and serve the mechanic’s lien is being strictly interpreted but the deadline to foreclose the lien is being liberally construed.
For a mechanic’s lien to be valid, it must be recorded within 90 days of the last day worked. The mechanic’s lien, however, will expire if not foreclosed within one year of its recording. Recently, the courts examined whether: 1.) the 30 day time limit for service was included within the 90 days for recording; and 2.) if the 30 days a marshal has to serve papers extended the one year deadline to foreclose. Based upon the language of the statutes, the decisions came out the exact opposite as you might expect.
Conn. Gen. Stat. §49-34 states that the lien must be recorded within 90 days after the last date worked and served upon the owner within 30 days of recorded the certificate.