IN CASE YOU WERE WONDERING, MECHANIC’S LIENS AND PAYMENT BONDS REALLY DO PROTECT THOSE THAT SUPPLY LABOR, MATERIALS AND/OR SERVICES

In poker, you have to play the cards you are dealt, but, if you have a bad hand, you can fold. In litigation, if you do not have a strong argument, you should negotiate a settlement, but that is not always possible because the opposing party’s demands may be so unreasonable that you might as well go to trial and see what happens. It is at those times where an attorney might attempt to get creative. Recently, our Appellate Court upheld a trial court decision that held a surety liable on both a payment bond and a mechanic’s lien substitution bond despite the nine special defenses that it raised. See O & G Indus. v. Am. Home Assur. Co., 204 Conn. App. 614 (2021). Some of these special defenses were novel, and, as a result, this decision gives us some greater insight into lien and bond claims.

In O & G Indus. v. Am. Home Assur. Co., the plaintiff brought an action against a surety that had issued both the subject project’s payment bond and a bond that was substituted for the plaintiff’s mechanic’s lien. Id. By way of brief background,

VERBAL AGREEMENTS ARE JUST AS GOOD AS WRITTEN CONTRACTS (ALMOST)

I have often heard many people say that they did not have a contract and/or change order when they actually meant that they did not reduce their agreement to writing and/or sign a written document. Whenever someone performs work in exchange for a promise of payment, they have a legally enforceable agreement. The question is whether the contract was verbal or written.

There are two areas where the issue of not having a fully executed written agreement repeatedly arises in construction. The first is when the parties exchange a written contract but do not fully execute it, and the second is when the parties ignore the requirement in their contract that any changes in the work only be performed pursuant to a written change order. In both these cases, there can still be an enforceable verbal contract.

As you might expect, having a written contract is often better than a verbal, which is why there are many publicly available forms that can be obtained for construction projects. The American Institute of Architects (AIA) produces the most well-known and widely used forms of agreement, but there are competitors that offer similar (if not better) products. The point is that there is no excuse for not having a signed written agreement for any construction project,

A RECENT APPELLATE DECISION THAT PURPORTS TO EXPLAIN THE MEANING OF “CARDINAL CHANGE” ACTUALLY ONCE AGAIN DEMONSTRATES THE IMPORTANCE OF NEGOTIATING A FAIR CONTRACT

Change order provisions, which appear in most constructon contracts and contemplate changes being made to the work, contradict a fundamental premise of contract law.  Specifically, in order for there to be a legally enforceable agreement, “there must be mutual assent or a meeting of the minds.”  C.A.D.S., LLC v. Sundance Realty, LLC, 2019 Conn. Super. LEXIS 29, *25 (July 2, 2018).  A contract is supposed to be “based on an identical understanding of the parties.” Id. at *25-26.  Yet, as anyone in construction is aware, the project owner may order changes during the performance of the work that the contractor is contractually bound to perform, subject to appropriate adjustments in monetary compensation and the time to complete the work.

Notwithstanding the foregoing, there are limits in an owner’s ability to order changes in the work, because the owner is not allowed to require a contractor to perform “cardinal changes.”  “A ‘cardinal’ change is a change outside the general scope of the contract.”  Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 4:13.  The significance of a cardinal change is that it is not covered by a standard change order provision. 

Are Contractors and Subcontractors Allowed to Rob Peter to Pay Paul When it Comes to Paying Subcontractors and Suppliers?

One of the main problems most contractors (and subcontractors) face is cashflow. When the economy is going well, most contractors still find their payments lagging 60 to 90 days behind the 30 days required by most construction contracts. When an owner fails to make timely payment, general contractors end up in arrears with their subcontractors, who end up in the arrears with their subcontractors (i.e. sub-subcontractors) and suppliers. Often well intended contractors (and subcontractors) may end up using monies received from one project to pay subcontractors (and/or sub-subcontractors) on another. The reasons for paying subcontractors from one project with funds received from another may be because the subcontractors on the second job have gone longer without payment and/or are more in need. The question is whether that is legal.

In Connecticut, it has recently become riskier for contractors to pay their subcontractors (and for their subcontractors to pay their sub-subcontractors and suppliers) with funds received from another project. Connecticut has long had prompt payment statutes which require contractors to pay subcontractors “not later than twenty-five days after the date the contractor receives payment from the owner” on private projects and “within thirty days after payment to the contractor by the state or a municipality” on public projects.

NEGOTIATING A CONSTRUCTION CONTRACT CLAIM CAN FEEL LIKE LEGALIZED EXTORTION

Contractors often end up with monetary claims for nonpayment, changed conditions and/or additional work that are difficult to negotiate. Such claims are often met with counterclaims for defective work, and/or contractual defenses such as lack of notice and/or the lack of a written change order. Defeating such counterclaims are often difficult, but, when it comes to negotiating a settlement of a contractor’s monetary claim, the real difficulty is with the potential attorneys’ and/or costs associated with litigation or arbitration. Even a contractor with a six figure claim amount must seriously consider the attorney’s fees associated with litigating a matter to a final judgment or award in addition to the costs associated with the time its organization spends preparing for and attending any dispute resolution proceeding not to mention the risks associated with putting your fate in the hands of a third party whether that be a judge, jury or arbitration panel.

Anyone who has participated in a mediation has likely heard a mediator say, “Well, if you don’t like that offer, you are going to have to pay your attorneys a majority and/or all of the difference between your claim amount and what is being offered now, and,

UNDERSTANDING HOW THE COURTS WILL INTERPRET YOUR CONTRACT

A well drafted, written contract expresses the intent of the parties in clear language without any ambiguity. For that reason, when a court interprets a written contract, it seeks “to determine the intent of the parties from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction.” MJM Indus. v. Henley Co., 2020 Conn. Super. LEXIS 427, *6. In fact, according to the “parol evidence rule,” if the written contract contains the full expression of the parties’ agreement, a court is generally not allowed to look beyond the language of the written agreement itself. The prior negotiations between the parties will be considered irrelevant. Anything that may have been said verbally or in writing during the parties’ contract negotiations that was not made part of the final written contract is typically not enforceable by either party.

A contract that contains the full agreement of the parties is referred to as a fully integrated agreement. Again, “[i]n order to determine whether a written agreement is integrated, a court must look to the intention of the parties.” Giorgio v. Nukem, Inc., 31 Conn. App.

A RECENT SUPREME COURT DECISION DRAMATICALLY AFFECTS SUBCONTRACTORS’ RIGHTS

In Girolametti v. Michael Horton Assocs., Inc., the Supreme Court determined when a subcontractor’s rights will be affected by an arbitration in which the subcontractor did not participate. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). This decision was based upon “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it.” Id. at 75. In order for claim preclusion to apply, the following requirements must be met:
(1) The prior judgment must have been rendered on the merits by a court of competent jurisdiction;
(2) The parties to the prior and subsequent actions must be the same or in privity;
(3) There must have been an adequate opportunity to litigate the matter fully; and
(4) The same underlying claim must be at issue.
Id. After applying these requirements in Girolametti, the Supreme Court held that the owner’s claims against the subcontractors were barred because they were either brought or could have been brought in the owner’s arbitration against the general contractor.

How to Successfully Deal with OSHA

At the outset, I want to stipulate that it is important to protect worker health and safety. At the end of the day, the most important thing is to have everyone go home safe and sound. The Occupational Safety and Health Administration (“OSHA”) is an administrative agency charged with promoting the health and safety of workers across many industries. While I do not want to belittle OSHA’s mission, there is no question that government regulation can be detrimental to business, and it could be argued that OSHA is unnecessary.

Without question, there is not a single employer who wants anything to happen to its workers. While there might be an occasional employer who does not fully value its employees, even the most callous individual would recognize that employee injuries and/or deaths are detrimental to productivity and profits. Therefore, the last thing anyone wants is for there to be any accidents.

Notwithstanding the foregoing, OSHA is not going to be going way any time soon. Thus, if you are working in the construction industry, it is important to know your rights and to know how to handle both a routine inspection and/or an accident situation.

Connecticut is one of four states that has both federal and state OSHA.

When the Breach of a Construction Contract is not a Breach

The doctrine of substantial performance holds that a contractor’s breach of a construction contract does not entitle the owner to damages because the contractor’s performance was close enough to that which the contract required. “Technical violations are excused not because compliance [is] impossible, but because actual performance is so similar to the required performance that any breach that may have been committed is immaterial. Substantial performance occurs when, although the conditions of the contract have been deviated from in trifling particulars not materially detracting from the benefit the other party would derive from a literal performance, [the other party] has received substantially the benefit [it] expected, and is, therefore, bound to perform.” United Concrete Prod., Inc. v. NJR Constr., LLC, No. CV176011932S, 2018 WL 5733720, at *4 (Conn. Super. Ct. Oct. 17, 2018). The classic example of this doctrine is a situation where the contract specifies a product manufactured by Company A but the contractor provides the same product manufactured by Company B. Because the contract expressly stated that the product shall be manufactured by Company A, the installation of the same product manufactured by a different company is a breach of the contract. However, because the products are identical other than the name of the manufacturer,