Construction Manager Archives - Page 2 of 2 - Attorney Scott S. Orenstein

Recent OCIP Decision Reminds Contractors About the Importance of Contract Language

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.

Connecticut Statutes Provide Assistance with Receiving Prompt Payment on Public and Private Construction Projects

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,

The Contract and Not Common Sense Determines the Proper Parties to an Arbitration

Many construction contracts require the parties to resolve their disputes through alternate dispute resolution procedures such as mediation and arbitration. Arbitration is intended to be a cost effective alternative to litigation. The issue of whether arbitration works as well as intended will be the subject of a future post on this Blog but the topic of discussion here is the question of determining the proper parties to any given arbitration. The answer is counterintuitive.

When it comes to arbitration, there are several well settled rules. For example, courts favor arbitration, arbitration is a creature of contract, and no party will be forced to arbitrate when it has not agreed to do so. In light of the foregoing, you might believe that a party, who is named in a demand for arbitration, files an answer to the demand, and participates in the arbitration hearing, has agreed to arbitrate and should be held liable for any arbitrator’s award that enters against it. If you did believe that, however, you’d be wrong.

In CDIFUND, LLC v. Lenkowski, disputes arising out of home construction contracts were arbitrated. CDIFUND, LLC v. Lenkowski, 2011 Conn. Super.

Subcontractors Only Have Very Limited Rights Against Public Owners

On private construction projects, subcontractors and/or suppliers that furnish labor, material, or services but are not paid by the project’s general contractor have a variety of claims that they may assert against a private owner. For example, such subcontractors and/or suppliers may assert claims for unjust enrichment or file a mechanic’s lien. No such rights exist, however, where the project owner is the State of Connecticut or one of its cities or towns.

As an alternative to the typical claims a subcontractor or supplier has against a private owner, Conn. Gen. Stat. § 49-41 requires general contractors that enter contracts for public projects over a certain dollar amount to post surety bonds that guarantee payment to their subcontractors and suppliers. The exact language of Conn. Gen. Stat. § 49-41 states that “[e]ach contract . . . [for] any public building or public work of the state or a municipality shall include a provision that the person to perform the contract shall furnish . . . a bond . . . for the protection of persons supplying labor or materials . . .” By the plain language of the statute, the onus is put on the general contractor to supply the bond;

Public Owners Cannot Arbitrarily Award Contracts

Successfully protesting the award of a public construction contract is a very difficult. Under the public bidding laws, an unsuccessful bidder cannot obtain a monetary award against a public owner and its only recourse is to seek stop the public owner from awarding the contract to another bidder. The courts, however, will not stop a public owner from rejecting an apparent low bid and awarding the contract to another bidder unless the public owner engaged in fraud, favoritism or corruption.

For years, the public bidding laws protected the public owner’s ability to make any decision it deemed to be in its best interest provided it acted in good faith. As indicated in another post, that protection ended when the Connecticut Supreme Court held that it was possible for an unsuccessful bidder to obtain a monetary judgment against a public owner if the claim was based upon a cause of action that did not rely upon the public bidding laws.

More recently, a Connecticut Superior Court determined that a public owner can be held liable for money damages if it completely circumvents the public bidding laws. In CTTFB, Inc. v. City of Bridgeport, the court refused to overturn a jury verdict that awarded the plaintiff damages after determining that the City violated the Connecticut Unfair Trade Practices Act.

Scott Orenstein
03.03.2012
Construction Law, Construction Manager, Contract Law, Public Owner

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