No provision in a standard construction contract has been more debated than the requirement for the general contractor to pay its subcontractors after its receipt of payment from the owner. In situations where the owner does not pay the general contractor, the general contractor typically argues that it has no obligation to pay the subcontractor even if the reason for the owner’s nonpayment had nothing to do with the subcontractor. Conversely, the subcontractor argues that – when the reason for the owner’s nonpayment is not the subcontractor’s fault – the general contractor must pay the monies the subcontractor is due. Generally, the courts have said that contract language which states that the subcontractor shall not be paid until after the general contractor’s receipt of payment from the owner merely sets forth the time for payment and does not transfer the risk of the owner’s insolvency from the general contractor to the subcontractor. “Normally and legally, the insolvency of the owner will not defeat the claim of the subcontractor against the general contractor.” Sil/Carr Corp. v. Bartlett, 2012 Conn. Super. LEXIS 1665 (Conn. Super. Ct. June 26, 2012). It is, however, possible for the contractor to transfer the risk of the owner’s nonpayment to the subcontractor.
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;
The general rule is that a party does not have to disclose communications with its attorney seeking legal advice. A recent Superior Court decision, Noble v. the City of Norwalk, 2012 Conn. Super. LEXIS 2017, however, has found an exception to the attorney client privilege that contractors need to be aware about.
During a trial, witnesses are not allowed to give their opinion unless they are qualified as an “expert.” Under the legal definition, an “expert” is anyone that has knowledge through education, training or experience that would be helpful to the jury given the subject matter of the lawsuit. Based upon the foregoing definition, almost anyone can qualify as an expert if the right case came along. For example, my 13-year-old daughter has been taking ballet lessons since she was 3. If ballet ever became relevant to a key issue in a lawsuit, my daughter would qualify as an expert on that subject.
In construction litigation, there are always questions that are not clearly fact or opinion. For example, the amount of time that the forms have to remain in place after a concrete pour is a subject upon which there is disagreement and often depends upon the structure that was poured and the conditions under which the concrete was placed.
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.
A recent Superior Court decision should cause general contractors and owners to reevaluate their procedures for obtaining lien waivers. Typically, signed lien waivers are submitted after the work is performed but before payment is received. On a basic level, the procedure makes sense because the owner does not want to issue payment to its general contractor unless it is sure that it’s protected from potential mechanic’s liens. While the general contractor and its subcontractors may argue that they should not have to provide lien waivers until they receive payment, they are generally protected if the owner does not actually issue the payment described in the lien waiver because standard lien waiver language makes it clear that the waiver is not effective unless the payment described therein is actually received.
In Milone & MacBroom, Inc. v. Winchester Estates, 2011 Conn. Super. LEXIS 2688, the Superior Court considered whether a lien waiver is valid when:
1. The lien waiver is issued after the work is performed:
2. The lien waiver is executed before payment is received; and
3. The payment described in the lien waiver is received three weeks after the lien waiver was signed.
Court Rules That the Government Contractor Defense is Not Applicable to Road Reconstruction Projects
As articulated by the United States Supreme Court, the government contractor defense provides that “[l]iability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.” Boyle v. United Techs. Corp., 487 U.S. 500, 512 (U.S. 1988). The Connecticut Supreme Court recognized the government contractor defense in Miller v. United Technologies Corp., 233 Conn. 732 (Conn. 1995). Nonetheless, a Connecticut Superior Court has just refused to apply the government contractor defense to a claim arising out of a road reconstruction project.
In Fox v. Town of Stratford, 2012 Conn. Super. LEXIS 1443 (Conn. Super. Ct. June 1, 2012), the plaintiff alleged that his property was damaged by flooding caused by a road reconstruction project. The contractor asserted that, under the authority of Miller and Boyle, it cannot be held liable for plaintiff’s alleged damages because it strictly complied with the government’s plans and specifications.
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;
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.
A new law has recently gone into effect in Massachusetts that drastically changes the relationships between private owners, contractors and subcontractors; and some people are going to suffer severe financial hardship as a result. For some inexplicable reason, the Commonwealth of Massachusetts has decided to interfere in what has been traditionally been the private right to contract. The new law has three main points; each more insidious than the next.
First, “pay when paid” and/or “pay if paid” provisions commonly found in subcontracts are now prohibited by statute in the Commonwealth of Massachusetts. Many general contractors simply are unable to pay their subcontractors until they receive payment from the owner. Thus, they write their subcontracts to make the subcontractor’s payment due a reasonable time after the contractor receives payment from the owner. Now, “every contract for construction shall provide reasonable time periods within which” an application for payment shall be submitted, approved and paid. Contract provisions that first require that the contractor to receive payment from the owner are void except in cases where the subcontractor has performed defective work or is insolvent.
Second, general contractors must abide by the time requirements for the review and approval of pay applications or suffer an extremely harsh result.
Most subcontracts contain language, which state that the contractor shall pay the subcontractor within so many days after the contractor’s receipt of payment from the owner. The question then becomes, “what happens if the owner never pays the contractor?” It is a complicated question that has been the subject of much litigation. The general rule is that – provided the owner is not withholding payment due to a failure by the subcontractor – the subcontract will be interpreted as requiring payment within a reasonable time. In other words, even if the owner does not pay the contractor for the subcontractor’s work, the contractor will still be expected to pay the subcontractor despite the fact that the subcontract requires the owner to first pay the contractor.
Of course, as with almost every legal issue, there are exceptions to the general rule. For example, there are “magic words” that will make it more likely that the court will find that the subcontractor has given up its right to payment should the owner not pay the contractor. Examples of such “magic words” are as follows:
• Contractor’s receipt of payment from owner is a “condition precedent” to the subcontractor’s right to payment;