AN OVERVIEW OF CONSTRUCTION CONTRACT DISPUTES

Scott Orenstein
(203) 640-8825
CONSTRUCTION CONTRACT DISPUTE PRACTICE GROUP

During a construction project, many different types of disputes may arise between the parties.  A contractor may claim entitlement to additional contract time and/or additional compensation because of changed conditions, extra work, delay, acceleration, lost productivity, defective plans and specifications, and the like.  Similarly, an owner may claim damages for defective work and/or a contractor’s failure to complete the work on time.  In addition, the owner or the contractor may have reason to make claim against the project’s architect or engineer due to a deficient design and/or a failure to properly provide construction administration services.

Our Construction Contract Dispute Practice Group typically assists general contractors, construction managers, subcontractors and/or suppliers with any of the foregoing issues, but occasionally we assist owners and/or design professionals as well.

CONTRACT REVIEW

Today, having good, written contracts is a must.  No longer should anyone rely upon “handshake” or verbal contracts.  Verbal agreements are legally binding, but the lack of a written contract increases the potential that the parties may disagree upon their respective duties and obligations. 

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,

WHAT TO DO WHEN YOU ARE NOT BEING PAID

The most common issue I confront as a construction attorney is what to do when my client is not being paid. The standard approaches include sending a demand letter, making a demand for disputed funds to be placed in escrow in accordance with the prompt payment statute, and, of course, filing mechanic’s liens and/or bond claims. The larger issue becomes what to do when my client can no longer to perform its work without payment.

As a general rule, a contractor is better off completing its work, and then fighting about the monies due, as opposed to walking off the job. While it is true that there are Connecticut cases which hold that a contractor is excused from finishing its work if progress payments are not made when due, but reliance on such cases is fraught with potential problems.

If you ever forced to litigate, you want to be viewed as the one wearing the white hat. You want to be the injured party that is as pure as the driven snow. If at all possible, you do not want to give the other side any arguments to raise. Thus, if you walk off the job for nonpayment,

A Cautionary Tale for All Subcontractors

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,

Another Step Closer to Understanding Pay-When-Paid Clauses

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. 

The Standard Procedure for Obtaining Lien Waivers May Be Ineffective

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.

Payment Bond Claimants Should Consider Additional Causes Of Action

It is not uncommon for sureties that issue payment bonds to deny claims brought by subcontractors and suppliers.  After an “investigation”, a surety’s typical response is that the claim is denied because the debt is the subject of a good faith dispute between the bond claimant and the surety’s principal.  Of course, questions often arise regarding the thoroughness and completeness of the surety’s investigation. For example, no one expects the surety’s bond principal to state that there was no legitimate reason for its nonpayment and that the surety should pay the subcontractor or supplier whatever amount it claims due, which raises the question of whether the surety should have to do more than ask its principal why the bill was not paid.  Moreover, sureties – like everyone else – do not want to part with money unless they are forced to do so.

I recently handled a matter where a general contractor did not pay a subcontractor more than half a million dollars.  There was no justification for the nonpayment.  The surety, however, still failed to pay or deny the claim within 90 days as required by Conn. Gen. Stat. Sec. 49-42.  Instead, the surety took no action.