change order Archives - Attorney Scott S. Orenstein

Contractors Have Statutory Rights That They May Assert During Payment Disputes

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,

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,

Arbitrability: Who Decides Who Gets To Decide?

Arbitration has become a popular alternative to traditional courtroom litigation for construction contract disputes; however, arbitration is a creature of contract. No one can be forced to arbitrate an issue that they have not agreed to arbitrate. The problem is that the parties sometimes disagree over what issues they have agreed to arbitrate. In those instances, the issue is whether the court or the arbitrator(s) get to decide whether any specific dispute is subject to the contract’s arbitration clause. The Superior Court addressed this issue most recently in Montowese Industrial Park, LLC v. The Thomas W. Golden Realty Company.

In Montowese, the Court started with the general rule, which states that it is for the Court to decide whether a specific dispute is arbitrable based upon the Court’s authority to interpret contracts. The Court then went on to state that the parties had the authority to transfer that authority to the arbitrator(s) if they chose to do so. In other words, the parties could, by contract, allow the arbitrator(s) to decide whether a particular dispute was within the subject agreement’s arbitration clause.

The Court then went on to state that the Court could imply that the parties had intended to leave the issue of arbitrability up to the arbitrator(s).

Act Promoting Fairness In Private Construction Contracts? Hardly.

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.

Scott Orenstein
12.30.2010
Construction Law, Contract Law, Pay when paid

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