Connection construction law attorney Archives - Page 3 of 4 - Attorney Scott S. Orenstein

A Connecticut Court Grants Defendant’s Motion To Stay An Application To Discharge Mechanic’s Lien Pending Arbitration

As regular readers of this blog know, a mechanic’s lien provides a contractor with a security interest in the real property where its work was performed. Because, however, it is not the intent of the mechanic’s lien laws to restrict the free transfer of title of real property, there are two statutory procedures by which an owner may obtain a release of a mechanic’s lien. Specifically, the property owner may seek to substitute a surety bond for the lien or the property owner may seek an order discharging or reducing the lien. In CDO Properties, LLC v. Bogaert Construction Co., Inc., Docket No. CV 13-6018411 (JD of New London), the Court issued a decision staying the property owner’s application for discharge of a mechanic’s lien. Based upon this decision, an owner’s attempt to promptly discharge a lien may be thwarted or delayed by a court and an owner may be forced to live with a lien until after arbitration.

The decision was based upon the Connecticut General Statutes, which require the court to stay any legal proceeding if the dispute is subject to an agreement to arbitrate. Conn. Gen. Stat. § 52-409 states:

If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate,

If Your Mechanic’s Lien is Discharged, You’ve Lost the Battle But Not the War

After a mechanic’s lien is filed, an owner has two options. The owner can wait because, if the lien is not foreclosed within a year, it evaporates by operation of law; or, the owner can file an application with the court seeking an order discharging the lien. If the owner files an application for discharge, the court will hold a hearing during which the contractor “shall first be required to establish that there is probable cause to sustain the validity of his lien,” and, if that occurs, the owner must “prove by clear and convincing evidence that the validity of the lien should not be sustained or the amount of the lien claimed is excessive and should be reduced.” Conn. Gen. Stat. §49-35b. Thus, if a lien is discharged, either there was not “probable cause” to sustain the lien or the owner was able to present “clear and convincing evidence” that the lien should be discharged. In either case, it is evidence that the contractor’s claim for the underlying debt was weak.

The question then is whether a contractor may commence its own action against the owner to the collects the amounts that had been secured by a mechanic’s lien that had been discharged after a hearing.

Understanding Unabsorbed Home Office Overhead

It is readily apparent that – if a project is delayed – the contractor is losing money. The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc. Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time. Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.” Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003). “As a result, there are at least nine formulas that have been used,

After Nine Years, There is Still Ambiguity in The State’s Prequalification Program

On October 1, 2004, acting through its Department of Administrative Services (“DAS”), the State of Connecticut implemented a prequalification program for all contractors bidding on certain public projects. 2003 Ct. ALS 215, 1. Specifically, “[t]he DAS Contractor Prequalification Program (C.G.S §4a-100) [(the “Program”)] requires all contractors to prequalify before they can bid on a contract or perform work pursuant to a contract for the construction, reconstruction, alteration, remodeling, repair or demolition of any public building or any other public work by the state or a municipality, estimated to cost more than $500,000 and which is funded in whole or in part with state funds, except a public highway or bridge project or any other construction project administered by the Department of Transportation.” DAS website, http://www.das.state.ct.us/cr1.aspx?page=10. On October 1, 2007, the Program was expanded to apply to subcontractors whose contract exceeded $500,000. http://www.das.state.ct.us/fp1.aspx?page=111. Still, questions remain as to whether an apparent low bid submitted by a DAS prequalified contractor may be rejected by a public owner and/or its construction manager and the information that a bidder may have to submit to be awarded a project can be unduly burdensome and repetitive.

According to DAS,

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.

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,

You Should (Almost) Never Request a Jury for a Construction Case

Construction Contract disputes are complicated legal matters. Both sides usually have valid points to make. The winner is determined by the application of relatively complex facts to the law. Such cases often involve information beyond the knowledge and understanding of the average juror. Although it is true that most judges do not have a construction background either, judges have likely heard a prior construction case; and, as trained jurists, have a good understanding of the legal arguments that are being raised. In addition, judges are being paid to pay attention to your case. Conversely, the average juror has no understanding of construction or the law; typically does not want to be serving as a juror; and is missing out on a day’s pay. In light of the foregoing, I almost never recommend that my clients request a jury.

There is one area, however, where choosing a jury may be the right choice. Until relatively recently, it was understood that a contractor had no claim for damages arising out of a bid protest. See Lawrence Brunoli, Inc. v. Town of Branford, 247 Conn. 407, 412 (1999) (holding that the only remedy to be afforded unsuccessful bidders under the municipal bidding statutes is injunctive relief);

Scott Orenstein
06.01.2013
Bid Protest, Connecticut Construction Law, Connecticut construction lawyer, Construction Attorney, Construction Law, Public Owner

Restarting the 90 Day Clock to File a Mechanic’s Lien

As most contractors are aware, in Connecticut, you have 90 days after the last day that you supply labor and/or materials to file a mechanic’s lien. Many other states have the same or a similar requirement pertaining to when a mechanic’s lien can be filed. The question that is often asked is which “last day” starts the clock.

In a common scenario, additional work is performed more than 90 days after what was originally thought to be the last day worked and the contractor then claims that the second last day starts a new 90 days clock to file a mechanic’s lien. Sometimes such mechanic’s liens are upheld but they are typically invalidated. The reason is that the typical scenario involves a contractor – who has not been paid – realizes that his time to file a mechanic’s lien has expired so he returns to the site to perform a minor punchlist item that was inadvertently left undone initially. Generally speaking, to restart the mechanic’s lien clock, a contractor must perform substantive work that was authorized by the owner or someone rightfully acting on the owner’s behalf. The most recent guidance on this issue was provided by the Connecticut Appellate Court in Cianci v.

Pending Legislation Concerning Mechanic’s Liens

Right now, the Connecticut Legislature is considering Proposed Bill No. 5682 (the “Proposed Act”), which states as its purpose “[t]o establish a process for the holder of a mechanic’s lien to establish priority for the lien effective upon the filing of a ‘Notice of Commencement of Work’ with the town clerk for recording with deeds of land.” The text of the Proposed Act states, however, that the lienor must be an architect and that the lienor’s priority is established upon the date of filing. Such language raises many questions.

The “priority” of a mechanic’s lien pertains to where the mechanic’s lien stands in line with regard to the other claims against a property such as mortgages and other interest should the property go into foreclosure. Presently, the priority of a mechanic’s lien relates back to the first date that the lienor, i.e. the person filing the mechanic’s lien, worked on the project. There is some logic in creating a separate statute for design professionals because – unlike an excavation contractor – no one can see when a design professional starts work but, if that were the reason for the change, why does the Proposed Act only pertain to architects and not engineers as well.

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).

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