Attorney Scott S. Orenstein
Construction Law & Litigation
QUESTIONS?
203.640.8825
Attorney Scott S. Orenstein
Construction Law & Litigation

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. 

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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,

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HERE’S AN UPDATE ON THE EFFECT OF PRIOR RULINGS ON SUBSEQUENT LITIGATION

In a prior post, this blog explained how the Supreme Court held that an owner’s claims against subcontractors were barred because they were either brought or could have been brought in the owner’s prior arbitration against the general contractor. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). The court ultimately determined that the contractual relationship between a general contractor and its subcontractors was sufficient to determine that they were “sharing the same legal right.” Therefore, “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it,” applied in this case even though the subcontractors did not participate in the arbitration. Id. at 75.

Girolametti involved a situation where the dispute between the owner and general contractor included claims that the work performed by subcontractors was defective. Although the subcontractors were not parties to the arbitration, they were no doubt happy with the result and more than willing to have that decision applied to the owner’s subsequent lawsuit against them.

In my prior post,

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DON’T LET YOUR MECHANIC’S LIEN RIGHTS LAPSE DURING THE COVID-19 PANDEMIC

Because of the current crisis, the state has closed the courts to all activities except essential functions. Almost the entire civil docket has been suspended. In order to mitigate those effects, the Governor’s Executive Order No. 7G (the “Executive Order”) suspends “all time requirements, statutes of limitation or other limitations or deadlines relating to service of process, court proceedings or court filings” including “all time limitations in Chapters 959, 959a, 960 and 961 of the General Statutes.” The problem is that a mechanic’s lien is recorded on the land records (not in court) and mechanic’s liens are discussed in Chapter 847 of the General Statutes, instead of the chapters specifically mentioned above. Thus, regardless of whether the omission was intentional, mechanic’s liens are not expressly covered by the Executive Order.

Because land records are maintained by Connecticut’s municipalities, the Executive Order does not extend the deadline to record a mechanic’s lien. However, the problem with recording mechanic’s liens during the pandemic is that most City and Town Clerk’s offices are not open to the public. Each City and Town is handling the situation differently. Some are accepting submissions online. Others have a drobox outside City Hall or Town Hall.

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PROPOSED LEGISLATION IN NEED OF SUPPORT

In a previous post, I explained that the way Connecticut substitutes bonds for mechanic’s liens needs to be changed. I have now been honored to participate in a group that drafted proposed legislation for this purpose, which has been presented to the Connecticut General Assembly as Raised Bill No, 5428.

Raised-Bill-No.-5428-1Download

On Tuesday, March 10, 2020, there is a public hearing on the Raised Bill. If I were allowed to testify, I would offer the following:

Our mechanic’s lien laws serve the important purpose of allowing those who provide labor, materials, and/or services for the improvement of real property without payment to obtain a security interest in improved property, but it was never the intention of our mechanic’s lien laws to prevent the free transfer of real property. For that reason, Conn. Gen. Stat. § 49-37 allows a person interested in the improved property to substitute a surety bond for the mechanic’s lien. In that situation, the lienor’s alleged debt is still secured, but the property owner may sell or refinance the improved property. The problem is that the process required by Conn. Gen. Stat. § 49-37 is cumbersome and time consuming.

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Connecticut’s Procedure for Substituting a Bond for a Mechanic’s Lien Needs to be Changed

The purpose of a mechanic’s lien is to provide collateral for a contract debt. If you perform work on a project and are not paid, then the mechanic’s lien laws allow you to attach the property where the work was performed. In other words, a mechanic’s lien provides you with a property right you can foreclose in the same manner a bank can foreclose a mortgage. However, before you can force a sale of the property to collect your money, you have to prove you are entitled to the payment you claim. Therefore, a mechanic’s lien could be in place a long time.

Because the lien laws are intended to provide security for a debt, but are not intended to prevent the property from being transacted, most states, including Connecticut, have a procedure by which a surety bond can be substituted for a mechanic’s lien. The problem with Connecticut’s procedure is that it is too long and cumbersome.

While a mechanic’s lien is in place, a property cannot be refinanced, or sold – at least not without addressing the mechanic’s lien to a lender’s and/or buyer’s satisfaction. It is possible that the property might be refinanced or sold if the owner places the lien amount in escrow,

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FILING A MECHANIC’S LIEN WITHOUT AN ATTORNEY IS ALLOWED BUT DIFFICULT TO DO SO CORRECTLY

I don’t recommend that contractors file their own mechanic’s liens without the aid of an attorney. Every client and/or potential client that has ever come to me asking that I foreclose a mechanic’s lien that they filed on their own had some fatal defect. The reason for that is the arguably conflicting laws in the statutes and in the court decisions interpreting those laws.

A prime example of something that is not readily apparent by reading the mechanic’s lien laws is the notice and service requirements. According to our courts, “[r]ead together, [Sections] 49-34 and 49-35 [of the Connecticut General Statutes] require the [contractor filing the lien] to serve a copy of the certificate upon each owner of the property within 90 days after he ceased performing services or furnishing materials.” Steeltech Bldg. Prod., Inc. v. Viola, 2000 WL 726367, at *2 (Conn. Super. Ct. May 16, 2000). Of course, one may not reach that same conclusion reading [Sections] 49-34 and 49-35 on their own. According to Connecticut General Statutes § 49-34, “[a] mechanic’s lien is not valid unless the person performing the services or furnishing the materials [records a certificate of mechanic’s lien in the land records] within ninety days after he has ceased to do so…” However,

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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,

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Remedial Work Does Not Extend the Deadline to Commence an Action on a Payment Bond

As most contractors are aware, if they are not paid for their labor, materials, and/or services, they can strengthen their position prior to filing a lawsuit by filing a mechanic’s lien, or by making a claim against the project’s bond claim. Of course, both options are not generally available. Typically, the choice is based upon whether the project is private or public. On private projects, a contractor (or supplier) is allowed to gain a security interest in the property by filing a mechanic’s lien. On public projects, federal and local governments passed laws requiring the general contractor on public projects to post “payment bonds,” which guarantee the payment of those who supply labor, materials, and/or services to the property. In other words, because governments were not willing to let public lands be subject to foreclosure, on public projects, statutorily required payment bonds were created to take the place of mechanic’s liens. Of course, private owners may require general contractors to post payment bonds on private projects as well, but this post only addresses the statutory payment bonds required on public projects.

The law that requires payment bonds on federal projects is known as the Miller Act. The various state laws that require payment bonds on state projects are often referred to as “Little Miller Acts.” The requirements are the Miller Act and the various Little Miller Acts are generally similar.

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A Recent Superior Court Decision May Affect Subcontractor/Supplier Mechanic’s Liens

In a recent decision, the Superior Court discharged the mechanic’s liens of several subcontractors, because the general contractor had already filed a lien for the unpaid contract balance. Wegrzyniak v. Hanley Constr., LLC, WL 5706192 (Conn. Super. Ct. Oct. 30, 2017). Insofar as any substantial construction project will involve a general contractor, subcontractors, sub-subcontractors, and suppliers, there are obviously many potential lien claimants. Nonetheless, the court said that “[f]or good reasons, the mechanic’s lien statutes don’t permit multiple liens,” and with regard to the subcontractor whose lien included a claim for extra work, the court said that “[w]ithout an agreement to support the additional work…, [the subcontractor’s] lien must be discharge.” Id. In light of the foregoing, Wegrzyniak may stand for the proposition that subcontractors, sub-subcontractors, and/or suppliers are precluded from filing mechanic’s liens when the general contractor files a mechanic’s lien covering the entire project, but, in my opinion, subcontractors, sub-subcontractors, and suppliers should continue filing their own mechanic’s liens.

To summarize the reasoning of the Wegrzyniak decision in plain English, because the court understood that the property owner should not be held liable for more than the amount it agreed to pay the general contractor,

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203.640.8825