Recent Supreme Court Case Teaches Important Lessons

It is no secret that public works construction is a difficult business.  On any given project there are innumerable ways that things can go wrong. With any project involving excavation and underground utilities, encountering changed conditions should not be a surprise.  Of course, such changed conditions are not the contractor’s responsibility.  What is the contractor’s responsibility, however, is providing the public owner with proper notice of its claims in accordance with the subject agreement.

One of the reasons public works construction projects are more onerous than their private counterparts is because public owners rarely negotiate contract terms. Contracts that are slanted significantly in the public owner’s favor are the norm.  Thus, as the contractor in a recent state Supreme Court decision learned, it is vitally important to read the contract and abide by its terms.

One of the lessons from Old Colony Cosntr., LLC v. Town of Southington, 316 Conn. 202 (Conn. April 21, 2015) is that general assertions of entitlement to damages and/or additional contract time is not sufficient when the contract requires more detail.  During the long duration of the project, the contractor in Old Colony repeatedly indicated that each problem that occurred impacted its schedule and costs. 

Changes to the Prevailing Wage Law Considered

According to Conn. Gen. Stat. §31-53, all public works construction contracts require the wages paid on the project to “be at a rate equal to the rate customary or prevailing for the same work in the same trade or occupation in the town in which such public works project is being constructed. Any contractor who is not obligated by agreement to make payment or contribution on behalf of such persons to any such employee welfare fund shall pay to each mechanic, laborer or worker as part of such person’s wages the amount of payment or contribution for such person’s classification on each pay day.”  The reason for the “prevailing wage” requirement is to level the playing field for those bidding on public projects by requiring non-union companies to pay the equivalent of union wages on such projects.  In the last legislative session, Connecticut lawmakers considered an expansion of the prevailing wage law beyond projects owned by the state or its subdivisions.

The considered legislation expands the prevailing wage law so that it would apply to any project which receives financial assistance from the state.  For example, if your project is funded—or even partially funded—by a loan or a grant from the State Department of Economic Development,

The Right to Arbitrate may be Waived if Opposing Party Suffers Prejudice

As discussed previously in this blog, arbitration is an alternative dispute resolution procedure, whereby the parties to a construction contract can agree to have their disputes heard by a private individual (or a panel of three individuals), whose decision is final and binding upon the parties.  Arbitration is favored by the Connecticut courts, and, when done correctly, can provide the parties with a fast, efficient, and economical resolution of their dispute.  The question, however, is to what extent may a party to a contract containing an arbitration clause avail himself of the courts before the right to arbitrate has been waived.  A recent Connecticut Supreme Court decision clarifies that situation.

In MSO, LLC v. DeSimone, 313 Conn. 54, the parties leave agreement included an arbitration clause.  The tenant, MSO, LLC, brought an action for damages against the landlord, DeSimone.  Id.  The landlord defended the action and brought a counterclaim against the tenant.  Id.  After two years of litigation, the landlord moved to stay the action pending arbitration.  Id.

If a motion to stay a lawsuit pending arbitration is brought pursuant to a valid agreement to arbitration, the court is without discretion to deny the motion. 

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. 

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. 

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. 

Don’t Get Creative When Attempting To Enforce Mechanic’s Lien Rights

In Connecticut, the law pertaining to mechanic’s liens is well settled.  You will not come across many issues of first impression while trying to enforce a mechanic’s lien and, therefore, practitioners should not attempt to drive the proverbial square peg into a round hole.  Such an attempt was made (and failed) in a matter recently decided by the Connecticut Superior Court.

In that case, an assignee of a mortgage brought a foreclosure action and named a contractor as a defendant because the contractor’s mechanic’s lien was subsequent in right to the interest being foreclosed.  Normally, if the property proceeds all the way through the foreclosure process, a contractor holding a subordinate lien allows his interest in the property to expire because the only way to maintain the lien is to pay off the foreclosing mortgage but , in this case, the contractor did not give up that easily.

Here, the contractor alleged that the assignee became the “owner” of the property by virtue of the construction mortgage and, as such, was responsible to pay for the work that the contractor performed.  The court identified 2 issues that allowed the court to dispose of the contractor’s claim on summary judgment.