A Few More 2020 Bills “Crossing Over” in the General Assembly

Christopher G. Hill | Construction Law Musings

Last week I posted about a few bills that should be noted by the construction community here in Virginia.  Now that the “crossover” (passed Senate bills headed to House and vice versa), here are a couple of other bills that the AGC of Virginia has highlighted that were not included in the post and updates last week.  I will just highlight two here but for a more complete list, check out this crossover update from the AGC of Virginia.

SB208 Mechanics’ liens; right to withhold payment. Specifies that the use of funds paid to a general contractor or subcontractor and used by such contractor or subcontractor before paying all amounts due for labor performed or material furnished gives rise to a civil cause of action for a party who is owed such funds. The bill further specifies that such cause of action does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials and that any contractual provision that allows a party to withhold funds due on one contract for alleged claims or damages due on another contract is void as against public policy.

HB1300 Virginia Public Procurement Act; statute of limitations on performance bonds; statute of limitations on construction contracts and architectural and engineering contracts. Provides that an action against the surety on a performance bond shall be brought within five years after the completion of the contract. The bill further provides that the statute of limitations on construction contracts and architectural and engineering contracts is 15 years after completion of the contract.

Both of these bills have passed their respective chambers and are being considered in the other chamber of the General Assembly.  The first deals with offset by general contractors and the other should be good news for all who deal in public construction because it at least would give some certainty and mitigate so called “Hensel Phelps” problem.

As always, I recommend that you read the entire bill yourself and consult a Virginia construction attorney with any questions about how this will affect your construction business.

2020 Bills to Be Aware of that Affect Construction (Updated)

Christopher G. Hill | Construction Law Musings

As is true during most sessions of the Virginia General Assembly, several bills are winding their way through the legislature that construction professionals and their attorneys should keep an eye on.

Here is a list of some key ones with a brief description (to get a full picture and status of the respective bill, I recommend that you read the actual LIS description and the text of the bill as linked below):

SB426:  Fair share fees. Authorizes an employer, pursuant to an agreement between the employer and a labor union or labor organization, to require as a condition of employment any employee who is not a member of such labor union or labor organization and is a member of a collective bargaining unit, where the labor union or labor organization is the exclusive representative of the members of the collective bargaining unit, to pay a fair share fee to compensate the labor union or labor organization for the costs of representing the nonmember employee. The House of Delegates analog to this bill is HB358.

UPDATE:  This bill has been passed by indefinitely in Senate committee.

SB8Prevailing wage; public works contracts; penaltyRequires contractors and subcontractors under any public contract with a state agency for public works to pay wages, salaries, benefits, and other remuneration to any mechanic, laborer, or worker employed, retained, or otherwise hired to perform services in connection with the public contract for public works at the prevailing wage rate.

SB838Nonpayment of wages; private action; liability for payment of wages due under construction contracts; penalties. Provides that an employee has a private cause of action against an employer who fails to pay wages to recover the amount of wages due plus interest at eight percent annually from the date the wages were due. Bill further provides among other things that construction contracts entered into on or after July 1, 2018, shall be deemed to include a provision under which the general contractor and subcontractor at any tier are jointly and severally liable to pay the wages due to any subcontractor’s employees. If the wages due to the subcontractor’s employees are not paid, the general contractor is subject to criminal and civil penalties for which an employer is liable for failing or refusing to pay wages.

UPDATE:  The retroactivity to 2018 has been removed from the latest version of SB838.

HB153:  Right to work. Repeals the provisions of the Code of Virginia that, among other things, prohibit any agreement or combination between an employer and a labor union or labor organization whereby (i) nonmembers of the union or organization are denied the right to work for the employer, (ii) membership in the union or organization is made a condition of employment or continuation of employment by such employer, or (iii) the union or organization acquires an employment monopoly in any such enterprise. In short, this bill would allow “closed shops” in Virginia and allow employers to require union membership as a condition of employment as opposed to allowing the choice to employees whether to join a union or not when working for an employer.

SB182:  Project labor agreements; public procurement. Repeals the provision enacted in 2012 that requires state agencies to ensure that neither the state agency nor any construction manager acting on its behalf (i) requires or prohibits bidders, offerors, contractors, or subcontractors to enter into or adhere to project labor agreements with labor organizations or (ii) discriminates against bidders, offerors, contractors, subcontractors, or operators for becoming or refusing to sign or adhere to project labor agreements on the same or other related public works projects. The House of Delegates analog, HB358 has passed the house.

These are just some of the bills that could impact construction in Virginia moving forward.  I encourage you to let me know of others of which you are aware and to keep abreast of the bills as they move through the Virginia legislature.

California Contractors – You Should Know That Section 7141.5 May Be Your Golden Ticket

Amy Pierce, Mark A. Oertel and John Lubitz | Lewis Brisbois Bisgaard & Smith

Under California’s Contractors’ State License Law, Cal. Bus. & Prof. Code §§ 7000 et seq., all contractors’ and subcontractors’ licenses expire two years from the last day of the month in which the license issued, or two years from the date on which the renewed license last expired. The Contractors State License Board (CSLB) sends licensees a renewal application 60 to 90 days prior to the date the license is set to expire.

Most contractors have various controls in place to make sure that the renewal application is timely filed and the required fee paid. Even so, we are only human and mistakes are made, and a renewal application filing deadline can be missed for a variety of reasons, e.g., the licensee’s mailing address has not been updated on the CSLB’s records, the individual responsible for filing the license renewal is out on leave, there has been a death in the family or a serious health issue, etc. Quoting Robert Burns, even “[t]he best-laid schemes of mice and men go oft awry” (To a Mouse, 1786).

General contractors should be cognizant of both their and their subcontractors’ license renewal obligations and deadlines.

If a licensee missed timely filing its renewal application, Business & Professions Code Section 7141.5 may provide some relief. Section 7141.5 provides that the Registrar of Contractors,

“may grant the retroactive renewal of a license if the licensee requests the retroactive renewal in a petition to the registrar, files an application for renewal on a form prescribed by the registrar, and pays the appropriate renewal fee and delinquency fee prescribed by this chapter. This section shall only apply for a period not to exceed 90 days from the due date and only upon a showing by the contractor that the failure to renew was due to circumstances beyond the control of the licensee.”

The good news is that, at its recent Executive, Licensing, and Legislative Committee Meetings, the CSLB discussed possible amendments to Section 7141.5 to both reduce the burden on the CSLB and to provide contractors with some relief from the burden currently extant in Section 7141.5. The CSLB reasoned that,

“The law should be changed to simply allow a retroactive renewal, if an acceptable renewal is received within 90 days of the license expiration date, without forcing staff to conduct a case-by-case analysis of why the renewal is late. The Medical Board of California has a similar provision (Business and Professions Code section 2424). This change would also mirror the provisions for retroactive acceptance of other license maintenance documents, such as workers’ compensation and license bonds, that already exist in the law.”

The CSLB will propose that Section 7141.5 be amended to read,

“The registrar shall grant the retroactive renewal of a license if the licensee pays the appropriate renewal fee and delinquency fee prescribed by this chapter and an acceptable renewal is received with a postmark date within 90 days of the expiration of the license.”

On September 19, 2019, the CSLB Board of Directors gave staff approval to seek an author for the bill and it is expected to be introduced on February 21, 2020. Stakeholders will have an opportunity to comment on the proposed revisions and to otherwise voice their support for the bill by submitting comments. This could include supporting that any amendments to Section 7141.5 be retroactive. More to come once the bill is introduced and has progressed through the legislative process.

Significant 2019 Tennessee Construction Decisions

Allison Wiseman, Brian Dobbs and Ryan Lee | Bass, Berry & Sims

This Construction Law Alert highlights some of the significant Tennessee state and federal decisions affecting the construction industry from the past year.

Holdback Payments Are Not Retainage

Tennessee’s Prompt Pay Act (PPA) requires all retainage withheld on construction projects to be deposited into a separate interest-bearing escrow account with a third party, and there are potentially harsh civil and criminal penalties for failing to do so. In Vic Davis Construction v. Lauren Engineers & Constructors, Inc., No. E2017-00844-COA-R3-CV, 2019 WL 1300935 (Tenn. Ct. App. March 20, 2019), a subcontractor alleged the contractor failed to comply with this requirement under a subcontract that called for a final payment of 5% for “Turn-over, As-Builts, Final Clean Up, Demobilize.” In arguing that this “holdback” payment constituted retainage that should have been escrowed, the subcontractor relied, in part, on the fact that Tennessee law limits retainage on construction projects to 5% of the contract amount. The court disagreed, finding that the contractor paid the subcontractor’s first 12 payment applications in full, and the contract explicitly stated that “invoices are not subject to retention.” Although the amount of the final payment likely exceeded the value of the as-builts, final clean up, and other items, the court held that the holdback did not constitute retainage.

Not Paying Retainage above Setoffs Constitutes Bad Faith

In the fallout from the late completion of the Nashville Centennial Sportsplex Indoor Fitness Expansion, the Tennessee Court of Appeals was again called on to consider the PPA. In E Sols. for Buildings, LLC v. Knestrick Contractor, Inc., No. M201802028COAR3CV, 2019 WL 5607473 (Tenn. Ct. App. Oct. 30, 2019), the project’s HVAC material supplier brought suit for nonpayment against the project’s HVAC subcontractor, general contractor, and owner.  Both the HVAC subcontractor and general contractor asserted multiple counterclaims and cross-claims. On appeal, the court found that the general contractor had violated the PPA by withholding more in liquidated damages from the HVAC subcontractor’s retainage than its claim to setoff and that such action constituted bad faith subjecting contractor to attorneys’ fees under the PPA.

Construction Changes on Publicly Funded Projects Could Give Rise to False Claims Liability

In Munson Hardisty, LLC v. Legacy Pointe Apartments, LLC, 359 F. Supp. 3d 546 (E.D. Tenn. 2019), the developer of an apartment complex in Knoxville obtained financing through HUD. During construction, disagreements arose between the developer and the project’s general contractor about payments including the developer’s attempts to refinance its HUD loans. As part of the dispute, the general contractor asserted claims under the federal False Claims Act (FCA) on the basis that the developer made changes to the project’s drawings and specification but did not obtain HUD’s approval as required under HUD’s loan agreements. The developer moved to dismiss the FCA claims, but the court denied the motion finding that the general contractor sufficiently alleged that the developer took actions to retaliate against it when the general contractor refused to cooperate or consent to the project’s refinancing due to the developer’s alleged false statements to HUD.

Whether Multiple Phase Project Has a Single Date Of Substantial Completion Is a Question of Fact

In Palazzo v. Harvey, 380 F. Supp. 3d 723 (M.D. Tenn. 2019), which involved the construction of an indoor horse arena and stable, the project’s designer and general contractor moved for summary judgment on the owner’s breach of contract and negligence claims asserting that the statute of limitations had expired. The designer and general contractor argued that despite there only being a single contract for their work, the arena and stable were two different projects with two different dates of substantial completion for the purposes of the statute of limitations. The court denied the motion finding that genuine issues of material fact existed about whether the parties understood that the work constituted one or more distinct projects. The court noted that Tenn. Code Ann. § 28-3-201 defines substantial completion but “does so in the context of being ‘in accordance with the contract documents,’” so the statutory language alone could not conclusively determine the substantial completion date.

Other Tennessee Construction Decisions of Note:

Maddox v. Olshan Foundation Repair & Waterproofing Co. of Nashville, L.P. (Tenn. Ct. App. Sept. 18, 2019) – A homeowner’s claims against a foundation repair company were not barred by the four-year statute of repose because the foundation repairs did not constitute an “improvement” to real property. The court upheld judgment for the homeowner.

Miolen v. Saffles, No. E2018-00849-COA-R3-CV, 2019 WL 1581494 (Tenn. Ct. App. April 12, 2019) – Trial court’s award of treble damages under the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-101, was not an abuse of discretion where the trial court found that defendant “misrepresent[ed] that [] walls had been engineered by a professional engineer, and by charging plaintiffs $10,000 in ‘engineering’ expenses that were not incurred by an engineer.”

H Group Construction, LLC v. City of Lafollette, No. E201800478COAR9CV, 2019 WL 354973 (Tenn. Ct. App. Jan. 28, 2019) – An unsuccessful bidder for municipal construction projects alleged that the City had engaged in unlawful restraint of trade and violated its competitive bidding ordinances. The court held that municipalities enjoy sovereign immunity against claims for restraint of trade and that the City’s bidding ordinances did not provide a private right of action for monetary damages. A writ of certiorari is the only method for asserting a violation of such ordinances.

SPE GO Holdings, Inc. v. W & O Constr., Inc., No. 18-5404, 2018 WL 6181645 (6th Cir. Nov. 27, 2018) – Affirming district court’s denial of defendant’s request for judgment as a matter of law (which would have nullified the jury verdict) and explaining that determination of whether someone was a third-party beneficiary to a contract was a fact question properly submitted to the jury; owner gave sufficient notice of breach and opportunity to cure under Tennessee law; and evidence was sufficient to support damages award under Tennessee law.

TWB Architects, Inc. v. Braxton, LLC, No. M2017-00423-SC-R11-CV, 2019 WL 3491467 (Tenn. July 22, 2019) – When a condominium developer failed to pay for his services, the project’s architect accepted a condominium unit in lieu of payment.  When the developer’s lender foreclosed on the architect’s condominium unit, a question of fact existed whether the architect’s claims against developer under the original architectural services agreement were eliminated.

Crouch Ry. Consulting, LLC v. LS Energy Fabrication, LLC, No. M201702540COAR3CV, 2019 WL 1949631 (Tenn. Ct. App. Apr. 30, 2019), appeal granted (Oct. 14, 2019) – A Texas company engaging a Tennessee engineering company to provide customized services, which were performed primarily in Tennessee, subjected the Texas company to jurisdiction in Tennessee.

If you have any questions about how these decisions will impact your company, please contact one of the authors or any member of the firm’s Construction Contracts & Litigation Practice Group.

Where Pragmatism and Law Collide

Christopher G. Hill | Construction Law Musings

If there is one “theme” to Construction Law Musings, those that read regularly hopefully see that I take my role as counselor to construction companies seriously.  Aside from the fact that litigation and arbitration are both expensive and not a great way for any business, particularly a construction business, to make money, I have found construction professionals to be a pragmatic group of people that would rather solve a problem than go to court.

I have also discussed the need for a good foundation for the project in the form of a well drafted and properly negotiated contract.  This contract sets out the rights of the parties and essentially makes the “law” for your construction project.  Virginia courts will not renegotiate the terms for you and while this can lead to problems where parties either don’t understand the terms or don’t work to level the terms, it does mean that the parties know what the expectations are where the expectations are properly set, preferably with the help of your friendly neighborhood construction attorney and counselor at law.  Practical considerations such as your feel for the other party and which terms are worth forgoing the work for should drive your considerations almost as much as the legal implications.

With a good contractual foundation, hopefully you won’t ever have to call your attorney to deal with a dispute (at least in a “public” sense).  While I highly recommend getting advice early and often when you see a problem coming down the pike (and there will be problems), be practical about whether you want to use any of the “hammers” in the contract (which can range from termination to stopping work to arbitration).  The first and likely best option is to try and work through the problem and figure out a solution.  The least expensive and fastest way to get through to the end of a project that has problems almost never to terminate a subcontractor or walk off a job.  While these are proper in the right circumstances from a legal standpoint, they lead to additional issues, non-payment, mechanic’s liens, and in the end litigation or arbitration.

While I come from a litigation background, and litigate more often than I’m sure my clients would like, most often the practical approach, with a healthy dose of understanding the contract and the law, will get a construction project to the end and resolve issues in a less expensive and more satisfactory manner.