Don’t Forget to Mediate the Small Stuff

A simple statistical mediation model.

A simple statistical mediation model. (Photo credit: Wikipedia)

It’s been a while since I talked mediation here at Construction Law Musings.  Those that read regularly (thanks) have likely missed my musings on the topic.  Those who read this construction blog regularly also know that I am both a Virginia Supreme Court certified general district court mediator and a huge advocate of mediation as a method to resolve construction disputes.  While many of us think of mediation as a method to resolve the major disputes or litigation that occasionally rear their heads in the course of running a construction law practice or construction business, my experience as both a construction attorney and a mediator has taught me something: mediation works for all sizes of cases.

As an advocate for my construction clients, I know that proper trial preparation requires the same diligence and attention to detail for a smaller case as it does for a larger case.   While a smaller case in the Virginia general district court may not have the depositions, written discovery and motions practice that a Virginia circuit court case may have, it still requires witness preparation, document processing and review and many of the other aspects of a larger case.  While construction litigation is never a money maker in the best of circumstances, in the smaller cases the attorney fees often total a larger percentage of the total potential recovery.  For this reason, the small cases are almost better suited for a quick mediated resolution than the larger ones.  The larger cases may cost more to prosecute or defend, but the fees are less likely to eat up such a large percentage of any recovery.

Because of this issue of the cost to recovery ratio, I encourage you to check with the clerk or judge in your local Virginia general district court where you may have a case pending to see if there are mediators like me that can help resolve these matters early and before the costs get out of hand.  Not only do we work for the Court (meaning you don’t have to pay for our time), we are trained and certified to help you out.  Finally, if you’re in Goochland General District Court on a Monday, check out the gallery, you may see me sitting there.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Don’t Forget to Mediate the Small Stuff

Update: New VOSH Maximum Penalties as of July 1

As those who read Construction Law Musings know, as a construction attorney, I want to assure that not only are my clients successful in their litigation/dispute resolution endeavors, but that they stay out of trouble.  I take my problem solving and advising roles quite seriously.

As part of this role as advisor, I want to let those that read Musings know that as of July 1, 2017 the Virginia Occupational Safety and Health Administration increased their maximum penalties for safety violations.  The new maximum fines are as follows:

Type Violation                                               Old Penalty          New Penalty

Serious or Other-Than-Serious                       $7,000                     $12,471

Willful or Repeat                                              $70,000                  $124,709

Failure to Abate                                               $7,000/day           Unchanged

Criminal or Willful                                            $70,000                Unchanged

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Update: New VOSH Maximum Penalties as of July 1

Subcontractors Aren’t Helpless

Food chain in a swedish lake. From the bottom:...

(Photo credit: Wikipedia)

As a construction attorney here in Virginia, I often have the pleasure of assisting subcontractors seeking advice on their all important contracts with general contractors.  I often sense that these subcontractors feel that they are at the bottom of the food chain and don’t have the “clout” necessary to push back at all against the myriad clauses in these contracts that seek to push the risk downhill.  “Pay if Paid” clauses, subordination of lien clauses (which may or may not be enforceable), indemnification language that seems to make the subcontractor liable for way too much, and the dreaded incorporation clauses , would seem to make the subcontractor hold one big “bag of risk” on any construction project.

While this may seem bleak, never fear, as a subcontractor you are not totally helpless.  Remember, you don’t have to take a job from a general contractor that you get a bad feeling about.  Often the best indicator of whether you want to move forward is your “spidey sense” that something seems a bit off or that the GC is trying to cram too much down your throat.  Use your experience in the construction industry to guide your contracting activities.  It is better to avoid the bad job than to take it in the long run.  If you are a quality subcontractor (and I know you are or you wouldn’t be reading this), other work will come along because general contractors need good subs to get their work done.

You can also make certain reasonable changes to the language of most subcontracts presented to you.  In exchange for striking a “pay if paid” clause, you may be able to get the GC to accept a longer payment window (for example instead of 15 days from payment by owner, substitute 45 days from date of proper pay application).  Instead of liability to indemnify everyone for everything “relating to” your work, a simple change to assure any claim is “directly related” to your work and that you are only liable to indemnify for your or “those for whom you may be held liable” can and should be acceptable to a general contractor with whom you are going to do business.  These are just a couple of reasonable changes that can be made and this is not meant to be an exhaustive list.

Of course, these changes must be negotiated before the beginning of work, hopefully with the early advice of a construction attorney.  Once you’ve signed the contract and begun work, the terms of that contract will apply.  This is Virginia after all and the courts of the Commonwealth will enforce contracts as written.

So, in conclusion, you as a subcontractor may not have all of the leverage, but there are ways to make a job less risky.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Subcontractors Aren’t Helpless

Spearin Doctrine: A Construction Case Described in A Tweet!

I read in my Twitter feed this morning about a recent case where the Missouri Court of Appeals formally adopted the Spearin Doctrine.

I immediately wondered if I could explain the Spearin Doctrine in less than 140 characters.  Here you go:

US v. Spearin: Owner designs. Contractor builds. Owner accepts. Work sucks. Owner sues. Contractor absolved. Owner loses.

If you live in the government contracting world, don’t start sending me emails about how wrong I have described the Spearin Doctrine above.  Let me expand my statement beyond 140 characters and give you some more information about the 1918 decision in United States v. Spearin:

  • The Facts.  The case involved a contractor who agreed to build a dry-dock in the Brooklyn Navy Yard.  In order to build the dry-dock in the site selected for it, the contractor was required to relocate a portion of a sewer that ran through the specified site. The owner (the United States) provided the plans and specifications for the sewer that was to be relocated.  The contractor completed the work according to the plans and specifications.  The owner approved and accepted the work.  But wait … about a year after the relocation of the sewer, a dam in a connecting sewer caused flooding in the area excavated for the dry-dock. This dam was not shown on the owner’s plans and specifications.  That’s the background and here is my tweet:
  • The Rule. The Spearin Doctrine is legal principle that holds that when a contractor follows the plans and specifications furnished by the owner, and those plans and specifications turn out to be defective or insufficient, the contractor is not liable to the owner for any loss or damage resulting from the defective plans and specifications.
  • Exceptions to the Rule.  In 2007, the Ohio Supreme Court rocked the construction law world by significantly limiting the application of the Spearin Doctrine.  In Dugan & Meyers Construction Co. v. Ohio Dept. of Administrative Services, the trial court applied the Spearin rule in favor of the contractor based upon alleged damages from the impact of an excessive amount of design changes.  On appeal, the Ohio Supreme Court reversed, holding that the Spearin Doctrine did not apply to cases involving delays due to design changes. Rather, the court focused its decision on the “no damages for delay” and “written requests for time extension” clauses in the contract.  Specifically, the court concluded: “We observed that the Spearin Doctrine does not invalidate an express contractual provision.”

What’s the lesson for contractors?  First, make sure you know and understand the “governing law” for your particular dispute, whether it is federal law or state law. Second, make sure you read your contract to understand the notice provisions and changes clause.  Finally, make sure you are documenting any impacts of delays caused by defective specifications or plans.

Spearin Doctrine: A Construction Case Described in A Tweet!

Happy Independence Day from Construction Law Musings!

English: A chocolate cake during the 4th of July

(Photo credit: Wikipedia)

As things warm up as they always do in July here in Richmond, Virginia, here’s wishing you all a wonderful 4th of July from Construction Law Musings and The Law Office of Christopher G. Hill, PC.  I hope that you and your families can take some time off to reflect and relax, stay as cool as possible, and have a great Independence Day holiday.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Happy Independence Day from Construction Law Musings!

Changes to Pennsylvania Mechanic’s Lien Code

Originally posted 2014-10-31 09:00:27. Republished by Blog Post Promoter

Jim FullertonFor this week’s Guest Post Friday here at Musings, we welcome Jim Fullerton.  Jim is the President of the law firm of Fullerton & Knowles, P.C., which has attorneys licensed in Virginia, Maryland, Pennsylvania, and the District of Columbia, is a Martindale Hubbell Peer Rated Lawyer AV® Preeminent.  The firm represents owners, lenders, design professionals, suppliers, subcontractors, general contractors and other members of the real estate and construction industries, filing mechanic’s liens, surety bond and other construction claims across all of the states in the Mid Atlantic region.  He also represents creditors in bankruptcy issues nationwide, particularly defense of bankruptcy preference claims; advises owners and lenders in real estate lending and acquisition transactions; on all real estate and construction law issues; contract formation and disputes. 

The firm’s Construction Law Survival Manual is well known and widely used by participants in the construction process.  The 550 page manual provides valuable information about construction contract litigation, mechanic’s liens, payment bond claims, bankruptcy and credit management and contains over 30 commonly used contract forms.  All of this information and recent construction law issues are constantly updated on the firm’s website.

There are two changes to the Pennsylvania Mechanic’s Lien Code that became effective September 2014. First, residential properties built by an owner for their own residence will now have a defense of payment to subcontractor mechanic’s liens. This protects homeowners from mechanic’s liens if they have paid their general contractors in full. Second, construction loan open end mortgages will have priority over mechanic’s liens, as long as at least sixty per cent (60%) of the loan proceeds are used for construction costs. This change was pushed by Pennsylvania lenders in response to a recent court case.

Under prior Pennsylvania law, there was no automatic defense of payment for any Pennsylvania project owner. That is, any owner might be required to pay for the project twice. Even if the owner had paid the general contractor in full, a subcontractor might be able to establish a lien and eventually foreclose on the property. The burden was always on the owner to make sure that all subcontractors were paid.

An owner can create a defense of payment by filing a copy of the general contract in the prothonotary’s (court clerk’s) office before commencing construction. This will limit each subcontractor to a pro rata share of money still owed the general contractor. In addition, general contractors can waive lien rights for lower tier subcontractors if the general contractor posts a payment bond to cover the value of the labor and materials provided. Lien waivers by a general contractor are made by filing a “Stipulation Against Liens” (“Stipulation”), often referred to as a “Stip.” Most commercial Pennsylvania project owners will continue to do one of these things. Most Pennsylvania construction lenders require it.

Beginning in 2014, most owners will have an automatic defense of payment to a subcontractor lien on owner occupied residential projects.  If the owner has paid the general contractor in full, all subcontractor liens will fail. For the defense of payment to apply, the property must be a residential single townhouse or a building consisting of one or two dwelling units.   The property must be used or intended to be used as the residence of the owner or a tenant of the owner subsequent to occupation by the owner. It seems that a tenant would not have a defense of payment for any construction unless the property was previously occupied by the owner. This would also seem to rule out any builder or developer owned residential properties. Professional residential builders must still file a copy of the general contract in the prothonotary’s (clerk’s) office before commencing construction or give the subcontractor written notice of the contract payment provisions to create a defense of payment.

The statute says that “a subcontractor does not have the right to a lien with respect to an improvement to a residential property” if all of these conditions are met. However, subcontractors would normally have no way to know whether the owner had paid the general contractor or whether the owner intended to use the property for their own residence. Accordingly, it appears that subcontractors can and should file their lien claims if they are not paid. The statute seems to recognize this, stating that a court can issue an order discharging the lien against the property in response to a petition or motion to the court by the owner or a party in interest, when the owner or tenant has paid the full contract price to the general contractor. It is up to the owner to contest the lien. It is not clear who has the burden of proof on each condition. However, a subcontractor would not be in possession of evidence regarding payments by the owner or the intended use of the property, so the owner should have the burden.

An owner can also have a partial defense of payment. Where the owner or tenant has paid the contractor less than the full contract price, a court can also reduce the lien to the amount of the unpaid contract price owed.

The second big change (or clarification) in the Pennsylvania Mechanic’s Lien Code concerns the priority of mechanic’s liens compared to construction loan open end mortgages. The priority of any type of lien can be extremely important. Priority can determine whether or not the lienholder gets paid upon foreclosure. In a mechanic’s lien or foreclosure situation, by definition there is not enough money to pay all debts. A lien with low priority can easily be worthless.

It does seem like the Pennsylvania legislature tried to give open-end mortgages (construction loans) priority over mechanic’s liens in the 2007 amendments. This was a significant change in the Pennsylvania Mechanic’s Lien Code. However, the Superior Court decided in Commerce Bank/Harrisburg, N.A. v. Kessler<a href="#_ftn7” name=”_ftnref7″> in 2012 that the construction loan lender did not have priority unless ALL of the proceeds off the loan were used for the hard costs of “completing erection, construction, alteration or repair of the mortgaged premises.” In response to this decision, Pennsylvania lenders successfully lobbied for a change or clarification.

Starting in September 2014, a construction loan (open-end mortgage) will have priority over any type of mechanic’s lien, whenever at least sixty percent (60%) of the mortgage proceeds are intended to pay or are used to pay all or part of the costs of construction.<a href="#_ftn8” name=”_ftnref8″> Costs of construction are defined to include all costs for erection, construction, alteration, repair, mandated off-site improvements, government impact fees and other construction-related costs, including, but not limited to taxes, insurance, bonding, inspections, surveys, testing, permits, legal fees, architect fees, engineering fees, consulting fees, accounting fees, management fees, utility fees, tenant improvements, leasing commissions, payment of prior filed or recorded liens or mortgages, including mechanics liens, municipal claims, mortgage origination fees and commissions, finance costs, closing fees, recording fees, title insurance or escrow fees.<a href="#_ftn9” name=”_ftnref9″>

Accordingly almost any construction soft costs will count as construction costs and the construction loan (open-end mortgage) will have priority over any type of mechanic’s lien, if at least sixty percent (60%) of the mortgage proceeds are used to pay those costs of construction. Construction loans, therefore, will almost always have priority over mechanic’s lien in the future.

For cites to some of these changes, check out the full newsletter at the Fullerton & Knowles website.

As always, Jim and I welcome your comments below.  Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

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Changes to Pennsylvania Mechanic’s Lien Code

The Firm Hits the Seven Year Mark

English: A birthday cake

(Photo credit: Wikipedia)

My how time flies!  It seems like I blinked and seven years have passed since I opened my solo construction practice on July 1, 2010.  The reaction of friends, family, and importantly clients to the move since my announcement 7 years ago has been wonderful.  Frankly, going solo was one of the best decisions I could have made professionally (of course, the best decisions I made were to ask my wonderful wife of now 23 years to marry me and to have the three great kids that make my life fun and interesting every day).  I truly enjoy being the “captain of my own ship” and having both the responsibility and flexibility that comes along with that title.

Since my last yearly post, I became an official mediator for the Goochland County Virginia General District Court while growing my private mediation practice.  I was named to the Virginia Legal Elite in Construction Law for the 10th straight year (and all of my years in solo practice).  Thank you again to all of you who have such confidence in me and my firm.  Along with this honor, Super Lawyers saw fit to name me to the 2017 Super Lawyers in Construction Litigation.  Also, my (admittedly less consistent) postings here at Construction Law Musings have been going on for 8 and a half years as of this post.

I have had another year on the Board of Governors of the VSB’s Construction and Public Contracts Law board and the seminar committee has another great time at the Boar’s Head planned this October (stay tuned for details).  In an additional honor and bit of fun as well, I was asked to join the Virginia Bar Association’s Construction and Public Contracts Section Council.  If you’re a construction attorney here in Virginia (or just across the border) then I recommend a membership.

On the home front, my oldest daughter finished a successful Sophomore year at West Virginia University (go Mountaineers), my son graduated from high school and is headed to Appalachian State University (go Mountaineers (again)), and my youngest daughter is headed to high school in the fall.  Every year I wonder how these great kids grew up so fast!

So, without further ado, thanks to all of you that read this blog and that have supported me in so many ways over the last 7 years. Most importantly, thanks to the best family, and in particular the best wife, anyone could ask for. I could not have done all of this without you.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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The Firm Hits the Seven Year Mark