Construction Industry Counselor

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By: Saul Ewing Arnstein & Lehr

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Language in Performance Bond Critical in Determining Surety’s Rights to Complete If an owner terminates a contractor due to a contractor default on a bonded project, can the surety hire the same contractor to complete the work under the bond?  Depending on the language of the bond, it may be permissible in Florida. Recently, in Seawatch at Marathon Condominium Association, Inc. v. The Guarantee Company of North America, No. 3D18-1337, 2019 WL 4850194 (Fla. 3d DCA Oct. 2, 2019), a Florida appellate court ruled that the unambiguous terms of an AIA A312 Performance Bond permitted a surety to propose a…
Effective August 20, 2019, Illinois law provides that a maximum of 10 percent retainage may be withheld from payments under private construction contracts and, after the contract is one-half complete, retainage must be reduced to 5 percent and kept at 5 percent for the remainder of the contract.  With this new law, Illinois joins the vast majority of states that have enacted laws pertaining to retainage on construction contracts.  Like almost every other state, Illinois’ retainage restrictions are unique to Illinois and, therefore, parties to Illinois construction contracts should understand how the new law will impact their projects.  This article…
The U.S. Attorney’s Office for the Middle District Florida settled its allegations against a Central Florida contractor accused of violating the Small Business Administration’s regulations by allegedly creating a sham joint venture to be awarded a project. Click here for more information about the settlement. NASA sought bids for a demolition project that was funded by the Small Business Administration (“SBA”).  A requirement of the project was that it be awarded to a business that was qualified as a small business enterprise (“SBE”).  In order to qualify, Sunrise Systems of Brevard, Inc. (“Sunrise”) formed a joint venture with V&R Enterprises…
Developer is Not Indemnified for its Own Conduct Without an Express Agreement in the Indemnification Clause In a case where the jury found both the Architect and the Developer separately responsible for Plaintiff’s damages, an Appellate Division of the New Jersey Superior Court recently held that the Developer is not entitled to be indemnified by the Architect.  See Grandview at Riverwalk Port Imperial Condo. Ass’n, Inc. v. K. Hovnanian at Port Imperial Urban Renewal II, LLC, No. A-2308-17T2, 2019 WL 3798427 (N.J. Super. Ct. App. Div. Aug. 13, 2019)(unpublished decision). The appellate court agreed with the Developer’s argument that the…
Utah Appellate Court: Homeowners’ Claim for Defective Construction Against Geotechnical Engineer Dismissed Due to Lack of Contract and the Economic Loss Rule A recent Utah Appellate Court upheld the dismissal of a homeowners’ claims against a geotechnical engineer because the homeowners did not have a contract with the geotechnical engineer and therefore their claims were barred by the economic loss rule. See Hayes v. Intermountain Geoenvironmental Services, Inc., 2019 UT App 112, 2019 WL 2621931.  In Utah, the economic loss rule only allows lawsuits for defective design or construction to be based on a breach of contract.  Such a claim…
Each year, hurricane season presents a challenge to contractors and developers along the Gulf and Atlantic coasts as they face the risk of impacts from significant weather.  Hurricanes Michael, Irma, Harvey and Florence are only the most recent reminders of how devastating one of these storms can be.  With the construction industry being as active as it is, projects in storm-prone areas should be prepared to deal with and minimize the physical and financial risks that come along with these storms.  I was recently able to share my insight about what project teams can do to deal with a storm…
Owners of a Massachusetts waste collection, recycling and removal company recently were held personally liable for their failure to pay their employees at prevailing wages.  See Donis v. American Waste Services, LLC, 95 Mass.App.Ct. 317 (2019).  Under Massachusetts law, wage violations are subject to triple damages and payment of attorney’s fees.     The waste services company entered into contracts with several Massachusetts towns that required compliance with prevailing wage laws at hourly rates of $20 — $24.  However, the company paid workers $16 — $17 an hour, or at flat day rates.  The company tried several unsuccessful defenses: (1) the…
New Sustainability Ordinances for Construction Enacted in Florida and Colorado Cities  The City of St. Petersburg, Florida is one of the latest municipalities to incorporate the concepts of sustainable construction, sometimes referred to as “green building”, into the requirements of their municipal code.  On April 26, 2019, the City adopted Ordinance No. 359-H; which requires City-owned buildings over 5,000 square feet, which are either existing and being substantially modified or are being newly constructed, to achieve a rating of LEED Gold from the U.S. Green Building Council.   The new ordinance makes clear that the purpose of adopting the sustainability…
In a case of first impression, Maryland’s intermediate appellate court recently held that a subrogation waiver in an owner’s prime contractor contract does not bar a subcontractor claim for contribution against the prime contractor.  See Gables Constr., Inc. v. Red Coats, Inc., No. 907, SEPT.TERM, 2017, 2019 WL 2067348 (Md. Ct. Spec. App. May 10, 2019).  Upper Rock, Inc. (Owner) filed a $22 million claim against Red Coats, Inc., a “security and fire watch company” (Subcontractor), for fire damage to a building under construction.  Red Coats filed a third-party claim against the prime contractor, Gables Construction, Inc. (Contractor), for contribution…
Construction contracts often contain agreements requiring mediation before a party may file a lawsuit.  However, a party may not want to wait through the mediation process and instead may prefer to go straight to a lawsuit.  Given that mediation is not binding and does not guarantee a resolution, can a party ignore a contractual agreement to mediate and instead go right to litigation?  A recent Kentucky federal court decision said no, a party cannot ignore a previous contractual agreement to mediate. See Mitsui Mumitomo Insurance USA, Inc. v.  Denham-Blythe Company Inc., et al., No. 5:18-CV-152-JHM, 2019 WL 1938791 (E.D. Ky.…
A recent article in the Baltimore Business Journal on a Maryland construction industry survey reports that tight labor markets and rising materials costs are influencing the opinion of Maryland contractors that there may be a downturn coming in the near future.  While contractors are individually optimistic about their own businesses, they recognize that the labor crisis is growing.  Fewer young people are entering the construction industry and over 80 percent of contractors surveyed responded that “finding and retaining quality employees” is their top concern.  Although salaries are generally on the rise, corporate culture appears to be a greater concern to…
Illinois Considers Following Trend Toward Making General Contractors Liable for Wages of Subcontractors A bill pending in the Illinois legislature (HB2838) exemplifies a nationwide trend in the construction industry to hold a contractor who has a direct contract with an owner (“Direct Contractor”) liable for the unpaid wage and fringe benefit obligations of its subcontractors on a private project. Direct Contractors already have liability for employee wages owed by their subcontractors on public projects covered by the Davis Bacon Act, and the same responsibility is owed under the prevailing wage acts of many states. Direct Contractors may also have liability…
Baseball Stadium Developer Owes Bond Insurer $39.1 Million Due to Indemnification Agreement A recent decision from the United States District Court for the District of Connecticut is a reminder to contractors and developers that indemnification agreements tied to bonds usually heavily favor and give a large amount of discretion to insurers issuing bonds.  See Arch Ins. Co. v. Centerplan Constr. Co., LLC, No. 3:16-CV-01891 (VLB), 2019 WL 613375, — F.Supp. — (D. Conn. Feb. 13, 2019).  In Arch, the court granted summary judgment in favor of Arch Insurance Company (“Arch”) and required developer Centerplan Construction Company (“Centerplan”) to indemnify Arch…
Builder’s Risk Insurance Coverage for $3 Million Loss Denied Due to Failure to Adequately Secure Construction Site A recent Federal Court summary judgment decision provides a stark warning for contractors and owners to adequately secure their construction sites, or risk denial of insurance coverage.  See Praetorian Ins. Co. v. Axia Contracting, LLC, No. 17-CV-2034-WJM-KLM, 2019 WL 1002939 (D. Colo. Mar. 1, 2019).  In Praetorian, the Court ruled that the failure of an owner and its contractor to adequate secure the jobsite was a breach of the Builder’s Risk policy, thus preventing the owner and contractor from securing coverage for a…
Takeaways From Saul Ewing Arnstein & Lehr’s 2019 Construction Risk Management Symposium On February 8, 2019, Saul Ewing Arnstein and Lehr’s Construction Practice hosted a half day symposium that focused on important risk management issues facing the industry. From safety practices to cyber threats to labor and employment challenges, the risks faced by the construction industry are best managed by staying ahead of a rapidly changing environment. This was the central theme at the symposium, attended by nearly 100 professionals in construction, real estate and development, insurance, consulting, and recruiting. Click here to learn about the three key takeaways from…
Two Construction Companies Pay $3.6 Million Dollar to Settle SBA Fraud Allegations A United States Department of Justice investigation of two construction companies and their owners has resulted in a $3.6 million settlement following allegations that the companies defrauded the Small Business Administration (SBA).  The fraud resulted from false statements in the SBA bid process for federal government contracts.  The SBA program at issue has the stated goal of assisting small disadvantaged businesses that are applying for federal contracts by setting aside for them five percent of federal contract dollars.  Michael Vigil controlled 91 percent of VMJ Construction, LLC.  John…