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Louisiana Public Contract Law: Material Supplier Notice Requirement

In Louisiana public contracts and jobs have been gaining momentum for my clients. Over the past few years there has been a spike in public work and as these jobs reach completion contractors, subcontractors, equipment lessors, laborers and materials suppliers are forced to become well versed in the layout of the public bid law.

Public Bid Law

Public bid law is a term of art used in the construction industry to describe any work, construction project or improvement to (immovable) property that is owed by the State of Louisiana or an arm of the state, such as parish or city government (“public entity’). Entering into a contract for a construction project with a public entity has strict regulation. This strict regulation is necessary due the past corruption when dealing with public funds. Public jobs are funded by tax-payer money, therefore the process needs to be tightly scrutinized.

For years many contractors, equipment lessors and materials suppliers would not work on government projects due to all of the extra work required to adhere to the regulation. Recently, these same contractors have been taking on the risk for the reward of more work. Most parties are realizing that public works are not that much different than private when everything runs smoothly. When funds dry up, then the landscape can become more rigid.

Public Work – Material Supplier Notice Requirement Statute

This post will focus on material suppliers and the requirement to send notice when working on a public job. In many instances in Louisiana and other states, material suppliers must send notice to the owner, general contractor and the party who hired them in order to preserve some type of lien or bond claim right if not timely paid.

When large supply companies, such as ABC Supply, Grainger, or 84 Lumber, work in Louisiana by supplying to Louisiana public works, they need to be aware of the requirements needed to preserve the right to get paid. The requirements are codified in Louisiana Revised Statutes §38:2241 et seq.

New Case Law Regarding Material Supplier Notice for Public Work

Recently, in 2013, the Louisiana First Circuit rendered a decision which will make the notice requirement of material supply companies more onerous.

Review of J. Reed Constructors, Inc., v. Roofing Supply Group, LLC

The basic premise of this suit has to do with whether or not a supplier sending the required notice, within seventy-five (75) days of delivery of the supplies. On public projects La R.S. 38:2242(f) states that all materials suppliers must furnish notice within 75 days of delivery of the materials.

The exact language of La R.S. 38:2242(f) reads in pertinent part:

In addition to the other provisions of this Section, if the materialman has not been paid by the subcontractor and has not sent notice of nonpayment to the general contractor and the owner, then the materialman shall lose his right to file a privilege or lien on the immovable property. The return receipt indicating that certified mail was properly addressed to the last known address of the general contractor and the owner and deposited in the U.S. mail on or before seventy-five days from the last day of the month in which the material was delivered, regardless of whether the certified mail was actually delivered, refused, or unclaimed satisfies the notice provision hereof or no later than the statutory lien period, whichever comes first. The provisions of this Subsection shall apply only to disputes arising out of recorded contracts.

To the average supplier or person, this statute would constitute that if multiple deliveries are made in multiple months, then you simply need to send one notice at the conclusion of the deliveries but within 75 days of the last delivery. The J. Reed court actually opined to the contrary.

The court goes on to discuss how statutes need to be interpreted and I believe that they missed the target on this decision, nevertheless the law in Louisiana, as of J. Reed is that the 75 day notice of non-payment needs to be sent after each month where materials were delivered. Any logical person can see how this requirement can be onerous. There is a well written dissent which describes a logical conclusion.

Regardless of whether the case is proper it is the law in Louisiana. Material suppliers need to send notice of non-payment within 75 days of each month where materials were delivered. Click on the link above to read the opinion in its entirety. Knowing these rules can mean all the difference to whether a bill gets paid or it gets written off as bad debt.

 

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What is a Construction Change Directive (CCD)?

construction change directive

The construction industry, just as any other industry has its own terminology or lingo. There are many examples such as “punch-list,” “lien” and “substantial completion” to name a few. No words are more dreaded than change order. Construction change orders are some of the most litigated and disputed documents in all of construction law.

A cousin of the change order, is the construction change directive. Although the names are similar the legal implications are significantly different. The construction change directive may be even more disputed than the construction change order but it is not as widely used. This post will help to familiarize readers with what exactly a construction change directive entails.

Definition of Construction Change Directive

I found a quick definition of construction change directive:

An alternate mechanism for directing the contractor to perform additional work to the contract when time and/or cost of the work is not in agreement between the owner and contractor performing the work.

at DictionaryOfConstruction.com.

To break down this definition, one must look to its parts. First, its an alternative mechanism, meaning that there are other way  to accomplish the goal of the owner/architect. Second, it directs the “contractor” to perform additional work. Its not a request but rather a directive. Lastly, its a directive given by the owner when time and/or cost are not in agreement. This is vastly different from the change order, which has to be agreed to by the contractor and owner.

Basically this is an order to do something even though there is no agreement as to timing and/or price. This type of authoritarian mechanism is prone for heavy dispute.

Application of the Construction Change Directive

The application of the construction change directive is less complicated than its definition. The AIA G714 is a single page document that basically has four sections.

  1. A section containing all of the project information which is standard on any contract document which includes a brief description of the change that is being directed;
  2. The proposed adjustment with regards to price;
  3. The proposed adjustment with regards to time; and
  4. The signature blocks for the Architect, Owner (required) and Contractor (no signature required for contractor).

Once this document is filled out and signed by the owner and architect,  it needs delivery to the contractor for effectiveness. This is a bold and powerful document.

Construction Change Directive: Risks and Rewards

As with any document, whether it be an agreed upon change order or a construction change directive, there are inherent risks involved with taking on new work. The owner has to weigh the risks and rewards with taking such bold move in order to get what it wants. This move could backfire and be costly for the owner and/or negate any damages for delay that the owner may have against the general contractor because of the forced additional work.

Its important to speak with an experienced attorney when dealing with complex procedures on a construction project. Click here or call 504-894-9653 for more information.

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Posted in:     Change Orders, Construction Contracts, Construction News, Damages, Delays  /  Tags: , , ,   /   Leave a comment

Contract Terms and Conditions That Help Collections

Contract Terms And Conditions

Depending on which side of the table you are sitting at when signing a contract, will determine how the collections process at the end of project will go. Contract terms are key to a successful collection for final payment.

A good contract can help the parties by:

  • Lay out the scope of work for the project so that parties are on the same page;
  • Assess where attorney fees will be awarded, many contracts award to one party or the successful party;
  • Allow for penalty and interest terms to add to an overdue balance;
  • Providing for liquidated damages if problems arise;
  • Allow for ADR clauses which can speed up the collection process.

As I discuss on this blog often, large scale projects have all these contract terms covered in the extensive documents that are executed at the outset by the parties. Most of the issues, which can really aid in collections, that I see come in with small project contracts or projects without a written contract.

Scope of Work

Having a clear and itemized scope of work is essential. Each party to the contract must be crystal clear as to who is to perform what task. Scope of work can include such items as who will pay for labor, materials, shipments and equipment rentals. Also it will spell out what work is to be performed and when. The reason why so many projects have change orders or change directives, is due to poorly written scope of work contract terms.

Attorney Fee Contract Terms

In my business, lawyers treat an attorneys fee provision like the holy grail. Its almost like the attorney feels like he has the green light to do all the work possible to collect on the claim. While this may be helpful, courts do not always award attorney fees. Despite that most cases settle and its rare that settlement include attorney fee payments.

The standard in the United States is the American Rule, which states that each party is to pay its own costs and attorney fees when in a dispute. If a party is on the correct side of an attorney fee provision that can mean tens of thousands of dollars for that party if successful. It is a powerful negotiation tool.

Penalty and Interest Contract Terms

Penalty and interest contract terms can also work like attorney fees. They are used to incentivize the defaulting party to pay or the cost of non-payment will go up. These terms are in most contracts that we, as a public, use these days.

Typical interest rates are around one to one and a half percent per month which equals anywhere between twelve and eighteen percent per year.

Liquidated damages contract terms are not favored by courts but they are favored in practice. Courts will not enforce them when used as a single outrageous penalty, but they will allow them when they are more fair and reasonable.

ADR Clauses

As always it is very important to include alternative dispute resolution contract terms. ADR as we call it, includes mediation and arbitration. Arbitration is binding and Mediation is when the parties get together to try and work out a deal. Some contracts will pick one alternative over the other. Others will require mandatory Mediation, then if that fails subject the parties to Arbitration.

No matter how the contract terms lay out the ADR, its best to have the terms in there so that parties avoid litigation.

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Posted in:     Collections, Construction Contracts, Construction News, Louisiana  /  Tags: , , ,   /   Leave a comment

I’ve Received Contractor Lawsuit. What Happens Next?

Builder Ripping Up A Contract Lawsuit

The project is either over or it is winding down, money and tensions are getting tight. Contractors know this scenario very well. The problem arises when a lawsuit is delivered because of the dispute. Many contractors do not know what to do once they receive a lawsuit. This post will outline the possibilities of what happens after the lawsuit is received.

Why Did I Receive A Lawsuit?

On a typical construction project, whether public or private, commercial or residential, there are typical players. These players include: the owner, general or prime contractor, subcontractors, laborers, suppliers and equipment lessors. All of these parties have the ability to file a lawsuit and/or receive a lawsuit, depending on the facts of the situation.

In actuality, you have received this lawsuit because of your involvement in the project and someone in this group has alleged that you are liable for some type of damage. This undoubtedly will be money damages. Other types of damages exist but courts like to compensate with money.

What Happens Once I Am Served With The Lawsuit

The clock starts running! No matter the jurisdiction, whether it be state or federal court or in Louisiana or another state, the time to respond to the lawsuit begins to run once service is made. Depending on the jurisdictions for which I am familiar you have anywhere from ten to sixty days to respond. The usual here in Louisiana is fifteen days from service in a state court, see La. C.C.P. 1001.

Many times if you contact an attorney they can get an extension of time for which to file and answer or other responsive pleadings. This is customary in our business.

Options With The Lawsuit

There are a few options that I see people do when they receive a lawsuit, some are advisable and others are inadvisable.

Hire An Attorney: The first, most logical and most advisable option is to contact your attorney and retain his services to defend you in the lawsuit. An attorney will know the landscape of the Court procedures and assure that you will be protected within the confines of the law. Attorneys are not miracle workers, but they have a number of strategic and tactical maneuvers which can be deployed to protect you or your company’s interests.

The flaw here is that lawyers are not cheap. A good lawyer will tell you whether the amount and nature of your dispute are worth fighting over. Many times its a better business choice to work out a deal and move on with making money.

Self-representation: I see this more and more these days. A person can always represent themselves in a court of law. The Fourteenth and Sixteenth Amendments have been interpreted through the years to allow individuals to represent themselves pro se in court. The key here is individuals representing themselves. A corporation or limited liability company is not an individual. They are juridical entities, which cannot be represented in court unless by an attorney.

Due to the fact that most smart business owners are some type of business entity, courts will not allow for self-representation. Self-representation can be advisable in some situations, but most of the time it is not.

Do nothing: This option is popular, but it is disfavored and inadvisable. When a party who is sued does nothing, the suing party can get a judgment by default. Once a judgment is rendered against the party who is sued, then bank accounts, garnishments and property are all options for a quick collection.

Instead of doing nothing, if you file and answer or other responsive pleading, the judicial process will take much longer and you have many other legal moves at your disposal.

Other options: – Informal negotiations or ADR clause are other options. Once you have been sued and within the time frame to answer, you and/or your company could engage in informal negotiations with the adversary. I always encourage my clients to work out a deal and move on. This can be with informal meetings or telephone calls. Its always smart to bring in an attorney to help here, even if not for the full lawsuit.

Finally, many construction contracts have some type of alternative dispute resolution (ADR) clause. Even with these clauses present an adversary may still file suit contrary to the contract. This can be done for a number of legitimate reasons. All you or your attorney have to do is enforce the ADR clause. This can be done informally or via formal court Motion.

Conclusion

Once a lawsuit is received by a party to a construction project, there are a number of options, as discussed above, which can be implemented. The key here is to do something and avoid a default judgment. Contacting an attorney for advice is a smart play, even if it is to decide which of the above methods is best for you.

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