Archive for the ‘Construction News’ Category

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

Landlords Have Rights! Use of Louisiana Lessor’s Privilege

Lessors Privilege

Here in Louisiana, just as in many jurisdictions, there are certain rights or privileges which are bestowed on certain types of individuals or entities. These privileges are not effective until the person or entity decides to exercise those rights. A common example that we blog about here is the, Statement of Claim and Privilege, a Louisiana lien. The subject matter of this post refers to another privilege, the Lessor’s Privilege.

Lessor’s Privilege

The Lessor’s Privilege is found in the Louisiana Code of Civil Procedure under the “special proceedings” book and the “provisional remedies” code, La C.C.P. 3571. It is also found in the Louisiana Civil Code under the section Lessors Security Rights, La C.C. 2707.

I in layman terms the Civil Code lays out the laws and rights allowed to persons. Whereby the Code of Civil Procedure is the method of steps that a person needs to accomplish in order to properly exercise those code rights.

The Lessor’s Privilege is defined as:

“To secure the payment of rent and other obligations arising from the lease of an immovable, the lessor has a privilege on the lessee’s movables that are found in or upon the leased property.” La C.C. 2707.

This means that if a lessee (tenant) has not paid rent or any other obligation under the lease, the lessor (landlord) has the power under the law to seize the tenants property, by using the Sheriff or Constable, and hold it until the landlord can get a judgment against the tenant.

The Power of Sequestration

Saying that the landlord has a privilege over the tenants things is one thing, but carrying this out in the real world is difficult. Therefore the law uses a tool called Sequestration. If the landlord thinks its within the power of the tenant to get rid of the property he can file a writ of sequestration with the court and have the sheriff seize the property of the tenant who owes back rent.

La. C.C.P. 3571 reads:

“When one claims the ownership or right to possession of property, or a mortgage, security interest, lien, or privilege thereon, he may have the property seized under a writ of sequestration, if it is within the power of the defendant to conceal, dispose of, or waste the property or the revenues therefrom, or remove the property from the parish, during the pendency of the action.”

La C.C.P. 3572 goes a step further and allows for Sequestration based on the lessors privilege before the rent is due! This is extremely powerful and a good way to get that tenant to pay up before vacating the premises. Most writs of sequestration require some type of security deposit, but the lessor’s privilege is exempt from this requirement.

Of course the tenant has rights too but these must be enforced after the property has been sequestered. Tenant can get its property back by posting a security deposit in lieu of its property under seizure.

How Is All This Accomplished?

All of these rights and privileges are great but unless you know how to put them into action, they are meaningless. A good landlord / tenant attorney will be able to walk you through these steps. This procedure is complicated and landlords should always consult an attorney when making such bold moves.

Nevertheless, the Cliff Notes version of how to do this goes like this… First, the landlord need to file an eviction proceeding. This is a summary proceeding under Louisiana law and can be accomplished fairly quickly, in a few weeks. An eviction proceeding is the subject of another blog post. Once the eviction order or judgment has been granted and back rent is owed, then the landlord need to file an ordinary law suit to claim its lessor’s privilege.

Second, the lawsuit is an ordinary proceeding whereby it will not be expedited. The lawsuit needs to contain a sworn statement from the landlord that rent is due and how much. From there it needs to assert the Lessor’s privilege and use a Writ of Sequestration to seize the property of the tenant.

Third, once suit is filed and it contains a Writ of Sequestration with the clerk of court, the sheriff or constable will get the Writ and set up a time with the landlord to go to the property and take inventory of the tenants property. Here in New Orleans, the landlord can be named “keeper” and “mover” of the property therefore it can pay to have the property moved and stored to save costs. If not then the sheriff or constable will do this, many times a high price.

Finally, the landlord and tenant proceed with the lawsuit all the way until a trial can be had. Once a judgment is rendered in favor of the landlord, the property will then be sold at an auction. The proceeds from the auction will go to pay the costs and then to the judgment of the landlord. Any extra proceeds after these parties are paid, will go back to the tenant.

All of these steps can take a while. This process can take weeks, months or even years depending on how much is at dispute and how much the tenants fights the suit.

Conclusion

Overall, this is a very powerful process and savvy landlords will use this process to their advantage to claim the lessor’s privilege. This can also be a costly process, but a properly written lease can provide for the repayment of attorney fees and costs from the proceeds of any collection attempts. At the end of the day, the law needs to have teeth. The use of sequestration and eviction are ways that the law has teeth.

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