Posts Tagged ‘Louisiana Construction Law Blog on Blogspot’

Litigation Sucks!! Get Out Of It

On November 8, 2010 Author By Scott Wolfe Jr        

As a lawyer (and a client), the legal system has caused me significant frustration.   Why?   Because judges can make terrible decisions, opposing parties and attorneys can abuse the process, the costs can be enormous, and at the end of the day the case comes down to a decision-maker who can decide against you.

One thing I frequently tell clients is this:   The litigation process is designed to keep people out of it.  I wrote about this issue in the past here:  Why Compromise Is Sometimes Better Than A Construction Dispute.

Our friend Alan Haley recently published two blog posts related to this topic on this Louisiana Construction Law Blog.  I discuss them both here:

The 20% Rule
What is the 20% Rule?   It is the principal that you can have bulletproof evidence, the best argument and facts, and a “perfect case,” but still face at least a 20% risk of losing.   How?   Check out the quote from John Watkins who explains the rule in his article about the same:

Why is the twenty percent rule true? Because unforeseeable things happen in litigation. Star witnesses blow up in depositions or on the witness stand, even if they are well prepared. There may be a document or email out there that you (and your lawyer) did not know about when the case was filed.

But, most importantly, cases are resolved by judges and juries. Judges and juries are human beings, and, given that fact, may not see things your way. Judges and juries may seize upon facts and issues that you know are irrelevant to the dispute, but which become highly relevant, because they get to decide the case, not you.

Judges and juries may simply like the other side better than you. Maybe your confidence will be perceived as arrogance. Maybe the other side has an explanation that resonates.

Mediation As Dispute Resolution Mechanism in Construction Industry
If litigation is so unpredictable, what do you do with your disputes?   Just walk away from them?   The answer to that, of course, is usually no.   A separate post from Alan discusses the possibility of mediation taking a larger role in construction disputes.

When mediation works, it’s great.   After all, it takes away absolutely all of the risk and leaves the result of the dispute in the parties’ complete control.    It’s why Alan predicts that mediation will become more and more popular as time goes on:

Probably because of the problems currently plaguing arbitration (see what folks have to say about that here, here, here, here, and here).  Finally, mediation is a more pure alternative dispute resolution mechanism because the participants share in deciding the outcome as opposed to dealing with a decision or award.  Further, mediation is usually cheaper and faster than arbitration.

Check out both of Alan’s posts, as they’re great for folks who might be neck-deep in litigation and thinking….this sucks.

Also, after writing this blog post, I stumbled on another post out there from Melissa Brumback.   Posted on her Construction Law in North Carolina Blog, Melissa updated her “Should I Stay or Should I Go Now? (Court v. Arbitration)” post.   Another good read on the topic.

Related articles
Posted in:     Arbitration & ADR, Litigation  /  Tags: , ,   /   3 Comments

How To Make Arbitration “Worth It” Again

On September 3, 2010 Author By Scott Wolfe Jr        

Arbitration has been the talk of the town amongst the legal community this week, and really, it should be.

One could say that arbitration is at a crossroads these days.   Over the years, the expenses and delays associated with arbitration have rivaled litigation.   From a personal level, I can tell you that arbitration is simply feeling more and more like ordinary litigation.   In recent arbitrations, the parties have engaged in a substantial amount of discovery, and the proceeding itself felt wrapped in a court-like formality with objections to evidence made left and right.

And let’s not even mention the costs associated with an arbitration.   I recently filed for arbitration with the American Arbitration Association paying a $4,500 filing fee, and then, just a few months later being asked to pay another $4,000 for our share of the arbitrator’s fee.   Even the AAA knows their fees are out of hand, as I’ve recently gotten a survey phone call from them where it seems the AAA’s administrative nightmare is looking for answers.

After all of this, you may think I’m opposed to alternative dispute resolution?   Well, I’m not .   Not yet.

Similar to the online discussion about arbitration this week, I believe there is a way to make arbitration worth it for the parties (despite the natural slippery slope tendency of things).   It requires some extra front end work and legal jargon, and yes, counsel from an attorney to predict which type of ADR situation will work best for your matter.

Part One:   Conversations on What’s Wrong (or Right) with Arbitration

There’s no shortage of complaints about arbitration (we’ve even done it!)   Just this week, the WallStreet Journal published this on its Law Blog:  Has Arbitration Become More Burdensome than Litigation? It starts with this revealing statement:

Arbitration was once known as a faster, cheaper, better way to settle disputes.

But has the process become as bogged down as conventional litigation?

And look at some of the comments to this article; scathing lawyers, of course:  “Of course Arbitration has become hugely expensive;” and “Arbitration is extremely more expensive than litigation;” and, my favorite, “So lawyers complicate arbitration and make it way more expensive.  Is this news?”

Are the criticisms true?   The National Arbitration Forum would argue they are not, and they even have a website dedicated to the issue:   Arbitration-Truth.com.   Pointing to surveys and empirical studies like one performed by John Chalk, Sr. of for the Texas Bar ADR Section, these anti-critics argue the “empirical studies do no support the current criticisms of arbitration.”

Whose right?   Well, both the critics (like me) and the anti-critics are probably part right, and that’s exactly why folks should look at their options in making arbitration work for them, and “worth it” again.

Part Two:  Tips to Make Arbitration Worth It

So, what can you do to make the arbitration process actually work as intended?    Here’s the good news – since the rules of arbitration are left to the parties, you can do a heck of a lot.   And where do you start setting these rules?   Your contract.

Take a look at the recent article by our friend Alan Haley on the Louisiana Construction Law Blog at Blogspot:  Should Arbitration be a Standard Clause in Construction contracts? Alan comments that he advises clients to “tailor arbitration clauses…to their specific desires and the needs of the parties.”   Want more specific instructions on how to tailor the contract – check out the related post here.

Another blog post this week helpful to those looking to make arbitration right again with better contracting comes from one of my favorite blogs, Adams Drafting (we’ve talked about this blog previously here).    Interestingly, Ken Adams refers to an article on law.com and not the one on the WSJ, but it’s just a different shade of gray.

Ken highlights the importance of making the ADR clause work specifically for you with the following:

Whatever arbitration clause you use….commentators on arbitration generally recommend that you supplement it.

Part Three:  Choose Your ADR Company After Thinking About It

I’ll make this point very quickly.   Do not choose the American Arbitration Association just because it’s the company you’re heard of.   The AAA has plenty of competition, and in most cases, the competition will be cheaper and offer a more pleasant ADR experience.    In fact, the AAA uses many of the same arbitrators as these other companies.

Look around and ask your lawyer about their positive and negative experiences with these companies, and select one that works.  It might be the most important thing you can do to make the arbitration process worth it.

Posted in:     Arbitration & ADR, Construction Contracts  /  Tags: , , , ,   /   6 Comments

New Retainage Rules in Louisiana Protect General Contractors

On September 1, 2010 Author By Scott Wolfe Jr        

As pointed out last month by our friends at the Louisiana Construction Law Blog (Blogspot), Louisiana just passed new retainage rules that became law on August 15, 2010.    The act (SB 218) amends the Private Works Act to add §9:4815, requiring property owners to place “retainage” in escrow accounts.

It’s a remarkable change of the status quo in Louisiana, and from my perspective, good news for general contractors (and really anyone else furnishing labor and/or materials).

What The New Rule Requires

So, what exactly changes with this new rule?

We’re all familiar with the concept of retainage:   money withheld from a prime contractor by the property owner until the completion of work.   Before this law, property owners were responsible for holding the money and disbursing it when contractually required.   As every contractor knows, this leads to the owner dragging its feet in releasing the retainage and motivates the owner to figure out ways to hold onto the cash.

The new law changes these circumstances significantly, by requiring the property owner to deposit the retainage amounts withheld into an interest bearing escrow account, and into the control of an independent escrowing agent.

Earned interest accrues in favor of the contractor, and the money is released by the escrowing agent pursuant to requirements of the statute.  If there’s a dispute between the owner and general contractor, the money is preserved as security pending the outcome of litigation.

When The New Rule Applies (and Doesn’t Apply)

The retainage requirement applies to all projects over $50,000.00 that are not:  (i) a single or double family residence; or (ii) classified under a list of specific industries (see list of industries in quote of legislation below).

This means the retainage law will apply to nearly all commercial projects, and all multi-unit (3+) residential construction.   The law applies to private projects only, and not State or Federal projects (which are governed by separate laws).

Who is Protected?

Well, the law itself only positively affects the property owner and the prime contractor.   Largely, therefore, the law is designed to protect general contractors by ensuring the retainage money is available when due.   Just as the construction lien will act as security, so too will the escrowed retainage.

But, does this protect the subcontractors and suppliers on a project?    The short answer is “no.”   The long answer is closer to a “yes.”

While the retainage money is not held in escrow for the direct benefit of the subcontractor, the general contractor has a duty to pay subcontractor and supplier accounts once the money is made available (and there are misappropriation laws to this effect).   There’s an additional practical benefit.  Since many sub and general disputes are rooted in a dispute with the property owner, this new law may reduce the owner/GC disputes, and thus reduce the GC/sub disputes.

Interesting Questions

Finally, I’ll leave you with some interesting questions that may arise in the coming years about this new retainage law:

(1)  What is the enforcement mechanism? As written, the law requires escrowing of retainage funds, but there is no penalty if a property owner doesn’t do it.   In all likelihood, this means the general contractor will be required to insist on compliance.  When competing with other general contractors for business, it may be tough to make this a staunch requirement.

(2)  Will Subcontracts Intervene to Claim the Money? Subs/Suppliers do not directly benefit from the new retainage rules.  However, if the subs / suppliers know that money is there, and they have a claim on it, can they intervene in any dispute between the owner and prime contractor to make a claim on the money?   Can they get an attachment or sequestration on the funds pending the dispute between them and the general contractor?

(3)  Interest Accrues to the Subcontractor? And perhaps the most interesting question concerns the interest on retainage.   Previously, the property owner benefited from the retention of funds.  Now, the general contractor benefits from fund retention.   Are subcontractors or suppliers entitled to their proportionate share in the accrued interest?

The Law Text

Here is the new law’s text, in full.   Enjoy.

§4815. Escrow of funds due under contract; procedures

A. When, under the provisions of this Part, a contract in the amount of fifty thousand dollars or more is entered into between an owner and a contractor and if in accordance with the terms of such contract funds earned by the contractor are withheld as retainage by the owner from periodic payments due to the contractor then such funds shall be deposited by the owner into an interest bearing escrow account. The provisions of this Section shall not apply to a contract for a single family residence or double family residence. The provisions of this Section also shall not apply to a contract for the construction or improvement of the following types of industrial facilities that are, or will be, engaged in activities defined or classified under one or more of the following subsectors, industry groups, or industries of the 1997 North American Industry Classifications System (NAICS):

(1) 22111 electric power generation; (2) 321 wood products manufacturing; (3) 322 paper manufacturing;(4) 324 petroleum and coal products manufacturing; (5) 325 chemical manufacturing; (6) 326 plastics and rubber products manufacturing; (7) 331 primary metals manufacturing; (8) 562211/562212 hazardous and solid waste landfills; (9) 422710 bulk stations and materials; (10) 486110 crude oil pipelines; (11) 486910 refined petroleum products pipelines; (12) 486210 natural gas pipelines; (13) 486990 other pipelines; (14) 211112 natural gas processing plants.

B. An escrow account under the provisions of this Section shall be located at a qualified financial institution and shall be under the control of an escrow agent. The escrow account and escrow agent shall be selected by mutual agreement between the owner and the contractor.

C. Upon completion of the work that is the subject of the contract, the funds, including any interest located in the escrow account shall be released from escrow under the following conditions:

(1) If there are no existing claims by the owner, the whole amount shall be paid to the contractor within three business days upon receipt by the escrow agent of a written release signed by the contractor and the owner.

(2) If there is a dispute between the owner and contractor and the contract does not provide for binding arbitration of such dispute:

(a) Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor.

(b) Disputed amounts that are the subject of a judicial proceeding shall be released by the escrow agent within three business days of the receipt of a final order by the court. Upon receipt of the order of the court, the escrow agent shall pay the contractor or owner such amounts as are determined by the court.

(3) If there is a dispute between the owner and contractor and the contract provides for binding arbitration of such dispute, the following shall occur:

(a) Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor.

(b) Disputed amounts that are the subject of binding arbitration under the contract shall be released by the escrow agent within three business days of the receipt of a final order by the arbitrator who has been selected by mutual agreement between the owner and the contractor. Upon receipt of the order of the arbitrator, the escrow agent shall pay the contractor or owner such amounts as are determined by the arbitrator under the rules as defined in the contract between the owner and the contractor.

D. Receipt by the escrow agent or the qualified financial institution in which the escrow account is maintained of what purports to be a written release signed by the contractor and owner, or an order by a court or arbitrator, shall be a full release and discharge of the escrow agent for transfer of funds to the contractor. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained shall be held liable to any party based on any claim that the written release is unauthorized, forged, or otherwise fraudulent.

E. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained pursuant to the provisions of this Section shall have any liability to the owner, contractor, or any other person when complying with the provisions of this Section.

Posted in:     Louisiana, Payment Requirements  /  Tags: , , ,   /   1 Comment

Great Resources on Louisiana Construction Law

On June 8, 2010 Author By Scott Wolfe Jr        

I spent a great deal of time over the past five years working hard to provide the Louisiana building industry with a comprehensive construction law resource.   The by-products of that work is this blog, along with our topic and location specific blogs:  Louisiana Construction Law Blog, the Louisiana Green Building Law Blog, and the Chinese Drywall Blog.

But, of course, I’m not the only game in town.   And I couldn’t possibly be.   There are tons of other great blogs and resources out there for folks to stay abreast on construction law issues.   In fact, I subscribe to all of these blogs and resources and get a lot of information from them.

Here are some of my favorites:

-  Louisiana Law Blog.   Not updated often, but whenever something is posted, it’s something worth reading.   Published by the KeanMiller firm, the only downside here is that the posts aren’t always about construction law issues.   It’s more of a general blog that touches on construction law issues.

- Louisiana Construction Law Blog on Blogspot.  Aside form our firm, this is the only other firm that blogs exclusively about Louisiana Construction Law.   Their blog, while new, is also very resourceful, and they are doing a great job of blogginThis article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.g about issues that affect Louisiana contractors.

- Mike Purdy Public Contracting Blog.  Not a blog specifically about Louisiana issues, but there is plenty here that can help a Louisiana contractor who does public construction work.

- Shields Mott Lund Newsletters.   While not a blog, and a bit reminiscent of how newsletter content was disseminated by law firms in the 1980s, there’s no denying that once you find this information, it is good.

- Louisiana State Board of Contractors Announcements.   Not only is the board’s website a good place to find information on the state’s licensing requirements, but they also have an “announcements” page, where they sometimes alert folks to changes in the law that affect the construction industry.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

Posted in:     Around The Web  /  Tags: , , , , , , , , , ,   /   Leave a comment

Around the Web in Construction Law – May 21, 2010

On May 22, 2010 Author By Scott Wolfe Jr        
  • 29 States Add Construction Jobs Between March and April:    The Associated General Contractors of America released its report on the rise/fall of construction jobs around the country for the most recently reported month, and there is a mixture of good news and bad news (depending on where you are).   29 states splits the country directly in half, with some folks having a good month and some folks not.   The New Orleans City Business Blog chimed in to pass along word that Louisiana lost jobs during the period. Washington and Oregon gained jobs in the period, barely.   .01% and .02% respectively.
  • I subscribed to a new blog this week, Government Contracts Legal Forum, recently launched by Crowell Moring and focusing on….government contracting law.   Involved with this blog is our friend in green building law, Chris Cheatham, who works at Crowell Moring and will be posting on the new blog from time to time.   Chris runs the Green Building Law Update blog.   One of his firsts posts on the new blog points out an Obama Executive Order that will require more green building projects.
  • New Lead Based Paint, Renovation, Repair and Painting Rule is causing contractors to panic, as per Andrea Goldman’s Massachusetts Builders Law Blog.   Andrea has posted a great deal about the new RRP rules, and if you deal with lead-based paint in any way or you renovate homes or buildings with lead-based paint, you will want to pay attention to these important changes from the EPA.
  • Louisiana Construction Law Blog on Blogspot discusses “Initial Decision Makers” in construction projects.   While IDMs have been around for a while, there really became popular when the AIA incorporated the concept into its contract documents a few years ago.    This post from our friends up in Shreveport, Louisiana, offers a great primer on the concept.

Interested in more articles and blog posts around the web on construction law?   You can check out other articles I’ve shared over the past week on my Google Reader Shared Items Feed.

Posted in:     Around The Web  /  Tags: , , , , , , , , ,   /   Leave a comment