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Nobody likes being blamed for somebody else’s mistake. Worse still is shouldering the financial burden on account of another’s wrongdoing.
Yet that’s precisely the position many contractors and subs find themselves in as the result of the presence of an indemnity clauses in their construction contracts.
To my way of thinking, it is fundamentally unfair to shift the entire risk of one’s own negligence to another party. As my Twitter feed has revealed over the last week or so, the state legislatures in Missouri and Minnesota are in the process of wrestling with that unfairness:
The good news for North Carolina contractors is that the Tar Heel State has a statute on the books preventing one party from shifting the entire risk of its own negligence to another.
While the conservative approach is to rely on an experienced construction attorney to serve preliminary lien and bond notices for North Carolina construction projects, there are many subs and suppliers who prefer the DIY approach. I’m sure many of you do-it-yourselfers already rely on these web-based tools for facilitating your preliminary notices, but just in case, here are my three favorites:
Prepare to hold onto your 2012 North Carolina Building Code until 2019.
On March 11, 2014, the N.C. Building Code Council voted to update the commercial building code once every six years, instead of once every three years under current regulations. The six-year commercial code cycle now mirrors the update schedule for the residential code, which was changed to a six-year cycle by House Bill 120, signed into law by Governor McCrory on June 19, 2013.
As an exception to the new six-year rule for commercial buildings, the electrical code will continue to be updated on a three-year cycle.
The Council’s vote to place the commercial code update on a parallel track with the residential code’s six-year cycle was close: 9-6. Why such a sharp split?
With last year’s passage of House Bill 857 in the North Carolina General Assembly, public contracting agencies in the Tar Heel State have no shortage of project delivery methods from which to choose. From design-bid-build to construction management at-risk, design-build, design-build bridging and P3s, our state statutes now authorize a veritable cornucopia of options for procuring public construction contracts.
But the following tweet from ENR’s Tom Sawyer earlier this week got me wondering: is the state overlooking another viable procurement option?
North Carolina’s House Committee on Mechanics’ Liens and Leasehold Improvements gathered for the third of four scheduled meetings last Friday, March 7. Up for discussion were two legislative proposals: one that would strengthen liens on leaseholds, and one with the potential to weaken the “direct liability” or “wrongful payment” liens of subcontractors and suppliers.
Progress was made on both proposals, but with the Committee scheduled to meet for the last time and issue its recommendations on April 7, the clock is ticking on what might be accomplished during the legislative short session convening in May.
Here’s what you need to know about where things stand and what happens next:
If I were to tell you that unforeseen subsurface conditions — for example, wetter-than-expected soils requiring a change to a building’s foundation — resulted in a substantial cost-overrun on a publicly bid project, you’d probably say, “that’s lousy news.” In the context of that one project, I’d have to agree with you; unexpected cost increases can create uncomfortable financial, PR and political pressures for a public project’s participants, not to mention unwelcome additional costs for John Q. & Jane Q. Taxpayer.
But what if I told you that the contractor’s entitlement to increased compensation on that one project would ultimately save the government much more money on future projects? “Sounds great,” you might respond, “but I don’t believe in fairy tales.”
You don’t have to. You just have to believe in the differing site conditions (“DSC”) clause.
UPDATE 3/11/14 7:00 p.m. I just received word that the N.C. Land Title Association believes it needs more time to explain to other construction industry stakeholders the concerns giving rise to its legislative proposals. As a result, NCLTA has decided not to pursue its current proposals as part of the legislative study committee’s recommendations for legislation during the upcoming short session. NCLTA will seek to discuss its concerns with interested stakeholders over the next few months in the hope of reaching a consensus on solutions that can be recommended as legislation during the 2015 long session. In the interim, I am leaving this post up for informational purposes only.
With apologies to Yogi Berra, it’s déjà vu all over again.
Like in 2012, when the N.C. Land Title Association (“NCLTA”) successfully guided lien agent legislation through the North Carolina General Assembly’s short session, the organization is once again promoting a policy proposal widely opposed by the contracting community in advance of the Legislature’s May reconvening for its abbreviated 2014 get-together.
This time, the NCLTA has the Claim of Lien Upon Funds in its sights.
Here’s what you need to know:
To limit the risk of litigating in multiple jurisdictions, regional and national prime contractors usually seek to centralize dispute resolution by including a forum selection clause in their subcontracts. But some states, North Carolina included, have statutes on the books declaring such clauses unenforceable as against public policy. See N.C. Gen. Stat. §§ 22B-2, 3. The legislatures in states like North Carolina apparently have concluded that subs should be able to litigate in the state in which the project is being built. While that public policy is no doubt embraced by local subs, it might irk primes who perform work across state lines.
Which begs this question: can prime contractors circumvent such anti-forum selection statutes and ensure home field advantage when litigating against first-tier subcontractors?
The House Committee on Mechanics’ Liens and Leasehold Improvements of the N.C. General Assembly reconvenes at 1:00 p.m. on Monday, March 3. Now that the Committee has spent its first two of four meetings considering the pros and cons of potential legislative action, the expectation is that its members will turn their focus to considering actual legislative proposals next week.
Contractors and suppliers are likely to push for legislation extending liens on leaseholds to the underlying “fee simple” ownership interest of landlords in virtually all circumstances, while commercial realty and banking interests are likely to ask the General Assembly to do nothing. You can read more about these polar opposite approaches in my previous liens-on-leasehold blog posts here and here, respectively; a white paper from the N.C. Subcontractors Alliance, Inc., embracing an expansive approach to contractor protection, can be found here.
Between these poles, might a middle ground be found?
In an unpublished February 18, 2014 decision, the North Carolina Court of Appeals (“COA”) refused to let a project owner pursue drastically higher lost profit damages after its counterclaim had been tried, appealed and remanded for further findings on the issue of damages.
Image by Nemo / pixabay.com
In J.T. Russell & Sons, Inc. v. Silver Birch Bond, LLC, the owner, Silver Birch Pond (“SBP”), was the developer of a subdivision that had hired a paving company to perform the project’s asphalt paving work for about $150,000. SBP refused to pay for the work, citing deficiencies in the contractor’s performance. At trial, SBP successfully defeated the contractor’s claim for payment and prevailed on its own counterclaim for construction defects, but on appeal, the contractor successfully argued that the jury’s award of damages wasn’t fully supported by the evidence. The COA agreed, sending the case back to the trial level for further findings of fact on various damages issues.
That’s when SBP tried to up the ante on its alleged lost profit damages.