Category Archives: Subcontractors

Your Forum Selection Clause Might Not Be As Strong As You Think It Is

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Last week, I blogged about the Southeast Caissons, LLC v. Choate Construction Company case, in which the North Carolina Court of Appeals held that a general contractor could not enforce a forum selection clause in a subcontract that was never signed.

And now, the rest of the story (with apologies to Paul Harvey).

Even if the subcontract HAD been signed, the forum selection clause would not have accomplished the general contractor’s goal of having all disputes resolved in the Wake County Superior Court.  You might find that ruling surprising after reading the following excerpt from the decision:

The subcontract also contained a clause in Article X, Section 3(b) entitled “Additional Dispute Resolution Provisions.”  This clause stated: “Venue for any arbitration, settlement meetings or any subsequent litigation whatsoever shall be in the city of Contractor’s office as shown on page 1 of the Subcontract.”  [The GC’s] office was shown on page 1 of the subcontract as being located in Raleigh, Wake County, North Carolina.

Huh?  A clause stating that disputes “shall” be resolved in a particular location is not sufficient to require dispute resolution in that locale?

That’s right, folks!  In order for one party to secure home field advantage in construction dispute resolution, North Carolina’s appellate courts consistently require that the applicable forum selection clause contain words like “exclusive,” “sole” or “only” to indicate that both parties intended to make jurisdiction exclusive in a certain place.   That means the GC in Southeast Caissons could only require its sub to litigate in Wake County if the forum selection clause had read something like this: “The parties agree that Wake County, North Carolina shall be the sole and exclusive venue for the resolution of any and all disputes arising out of or related in any way to this Subcontract.”  (And, of course, if the GC had secured its sub’s John Hancock on the subcontract’s signature page — per my previous blog post).

Bottom line?  If you use a form subcontract that includes a forum selection clause, you might want to review it and make sure it includes magic words like “exclusive,” “sole” or “only” in describing where venue is proper.  Better still, have your construction attorney review your forum selection clause and evaluate whether it’s likely to be enforced as you intend it to be.

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Filed under Forum Selection Clauses, State law, policy & news, Subcontractors

The Subcontract’s Unsigned, the Work is Complete and a Dispute Has Arisen — Now What?

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In order for an agreement to constitute a valid contract that courts or arbitrators will enforce, both parties to the agreement must mutually assent to all of the terms of the deal.  The fancy Latin term for this mutuality requirement is “aggregatio mentium;” we Americans call it a “meeting of the minds.”  And as between general contractors and subcontractors in the construction industry, the signatures of the parties typically signify their mutual intent to be bound.

But what if the subcontract isn’t signed, and the parties proceed with performance of the underlying scope anyway?

That’s the conundrum the North Carolina Court of Appeals (“COA”) confronted in its April 19, 2016 decision in Southeast Caissons, LLC v. Choate Construction Company.

The general contractor and caisson subcontractor in that case went back and forth repeatedly on various drafts of a written subcontract.  The sub’s scope was commenced — and completed about three months later — without a final deal being reached on all terms.

When the subcontractor wasn’t paid, it sued for breach of contract (among other claims) in the Forsyth County Superior Court.  The unsigned subcontract called for dispute resolution in Wake County, prompting the general contractor to move for dismissal of the sub’s suit or, in the alternative, a change in venue.  The trial court determined that the subcontractor was not bound by the unsigned subcontract, and that venue was proper in Forsyth County.  The GC appealed.

In affirming the trial court’s Order, the COA relied on the rule that the absence of a signed, written instrument is evidence of the parties’ intentions not to be bound by the proposed contract.  On  the rights set of facts, that evidence could be outweighed by other evidence demonstrating that both parties accepted and acted upon the unsigned terms.  That wasn’t the case in Southeast Caissons, however — to the contrary, the COA concluded that virtually all of the evidence suggested that the parties never achieved a “meeting of the minds” on all of the subcontract’s terms.

Does that mean no deal existed between the GC and the sub?  Not necessarily.  The COA remanded the case back to the trial court for a determination of whether a contract “implied-in-fact” existed between the parties by virtue of their actions.  Even in the absence of a contract implied-in-fact, the subcontractor might still prevail on its payment claim under an equitable quantum meruit (i.e., unjust enrichment) claim for relief.

The takeaway?  Southeast Caissons makes it clear that general contractors seeking to utilize their standard subcontract forms should insist upon a signed agreement before permitting work to begin.  Allowing your subcontractor to proceed with its scope without first obtaining its “John Hancock” risks losing the benefits of those favorable subcontract terms your construction attorney spent so long drafting for you.

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Filed under Construction Risk Management, Forum Selection Clauses, Local law, policy & news, NC case law, State law, State law, policy & news, Subcontractors

Paying Twice For the Same Work is Horrendous. What Can You Do About It in North Carolina?

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If you’re a prime contractor on a private, commercial construction project, your contract with the owner likely includes a provision requiring you to bond off or otherwise dispose of real property liens filed by your subs & suppliers.  And if you’re a prime contractor on a bonded public project, the agreement of indemnity between you and your bonding company makes you ultimately responsible for any bond claim the surety might pay.

Either way, you’re exposed to financial loss arising from the lien & bond claims of second-tier and more remote subs & suppliers, even if you faithfully pay your first-tier subs each and every time payment is due.

So what can you do about the risk of double payment in North Carolina?

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Filed under Lien Law, Payment Bonds, Subcontractors

Courts Generally Will Enforce North Carolina’s Anti-Indemnity Statute, But How Far?

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Back in March, I wrote about the role of North Carolina’s anti-indemnity statute in the construction industry.  The statute, codified at N.C. Gen Stat. § 22B-1, appears below (you can click the image for a larger version):

Anti-Indemnity Statute

As my previous blog post indicated, the statute prevents “one party from shifting the entire risk of its own negligence to another.”  A recent case from the U.S. Bankruptcy Court for the Eastern District of North Carolina demonstrates how courts utilize the so-called “blue pencil” doctrine to accomplish that goal.

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Filed under Federal case law, Indemnity Claims, State law, policy & news, Subcontractors

Subcontract Negotiation Is a Question of Leverage. Leverage Is a Function Of . . .

Embed from Getty ImagesTwo tweets touching upon subcontract negotiation dynamics jumped out at me this week.  The first was from zlien founder Scott Wolfe, Jr., who linked to his recent blog post about general contractors who demand that their subcontractors sign away their lien rights:

Money quote from the post:

General contractors scream that relationships are important, but really, it’s relationships on their terms.  …  In reality, however, the subcontractor is likely feeling a bit abused.  They accommodate because of the general contractor’s influence and contracting power.

The second tweet was from good friend and Virginia construction attorney Chris Hill, who linked to fellow Virginia attorney Juanita F. Ferguson’s piece discussing (among other things) forum selection clauses in subcontracts between out-of-state prime contractors and local subs:

Money quote from the post: “local contractors must be savvy in negotiating contracts with out-of-state companies.”

Which, in turn, begs the Friday Forum money question:

What factors impact the relative bargaining power of primes and subs when it’s time to make a deal?

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Filed under Construction Risk Management, Contract Review & Negotiation, Forum Selection Clauses, Subcontractors

N.C. Construction Industry First Fractures, Then Coalesces, Around Prequalification Legislation

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By a whopping 116-0 margin, the N.C. House of Representatives yesterday passed House Bill 1043 (“HB 1043”), aimed at bringing objectivity and uniformity to the prequalification of contractors on public construction projects in the Tar Heel State.

Don’t let yesterday’s vote tally deceive you, however; the legislation was not without its share of controversy.

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Filed under Construction Management, Project Delivery Systems, State law, policy & news, Subcontractors

Bound, But Determined: How Subs Might Evade Terms Binding Them to Decisions of Architects

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It’s typical for subcontracts to include a clause binding the subcontractor to the decisions of the project architect.  Such terms help general contractors and construction managers at-risk avoid obligations to subs below that can’t be passed through to owners above.  That’s a sensible and enforceable risk allocation most of the time.

But not all of the time.

Sometimes, the architect doesn’t play fairly.  Sometimes, the prime contractor fights hard for itself, but not hard enough for its subs.  And sometimes, a statute might provide a remedy when the subcontract does not.

On such occasions, as discussed below, subcontractors might avail themselves of an escape hatch:

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Filed under Change Orders, Delay Claims, NC case law, Subcontractors

Why Yesterday’s 4th Circuit Lien Law Decision Is a Mammoth Victory for Contractors & Suppliers

Image by Shirley v. Pixabay.com

Image by Shirley via Pixabay.com

I was out-scooped yesterday by good friend and fellow Raleigh construction lawyer Brian Schoolman, who announced via Twitter that the Fourth Circuit Court of Appeals has approved the filing of North Carolina mechanics’ liens even after a party higher up in the contractual chain seeks bankruptcy protection:

I highly recommend clicking the link and reading Brian’s blog post.  It does a terrific job summarizing the Court’s rationale and discussing how CSSI puts the last nails in the coffins of the 2009 Shearin, Mammoth Grading and Harrelson Utilities decisions of a lower court that had reached the opposite result, before subsequently reversing itself a few years later in CSSI, which the 4th Circuit has now affirmed.  (For additional legal context, check out my previous blog post on the Mammoth Grading and Harrelson Utilities cases.).

I write today to emphasize how important the 4th Circuit’s CSSI decision is to your construction business.  Specifically, I write to answer this question: Why does having the right to file a mechanics’ lien, after the party immediately above you in the contractual chain seeks bankruptcy protection, matter?

Here’s why:

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Filed under Federal case law, Federal law, policy & news, Lien Law, State law, policy & news, Subcontractors

N.C. Business Court: Online Lien Filing Service Engaged in Unauthorized Practice of Law

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Screen shot of Lienguard, Inc.’s home page on April 9, 2014. Click image to explore the site.

In a decision likely to impact out-of-state suppliers furnishing materials to North Carolina construction projects, the North Carolina Business Court ruled on April 4, 2014 that Lienguard, Inc., an online mechanics’ lien filing service, engaged in the unauthorized practice of law by preparing liens for others without first acquiring a license to practice law in the Old North State.

In The North Carolina State Bar v. Lienguard, Inc., Judge Jim Gale declared that Lienguard violated North Carolina’s statutes governing the licensure of attorneys (Chapter 84 of the N.C. General Statutes) by preparing liens, providing advice about liens and holding out that it was competent to file liens in North Carolina, all without being licensed to do so.  Judge Gale also ruled that the State Bar was entitled to a permanent injunction prohibiting Lienguard from engaging in similar acts in the future, giving the parties 20 days to draft and submit an appropriate order for the Court’s consideration. Continue reading

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Filed under Lien Law, NC case law, State law, policy & news, Subcontractors

Prefer to Serve Your Own Lien & Bond Preliminary Notices? These Three Web Tools Can Help.

Wednesday WisdomWhile 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:

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Filed under Lien Law, Payment Bonds, State law, policy & news, Subcontractors, Technology