Happy new year, everybody, and for many of you, welcome to your first day of work in 2015. Now that the champagne toasts have been made, sundry objects have been dropped from cranes and some old acquaintances have been forgot, it’s time to get down to business. Serious business.
Specifically, the business of OSHA compliance.
In September 2013, I blogged about the decision of the North Carolina Court of Appeals (“COA”) in Christie v. Hartley Construction, Inc., which held that owners of an improvement to real property could not recover money damages under a supplier’s express 20-year warranty because the lawsuit was filed outside of North Carolina’s applicable six-year “statute of repose.” That statute, codified at N.C. Gen. Stat. § 1-50(a)(5), bars damages actions arising from improvements to real property asserted more than six years after substantial completion. The COA’s Christie decision effectively meant that the statute of repose trumped an express warranty of a longer duration.
As I mentioned in my prior blog post, however, one of three COA judges on the Christie panel dissented from the majority’s opinion, giving plaintiffs the right to appeal to the state’s Supreme Court. They did. And that Court reached the opposite conclusion of the COA majority, ruling that the protection provided by the six-year statute of repose could be waived without violating North Carolina public policy.
Let’s break down the North Carolina Supreme Court’s decision in Christie:
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When serious trouble befalls a bonded contractor, its surety might be called upon to shoulder significant risk both downstream (i.e., payment obligations to subs & suppliers) and upstream (i.e., performance obligations to the owner, if the bonded contractor is prime, or to the prime, if the bonded contractor is a sub).
Yet even when adversity strikes, sureties don’t expect to suffer a loss, as counter-intuitive as that might sound. That’s a feature of suretyship distinguishing it from insurance (for a handy, 1-page chart summarizing other distinctions, see page 6 of this 18-page surety primer by CNA Surety).
How do bonding companies seek to avoid losses on troubled construction projects? One of the most significant weapons in the surety’s loss-avoidance arsenal is the “general indemnity agreement” or GIA, an instrument that virtually every surety requires each bonded contractor, the contractor’s owners and the owners’ spouses to sign as a condition of surety credit extension. The GIA vests in the surety numerous rights and remedies against the corporate and individual indemnitors, which are typically triggered once trouble starts brewing.
Here are some of the key rights enjoyed by sureties under a typical GIA:
Image by Tingeling via Pixabay.com
Of all the great AEC content in the Twitterverse this week, the following chirp from Kansas City construction attorney Rob Pitkin (@KCconstrlawyer) really piqued my interest:
Rob’s tweet links to this article from Gary Rubin, a New York construction lawyer, about how to make arbitration more cost-effective. Gary discusses how parties can use the contract negotiation phase of their relationship to craft a better arbitration provision. He even suggests helpful language aimed at curtailing the duration of the hearings and the arbitrators’ authority to award certain types of damages.
All of which crystallized something I’ve been thinking about in recent years: arbitration is not a “one-size fits all” deal. While in theory arbitration presents construction industry stakeholders with an attractive alternative to the very public, very long and very expensive litigation process, in practice, arbitration procedures and costs often elude the parties’ control. These are by no means novel thoughts on my part; a number of other observers have raised similar concerns (see here and here for a couple examples).
Now for the good news.
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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?
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):
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.
If you’re a lower-tier subcontractor or supplier on a public construction project, it might be tempting to calendar your notice-of-claim deadline 90 days (in the case of federal Miller Act projects) or 120 days (in the case of North Carolina “Little Miller Act” projects) from your last furnishing of labor and materials, regardless the nature of that last furnishing.
Resist that temptation.
It overlooks a few simple but critical words recited in the federal Miller Act, as well as similar language contained in North Carolina’s Little Miller Act.
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In most cases, the “owner” of a tenant improvement project is NOT the record owner of the real property, but rather the tenant who entered into the contract for the improvement.
That distinction can be critical when perfecting and enforcing mechanics liens in North Carolina.
Take, for example, the fireproofing contractor who asserted a mechanics’ lien enforcement action against both the landlord and the tenant of a leased premises in yesterday’s unpublished Court of Appeals decision in Century Fire Protection, LLC v. Heirs.
Two 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?
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.