Tag Archives: North Carolina Construction Law

Rock the New Year With a Few Resolutions

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A new year is upon us, with decidedly tempered expectations for the national construction industry.  Indeed, a poll of ENR Southeast readers does not disclose much optimism for significantly increased construction activity in the region.

All the more reason to be as vigilant as ever in the coming year.  Here are a few suggested resolutions to assist you in navigating the choppy waters that may await in 2012:

(1)  Do not to treat partial lien waivers lightly.  There are potentially very real consequences in representing that payment in full, less retainage, has been received through a certain date — particularly if at the time the representation is made, claims for extra work or delay damage exist.

(2)  Before you sign, read each line.  Construction contracts are risk allocations that courts and arbitrators are loath to alter once executed.  You need to understand how the participant above you in the contractual chain is seeking to allocate risk before you sign and mobilize.

(3)  Beware the subcontract buyout process.  If a subcontractor’s price appears too good to be true, it probably is.  And the potential legal headaches on the back-end are likely not worth it.  In other words, qualifications matter.

(4)  Report claims that may be covered by an insurance policy in a timely manner.  When things go bump in the night, you don’t want to be left holding the bag when your carrier argues that it was prejudiced by a late notice of claim.

(5)  Tread very carefully before terminating someone for cause.  The law abhors a forfeiture, and courts and arbitrators are likely to ensure that each and every contractual condition precedent to termination has been satisfied before concluding that a termination was proper.

I resolve to making N.C. Construction Law, Policy & News a vital and timely resource for a growing audience of construction industry participants and their counsel here in the Old North State.  I’m still on the blawging learning curve, but the foundation has been laid, and I expect to come “out of the ground” strong in 2012.

Until my next post, Happy New Year!

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Filed under Feature story, Market Trends

COA: “No Damages For Delay” Clause Does Not Defeat Equitable Adjustment Clause

“Time is money.”  Sure, it’s an overused cliché.  But as construction industry participants know better than just about anyone else, there’s a whole lot of truth in those three simple words.  When projects run late, completion costs invariably rise, frequently resulting in the assertion of delay claims (and counterclaims.  And third-party claims.  And cross-claims … you get the picture).  “No damages for delay” clauses in construction contracts seek to manage loss exposure arising from delay by limiting a contractor’s remedy for delay to a time extension only.  A typical “no damages for delay” clause might read as follows:

The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays.  The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.~ Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)

Such clauses aren’t always enforceable.  In fact, under North Carolina statutory law, “no damages for delay” provisions are unenforceable in prime contracts between public owners and general contractors.  See N.C. Gen. Stat. § 143-134.3.  But in all other cases where such clauses are enforceable, do they provide an impenetrable defense against increased costs arising from project delay?  Not necessarily. Continue reading

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Filed under Delay Claims, Feature story, Material Cost Escalation, NC case law

Material Price Escalation Puts Contractors At Risk, But The Law Offers Little Reprieve (Part I)

According to AGC’s Chief Economist, Ken Simonson, construction material prices for the 12-month period from October 1, 2010 – September 30, 2011 increased 8.1%, while the prices charged by general contractors for non-residential construction increased between 2% – 3%.  In the AGC’s October 18, 2011 press release, Mr. Simonson was quoted as saying the following: “Feeble demand for construction is forcing contractors to absorb the bulk of materials price hikes, instead of passing them along to owners.  This pattern has persisted for more than two years, and many contractors are increasingly at risk of going under.”

The AGC’s press release reminded me of 2003-2006, when the price of steel in particular was going through the roof, driven to a large extent by international demand (I’m looking at you, China!).  While material cost escalation today may not be quite as dramatic as what the industry went through in the middle of the last decade, it does beg the question: what can the law do to help alleviate the pinch?

Short answer: not much.  Contractors resorting to common law contractual defenses (such as impossibility, impracticability and frustration of purpose) and contract provisions (such as force majeure clauses) have found little success shifting the risk of cost increases on fixed price contracts to project owners.  Part II of this series will discuss the limitations of existing law in obtaining judicial relief for material price increases.  Part III will discuss how to manage your risk in light of these limitations.

Stay tuned in the days ahead for more.

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Filed under Feature story, Material Cost Escalation

Challenge To Responsiveness Of Bid For Rocky Mount Project Falls Short — But Should It Have?

I just caught this article from the Rocky Mount Telegram regarding last Thursday’s decision by the Rocky Mount City Council to award the $6.1 million Downtown Streetscape project to the apparent low bidder, T.A. Loving Construction Co., despite an objection from the third-low bidder, PLT Construction, that T.A. Loving’s bid was non-responsive.

At issue was T.A. Loving’s inclusion in its bid of a light fixture that did not comply with the project specifications and for which T.A. Loving failed to obtain pre-bid approval as required by the bidding instructions.  Although the City Council initially considered re-bidding the project, it ultimately awarded the project to T.A. Loving, requiring in exchange that the contractor install spec-compliant light poles at the reduced price for the fixtures recited in its non-compliant bid.

The Telegram’s story suggests this arrangement will save the City of Rocky Mount $138,000 on the light fixture component of the project — i.e., more than 2% of the total value of the contract to be awarded.   Simply put, not a bad deal for the City.  But what about for the larger North Carolina contracting community?  I have my doubts.

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Filed under Bid Protests, Local law, policy & news

COA: Transfer of Account May Result in Payment Guarantee

In an unpublished decision released this past Tuesday, the N.C. Court of Appeals (“COA”) has construed a letter by an electrical subcontractor announcing its transition from a corporate entity to a limited liability company as a guarantee of obligations incurred by the corporate predecessor.  The letter announced as follows:

Let it be known that on the 8th Day of September, 2006 WielTech Electric Company became a manager-managed Limited Liability Company between organizers Benjamin Joseph Wieland and Jennifer Dawn Fortenberry.  From this date forward any and all business transactions, accounts or any other business relationship formed for WielTech Electric Co. by Tony C. Height, Catherine Robertson or any other person shall be transferred wholly into the newly formed LLC and the two individual organizers.

A supplier of WielTech sued the successor entity, its managers and others for past due invoices owed by WielTech.  The supplier  argued that the announcement letter constituted a personal guarantee satisfying North Carolina’s statute of frauds.  For the non-lawyers who may be reading this, the “statute of frauds,” codified at NCGS c. 22-1 (2009), requires a “special promise to answer the debt … of another person” to be in writing.  The successor entity and its managers defended the lawsuit on the grounds that the letter was too ambiguous to serve as a “special promise” to answer for the debts of the predecessor.  The COA sided with the supplier, holding that the language in the announcement letter stating that all accounts “shall be transferred wholly” to the individual organizers constituted a payment guarantee satisfying the statute of frauds.

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I don’t want to speculate too much about the motivations of the organizers of the successor LLC in the WielTech decision, other than to say that based on an affidavit I have read in the record on appeal, WielTech and its principals may have been maneuvering to salvage their business after being stiffed by a bankrupt general contractor to the tune of just under $200,000.   In any event, and to the extent the WielTech folks were attempting to wrap-up the business affairs of one corporate entity and transfer assets to another entity without also assuming the obligations of the predecessor, suffice to say, mission most definitely not accomplished.

The takeaway?  In an environment where getting paid for labor provided and materials furnished isn’t getting any easier, creditors and their attorneys will aggressively utilize all legal remedies available to them — piercing the corporate veil, successor liability theories such as the “mere continuation” doctrine, personal guarantees, the Uniform Fraudulent Transfer Act, etc. — to track down sources of potential recovery.  To those trying to avoid payment obligations, caveat scriptor.    That letter you want to send to retain your customer base in the midst of a corporate transition might say a whole lot more than you think.

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Filed under NC case law, Payment for Goods and Services

High Speed Rail Through Raleigh: Light At The End Of The Tunnel?

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As reported in today’s News & Observer, a public hearing was held yesterday at the Raleigh Convention Center to unveil the latest option for siting a high-speed rail line through Raleigh.  The new route unveiled by N.C. DOT engineers, dubbed “NC5,” would feature a 700-foot bridge over Capital Boulevard between Peace and Wade Avenues.  Despite adding a reported $32 million in construction costs to the 3.4-mile segment of the line between Hargett Street and Whitaker Mill Road, the latest proposal appears to be drawing some favorable reviews from interested Raleigh residents, according to the N&O.

Additional information regarding the proposed Southeast High Speed Rail Corridor from Washington, D.C. to Charlotte can be found here.

9/30/2011 Update:  North Carolina has been awarded a $4 million grant by the U.S. Department of Transporation for environmental and design work for constructing a high-speed rail connection between Raleigh and Richmond; the Department’s press release is here.

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Filed under Federal law, policy & news, Local law, policy & news, State law, policy & news

OBX Bridge Replacement Project Finds Itself Mired In Litigation

While construction crews continued making steady progress repairing the damage Hurricane Irene inflicted upon Route 12 in the Outer Banks in late August (updates can be found here and here), lawyers for the N.C. Department of Transportation were busy responding to a complaint filed by two national non-profit organizations seeking to put the kibosh on the State’s current plan for replacing the Herbert C. Bonner Bridge, which spans the Oregon Inlet and connects Hatteras Island with the rest of the Outer Banks.

Plaintiffs Defenders of Wildlife and the National Wildlife Refuge Association filed their Complaint on July 1, 2011 alleging, among other things, that NCDOT violated various federal environmental laws in failing to “rigorously explore and objectively evaluate” alternatives to the bridge’s replacement, including a “no action” alternative that would scrap the bridge entirely in favor of utilizing high-speed ferries.   NCDOT lawyers answered the Complaint on September 6, denying that the Department violated any federal laws and asserting that Plaintiffs had failed to state a claim against NCDOT upon which relief could be granted.  Both the Complaint and the Answer are posted on NCDOT’s “Bonner Bridge Repair and Replacement Projects” webpage.  Additional coverage by the North Beach Sun can be found here.

Incidentally, the replacement project went out to bid between the filing of the Complaint and the filing of the Answer.   Specifically, in late July, NCDOT awarded a $215.8 million contract to the design-build team of PCL Civil Constructors Inc. and HDR Engineering Inc. of the Carolinas; the Department’s press release can be found here.

As of the date of this blog post, the Plaintiffs had not sought any preliminary injunctive relief to stop the design process in its tracks.  I’ll keep my eye out for developments in the litigation and keep you posted as this matter unfolds.

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