Dates to Remember
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TEN STEPS (PLUS ONE) TO MINIMIZE YOUR RISK –
STEPS 1 THROUGH 5:
There are many practical ways that a contractor or vendor can reduce its risk in the construction industry. Following are the first five in a series of eleven that are most recommended:
1. Condition your bid. If your bid is based upon certain assumptions, facts, or conditions, the bid should say so. For instance, if your bid price is based upon material pricing that is subject to fluctuation, the bid should be conditioned on acceptance of the bid within a specified time, or is subject to acceptance so long as the price of such material does not increase by greater than 3%. It is also recommended that you condition your bid on contract language consistent with your bid and otherwise acceptable to you.
2. Reevaluate the terms of your standard form contract. Frequently contractors continue to use standard form contracts or terms and conditions that have served them well for many years, but are woefully out of date relative to changes in the law. Whether changes in the law occur by statute or court decision, those changes can significantly affect the validity of your contract or important terms and conditions in it. If your standard form contract, or the terms and conditions you rely on when contracting with others, have not been thoroughly examined in the past two years for compliance with current law, it is recommended that such an examination be performed. There are several recent changes in the law that may impact your form documents. Even if there aren’t, you will likely have a tighter version of your documents after the examination than you have now.
3. Forward contracts to your insurance consultant. Many contracts in the construction industry contain specific insurance requirements. Failure to comply with those requirements can result in your breach of the contract or your suffering an uninsured loss. Similarly, inadequate or omitted insurance requirements in your own form contracts can result in the risk of uninsured or underinsured claims. To minimize these risks, it is recommended that you forward any contract containing insurance provisions, including your own contracts, for review and comment by your insurance carrier or consultant. Through that process any missing or inadequate coverage can be identified and addressed before you enter into a contract that puts you at risk.
4. Mind the notice requirements in your contracts. Many contracts in the construction industry also contain notice provisions, e.g. change orders, claims, and differing conditions. Such provisions typically identify when notice is to be given, to whom notice is to be given, what notice is to be given about, and the time period within which notice is to be given. In most jurisdictions, including Oklahoma, notice provisions in contracts are strictly enforced. Unfortunately, in practice, strict compliance with those provisions is frequently ignored or not taken seriously. The purpose of these provisions is to avoid surprises and allow the party notified to determine how it wishes to respond to the subject matter of the notice. By giving notice in strict accordance with the requirements of the contract you eliminate one excuse (defense) the party being notified can later rely on to deny your request for additional compensation.
5. Protect and exercise your lien rights. In Oklahoma, a pre-lien notice is required as a prerequisite to preserving the lien rights of any contractor or vendor that does not have a direct contractual relationship with the property owner. The pre-lien notice for commercial projects (all but single family and multi-family residential) only reaches back to include costs incurred during the 75 days preceding delivery of the pre-lien notice. Pre-lien notice is also required with respect to owner-occupied dwellings. It must be given in writing before work by the lien claimant begins. The effectiveness of either type of pre-lien notice is dependent on compliance with the pre-lien notice statutes. It is therefore, recommended that the advice of an attorney be obtained to ensure compliance.
The remaining six tips will be included in the next edition of the Construction Law Resource.
By Steven K. Metcalf, Chair Construction Law Group
OKLAHOMA’S PRE-LIEN NOTICE REQUIREMENTS
Since 2001, subcontractors and vendors on non-residential construction projects in Oklahoma have been required to send a pre-lien notice in order to protect their lien rights. However, many subcontractors remain unaware of this requirement or do not fully understand the implications of the law. Failure of subcontractors or vendors to send proper and timely pre-lien notice, in most situations, prevents such subcontractors and vendors from filing valid and enforceable liens that cover the entirety of their claims. Following is a summary of the pre-lien notice requirements:
What is a Pre-Lien Notice?
Generally speaking, a pre-lien notice is a notice sent to the owner and the “original contractor” (the contractor who has a contract with the owner, usually a GC). A pre-lien notice informs the owner and original contractor that the subcontractor or vendor has lien claims against the owner’s property arising from work performed or materials or equipment furnished on such property. Oklahoma law requires that the pre-lien notice contain: (1) a statement that the notice is a pre-lien notice; (2) the name, address and telephone number of the lien claimant; (3) the date of supply of materials, labor, services or equipment; (4) a description of the materials, labor, services or equipment; (5) the name and address of the person or entity who requested that the material, labor, services or equipment be furnished; (6) the address or legal description of the property upon which the materials, labor, services or equipment were furnished; (7) a statement that the material, labor, services or equipment exceeds $2,500; and (8) the signature of the lien clamant.
If you intend to send a pre-lien notice yourself (as opposed to engaging a qualified attorney to send it for you) it is well worth your money to have an attorney draft a fill-in-the-blank pre-lien notice letter for your use, or to review and modify, if necessary, the form you are currently using or intend to use.
Who, How, When and How Many?
Do the pre-lien notice requirements apply to you? The simple test in Oklahoma is to first ask whether you have a contract with the owner. If you do not, you are a subcontractor or vendor and the pre-lien notice requirements may apply to you. Next ask: Is the project a single family residence or a residence of four or fewer dwelling units? If yes, the pre-lien notice statute does not apply. If no, the pre-lien notice statute may apply. Next ask: Is the amount of work performed or to be performed less than $2,500? If yes, the pre-lien notice statute does not apply. If no, the pre-lien notice statute may apply. Next ask: Is my claim for retainage only? If yes, the pre-lien notice statute does not apply. If no, the pre-lien notice statute may apply. Anyone who has a contract with someone other than the owner has to conduct the foregoing evaluation to determine whether a pre-lien notice should be sent to protect its lien rights.
A pre-lien notice should be delivered by either hand delivery (supported by a delivery receipt), facsimile (supported by a facsimile confirmation sheet), or certified mail, return receipt requested. My belt-and-suspenders advice is to use two of the foregoing methods of delivery.
Pre-lien notice must be sent no later than 75 days after the first date of supply of material, labor, services or equipment that the claimant wants protected by a lien claim and before recording the lien. Note: Subcontractors must record their lien within 90 days of the date they last furnish materials, labor, services of equipment. The timing of delivery of a pre-lien notice is crucial. A pre-lien notice will only protect amounts earned for work performed on the project during the 75 days before the notice is delivered. In other words, if a subcontractor sends a pre-lien notice on day 100, its lien will not be effective to protect claims for work performed during days 1 through 25. My advice is to send a pre-lien notice with your first application for payment or first invoice, assuming such is delivered for payment prior to 75 days after the first supply of labor, materials, equipment or services.
The pre-lien notice statute provide that a subcontractor (or vendor) need only send one pre-lien notice on a project. In other words, once a subcontractor (or vendor) sends a pre-lien notice on a project, it is not required to send a second pre-lien notice to protect work performed after the first notice is sent.
The pre-lien notice requirements discussed above do not apply to projects involving owner-occupied dwellings. Oklahoma law provides a different set of pre-lien notice requirements for subcontractors, vendors, and general contractors who wish to protect their lien rights on property that includes a presently occupied dwelling. While these “owner-occupied dwelling” requirements are beyond the scope of this article, it is important to note that with respect to owner-occupied dwellings, Oklahoma law requires the notice be provided prior to or contemporaneously with the first furnishing of materials, labor, services or equipment by the lien claimant on these types of projects.
Sending a pre-lien notice does not create a lien for the subcontractor or vendor, and does not perfect such a lien. A pre-lien notice is merely the required first step that a subcontractor or vendor must take in order to perfect a valid and enforceable lien. If you are a subcontractor or vendor and have questions about pre-lien notice or lien rights generally, or you need assistance in preparing a pre-lien notice or lien statement, we would be happy to help.
By William Hayden Spitler, email@example.com
FALSIFYING SAFETY REPORTS DOES NOT PAY
A Tennessee Valley Authority contractor recently agreed to pay $6.2 million to settle charges it falsified safety records and failed to maintain required safety logs. The contractor’s actions (or lack of action) was apparently driven by its effort to earn safety related performance-based fees under its $1 billion contract with the TVA. In addition to the settlement payment, the contractor was also required to enter into a two year agreement imposing corporate integrity and monitoring standards meant to demonstrate the contractor’s compliance with TVA policies and directives related to the agreement. Investigation of the individuals involved in falsifying the safety reports is ongoing.
By Steven K. Metcalf, Chair Construction Law Group
FORCE MAJEURE DOES NOT SHIELD CONTRACTOR FROM LIQUIDATED DAMAGES RESULTING FROM ITS SUPPLIER’S DELAY IN DELIVERY
Many construction contracts contain a force majeure clause. This clause typically allows a contractor (or subcontractor) more time to complete a project if exceptional circumstances (such as acts of God, floods, fires, weather, etc.) that are beyond the control of the contractor cause delay in completion of the work. As a result, when claims for liquidated damages arise, those against whom such claims are asserted frequently argue that the delay in completion was the result of force majeure events over which they had no control. The 10th Circuit Court of Appeals (which has jurisdiction over federal claims arising in the state of Oklahoma) recently addressed the issue of force majeure in the context of a contractor’s claim that delay in delivery of material by its supplier was an event of force majeure that shielded it from claims for liquidated damages by the owner.
Hutton Contracting Company, Inc. contracted with the City of Coffeyville, Kansas, to construct a power line and fiber optic line. The contract included a 45-day completion deadline, a $500 per day liquidated damages provision, and a force majeure clause. When Hutton received the steel utility poles from its supplier, it noticed some of the poles were defective. It requested a 30-day extension of the completion deadline to permit replacement of the poles. The City’s engineer denied Hutton’s request for extension of time. Hutton completed the project and submitted its final billing to the City. The City refused to pay Hutton’s contract retainage in the amount of $110,159.47, arguing that such sum was subject to a setoff to cover the liquidated damages resulting from Hutton’s delayed completion of the project. Hutton sued the City for its retainage claiming that it was shielded from liquidated damages liability by the force majeure clause in the contract, citing its supplier’s failure to timely deliver the steel utility poles.
At trial, the United States District Court determined that the force majeure clause did not excuse Hutton for delays caused by late delivery of steel utility poles by its supplier. The Court held that Hutton’s problems with its supplier were, in part, Hutton’s fault because Hutton made the decision to contract with the particular supplier and assumed the risk the supplier would not perform.
Hutton appealed the District Court’s ruling to the 10th Circuit Court of Appeals. The appeals court rejected Hutton’s contention that the force majeure clause excused it from delay in completion caused by its supplier’s failure to deliver products of proper quality to the project on a timely basis. Though Hutton argued that delays caused by its supplier’s untimely delivery were not its fault and were beyond its control, the appeals court found that the delay to timely project completion caused by the supplier was not itself a force majeure event, and there had been no evidence that the supplier’s delay itself was caused by a force majeure event. The court concluded that Hutton was responsible to the City for timely completion of the project and was not relieved of such responsibility by delegating timely delivery of the steel utility poles to the supplier. Instead, the court held, Hutton assumed the risk that the supplier would fail to timely deliver the poles to the project, thus resulting in delayed completion, and in so doing, was partially at fault for such untimely delivery. Consequently, Hutton could not be shielded from liquidated damages liability to the City by the force majeure clause in its contract.
The moral of the story for contractors is – if you have a liquidated damages provision in your contract with the owner or general contractor, make sure that such liquidated damages liability is included in the contracts you execute with downstream contractors and suppliers. Conversely, the moral of the story for suppliers and subcontractors is – be very careful when agreeing to contract terms that bind you to liquidated damages provisions that have been agreed to by the upstream entities with whom you have contracted. This is particularly important because liquidated damages provisions in upstream contracts frequently vest in the upstream contracting entity absolute discretion over how any liquidated damages it may be subject to are apportioned among its downstream contracting partners.
By Steven K. Metcalf, Chair Construction Law Group
Court enters order in favor of client Kmart Corporation on claims of race discrimination, retaliation, and violations of the FMLA
Ms. Lester sued her former employer Kmart Corporation alleging that she was subjected to racial discrimination and retaliation in her position as assistant manager, and that her discharge violated the Family and Medical Leave Act. Recently, as a result of motions filed by Kristen L. Brightmire on behalf of Kmart Corporation, Judge Payne entered judgment in favor of Kmart Corporation on all claims.
Doerner Saunders Welcomes Kenneth T. Short and Benjamin C. Perrine to the Firm
Kenneth T. Short received his Juris Doctor from The University of Kansas School of Law in Lawrence, Kansas with a Certificate in Advocacy. Mr. Short received a Bachelor of Arts degree in English from the University of Kansas. While in law school, Mr. Short served as a Staff Editor and then the Business Manager of the Kansas Journal of Law and Public Policy.
Benjamin C. Perrine received his Juris Doctor from The University of Oklahoma College of Law. He graduated from Villanova University with a Bachelor of Arts degree in History with a minor in English. While at The University of Oklahoma, Mr. Perrine served as the Managing Editor of the American Indian Law Review. He also worked as an extern to the Honorable Robin J. Cauthron of United States District Court for the Western District of Oklahoma.
You can reach Ken at firstname.lastname@example.org and Ben at email@example.com.
Dates to Remember
Calendar of notable events
October 16, 2009
Jim Milton will serve as a panelist at the Oklahoma Municipal League and Oklahoma Municipal Utility Providers' Water & Environment Summit. Mr. Milton's topic is "Rural Water Issues and Contracting Update." More information can be found here.
November 5, 2009
Courtney Bru will be a feature presenter at the Tulsa Area Human Resources Association Annual Employment Law and Practices Seminar held at the Tulsa Renaissance Hotel and Convention Center. Ms. Bru will speak on Record Retention. For more information, click here.
November 11, 2009
Elise Dunitz Brennan will be speaking at the Oklahoma Association of Health Care Providers Owners’ Meeting. She will provide an Overview of the Oklahoma Comprehensive Lawsuit Reform Act of 2009 as it applies to long term care facilities. For more information or to register, please contact Connie Cook, firstname.lastname@example.org or click here.
November 12, 2009
Tom Q. Ferguson will be speaking on strategic and ethical considerations involved with preserving, finding, and producing electronic documents in litigation. The seminar, titled E-Discovery: Searching the Virtual File Cabinets, will be held at the Tulsa Doubletree Hotel Downtown. For more information, or to register, click here.
November 17, 2009
Jim Milton will be a speaker at the Tulsa County Bar Association's continuing education seminar on "Municipal Nuggets." Mr. Milton's topic is Water Contracts and Water Rights from the Municipal Perspective. More information can be found here.
November 18, 2009
Hilary L. Velandia and James R. Bullard will present a free audio conference on involuntary discharge of residents in skilled nursing facilities, nursing facilities, assisted living centers, and independent living centers. The audio conference will cover the administrative and litigation procedures involved when the need for involuntary discharge may arise, whether it be due to the need for a higher level of care or payment issues. You can also ask questions, but space is limited. For more information or to reserve a space, please email Anna at email@example.com.
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