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Maryland Senate Bill 853 – General Contractors Now Liable for Ensuring Payment to Subcontractor Employees

As of October 1, 2018, General Contractors operating on construction services projects in Maryland are now potentially subject to additional liability under the “General Contractor Liability for Unpaid Wage Act” introduced through Maryland Senate Bill 853 (the “Act”).  Specifically, a general contractor may be jointly and severally liable for subcontractors’ failure to properly pay employees.  To make matters more complex, this applies to subcontractors who are not even in direct contractual privity with the general contractor and can arguably extend infinitely down the sub-subcontracting chain. Indeed, general contractors may now be liable for ensuring that every down-the-chain subcontractor on a project properly pays their employees in a manner consistent with Maryland wage and hour laws. This controversial law also contains both a multiplier and an attorneys’ fees provision.  Specifically, if a subcontractor fails to pay an employee in accordance with Maryland’s wage and hour laws, both the employee’s direct employer and the general contractor may be liable to the employee for up to three times the wages owed, plus reasonable attorney fees and costs.  A claimant may make a claim against both the general contractor and the non-paying party as soon as two weeks after a violation occurs, and as late as three years after the occurrence. In an attempt to balance the scales, the new law requires subcontractors who fail to properly pay their employees to indemnify the general contractor for “any wages, damages, interest, penalties, or attorney fees owed as a result of the subcontractor’s violation;” however, this indemnity protection is only as strong as the subcontractor’s ability to pay such damages and costs.  The exception to the requirement for subcontractors to indemnify general contractors occurs either when: (1) indemnification is already provided for in a contract between the general contractor and the subcontractor; or (2) the violation arose due to the general contractor’s failure to make timely payments to the subcontractor. The full repercussions of this new law are yet to be determined, but ambiguity in the Act raises several questions.  First, the Act imposes no obligation on the subcontractors to provide the general contractor full access to all payroll and supporting records that would be needed to defend a claim, including a potentially fraudulent claim.  Second, the Act fails to specify whether an employee-claimant need even be staffed on the same project as the general contractor, or whether merely being an employee to the subcontractor who has staffed other employees on the project will suffice.  These questions will likely be clarified through litigation.  
Steps you can take:
In response to the Act, both general contractors and subcontractors should review their contract provisions with counsel, general contractors may consider requiring subcontractors to obtain a bond or insurance to protect against wage claims by a subcontractor’s employees, and consider adding contract provisions to allow for review of their subcontractors’ pay practices, records, and history of wage claims and lawsuits for at minimum three years following final payment.  General contractors should further consider requiring a subcontractor’s principal or officer to sign certified payrolls, thereby attesting that employees were paid properly.

Tagged:  Industry news, Maryland, Proposed Legislation, subcontractor payment, wage payment

Seminar on Recent Amendments to Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA)

On October 10, 2018, significant changes to Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) will take effect.  Some of the areas impacted include a prohibition on the waiving of CASPA rights, the creation of a right to suspend work for nonpayment, the requirement that notice of deficiencies justifying the withholding of payment must be in writing, and right to post a maintenance bond to trigger the release of retainage. In addition, the use of medical marijuana under Pennsylvania’s Medical Marijuana Act (MMA) raises several employment law issues that must be considered by construction companies, as they try to balance the competing interests of the MMA, federal employment laws, and collective bargaining agreements. Please join Babst Calland’s construction attorneys on Wednesday, October 10 from 4:00 p.m. to 5:00 p.m. for a brief yet informative complementary program at the DoubleTree Hotel in GreenTree to learn about the impact of these two important issues.  A complementary cocktail and networking reception will immediately follow the program.  You can still RVSP by sending an e-mail to Vicki Landa at vlanda@babstcalland.com.


The 2018 Babst Calland Report Focuses on the Appalachian Basin Oil & Gas Industry Forging Ahead Despite Obstacles

Babst Calland recently released its annual energy industry report: The 2018 Babst Calland Report – Appalachian Basin Oil & Gas Industry: Forging Ahead Despite Obstacles; Legal and Regulatory Perspective for Producers and Midstream Operators.  This annual review of shale gas development activity in the Appalachian Basin acknowledges an ongoing rebound despite obstacles presented by regulatory agencies, the courts, activists, and the market. To request a copy of the Report, please send an e-mail to info@babstcalland.com. In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to those involved in the shale gas industry. According to the U.S. Energy Information Administration’s May 2018 report, the Appalachian Marcellus and Utica shale plays account for more than 40 percent of U.S. natural gas output, compared to only three percent a decade ago. Since then, the Appalachian Basin has become recognized in the U.S. and around the world as a major source of natural gas and natural gas liquids. The industry has been forging ahead amidst relatively low natural gas prices, infrastructure building, acreage rationalization and drilling plans that align with business expectations. The policy landscape continues to evolve with ever-changing federal and state environmental and safety regulations and tax structures along with a patchwork of local government requirements across the multi-state region. Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a shale gas industry in the Appalachian Basin that continues to enjoy a modest rebound. While more business-friendly policies and procedures are emanating from Washington, D.C., threats of trade wars are raising concerns about the U.S. energy industry’s ability to fully capitalize on planned exports to foreign markets.” To read more: click here.

Tagged:  Pipeline construction

Governor Wolf Signs Amendments to CASPA into Law

On June 12, 2018, Governor Wolf signed HB 566, as amended, into law.  The new law makes some significant changes to the Contractor and Subcontractor Payment Act (“CASPA”) and it will take effect on October 10, 2018 (120 days after it was signed). The new law has the following effect:
  • Any contract provision purporting to waive rights afforded under CASPA is unenforceable unless waiver of the right is expressly permitted by CASPA (for example, CASPA permits parties to modify by contract the CASPA right to interest at a rate of 1% per month).
  • For contracts lacking a provision permitting suspension of work for nonpayment, contractors and subcontractors now have a statutory right to suspend work for nonpayment under the following conditions:
    • Payment has not been made within the period of time required by the contract or the statutory period set by CASPA, whichever is applicable;
    • After 30 calendar days have passed since payment was due, written notice of the nonpayment is sent via email or postal service to the person who owes the payment or their authorized agent; and,
    • After 30 calendar days since the written notice of nonpayment was sent, written notice is sent via certified mail (to the person who owes payment or his/her authorized agent) of the intent to suspend performance in 10 calendar days if payment is not made.
    • Thus, under this statutory right, work may be suspended no earlier than 70 days after payment was due.
    • Parties can contract for a shorter period of time to suspend performance after nonpayment.  Conversely, any suspension of work provision that provides for a longer period of time (or does not permit suspension in the event of nonpayment) is unenforceable.
  • Good faith withholding of payment now expressly requires written explanation of the reason for the withholding within 14 days of receipt of an invoice.
  • Most notably, the Act expressly provides that failure to provide a written explanation within 14 days will constitute a waiver of the right to withhold and require payment of the invoiced amount in full.  As always, the amount of the withholding must be reasonable (i.e. a reasonable estimate of the cost to correct the deficient work or the damages sustained).
  • These written notice of deficiencies requirements must also be followed for retainage to be withheld beyond 30 days of final acceptance of the work; otherwise, the right to withhold retainage is waived.
  • Delay of payment due to an error in an invoice is now expressly prohibited.  CASPA has always required written notice of invoice errors to be sent within 10 working days of receipt of an invoice.  The Act now makes it clear that, once the notice of the error is received by person who sent the mistaken invoice, payment of the correct invoice amount must be made when due regardless of whether (or when) the invoice is corrected.
  • Finally, contractors and subcontractors now have the express right to payment of retainage upon substantial completion if they post a maintenance bond for 120% of the retainage amount.
Courts likely will construe this Act to not apply to contracts entered before October 10, 2018, but we suggest that owners, contractors and subcontractors begin complying on that date with any new duties imposed on them to avoid possibly waiving rights or arguably becoming subject to the remedies provided by CASPA. We have drafted a red-lined copy of CASPA that shows the revisions made by this law and it is available for you to review here.

Tagged:  CASPA, Industry news

Babst Calland Annual Construction Law Year in Review Seminar

It is not too late to RSVP to Babst Calland’s annual Construction Law Year in Review seminar, which will be held on Thursday, March 22, 2018 at the Doubletree Hotel in Greentree, beginning with a continental breakfast at 7:30 a.m., followed by the seminar from 8:00 a.m. to 10:00 a.m.  Speakers will include Marc Felezzola, Kurt Fernsler, Matt JamesonMolly Meacham, Esther Mignanelli, Jim Miller, and Rich Saxe.  This seminar qualifies for two (2) PA CLE credits.  We hold this annual seminar as a service to our clients and prospective clients.  This complimentary seminar will provide an overview of 2017′s significant construction law developments (both statutory and case-law). This year’s topics include:  revisions to the AIA contract documents, recent mechanics' liens cases, proposed amendments to the Contractor and Subcontractor Payment Act, piercing the corporate veil, employment and labor law issues impacting the construction industry, and the legal impact of the recently proposed steel tariffs. For more information or to RSVP, please e-mail Matt Jameson.


Payment Bond Fraud in Pennsylvania – Why Subcontractors Should Request Copies of Payment Bonds When Signing Subcontractors for Public Projects

The News Story The Times-Tribune reports that a Lackawanna County insurance agent recently pleaded guilty to fraud for accepting premiums for payment bonds from contractors but never actually procuring those payment bonds from a surety.  This resulted in situations where public works projects were performed without any payment bond providing security for the subcontractors.  Pennsylvania’s Public Works Contractors' Bond Law of 1967 (i.e. the "Little Miller Act") requires payment bonds for public projects but imposes no penalty on the public project owner for failing to ensure the requisite bonds are posted.  Thus, Pennsylvania public project owners have no incentive to check to make sure its primes post the required bonds and things like the fraud described in the letter can easily go undetected.   The Practical Lesson for Subcontractors Accordingly, this story is a good reminder to subcontractors in Pennsylvania about the need to obtain a copy of the payment bond for a public project at the time of subcontract formation rather than waiting until when a dispute arises.  Such action will help protect against the type of fraud described in the Times-Tribune report by revealing the lack of payment bond before the subcontractor finds itself in a compromised position.

Tagged:  Construction Contracts, Construction Economics, Industry news, Payment Bond, Performance Bond, Subcontractors, Surety

Pennsylvania Construction Notices Directory Experiencing Growing Pains

As this Blog previously reported, Pennsylvania’s Mechanics’ Lien Law underwent significant changes beginning January 1, 2017.  Among those changes was the introduction of an online Construction Notices Directory (the “Directory”) which owners, contractors, and subcontractors must use to file certain notices in order to maintain their mechanics’ lien rights on certain “searchable projects” consisting of the construction, alternation or repair of an improvement costing at least $1.5 million.  The Directory is maintained and managed by the Pennsylvania Department of General Services (“DGS”), and supposedly includes records of every project filed with the Directory since the amendments became effective at the beginning of this year. However, the Directory’s list of projects currently includes entries for exactly 100 projects dating back to September of 2017.  Does this mean that no notices were filed for searchable projects before September of 2017?  No, it does not.  Babst Calland contacted DGS regarding this issue and was informed that only 100 projects can be listed on the Directory at a given time.  Therefore, as new projects are listed on the Directory, older projects – which may still be under construction and therefore require the filing of additional notices – are no longer listed.  So what should a Directory user do if the project for which they need to file a notice is not among the 100 listed on the Directory? In order to view these “unlisted” projects, a Directory user must first click the “SEARCH” tab, enter “0” (without quotation marks) into the search bar, and then press enter or click the magnifying glass icon.  As of the date of this entry, following these instructions allows a Directory user to view over 40 “unlisted projects” dating back to December of 2016to which the user would not otherwise have access. First and second tier subcontractors should therefore be aware that the Directory does not automatically list every “searchable project” for which a Notice of Commencement has been filed.  In fact, the Directory only lists 100 projects at any given time unless the user executes a search for “0”.  Therefore, subcontractors who are uncertain of whether a project is listed on the Directory and wish to file a Notice of Furnishing or Nonpayment should follow this extra step to (1) determine if the project is listed and (2) file the applicable notices. Babst Calland has made DGS aware of the numerous potential consequences of this issue, but is uncertain if or when a fix will occur. If you have questions regarding the Pennsylvania Construction Notices Directory or how to view “unlisted” projects, please contact attorney JD Mazzocco at jmazzocco@babstcalland.com, or 412-394-5451.

Tagged:  Construction Contracts, Mechanics' lien, Subcontractors

Bill Seeking to Create a Public Notice Requirement for the use of Project Labor Agreements

On August 30, 2017, Representative Aaron Bernstine (R., Beaver, Butler, and Lawrence Counties) introduced House Bill 1751, which seeks to create a public notice requirement for public works project labor agreements (PLAs). The proposed law would require the contracting public agency to post notice of a PLA on its website at least 20 days prior to the solicitation of bids on a public project that the PLA will apply to. The Bill also proposes to nullify a PLA when notice is not provided.  The Bill is currently being considered by the House Committee on Labor and Industry. Babst Calland will continue to monitor HB 1751 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.

Tagged:  Proposed Legislation, Public Construction Projects

Legal Insights into Oil and Gas Infrastructure Projects and Additional Insureds in Property Damage Claims

An August 21, 2017 article in the The Legal Intelligencer, co-authored by Babst Calland Attorneys Dave White and Esther Soria Mignanelli, addresses the impacts of the new Pennsylvania Mechanics’ Lien State Construction Notices Directory on oil and gas infrastructure projects. To view the full article, click here.  

Tagged:  Contract Clauses, Lien Law, Pipeline construction, Public Construction Projects, Subcontractors, Surety

Bill Seeking to Amend Pennsylvania’s Private Project Prompt Payment Act Passes House Vote

On June 20, 2017, Pennsylvania House of Representatives passed House Bill 566, which proposes amendments to Pennsylvania's Contractor and Subcontractor Payment Act ("CASPA"), by a 168 to 26 vote.  The bill introduced by Representative Santora is very similar to HB 1387 (discussed in a blog post here) but is now farther along in the legislative process because it has passed the House and is now with the Senate Labor and Industry Committee for consideration. The proposed legislation provides that a contractor or subcontractor may suspend performance if payment is not received in accordance with the terms of their construction contract. Specifically, if the contractor/subcontractor is not paid in accordance with the contract terms, the contractor/subcontractor must provide two separate 30 day notices before it can suspend work.  Specifically, the contractor/subcontractor must take the following steps before suspending:
  • Once 30 calendar days have passed since the end of the billing period, the contractor/subcontractor must provide written notice to the owner/contractor, via e-mail or postal service, stating payment has not been made.
  • When an additional 30 days have passed since that notice, the contractor/subcontractor must provide written notice, via certified mail, stating that the contractor/subcontractor intends to suspend work in 10 calendar days.
Thus, suspension of work under the proposed legislation will require two notices and waiting at least 70 days. The proposed legislation also establishes that the provisions of CASPA cannot be waived in a contract and requires a written explanation of the good faith reason for withholding payment (including retainage payment) for a deficiency item.  Failure to provide such notice will constitute a waiver of the basis to withhold payment and require payment to the contractor or subcontractor in full. In addition, the proposed bill requires an invoice recipient (owner or general contractor) who believes the received invoice is overstated still must pay the amount of the invoice it believes is correct when that amount would otherwise be due. This revision appears to be aimed at preventing a dispute over one component of an invoice from being used to delay payment of amounts not otherwise in dispute.  It would also permit a contractor or subcontractor to facilitate the release of retainage on its contract before final completion of the project by posting a maintenance bond with approved surety for 120% of the amount of the retainage.  Finally, HB 566 provides that if the withholding of retainage is longer than 30 days after the final acceptance of the work, a written explanation must be provided for the withholding, and failure to provide such an explanation constitutes a waiver of the basis to withhold payment and requires payment in full. Babst Calland will continue to monitor HB 566 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.

Tagged:  CASPA, Construction Contracts, Contract Clauses, Industry news, Subcontractors