Construction Law Blog
Recent case-law, statutory developments, articles and news impacting
the construction industry from the law firm Babst Calland
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The Babst Calland Construction Law Blog contains articles published by the attorneys at Babst Calland to provide timely legal and business information on issues important to the construction industry.
- 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.
Tagged: CASPA, Industry news
Tagged: Construction Contracts, Construction Economics, Industry news, Payment Bond, Performance Bond, Subcontractors, Surety
Tagged: Construction Contracts, Mechanics' lien, Subcontractors
Tagged: Proposed Legislation, Public Construction Projects
Tagged: Contract Clauses, Lien Law, Pipeline construction, Public Construction Projects, Subcontractors, Surety
- 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.
Tagged: CASPA, Construction Contracts, Contract Clauses, Industry news, Subcontractors
- A contractor or subcontractor may not contractually waive CASPA rights;
- Failure to provide written notice of a deficiency item results in a waiver of the right to withhold for the deficiency and requires payment of the invoice in full;
- If withholding for a deficiency item, payment for all non-deficient work must still be made;
- If a party receiving an invoice alleges the invoice contains an error, the party must pay the correct invoice amount on the date payment would otherwise be due;
- A party seeking release of retention may post a maintenance bond for 120% the amount retained to obtain release of retention;
- Withholding retention for longer than 30 days after “final acceptance of the work” will qualify as an improper withholding unless the appropriate notice requirements are followed;
- Withholding requirements also apply to subcontractors’ sub-subcontracts with lower-tier subcontractors; and
- Compliance with the notice requirements for withholding based upon deficiencies is necessary for the withholding to “not be deemed to have been wrongfully withheld.”
Tagged: CASPA, Contract Clauses, Industry news, Proposed Legislation, Subcontractors
Tagged: Mechanics' lien, Pipeline construction
In a case of first impression, in April 2016 the Northern District of Ohio held in Eberhard Architects, LLC v. Bogart Architecture, Inc., 314 F.R.D. 567 (N.D. Ohio 2016), that a contractor and its subcontractors may have committed copyright infringement by continuing work after the architect terminated the nonexclusive license to use the architect’s instruments of service (“IOS”).
Eberhard Architects, LLC (“Eberhard”) agreed to provide architectural services to Lifecare Hospice (“Lifecare”) in accordance with AIA B101-2007 (the “Agreement”). Based on the standard language of AIA B101-2007, Eberhard granted Lifecare a nonexclusive license to use the IOS created by Eberhard in connection with the construction of a 12-bed hospice inpatient facility:
Upon execution of this Agreement, the Architect grants to the Owner a nonexclusive license to use the Architect's Instruments of Service solely and exclusively for purposes of constructing, using, maintaining, altering and adding to the Project, provided that the Owner substantially performs its obligations, including prompt payment of all sums due, under this Agreement. The Architect shall obtain similar nonexclusive licenses from the Architect's consultants consistent with this Agreement. The license granted under this section permits the Owner to authorize the Contractor, Subcontractors, Sub-subcontractors, and material and equipment suppliers, as well as the Owner's consultants and separate contractors, to reproduce applicable portions of the Instruments of Service solely and exclusively for use in performing services or construction for the Project. If the Architect rightfully terminates this Agreement for cause as provided in Section 9.4, the license granted in this Section 7.3 shall terminate.
Eberhard obtained a copyright in connection with the IOS for the project. Lifecare later breached the Agreement by failing to make required payments and Eberhard terminated the Agreement. Eberhard brought suit against Lifecare for breach of contract, and also asserted claims for copyright infringement against Lifecare and the contractor and subcontractors (the “Contractor Defendants”) alleging that the Contractor Defendants continued to use Eberhard’s copyrighted IOS after Eberhard terminated the nonexclusive license.
Relying on the language of AIA B101-2007, the Court noted that the parties expressly agreed that Eberhard’s termination of the Agreement would also terminate the nonexclusive license. The Court therefore denied the Contractor Defendants’ motion to dismiss and allowed Eberhard to proceed with its copyright infringement claims against the Contractor Defendants.
The Eberhard decision demonstrates the full scope of the power an architect wields via its ability to grant and revoke a nonexclusive license. If the architect terminates its design agreement with the owner, it may be able to effectively halt work on the entire project until the dispute is resolved or the parties reach an agreement as to the continued use of the architect’s IOS. In light of this possibility, contractors desiring additional protection should consider including language in their contracts permitting them to suspend work (or even terminate the contract) if the architect terminates the design agreement and questions arise as to the validity of the license protecting the architect’s IOS.
Tagged: Breach of contract, Construction Contracts, Contract Clauses, Design-Build, Subcontractors