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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.


Pennsylvania Supreme Court Affirms Contractor Cannot Maintain a CASPA Claim against Owner’s Agent

On September 28, 2016, the Pennsylvania Supreme Court affirmed a decision by the Pennsylvania Superior court that held an owner’s agent cannot be individually liable under the Contractor and Subcontractor Payment Act, 73 P.S. §§ 501-516 (“CASPA”), unless the agent’s dealings created a new contract between the contractor and the agent personally. See Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC, No. 28 EAP 2015 (Pa. Sept. 28, 2016). Under Section 502 of CASPA, “Owner” is defined as a “person who has an interest in real property that is improved and who ordered the improvement to be made. The term includes successors in interest of the owner and agents of the owner acting with their authority.” 73 P.S. § 502 (emphasis added). In Scungio, the contactor argued “one can read Section 502’s definition of owner — as including ‘agents of the owner acting with their authority’ — to indicate that such agents are equivalent to owners for purposes of the Act,” and can therefore be held personally liable under the Act. The Supreme Court first acknowledged the text of Section 502 is ambiguous; subject to two conflicting, yet reasonable, interpretations. The Court nevertheless concluded CASPA does not create individual agent liability for three main reasons. First, the Court emphasized CASPA’s purpose is to protect contractors and subcontractors by encouraging fair dealing among parties to construction contracts. Second, an interpretation of Section 502 of CASPA that results in the extension of liability against an owner’s agents would improperly reshape the right to payment beyond that contemplated in other sections of the Act. See 73 P.S. § 504 (“[p]erformance by a contractor . . . in accordance with the provisions of a contract shall entitle the contractor or subcontractor to payment from the party with whom the contractor . . . has contracted,") (emphasis added); 73 P.S. § 507(a) (providing that a subcontractor is entitled to payment "from the party with whom the subcontractor has contracted") (emphasis added). Finally, the contractor’s proffered interpretation “would require that a property owner’s agents personally assume the obligations of the owner’s construction contracts with respect to payments to contractors, contrary to longstanding and fundamental common law agency principles.” If the General Assembly intends to modify the common law, the Court generally expects a clear statement to that effect, rather than the mere insertion of “an ambiguous clause in a definitional provision,” like in Section 502. As more fully addressed in our previous post reporting on the Superior Court’s decision, the contractor in Sungio did not provide sufficient evidence suggesting the agent’s dealings gave rise to a contractual relationship with the agent personally. Thus, the Supreme Court’s decision does not preclude a contractor from recovering from an agent where that agent either executes a contract in his own name or voluntarily undertakes a personal responsibility for payment under a contract.

Tagged:  CASPA, Pennsylvania Supreme Court, Subcontractors

PA Superior Court Suggests Service of Mechanics’ Lien Impermissible by Mail in Non-precedential Opinion

In a January 18, 2017 decision, the Superior Court of Pennsylvania issued a non-precedential decision in Babich v. Buffalo Wild Wings suggesting that service of a lien claim by mail upon an out-of-state owner in accordance with Pennsylvania Rules of Civil Procedure 403 and 404 does not satisfy the service requirements for a lien claim.  Instead, the Babich decision suggests the only manner of service permissible for a lien claim is by sheriff, and if the sheriff is unable to effectuate service, then by posting on the property being liened. In the Babich case, the claimant had its lien dismissed on preliminary objections because it failed to strictly comply with the service requirements in section 502(c) of the Pennsylvania's Mechanics' Lien Law (the "Lien Law").  That section states:

Manner of service.  Service of the notice of filing of claim shall be made by an adult in the same manner as a writ of summons in assumpsit, or if service cannot be so made then by posting upon a conspicuous part of the improvement.

Interpreting this requirement, the court commented that the language of section 502(c) means service of notice of filing a claim must be made “in person by the sheriff to the extent practicable” and “[o]nce the claimant establishes that personal service has not been successful, the statute permits posting as an alternative method of service.” Notably, the project owner was Buffalo Wild Wings – an entity whose corporate headquarters are outside the Commonwealth.  Thus, one might expect the claimant could have argued its service complied with Rules 403 and 404.  However the opinion makes no mention of this argument and contains no discussion of the interplay, if any, between section 502(c) of the Lien Law and the service rules.  Thus, one could read the Babich decision to implicitly prohibit service of a lien claim outside the Commonwealth via mail as contemplated by Rules 403 and 404, and instead, require service of a lien claim by sheriff, and if the sheriff is unable to effectuate service, then by posting. Also notable from the Babich decision, the Superior Court reaffirmed its position that statutory requirements dealing with notice and service (i.e. procedural requirements) are subject to strict interpretation while statutory requirements dealing with the form of notice or claim (i.e. the substantive information contained within a notice or claim) is subject to a more liberal substantial compliance standard. The attorneys' in Babst Calland's Construction Group are available to answer any questions you may have about Pennsylvania's Lien Law.

Tagged:  Mechanics' lien, Subcontractors

Awards of Attorneys’ Fees and Statutory Penalties are “Discretionary” even when the Government acts in Bad Faith

In A. Scott Enterprises Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of statutory interest and attorneys’ fees under Section 3935 of the Procurement Code is not automatic even where a jury finds the public owner to have withheld payment in bad faith. Rather, the decision to issue such an award is within a judge’s discretion. This case arose out of a contract awarded by the City of Allentown to A. Scott Enterprises (ASE) to build a public road in 2009. After the discovery of arsenic contamination on site threatened ASE with additional substantial costs to continue with the project, and attempts to negotiation a continuation of the project failed, ASE sued the city to recover its losses. At trial, ASE presented evidence Allentown was aware of possible contamination when it entered a contract with ASE, and failed to disclose this to ASE or incorporate terms regarding this possibility into the parties’ contract. At trial a jury found the city breached its contract and withheld payments in bad faith, awarding ASE $927,299. When ASE motioned the court for an award of statutory interest and attorneys’ fees, the trial court denied ASE’s request outright, without analysis, stating such an award was unwarranted because ASE’s evidence on damages was “conflicting.” ASE then prevailed on appeal to the Pennsylvania Commonwealth Court, which had held in 2014 that a bad faith finding automatically entitled a contractor to recover its attorney’s fees and the 1% penalty, because, otherwise, “the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith.” But the Supreme Court ultimately disagreed. In reversing the Commonwealth Court’s decision, the Supreme Court held “Section 3935 of the Procurement Code allows—but does not require—the court to order an award of a statutory penalty and attorney fees when payments have been withheld in bad faith. The court’s determinations in this regard are subject to review for an abuse of discretion.” The Court also noted “the instances where a finding of bad faith is deemed not to require a Section 3935 award at all presumably will be rare.” Ultimately, in this case, the trial court’s reliance on the presence of “conflicting” evidence concerning the contractor’s damages alone was insufficient to support its denial of a Section 3935 award outright. For this reason, the case was remanded to the trial court for reconsideration of ASE’s original motion. Therefore, although an award of attorneys’ fees and/or the 1% penalty under Section 3935 is not “automatic,” a court still must have a reasonable basis for denying such an award against an agency that withheld payment in bad faith. In A. Scott Enterprises, the Supreme Court declined to articulate a test for lower courts to apply in determining whether to enter an award under Section 3935; thus, trial courts are without guidance to determine whether attorneys’ fees and/or penalties must be assessed.

Tagged:  Commonwealth Procurement Code, Construction Contracts, Procurement Code, Public Construction Projects

Changes to PA Mechanics’ Lien Law in 2017

As this blog as been reporting, significant amendments to Pennsylvania’s Mechanics’ Lien Law will become effective on December 31, 2016, creating new rights and obligations for owners, contractors, and subcontractors. These additional requirements are the result of the passage of Act 142 in 2014. Specifically, Act 142 establishes a structured notice procedure for owners, contractors, and subcontractors to follow, as well as a central repository to file notices under the Mechanics’ Lien Law. The specific notices established by Act 142 must be filed on an internet-based directory that will be maintained by the Pennsylvania Department of General Services. These amendments apply only to “searchable projects,” or projects consisting of the construction, alternation or repair of an improvement costing at least $1.5 million. Before the amendments set forth in Act 142 become effective on December 31, 2016, owners, contractors and first-tier subcontractors should evaluate their form contracts to ensure compliance with a number of new requirements for applicable projects. Notably, all contracts for searchable projects must include a written notice stating that a subcontractor’s failure to comply with the Act’s notice requirements will result in the loss of lien rights. Act 142 sets forth the exact language that must be included in the contract. Furthermore, the owner and general contractor on a searchable project must now make reasonable efforts to ensure the “Notice of Commencement” – a new type of notice filed by the owner or its agent – is made a part of the contract documents provided to all subcontractors awarded work on the project. Failure to comply with these requirements could potentially constitute a violation of the amended Mechanics’ Lien Law. Owners and contractors should also consider adding flowdown clauses in their contracts that impose requirements on contracting parties to include the necessary written notice in subcontracts and include the Notice of Commencement as a contract document for any subcontract. Any person who requests, encourages or requires a subcontractor not to comply with the Act’s notice provisions may face civil and criminal penalties, including payment of attorneys’ fees and court costs. The person may also be liable for actual damages resulting from the subcontractor’s resulting failure to comply with the new notice provisions. With the effective date of the amendments to the Lien Law fast approaching, Babst Calland recommends that owners, contractors, and subcontractors review the amendments and update their standard form contracts to ensure compliance with the Act. Failure to comply with Act 142 could have significant consequences and create exposure to unanticipated liabilities. Babst Calland is offering a seminar to help those in the construction industry navigate these new obligations and begin using the new notice directory website. This seminar will provide a more comprehensive overview of the Lien Law amendments. For more information on the changes to the Lien Law or modifying your standard contracts to comply with the amendments please contact D. Matthew Jameson III at mjameson@babstcalland.com or (412) 395-5491.

Tagged:  Mechanics' lien, Seminars

Commonwealth Court Addresses Engineer Licensure Requirements

On May 24, 2016, the Commonwealth Court in Se. Reprographics, Inc. v. Bureau of Prof’l & Occupational Affairs, No. 2235 C.D. 2014, 2016 WL 2979844 (Pa. Commw. Ct. May 24, 2016) addressed an issue of first impression and held that the petitioner did not perform an “engineering land survey” in violation of the Engineer, Land Surveyor and Geologist Registration Law (Law), 63 P.S. §§ 148 – 158.2, when it used maps and mobile GPS/GIS equipment to locate and identify a customer’s physical assets for a non-engineering purpose. Southeastern Reprographics, Inc., now known as The Davey Resource Group (“DRG”), was commissioned by Central Electric Cooperative, Inc. (“CEC”), a rural electric distribution cooperative, to locate every piece of electric equipment owned by CEC, including transmission poles, distribution poles, security and street light poles, mounted equipment, regulators, and meters. The purpose of this field inventory was to provide CEC with sufficient information to create a GIS database of its existing assets. Using GIS/GPS technology, DRG assessed over 100 square miles of land, located CEC’s assets to sub meter accuracy, took an inventory of all equipment at each location, and identified and tagged the equipment. DRG then transferred this data to CEC in the form of x-y coordinates to be electronically plotted on a base map. Based on this information, the State Registration Board for Professional Engineers, Land Surveyors, and Geologists (the “Board”) concluded that DRG performed an “engineering land survey” as defined by the Law when it determined by measurement methods the position of fixed objects on the Earth’s surface through the use of GIS/GPS equipment. According to the Board, DRG violated the Law when it conducted this “engineering land survey” without the necessary license. On review, the Commonwealth Court reversed the Board’s determination. Agreeing with DRG, the Court held that “‘engineering land surveys’ regulated or encompassed under the Law are those that are performed in connection with or related to building construction and land development.” And because DRG’s field inventory of CEC’s assets was performed purely so that CEC could create a GIS database of its electrical equipment, it was not an “engineering land survey” as defined by the Law. In a dissenting opinion, Judge McCullough cautioned the Court against overturning legal determinations based on the Board’s extensive “technical expertise.” Judge McCollough also noted that the Law’s licensure requirements are in place to “to safeguard life, health or property and to promote the general welfare.” And because CEC shared DRG’s maps with PA One Call and EMS services for six or seven different counties, Judge McCollough believed that the risk of not properly identifying and locating electrical infrastructure was so great that it should only be entrusted to a licensed professional. The dissent also expressed dissatisfaction with the majority’s limiting the definition of “engineering land survey” to surveying activities performed in connection with building construction or land development. Overall, the Court’s opinion demonstrates that licensure under the Law is not required to simply determine the location of objects on the Earth’s surface. However, design professionals should be aware that they must be licensed under the Law before performing any surveying activities in conjunction with building construction or land development.

Tagged:  Construction Contracts, Design-Build, Industry news

President Obama’s Fiscal Year 2017 Proposed Budget Includes Over $10 Billion for Federal Building Fund

The U.S. General Services Administration (GSA) is the federal government’s real estate manager and director of the government’s real estate investment strategies. The Agency’s FY 2017 funding requests, submitted along with the President’s proposed budget in February, include requests for over $1 billion worth of construction projects in and around the Washington, D.C. area. In addition, GSA is requesting the following funds for infrastructure in Pennsylvania and the region at large: 1. Boyers, Pennsylvania: $31,200,000 for design and related services for the construction of a new federally owned facility of approximately 462,000 gross square feet to provide a long-term housing solution for agencies currently leasing an underground mine location within the area. 2. Philadelphia, Pennsylvania: $52,300,000 for Phase II of a two phase repair and alteration project for the Federal Building (Green Building), located in downtown Philadelphia. The project involves the realignment and reconfiguration of tenant space, and multiple building system upgrades/replacements. 3. Cleveland, Ohio: $15,524,000 for a repair and alteration project to complete, repair, and expand the plaza system at the U.S. Courthouse located in downtown Cleveland. The structural steel that supports the plaza is exposed to the elements and has been since the original construction. (Here is a complete list of GSA’s proposed infrastructure projects in its FY2017 request.) These anticipated projects, coupled with rumors GSA has started the process of implementing much-needed upgrades to fedbizopps.com (the single government point-of-entry for federal government procurement opportunities), suggests the prospect of federal government projects may become more attractive to companies in the region within the year to come. Although the appropriations bills ultimately passed by Congress this fall may or may not mirror these infrastructure plans, GSA’s proposal provides insight into its development priorities. We will track Congress’ final appropriations bills and continue providing updates on this blog.

Tagged:  Federal Construction Projects, Industry news, Public Construction Projects

Eastern District of Pennsylvania Grants General Contractor’s Summary Judgment Claims Based on Releases

On March 23, 2016, the United States District Court for the Eastern District of Pennsylvania granted a general contractor’s summary judgment motion as to a subcontractor’s claim against it as well as its own claim against the subcontractor. In doing so, the Court addressed the importance of construction lien waivers and releases and the practical importance of raising performance and interference issues in a timely fashion. In Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al,  the School District of Philadelphia (“Owner”) hired Ernest Bock & Sons, Inc. (“EBS”) as the general contractor for a construction project at the General Phillip Kearney School (the “Project”). Subsequently, EBS hired Arb Construction, Inc. (“AC”) to supply all labor and materials to complete the masonry portion of the Project at a cost of $777,500.00. The subcontract terms at issue involved termination and payment. EBS had the right to terminate AC and/or subsidize AC’s work following 48 hours of written notice if EBS determined AC (1) delayed the project; (2) provided faulty workmanship; (3) failed to provide acceptable supervision, or (4) failed to pay its subcontractors or suppliers. The payment terms of the subcontract required AC to certify payrolls and release claims and liens with payment applications, among other things.  Important to this action, AC was required to supply a release of liens from “subcontractors/ suppliers and any labor/union organizations before payment is made.” Along with each payment application, AC submitted the release of liens and certified payrolls, signed and notarized by AC’s owners. These releases certified that AC had paid “all taxes, welfare and pension fund payments, and fringe benefits.” AC hired members of the Bricklayers & Allied Craft Workers, Local 1 (“Bricklayers”) to fulfill its labor obligations under the contract. Despite certifying it complied with the union fund obligations on the payment applications, AC was delinquent on its payments to the Bricklayers. Additionally, AC failed to provide a sufficient number of masons to complete the work in accordance with the Project schedule. EBS received multiple complaints from the Owner about AC’s work and the delay it was causing. AC claimed the delay was the fault of EBS, who AC alleged had failed to properly prepare the Project for the masonry phase. AC also claimed it was forced to expend its own resources to correct errors made by other subcontractors. EBS notified AC it had 48 hours to increase its manpower, which it did by hiring another subcontractor. Subsequently, the Bricklayers stopped supplying masons to the Project because AC was still delinquent in its payment obligations to the benefit funds. EBS declared AC in breach of the contract and terminated the agreement. AC claims the termination was wrongful, as it was delayed because of EBS’ failure to properly manage the Project. The Bricklayers filed suit against AC for its failure to pay contributions in violation of the collective bargaining agreement (“CBA”). AC in turn filed a third-party complaint against EBS, claiming it breached the subcontract by failing to pay money it owed to AC. EBS in turn counterclaimed against AC for breach of the subcontract. After discovery, EBS moved for summary judgment on AC’s breach of contract claim against it as well as its own breach of contract claim against EBS. First, EBS argued it was entitled to summary judgment on AC’s breach of contract claim because AC released all of its claims against EBS. In the alternative, AC failed to provide releases from its own subcontractors to EBS, which was a condition precedent to payment. The Court agreed, holding that EBS was entitled to summary judgment on AC’s breach of contract claim because AC released all claims it could have asserted through the signed releases. The releases were clear and unequivocal, and released all claims prior to the signing without preservation or exception. AC argued that the releases were unenforceable because EBS failed to provide it with a construction work schedule or a proper work area layout and failed to supervise other subcontractors who interfered with its work. Finally, AC argued that the releases were unenforceable because EBS failed to make full payment on the payment applications. The Court rejected AC’s defenses. If AC had an issue with accounting issues or interference with performance, it had “clear options.” AC could have accepted payment and noted its objection on the application, or refused payment and refused to sign the accompanying release. Because AC did neither, it released its claims. Further, the fact that the notarization of the Releases did not adhere to Pennsylvania law did not render the Releases unenforceable. Second, EBS moved for summary judgment on its counterclaim, asserting that AC breached the contract by 1) failing to supply adequate manpower and materials; 2) falsely certifying payment; 3) failing to timely complete its work; and 4) submitting non-compliant payment applications. Because the undisputed evidence demonstrated AC’s failure to comply with these terms, EBS was granted summary judgment on its own claims. The Court held that there was a genuine issue of fact however, with respect to calculating the damage amounts. The takeaway point in Bricklayers is the importance of construction lien waivers and releases. The Court will interpret these as a “contract within a contract,” and they are regularly enforced in accordance with their terms. You should not assume that a waiver is limited to Mechanic’s Lien rights; depending on the language in the waiver, signing a waiver may constitute a release of all rights you may have for payment or performance issues during that particular phase of the work. As the Court noted, if you have an issue with performance and/or payment, you have options. This Court concluded that AC could have accepted payment and noted its objection on the application or refuse the payment and refuse to sign the release. When you sign the waiver and/or release, you will typically be held to those terms.

Tagged:  Breach of contract, Construction, Construction Contracts, Construction lien waiver, Release, Summary judgment, Waivers

OSHA Fine Increases to Take Effect on August 1 but Increased Fines Could Apply to Inspections Occurring Now

As previously reported in Babst Calland’s November 2015 Employment Bulletin, a little-noticed provision in the recent federal budget permits the Occupational Safety and Health Administration (“OSHA”) to raise its monetary penalties by nearly 80%.  The increase in fines – the first since 1990 – will take effect on August 1, 2016.  However, because OSHA has six months to issue a citation after an inspection, the increased penalties could be applied to inspections occurring now. More information about the OSHA fine increases as well as other employment related issues that impact the construction industry may be found in Babst Calland’s regularly issued newsletters as well as on this blog.

Tagged:  Industry news, OSHA Regulations

Babst Calland Attorneys Attend Prompt Pay Task Force Coalition Meeting to Discuss Amendments to Pennsylvania’s Contractor and Subcontractor Payment Act

On April 5, 2016 Babst Calland Attorneys Robert Palumbi and Marc Felezzola attended a Prompt Pay Task Force Coalition meeting in Harrisburg organized by the American Subcontractors Association’s Central Pennsylvania Chapter to discuss House Bill 726 of 2015 (“HB 726”). The meeting attendees discussed the proposed legislation, its practical impact on Pennsylvania’s construction industry. In addition to discussing the as-drafted legislation, meeting participants worked together to prepare proposed changes to the language of HB 726 aimed at clarifying the existing language and placing a cap on the percentage of retention that can be withheld in private construction. HB 726 is currently before the House Commerce Committee. We anticipate that the Committee will vote upon the Prompt Pay Coalition’s recommended changes to HB 726 at its regularly scheduled meeting in May. Babst Calland will continue to track HB 726 and provide updates on this blog.

Tagged:  CASPA, Construction Economics, Contract Clauses, Industry news

Proposed Legislation to Address Utility Delays on Pennsylvania Construction Projects

Our firm recently presented to members of the National Utility Contractors Association of Pennsylvania (“NUCA of PA”). The presentation summarized recent testimony offered by NUCA of PA to the Pennsylvania Senate Transportation Committee aimed 1) to educate the Legislature on the delays routinely experienced by contractors as a result of the relocation of a utility company’s facilities located within public rights-of-ways on state road, bridge, and utility construction projects and 2) to offer potential solutions to help minimize delays and reduce the costs of such delays.  The focus of the testimony was to address 1) delays that result from a utility company’s mismarking or failure to disclose utility lines in response to a Pennsylvania One Call request and 2) delays by utility companies in relocating facilities that must be moved to allow construction to proceed.  Given the tremendous cost impacts to contractors that experience delays to their construction projects resulting from the delays described above, NUCA of PA is seeking legislative action which would provide avenues of recourse for recovery of their costs by contractors.  Several potential solutions were addressed.  One solution calls for revisions to Pennsylvania’s Underground Utility Line Protection Act, known as the Pennsylvania One Call Law, 73 P.S. §§ 176, et seq.  A second solution seeks the creation of a statutory negligent misrepresentation claim against utility companies which would essentially expand the Supreme Court of Pennsylvania’s Bilt-Rite ruling.  A third solution would provide financial incentives to utility companies that perform their locating and relocating work in a timely manner.  Finally, a discussion centered upon making provisions such as those found in PennDOT’s Form 408 Specifications, relating to both differing site conditions and utility delays, mandatory for all construction projects in Pennsylvania. NUCA of PA is seeking suggestions and prior experiences from contractors to share with legislators and lobbying consultants in its effort to enact legislation which would benefit contractors throughout the Commonwealth.  Please feel free to share those suggestions and stories with Richard Saxe or you can contact NUCA of PA’s Executive Director, Brenda Reigle, directly at ed@nucapa.org or (717) 234-8055.

Tagged:  Bilt-Rite, Construction Legislation, Industry news, NUCA of PA, Pennsylvania One Call, Utility Delays