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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

Governor Wolf’s Executive Orders Protect Employees of Government Contractors from Sexual Orientation, Gender Identity Discrimination

The employees of government contractors now have much greater protection from discrimination on the basis of sexual orientation and gender identity. In response to the General Assembly’s delay in passing the Pennsylvania Fairness Act (a bill intended to broaden protections available to all Pennsylvania workers that has seen no progress since it was referred to the State House on September 8, 2015), Governor Tom Wolf took action on April 7, 2016, signing two executive orders that protect not only state employees, but also employees of contractors doing business within Pennsylvania. The first executive order, Order 2016-04, prohibits discrimination against “any employee or applicant for employment on the basis of race, color, religious creed, ancestry, union membership, age, gender, sexual orientation, gender expression or identity, national origin, AIDS or HIV status, or disability.” Order 2016-04 is premised on the belief “that the employment practices of the Commonwealth of Pennsylvania must be nondiscriminatory in intent and effect to promote public confidence in the fairness and integrity of government.” In addition to prohibiting discrimination, Order 2016-04 bans sexual harassment based on the above-referenced bases and empowers the Secretary of the Administration to “supervise the development, implementation, and enforcement of the Commonwealth’s equal employment opportunity programs through the Bureau of Workforce Planning, Development, and Equal Opportunity.” Order 2016-04 rescinds and replaces Executive Order 2003-10. The second executive order, Order 2016-05, guarantees that “discrimination by reason of race, gender, creed, color, sexual orientation, or gender identity or expression does not exist with respect to the award, selection, or performance of any contracts or grants issued by Commonwealth agencies.” Order 2016-05 is premised on Pennsylvania’s continued commitment “to promoting the prosperity and economic growth of all businesses and citizens of the Commonwealth of Pennsylvania, regardless of race, gender, creed, color, sexual orientation, or gender identity or expression,” and designates “the Department of General Services as the central agency to develop and manage Commonwealth agency programs to ensure that discrimination . . . does not exist with respect to the award, selection, or performance of any contracts or grants issued by Commonwealth agencies.” Order 2016-05 rescinds and replaces Executive Order 2006-02. Governor’s Wolf’s actions are intended to demonstrate Pennsylvania’s direct opposition to the recent North Carolina Bill requiring transgender individuals to use public restrooms corresponding to the biological sex on their birth certificate, as well as a Mississippi Bill allowing businesses to deny service to homosexual customers based on religious grounds. According to Governor Wolf, the passage of the North Carolina Bill, coupled with the stagnation of the Pennsylvania Fairness Act, is “a call to pass non-discrimination legislation in Pennsylvania now.” The passage of both executive orders garnered widespread support from a variety of anti-discrimination organizations, including the ACLU, the Anti-Defamation League, Equality Pennsylvania, the Human Rights Campaign, the National Gay & Lesbian Chamber of Commerce, as well as Philadelphia Mayor Jim Kenney and Philadelphia’s City Council.

Tagged:  Breach of contract, Construction Contracts, Contract Clauses

Babst Calland’s Construction Law Year in Review seminar

Final reminder -- it is not too late to RSVP to Babst Calland’s annual Construction Law Year in Review seminar, which will be held tomorrow, Thursday, March 10, 2016 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 Kurt Fernsler, Matt JamesonJim Miller, Rich Saxe David White, John McCreary and Kevin Douglass. 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 2015′s significant construction law developments (both statutory and case-law). This year’s topics include:  contractor claims against design professionals, legal issues impacting closely-held construction companies, mechanics' liens, revisions to the AAA Rules for Construction Arbitration, Public Construction Project issues, and Pennsylvania Payment Acts. For more information or to RSVP, please e-mail Matt Jameson.

Tagged:  Seminars

PA Superior Court Affirms Decision Limiting Mechanics’ Liens on Multiple Parcels

On January 29, 2016, in a non-precedential opinion, the Pennsylvania Superior Court affirmed a decision by the Lycoming County Court of Common Pleas that limited a contractor’s ability to obtain a Mechanics’ Lien for work performed on multiple parcels of land.  In Linde Corp. v. Black Bear Prop., LP, 2015 Pa. Dist. & Cnty. Dec. LEXIS 389 (Pa. County Ct. 2015), the trial court decided the following issues: (1) who was the true owner of four parcels of land located in Lycoming County for the purposes of filing a Mechanics’ Lien; and (2) whether all four parcels were eligible for inclusion in the Lien. Black Bear Property and a number of its subsidiaries and/or related entities (collectively “BB”) hired Linde Corporation (“Linde”) to construct a pumping station on three parcels of land in Lycoming County. The pumping station was designed to draw water from the Lycoming Creek for sale to companies involved in hydraulic facturing operations. Electrical wiring providing the completed pumping station with power was routed through an existing structure on a fourth parcel, Parcel 151, which was contiguous to the three parcels on which the pumping station was actually built. Linde sought to impose a Mechanics’ Lien on all four parcels after it completed its work on the pumping station but was only partially paid. Stewart Dibble was the previous owner of the three parcels on which the pumping station was built, and had apparently agreed to transfer ownership of those parcels to BB for a 25% ownership interest in the BB entities. BB argued at trial that Linde’s Mechanics’ Lien was invalid because Linde’s contract was with BB, a tenant, not the owner, Dibble. See 49 P.S. § 1303 (stating that “[n]o lien shall be allowed against the estate of an owner in fee by reason of any consent given by such owner to a tenant to improve the leased premises unless it shall appear in writing signed by such owner that the erection, construction, alteration or repair was in fact for the immediate use and benefit of the owner”). Dibble never provided such written consent and BB argued that Dibble had an “oral lease” with BB. BB claimed that the final transfer of ownership from Dibble to BB had not occurred (although BB admitted that Dibble did own a 25% interest in the BB entities) because the conveyance was contingent upon the performance of certain occurrences that never transpired. Although a deed memorializing the transfer was executed, it was never recorded or delivered. The Trial Court ultimately determined that Linde’s Mechanics’ Lien was valid because BB was the constructive owner of the three parcels, but declined to extend the lien to Parcel 151. On appeal, the Superior Court affirmed the Trial Court’s ruling. Regarding BB’s constructive ownership of the three parcels, the Superior Court confirmed that the Trial Court’s factual findings adequately demonstrated that BB was an owner, not a lessee. Specifically, the Trial Court repeatedly determined that BB’s witnesses lacked credibility and regularly offered contradictory and confusing testimony regarding the terms of Dibble’s supposed “oral lease” to BB. Additionally, the Trial Court noted that, in a companion case filed in Luzerne County, BB specifically asserted that Dibble held no ownership interest in the three parcels. Finding no error of law in the Trial Court’s findings or rationale, the Superior Court affirmed that BB was the constructive owner of the three parcels and that Linde’s Mechanics’ Lien was proper. Regarding the inclusion of Parcel 151 in the Lien, the Trial Court held that Linde was only entitled to include the value of the work relating to the electrical wiring in the amount of the Lien. Under 49 P.S. § 1201, “improvements” eligible for inclusion in Mechanics’ Liens include work relating to “furnishing, excavating for, laying, relaying, stringing and restringing ... wires, whether on the property improved or upon other property, in order to supply services to the improvement.” Yet because the Lien Law draws a distinction between work performed on the property itself and work benefitting “other property,” the wiring was not an improvement to Parcel 151 because the work was performed in order to supply services to the improvement – the pumping station – located on a different parcel. Furthermore, the wiring work did not rise to the level of an “improvement, substantial additional, or adaptation of an existing improvement” sufficient to justify the inclusion of the entirety of Parcel 151 in the Lien. The wiring providing electricity to the pumping station was run through a junction box that previously existed in the structure on Parcel 151. Therefore, the wiring did not affect a material change to Parcel 151 or the previously existing structure and the work was incidental to the property. After determining that precedent cited by BB did not apply to the instant situation because Parcel 151, while joining the other three parcels, was not directly affected by the improvements at issues and received no demonstrable benefit therefrom, the Superior Court affirmed the Trial Court’s holding. Points to keep in mind: (1) a party may be deemed the constructive owner of property subject to improvements even in the absence of a recorded or delivered deed; and (2) a parcel of land may only be subjected to a lien if the relevant work and improvements associated convey a demonstrable benefit to that parcel.

Tagged:  Mechanics' lien