Articles, Newsletters and Advisories
On Thursday, March 9, 2017, the Construction Services group of the law firm of Babst Calland Clements & Zomnir, P.C. held its annual Year in Review Seminar. Attended by over 100 construction professionals, Babst Calland’s Year in Review Seminar summarized and addressed the implications of the most noteworthy construction-related legal developments of 2016, including the latest amendments to Pennsylvania’s Mechanics’ Lien Law, labor and employment issues, cases interpreting Pennsylvania’s payment acts, construction claim damages, and a recent decision involving a jurisdictional dispute on a public construction project.
MECHANICS’ LIEN LAW AMENDMENTS
On October 14, 2014 then-Governor Tom Corbett approved legislation amending Pennsylvania’s Mechanics’ Lien Law. Commonly referred to as Act 142, the amendments established a structured procedure for owners, contractors, and subcontractors to receive and give notice of mechanics’ lien claims, as well as a central electronic repository under which these notices must be filed (the “Directory”). Act 142 was widely supported by both owners (along with construction lenders) and contractors as a means to better identify all subcontractors and material suppliers with lien rights on a project.
Act 142 became effective on December 31, 2016, and the new notice requirements apply only to “searchable projects” beginning after that date and costing at least $1.5 million. Specifically, Act 142 allows the following four notices to be filed with the Directory: (1) Notice of Commencement; (2) Notice of Furnishing; (3) Notice of Completion; and (4) Notice of Nonpayment. Use of the Directory is discretionary, but an owner must file a Notice of Commencement before any labor, work, or materials are furnished for the project if the owner wishes to avail itself of the Directory’s protections. If an owner files a Notice of Commencement, a subcontractor (defined as including first and second tier subcontractors or material suppliers) must file a Notice of Furnishing detailing the work it performed within 45 days of first performing that work or delivering materials to preserve its lien rights. Act 142 also permits – but does not require – an owner to file a Notice of Completion within 45 days of “actual completion” of work on the project, and allows a subcontractor to file a Notice of Nonpayment if it does not receive complete payment for its work or materials. The Directory can be accessed at http://www.scnd.pa.gov/.
EMPLOYMENT AND LABOR DEVELOPMENTS
On April 17, 2016, Governor Tom Wolf signed Pennsylvania’s medical marijuana program into law. The Medical Marijuana Act (“MMA”) “legalizes” marijuana in Pennsylvania for the treatment of certain chronic conditions, including cancer, Lou Gehrig’s disease, multiple sclerosis, and Crohn’s disease. While many patients needing medical marijuana will be physically incapable of working, those individuals who are diagnosed with MMA-eligible conditions such as chronic pain or post-traumatic stress disorder will present significant work-related issues.
Unfortunately, the plain language of the MMA creates conflicting rights for both employers and employees. Yet the MMA is unlikely to have significant impacts on the construction industry because it affirmatively states employers are not required to make any accommodations of the use of medical marijuana. As “zero tolerance” policies and negotiated drug-free workplace protocols are common in the industry, construction employers are unlikely to experience any serious disruptions from the MMA.
In other employment news, another attempt is being made to repeal Pennsylvania’s Prevailing Wage Act. Representative Ron Kaufman (R) introduced House Bill 260 based on the argument that prevailing wage rates have resulted in increased public construction costs. House Bill 260 last saw activity on January 31, 2017 when it was referred to the Labor and Industry Committee, and its future remains uncertain. Interestingly, West Virginia repealed its Prevailing Wage Law on February 4, 2016.
After years of litigation, the Pennsylvania Supreme Court clarified in Scungio Borst & Assocs. v. 410 Shurs Lane Developers, LLC, whether an owner’s agent could be individually liable under the Contractor and Subcontractor Payment Act (“CASPA”). In Scungio Borst, the owner’s president and 50% shareholder authorized the general contractor to perform over $2 million in extra work. When the general contractor did not receive payment for this extra work, it brought suit against both the owner and its president individually under CASPA. The Pennsylvania Supreme Court held CASPA liability does not extend to an individual. In A. Scott Enterprises, Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of interest and attorneys’ fees is not automatic under the Procurement Code, even when a public owner withholds payment in bad faith. While an award of penalties and fees is not mandatory in the presence of bad faith, the court did note that instances where such an award is not required will likely be rare.
CONSTRUCTION CLAIMS: RECOVERY OF DAMAGES
The United States District Court for the Eastern District of Pennsylvania 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, subcontractor ARB submitted along with each payment application a release of liens releasing all claims against general contractor EBS. Despite having an opportunity to do so, ARB never listed any claims on the reverse side of the release, or anywhere else. When the project encountered issues and ARB attempted to assert claims against EBS, the court reasoned ARB released all claims via the signed releases. ARB could have noted EBS’ failure to honor the terms of the contract, or could have refused to sign the releases. Overall, Bricklayers is a reminder that waivers will be enforced according to their terms, and are not automatically limited to mechanics’ lien rights.
In a recent and particularly important case, an appellate court overturned a 2016 decision by the Court of Common Pleas in Wheels Mechanical Contracting and Supplier v. West Jefferson Hills School District and Nello Construction. Specifically, on February 28, 2017, the Commonwealth Court held that challenges to bid specifications should be brought during the bid process or before contracts are awarded and/or construction commences. West Jefferson Hills School District solicited bids for a $100 million high school construction project. As with all public projects in Pennsylvania, the Separations Act required the School District to break out the Project’s electrical, plumbing, HVAC, and general construction contracts. Of relevance in this case, the Project’s specifications assigned all sanitary line, storm line, and water line installations inside the building and up to five feet outside of the building to the plumbing prime contractor. As is common in the industry, all site sanitary, site storm, and site waterline installation more than five feet from the building was assigned to the general prime contractor as “site utility” work because of the significant trenching and backfilling required. In January of 2016, the School District awarded the plumbing prime contract to Wheels Mechanical, and the general construction prime contract to Nello Construction.
On June 1, 2016, Wheels brought suit to stop certain work on the Project. Essentially, Wheels contended that all sanitary sewer, storm sewer, and water line work should have been included as part of the plumbing prime contract – regardless of whether the work was to be performed inside the building or further than five feet from the building. Wheels claimed the School District violated the School Code and Separations Act by failing to include all of this work in the plumbing package. The Laborers District Council of Western PA intervened on behalf of the School District and Nello, and the Plumbers Local Union No. 27 intervened in favor of Wheels.
In a decision that surprised many, the trial court sided with Wheels and granted injunctive relief. However, the Commonwealth Court reversed the trial court’s decision pursuant to the legal doctrine of laches. Simply put, laches refers to a lack of diligence and activity in making a legal claim, or moving forward with legal enforcement of a right. Here, the Commonwealth Court reasoned Wheels had a duty to recognize its claims during the bid process or immediately after contracts were awarded. Instead, Wheels waited nearly seven months after receiving the bid specifications to initiate the action. By that point, all contracts had been awarded and work at the project was well underway.
However, it is important to note that the Commonwealth Court’s ruling did not address the underlying issue of whether the disputed work should actually be included in the prime plumbing or general construction contract. This uncertainty makes this issue ripe for another challenge, and suggests that additional litigation on this topic may occur in the near future. We will also not be surprised if standard specifications are now revised in a way that attempts to avoid this potential jurisdictional dispute.
Matt Jameson chairs the Construction Services Group at Babst Calland and he is a shareholder at the firm. J.D. Mazzocco is an associate attorney is the Construction Services Group at Babst Calland. Please contact either of the authors if you would like a copy of the PowerPoint slides from the referenced seminar or if you would like to receive an invitation to next year’s Babst Calland Construction Law Year in Review seminar.