Force Majeure and COVID-19 in Construction Contracts – What You Need to Know

By and on March 23, 2020
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“Force Majeure” – While most construction contracts contain these provisions, they are often not understood  in relation to the implications they may have on construction projects. With the onset of the COVID-19 pandemic, we are all taking a closer look at many portions of our contracts.  The following is a brief primer on how to understand your construction contract and its potential implications on your business in this season of change.

What is a Force Majeure?

Construction contracts usually take into consideration that the parties want to agree at the outset on who bears the risk of unforeseen incidents that may affect the project’s progression.  These issues are generally handled in a “force majeure” clause.  Force majeure, according to Mariam Webster’s Dictionary is a “superior or irresistible force; or an event or effect that cannot be reasonably anticipated or controlled.”  To be deemed a force majeure, generally the circumstances must be outside of a party’s control which makes performance impossible, inadvisable, commercially impractical, or illegal. In addition to being unforeseeable, the circumstances must have external causation, and be unavoidable.  However, the key to understanding if COVID-19 will be deemed a condition that will excuse a contractor’s performance is the specific language in the provision.

Generally force majeure events are unavoidable events such as “acts of God,” most notably weather conditions including hurricanes, tornadoes, floods, earthquakes, landslides, and wildfires, as well as certain man-made events like riots, wars, terrorism, explosions, labor strikes, and scarcity of energy supplies.  However, there is not much case law or specifics on conditions similar to COVID-19.

What are the Key Aspects of a Force Majeure Clause?

While force majeure is a recognized concept in most legal systems, it usually does not have a precise legal definition. As a result, parties must generally look to the specific language used in the contract. Most contracts include a definition of force majeure and often include a non-exhaustive list of both illustrative force majeure events and events that do not constitute force majeure.  The contract interpretation will often turn on how the event of force majeure is characterized.

First, to be classified as a force majeure event, the event must be beyond the control of the contracting parties, it cannot be anticipated, foreseeable, or expected, and the event must be unavoidable.  The circumstances must also be found to be externally caused, unforeseeable, and unavoidable.  The specifics that you are looking to call the force majeure are important — what is the claimed impediment to performance?  Is the circumstance the outbreak of the disease, an order by the government trying to contain the spread of the disease, or lack of materials or manpower.  Once the event is determined and the specific force majeure is clarified, there must be found to be a sufficient causal link between the alleged force majeure and the claiming party’s non-performance. Finally, even if the declaration of force majeure is validly given, the amount of time that performance should be excused and the time at which the force majeure has ceased to exist will need to be addressed.

Can I trigger my Force Majeure Clause due to impacts from COVID-19?

The most secure means of ensuring that you can trigger your force majeure clause to excuse performance, or extend time for performance, is if your provision specifically calls out a pandemic or other similar serious disease, epidemic, or public health issue. However, most contract provisions do not contain that level of specificity.  The next step would be to see if the terms in your contract include sufficient examples that can be found to be analogous to a public health crisis such as we are currently experiencing. In many instances, the risk will rest on the contractor and not the owner for increased costs for material shortages and/or price increases unless another provision (such as price escalation clauses) apply.

The best course of action is to ensure that you negotiate as specific and clear language as possible to define the scope and effect of a force majeure clause to protect against unexpected liabilities. The following elements should be addressed in a force majeure clause:

  • What events are considered force majeure?
  • Who is responsible for suspending performance?
  • Who is allowed to invoke the clause?
  • Which contractual obligations are covered by the clause?
  • How should the parties determine whether the event creates an inability to perform?
  • What happens if the force majeure event continues for more than a specified period of time?

If you already have force majeure clauses in your standard contracts, we recommend a review of those provisions to ensure the terms provide clear, comprehensive, and adequate protections for the company and consider whether terms such as “widespread epidemic,” “pandemic,” and/or “public health emergency” should be added.  We have seen courts loathe to extend the interpretation of force majeure clauses beyond what is specifically listed in the contract.  While the impact of the COVID-19 pandemic is likely to be found to be unforeseen and externally caused, the key issue will likely be whether the impact was unavoidable.

You also should review the terms of your existing force majeure clauses in preparation for potentially needing to invoke them for COVID-19-related issues. In the event you are unable to assert a force majeure clause when faced with such events, the doctrine of impossibility and impracticability may be your next best bets. The common law doctrine of impossibility “allows a party to suspend or avoid performance when a supervening event beyond its control makes performance of the contract no longer capable of being performed.” (17A Am. Jur. 2d Contracts § 655 (2010).)  For example, where unforeseeable severe material shortages or an embargo render the materials necessary to complete a construction contract completely unavailable, impossibility is probably a viable defense. However, the more likely effect of an embargo or a material shortage is that it will significantly increase the cost of completing a contract, but not render it impossible. In such a scenario, a party’s best defense may be the doctrine of commercial impracticability. However, the terms of the contract must be carefully consulted to determine whether any waiver or assumption of these risks were included.

Many courts have moved beyond the requirement of “absolute impossibility” and recognize the doctrine of commercial impracticability, which allows a party to be excused from performance where, although performance of the party’s contractual obligations is technically possible, changed circumstances have rendered performance commercially unreasonable.  The doctrine of commercial impracticability is codified in the Uniform Commercial Code § 2-615 “Excuse by Failure of Presupposed Conditions” (however, the U.C.C. only applies to commercial goods). When deciding U.C.C. cases involving commercial impracticability, in addition to U.C.C. § 2-615, courts often also expressly discuss the Restatement of Contracts (Second) § 261, which sets forth the common law application of the doctrine of commercial impracticability.  Thus, the holdings of these U.C.C. cases should be generally applicable to non-U.C.C. construction contracts involving the provision of services.  (15 J.L. & Com. 213, 214-15 (1995).)

Generally, in order to prevail on a defense of commercial impracticability, a party must show the following: “(i) a supervening event, either an ‘act of God’ or an act of a third party, made performance impracticable, (ii) the non-occurrence of the event was a basic assumption upon which the contract was based; (iii) the occurrence of the event was not the party’s fault; and (iv) the party did not assume the risk of the event’s occurrence.”  (L.W. Matteson, Inc. v. U.S., 61 Fed. Cl. 296, 320 (2004).)   Whether non-occurrence of a particular event “was a basic assumption” generally depends upon the foreseeability of the event. (15 J.L. & Com. 213, 214-15 (1995).)   “If a disruptive event was foreseeable and the promisor failed to protect himself by means of an express provision in the contract (a force majeure clause), then the promisor will be deemed to have assumed the risk of the disruptive event.” (Id.)

However, “a severe shortage of raw materials or of supplies due to a contingency such as a war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost” or prevents performance altogether is likely sufficient for an impracticability defense under the U.C.C. (See U.C.C. § 2-615.)  The Restatement’s comments echo those of the U.C.C. and provide that such circumstances would also probably be sufficient for an impracticability defense in a contract for services.  (See RESTATEMENT (SECOND) OF CONTRACTS § 261 (1981).)   Accordingly, it appears that the doctrine of impracticability can relieve a party from its contractual duties when faced with price increases caused by severe material shortages or an embargo, or even arguably when faced with a health pandemic affecting global commerce.

In conclusion, there may be steps you can take now to protect yourself and to negotiate an agreement with your contracting partners as to how to weather this storm as well as to ensure that you comply with any notice requirements or mitigation efforts required. At a minimum, consult with an experienced construction lawyer to evaluate your risk and determine what risk management and mitigation steps you should be taking while this situation unfolds.

Visit our COVID-19 Hub for ongoing updates.

Filed under Construction Contracts, COVID-19

Massachusetts SJC Clarifies “Strict Compliance” Standard in Construction Contracts

By on November 27, 2018
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In Massachusetts, it is well established that a contractor cannot recover damages from a construction contract without first showing that the contractor completely and strictly performed on all of the contract’s terms. Recently, the Massachusetts Supreme Judicial Court narrowed the rule by concluding that complete and strict performance is only required for contract terms relating to the design and construction itself. The high Court explained that non-design / non-construction contract terms are governing by “ordinary contract principles, including the traditional Massachusetts materiality rule.”1

In the case – G4S Tech. LLC v. Mass. Tech. Park Corp. – G4S Tech. LLC (“G4S”) brought suit against Mass. Tech. Park Corp. (“MTPC”) alleging MTPC owed G4S $4 million of a $45 million contract after G4S completed the build of a fiber optic network in western and north central Massachusetts.2 MTPC maintained that they withheld the $4 million because of substantial delays in the project.3 MTPC in turn brought counterclaims against MTPC alleging fraud and violations of the Massachusetts Consumer Rights Act. Specifically, MTPC maintains that G4S fraudulently and intentionally delayed payments to subcontractors in violation of the construction contract.4 The SJC held that the contract provisions dealing with the “timing of payments to subcontractors and the documentation concerning those payments” is not a contractual term relating to the design or the construction of the fiber optic cable itself.5 Thus, the SJC analyzed the alleged violations under the Massachusetts materiality standard as opposed to the strict and complete performance standard.6 In general, a material contract breach (i.e., a breach concerning an essential and inducing feature of the contract) may discharge the non-breaching party from performing on the contract while a minor or ancillary non-material breach generally does not discharge the non-breaching party (but may warrant monetary damages). Here, the SJC decided that the fraudulent recording of subcontractor payment did constitute a material contract breach.

The SJC’s holding in G4S Tech. LLC v. Mass. Tech. Park Corp. is significant for future construction contracts because it shapes different standards and effects for different categories of contractual terms. That is, to the extent a contractual term relates to the design or construction itself, a contractor is required to strictly and completely comply with such terms. The Court reasoned that strict compliance is required to ensure that the “construction itself is done safely and correctly according to design specifications.”7 However, if a contractor fails to strictly comply with a non-design / non-construction term then a court must analyze whether the non-compliance constitutes a material breach or merely a non-material breach and the effect thereof.

Moving forward, Massachusetts contract drafters, contractors, and owners should pay close attention to terms relating directly to the design or construction of a particular project. Interestingly, the SJC chose not to consider the consequences of contract provisions “that are subsidiary to or supportive of the design and construction, but do not directly involve the design and construction itself.”8 As such, future litigants may attempt to argue that particular provisions are merely “supportive” to a project’s design and construction and thus doesn’t require strict compliance. That being said, best practices for contractors remains the same – strictly and fully comply with all terms.
_______________________________________________________________________

1 G4S Tech. LLC v. Mass. Tech. Park Corp., 479 Mass. 721, 723 (2018).
2 G4S Tech, LLC, 479 Mass at. 721.
3 Id.
4 Id. at 723.
5 Id. at 733.
6 Id. at 734-24.
7 Id. at 731.
8 Id. at 732.

Filed under Construction Contracts

The Importance of Situational Leverage

By on November 11, 2016
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George Orwell wrote “all animals are equal, but some animals are more equal than others.” In construction, this is plainly true. The large, multi-billion dollar prime contractor, for example, is unlikely to negotiate subcontract terms with the 7-figure concrete installer. The public agency is unlikely to negotiate design contract terms with the 10-member architectural firm who is designing a new courthouse. But these general guidelines are just that: general (not universal) guidelines (not rules). A party who fails to recognize situations where the leverage has shifted runs the risk of either killing the deal (by demanding that which it is not entitled to) or failing to get as beneficial a bargain as they are entitled to (by failing to appropriately flex their muscle). A brief review of some common situations where the situational leverage differs substantially from ordinary leverage will illustrate some issues to keep an eye out for.

A.  The “Plus Factor” Subcontractor

There are times when a specific subcontractor brings a very specific and rare (or unique) advantage to a project. One example is a subcontractor who holds an SBA, MBE, WBE, DVBE, or LBE designation from the relevant government entity. The prime contractor likely achieves a monetary advantage by contracting with this certified subcontractor, and a smart certified subcontractor will leverage that advantage to bargain for better commercial terms with the prime, whether that takes the form of more money or better subcontract legal terms, or both. Another example is a subcontractor with a special (and rare) material application certification that is necessary for the project, such as a certification to apply an epoxy that is specified in the specifications (and for which a certified installer may also be specified). If the prime contractor adopts its standard, take-it-or-leave-it approach to negotiations with “plus factor” subcontractors, they may quickly find themselves talking to an empty chair. On the flip side of that coin, a “plus factor” subcontractor who accepts an “industry standard” deal is failing to avail itself of the benefits it is commercially entitled to realize.

B.  The “Connected” Subcontractor

Leaving aside jokes regarding East Coast garbage hauling contracts, the fact remains that at times, a subcontractor has a special and useful connection with an important player in the project.  When the design-builder is looking for a design subconsultant, the designer who has designed dozens of projects for the project owner can probably help speed and smooth the process of getting the DB design approved. The electrical subcontractor who performs direct contracts for the public owner of a project can probably help the prime contractor get submittals and test results approved quickly. These advantages are generally less clear and less well known than “plus factor” subcontractors, who enjoy a built-in, knowable, often quantifiable advantage. As such, subcontractors looking to flex this leverage need to be ready to make a convincing case that they actually HAVE the leverage—they need to sell the prime contractor on the existence of the advantage before they try to use that advantage. But subcontractors who have these sorts of connections will be in demand among every prime contractor seeking the work, and so primes would be well-advised to effectively court subcontractors who have a demonstrated, and useful, connection.

C.  The “Competent” Subcontractor in a Busy Market

It seems odd to talk about a subcontractor being competent as though it was a unique advantage. But, as various cities in the U.S. experience construction booms, we can see the repetition of a common cycle. In any up-cycle, the first contractors to become fully utilized (i.e., have all their resources occupied and be unable to take on additional work) are usually the best subcontractors. The last contractors to become fully utilized are usually the newest and/or least experienced. Thus, an owner or prime contractor looking for an excellent contractor or subcontractor to work on a critical aspect of the project may find that the best-qualified candidates are not hungry enough to chase work. These “top tier” contractors will demand favorable commercial terms to work on your project, and in many cases it will be worth it to the owner or prime contractor to accede to a reasonable number of such demands.

Mel Brooks wrote, and Zero Mostel said, “when you got it, flaunt it!” When you find yourself in possession of atypical negotiating power, you are well-advised to strategically, intelligently, and effectively use that power to get a better deal. Similarly, when you find yourself negotiating with such a party, you need to realign your expectations to reflect commercial reality. Failure on either party’s part will result in both of them losing out on a deal that may be beneficial to both parties when strategically negotiated and closed.

Filed under Construction Contracts, Contractor, Negotiations

Drafting Enforceable Termination for Convenience Clauses

By on July 13, 2016
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We all know what purpose a termination for convenience clause is supposed to serve: if circumstances have changed such that the owner (or, in the case of a subcontract, the general contractor) believes it is no longer advisable to proceed, the contract is terminated for convenience, the other party is compensated as provided in the contract, and the parties go their separate ways, presumable at least somewhat amiably. Virtually every construction contract has a termination for convenience clause in it, and for good reason. But how often do we pause to consider whether the clauses we draft, negotiate, and sign are actually enforceable? How often do we even consider the possibility that a termination for convenience clause might be drafted, used, or interpreted in a way that would render it unenforceable?

In Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982), the Court of Claims considered the claim of a subcontractor of a contractor who was terminated after the contract was awarded, but before any work had been performed. The government originally characterized the termination as one for default, but on review the termination was treated as one for convenience pursuant to the automatic conversion clause in the Federal Acquisition Regulations. The government took the position that, because no work had been performed, no termination payment was owed pursuant to the Federal Acquisition Regulations. The contractor argued that, if the government was able to terminate the contract without making any payment, the contract was illusory, because it imposed no real obligation on the government. In a lengthy, and high-detailed, plurality opinion, the Court of Claims agreed with the contractor. While courts have debated (and attempted to limit) the holding in Torncello almost from its issuance, the core of the opinion, in the words of the court, was that the owner could not use a termination for convenience “to dishonor, with impunity, its contractual obligations.”

But in some respects, that’s exactly what a termination for convenience clause does—it allows one party to walk away, provided solely that they comply with the terms of the clause. And, certainly, no one interpreted Torncello as a death knell for terminations for convenience. Understanding that not everything is enforceable, where is the line drawn? In short, how can we ensure an enforceable clause, and an enforceable termination?

One potential answer is found in the American Institute of Architects’ (AIA) contract documents family. The AIA General Conditions (A201) have long allowed the contractor to recover “reasonable overhead and profit on the Work not executed.” The AIA has taken a lot of flak over this provision over the years, and it is fair to say the AIA is the only major contract family that allows the contractor to recover profit on work it did not perform. BUT, that payment creates an enforceable provision. Because the owner will always be on the hook for some payment, the contract is clearly not illusory, and a termination will be enforced.

The battle over enforceability continues to this day. The Washington Court of Appeal recently decided a case, Sak & Associates, Inc. v. Ferguson Construction, Inc., 357 P.3d 671 (Wash.App. 2015), in which the terminated subcontractor argued that the termination for convenience clause rendered the contract illusory. In analyzing the issue, the court recognized “An enforceable contract requires consideration. If the provisions of an agreement leave the promisor’s performance entirely within his discretion and control, the ‘promise’ is illusory. Where there is an absolute right not to perform at all, there is an absence of consideration. Thus, if a promise is illusory, there is no consideration and no enforceable obligation.” (internal quotations omitted) The court then concluded that, because the subcontractor was allowed to partially perform, and was paid for that partial performance, the contract was not illusory.  But that analysis proceeds from a flawed assumption—that a contract could be illusory at execution and become non-illusory (lusory?) due to performance. A contract either is or is not illusory. There either is or is not consideration. The promisor’s performance either is or is not entirely within his discretion and control. All of these facts can be determined at the moment the contract is executed, and the parties’ later performance can no more save an illusory contract than they could wreck a non-illusory contract.  Put different, a contract cannot become either illusory or non-illusory; it is either one or the other, and the later behavior of the parties cannot affect that.

The Sak & Associates court was kind enough to cite as authority an article I previously wrote on termination for convenience clauses. Without meaning to appear ungracious (a lawyer ought never to argue with a court who has decided to treat him as an authority), part of the point of that article and the accompanying presentation was to warn against the problems inherent in termination for convenience clauses. Relying on a court to rescue an otherwise illusory clause by invoking the later actions of the parties is not a best practice in contract drafting. By far the better course of action is to draft a termination for convenience clause that explicitly ensures mutuality of obligation. An ounce of prevention is, in this instance, worth many pounds of cure.

Filed under Construction Contracts

Beware of Contractual Solutions to Statutory Problems

By on November 3, 2015
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Every state has a multitude of statutory rules and regulations that apply to construction activities in that state. In many (although not all) cases, the statutory protections provided by state laws cannot be eliminated, restricted, or modified by contracts entered into between the parties. In other words, a party cannot, by contract, surrender the protections the law says he or she enjoys. And yet, many contracts attempt to do exactly that. When these contract provisions fail, they create a double whammy for the party that drafted them: first, that party is deprived of the protections it thought it had; second, that party has lost its chance to secure, through other, enforceable, means, the protections it wanted. A quick look at Florida’s surety bond law illustrates this point.

Florida generally enforces “pay-if-paid” clauses, whereby the prime contractor shifts the risk of owner non-payment to subcontractors, through subcontract language that states that the subcontractor is only entitled to be paid for its work if the prime contractor is paid by the owner for that work. See DEC Elec., Inc. v. Raphael Constr. Corp., 558 So.2d 427 (Fla. 1990). It is common for prime contractors in Florida to insert “pay-if-paid” clauses into their subcontracts. Florida’s statute governing payment bonds on private projects, Fla.Stat. ss. 713.001 et seq., allows a surety on a private project to issue a conditional payment bond, whereby the surety’s obligation to pay subcontractors is conditioned on the owner having paid the prime contractor for the subcontractor’s work. Fla.Stat. ss. 713.245. Thus, on private projects, a surety can avail itself of the same “pay-if-paid” protections…if it issues a conditional bond that complies with the statute’s requirements.

The interplay between these laws illustrates the problem. The payment bond surety on a private project may review its principal’s standard subcontract, note the “pay-if-paid” language, and assume that it will be allowed to “stand in the shoes of its principal” and assert that defense to a payment bond claim. The surety who believes that will find that (1) in order to invoke “pay-if-paid” as a defense, the surety is obligated to issue a conditional payment bond that complies with the requirements of Fla.Stat. ss. 713.245; (2) reliance on the subcontract language is not sufficient to satisfy Fla.Stat. ss. 713.245; (3) by the time the bond has been issued, it is too late to cure these problems, and as a result (4) the surety will be deprived of a defense it thought it had, and that it would have been otherwise entitled to assert.

The lesson is a simple one: don’t assume that contract language will always be effective to invoke, revise, minimize, or eliminate protections or rights that have been created by, or are governed by, statute. Instead, look to the statutory scheme to see if the law itself gives you options.

Filed under Construction Contracts, Contractor, Surety

Is The Failure To Comply With A Change Order Notice Provision A Material Breach?

By on June 17, 2015
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Division I of the Washington Court of Appeals recently sought to answer this question. It held that the failure of an owner and builders to comply with a written change order requirement did not materially violate a loan agreement. In Top Line Builders v. Bovenkamp, 179 Wn. App. 794, 320 P.3d 130 (2014) the property owner entered into a fixed-price contract with a builder to construct a custom residence. The owner secured a loan from his bank in an amount sufficient to cover the contract price with an allowance for potential cost overruns. The owner, builder and bank subsequently entered into a tri-party Loan Procedures Assignment and Consent Agreement (“LPA”) which mandated that any change orders resulting in cost overruns would be in writing and would be submitted to the Bank.

Over the course of construction the owner and builder agreed on a number of modifications to the construction plans—modifications which caused overruns. As you can guess, the owner and builder failed to execute the required change orders in violation of the LPA. Following completion of the home the builder moved to foreclose its lien for the balance of the unpaid contract price and overruns. The amount sought, however, did not exceed the total loan amount. The bank, a named defendant, sought to limit the builder’s recovery to the unpaid balance of the fixed price contract by arguing that the bank had no obligation to pay overruns because the change orders were never submitted.

The Court of Appeals ruled that the builder was entitled to the entire unpaid balance, including the amount owed under the change orders. The court held that the failure of the owner and builder to submit written change orders was a technical and immaterial breach of the LPA because “even if change orders were presented to [the bank], it had no right to object or require [the owner] to deposit additional funds.” In short, no harm no foul.

Although the court held that no material violation of the LPA occurred, this ruling should not be construed as an invitation to disregard the terms of your construction contracts. Had the change orders created overruns in excess of the total loan amount, the court likely would have found a material violation of the LPA.

Filed under Breach of Contract, Change Orders, Construction Contracts, Cost Overruns, Loan Procedures Assignment

Oregon Appellate Case Limits Duty to Defend in Construction Contracts

By on February 2, 2015
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In Sunset Presbyterian Church v. Anderson Constr. Co., 268 Or. App. 309 (Dec. 31, 2014), the Oregon Court of Appeals curtailed the damages available from a breach of a duty to defend obligation in an Oregon construction contract. The court affirmed a trial court’s denial of all defense costs sought because there was no attempt to distinguish between costs covered by the duty and those not covered. Prior to the decision, Oregon law appeared to require a party to defend against all claims (both covered and uncovered), similar to an insurance agreement.

Oregon’s Anti-Indemnity Statute for construction contracts (ORS 30.140) voids “any provision in a construction agreement that requires a person … to indemnify another against liability for … damage to property caused in whole or in part by the negligence of the indemnitee.” In other words, a general contractor cannot force a subcontractor to indemnify the general for the general’s own negligence (or vice versa).

The court rejected the argument that the limitation on “indemnity” obligation in construction agreements does not apply, on its face, to “defense” obligations, holding that ORS 30.140 limits defense obligations in the same manner as indemnity obligations. The court also ruled that a duty to defend does not follow the standard “defend-one-defend-all rule,” whereby a duty to defend against any claim in a complaint requires defense of all claims in the complaint. This rule, developed in insurance law, had previously been applied to duties to defend among non-insurance parties (including parties to construction agreements). However, the court held that the rule was inappropriate in construction agreements with a duty to defend. Rather, a duty to defend in a construction agreement cannot require a party to pay for defending against claims caused by the other’s own negligence.

In the end, the petition for defense costs was rejected in its entirety because the petitioner did not distinguish between the costs of defending claims caused by the indemnitor’s own negligence and other claims.

Filed under Construction Contracts, Duty to Defend

AB 1897 Holds Client Employers Liable if Labor Contractors Fail to Pay Adequate Wages or Provide Workers’ Compensation for Injuries on the Job

By on January 13, 2015
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Effective January 1, 2015, employers who hire temporary labor from labor contractors can be held liable for payment and workers’ compensation violations. Specifically, the bill adds California Labor Code §2810.3, which provides in pertinent part:

 (b) A client employer shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for both of the following:

 (1) The payment of wages.

 (2) Failure to secure valid workers’ compensation coverage as required by Section 3700.

The bill was enacted as a reaction to a recent shift from a traditional employer-employee relationship towards a business model that utilizes subcontracted or contingent workers. Proponents are concerned that this change creates challenges for workers and enforcement agencies in ensuring workers’ rights.

The law will affect the construction industry by increasing liability of employers who hire temporary labor to work on specific projects. According to a group of workers compensation lawyers, although existing workers compensation law requires employers to enter into written contracts for construction services that include workers compensation and wage information, the new law holds employers specifically accountable for violations related thereto.  Employers should be diligent in researching the policies of the labor contracting companies they work with and ensuring the adequacy of their wages and workers compensation coverage. If for any reason you find that your employer is not providing all things by law then you should contact a workers compensation attorney for help on the matter.

To see the bill in its entirety, click here.

Filed under Construction Contracts, Employment

Illinois Court Throws Down Hammer on Contractor’s Ability to Recover Fees

By on May 21, 2014

The Illinois Appellate Court recently affirmed summary judgment against a contractor on the validity of its mechanic’s lien, finding that the contractor failed to comply with a simple — but costly — requirement provided for under the Illinois Mechanics Lien Act (770 ILCS 60/1 et seq. (West 2004)).

Cityline Construction v. Roberts, 2014 Ill. App. (1st) 130730 (March 7, 2014), involved construction work performed on a fire-damaged residence owned by Andrew Roberts and Valerie Gherold (owners).  Cityline sued the owners to enforce its mechanic’s lien claim when it was not able to recover $397,302 in fees and costs from the defendants.  While there was no dispute that the work was performed, the owners’ defense was simple: Cityline failed to provide them with an affidavit listing the subcontractors and suppliers performing work and the amounts each was owed and, as such, they were not obligated to pay the fees Cityline sought.

Section 5(a) of the Act specifically provides, “It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor,” a sworn statement listing the subcontractors, suppliers, and the amounts due.  Here, Cityline admitted it had failed to supply the required sworn statement to the owners — despite having received a request from them to provide same.  In affirming the trial court’s decision, the Appellate Court found that the procedural and technical requirements of the Act “must be strictly complied with in order for a mechanic’s lien to be valid.”  Simply, the statute clearly sets forth that where an owner demands a sworn statement, it is the contractor’s duty to provide one to preserve any potential mechanic’s lien claim.

As the attached publication from The CBA Record sets forth from the outset, “While [the Act] may not be as popular or as well-known as other avenues for justice, its bite is certainly worse than its bark.”  After the Appellate Court’s ruling here, it is doubtful Cityline would argue.  Had Cityline complied with the Act in providing the owners with a sworn statement, it undoubtedly would have had an easier path to recovering its unpaid fees.

Because the Act is automatically incorporated into every construction contract in the state of Illinois — regardless of the amount of the contract price — it is imperative that contractors comply with the Act’s stringent requirements to preserve their right to recovery.

Filed under Construction Contracts, Illinois Mechanics Lien Act