Open Accounts and Mechanics Liens

The following post was written by a guest contributor to the Construction Lien Blog, Christopher Hill.    Chris a construction attorney in the state of Virginia, leading the construction practice group at Durrette Bradshaw.  He publishes a construction law blog titled “Construction Law Musings.”   [Chris’ profile at Construction Lien Blog]

Scott Wolfe, one of the contributors to this blog asked me for a piece on Virginia Mechanic’s Liens.  Scott has written several good pieces on liens in the Commonwealth of Virginia, and I hope that this one proves as helpful.

In researching liens in the Commonwealth of Virginia, I ran across a question that should be on the minds of construction professionals in Virginia, particularly suppliers of materials.  The question is simply “On an open account (based on a credit agreement or other arrangement), is each delivery to a particular contractor its own “work” such that the 90 day clock runs from the completion of each delivery, or do all deliveries to a particular project constitute the “work” on that project such that the 90 day clock only runs from the last delivery to the job site?” (How’s that for simple!)

The answer to this question is (drum roll please!)- “It depends.” (I know, you are shocked at such a “lawyerly” answer.)

The Virginia Supreme Court weighed in on this question in United Savings Association of Texas, F. S. B. v. Jim Carpenter Company, Record No. 951470 (2006).  The Jim Carpenter case involved three different cases of liens that were filed by material men pursuant to various forms of open account contracts.  You can read the case to see the particular facts of the case but in essence the owners/general contractors on the project argued that the material men could not lien for any materials delivered to a particular project outside of the 90 day lien window and the material men argued that all of the materials were delivered to the same projects and therefore all constituted one continuous contract.

The Virginia Supreme Court held that the intent of the parties controls.  On the one hand, general deliveries to a contractor for general use (i. e. warehousing for use at some time in the future) each constitute a separate contract, each with its own 90 day clock.  On the other, if the material deliveries upon which the lien is based are all delivered for the benefit of a particular project then they all constitute one continuous contract and the 90 day clock does not start to run until the last delivery is completed.

What do you, as a construction professional, take from this case?  Be careful with your open accounts.  Make sure that when delivering materials to a job site based upon an open account you are exceedingly clear with your purchase order or takeoff language that certain materials are to be delivered to a certain project.  Failure to do so may lead a court to decide that the materials were a general delivery and cut off much or all of your recovery.

As with everything else to do with the picky issues with mechanic’s liens, all of the other requirements (150 day look back, notice, etc.) apply and good legal assistance is a must.

If you are interested in more thoughts on Virginia construction law, please check out my Construction Law Musings blog and join the conversation.

Good and Bad News Regarding California Public Construction Projects

Last month, we reported problems in California where the government’s spending freeze affected thousands of public construction projects, and an enormous amount of contractors and laborers.  Today, the San Francisco Chronicle has mixed news regarding this problem – as California is pumping money to salvage some of these projects, but more money is still needed.

The article states that 276 of the problem projects will be allowed to continue work (for now), because “shutting them down  would cost more than it would take to complete the jobs.”

But the problem is far from over, as the article goes on to warn:

But state officials warned that if the governor and the Legislature are unable to find a solution to California’s $42 billion budget deficit by the end of this month, the remainder of the work could end.

A full list of the affected projects can be read here:

If you and your company are working on a public project affected by this spending freeze, you will want to file a Stop Notice to preserve your rights to Get Paid for work performed.

Seattle Tunnel Project to Cost More than $4.2 Billion

Washington Governor Gregoire has proposed a 54-foot diameter tunnel to replace the Alaskan Way Viaduct in Seattle, and the cost of the project is expected to be more than $4.2 billion, with the possible substantial completion date falling around mid-2017. This reported by the ACG SmartBrief.

While commentators and those interested in politics are worried about the project becoming the “next Big Dig,” the huge undertaking is good news to Washington contractors who may be involved with the project. Stay tuned to the Construction Law Monitor for more updates on the project.

E-Verify Requirement Delayed for Federal Contractors

Last week, we reported that the new federal E-Verify was being challenged in court.

In a news release, the Department of Homeland Security (DHS) announced that they are "delaying implementation from the original Jan. 15 starting date to Feb. 20 as a result of negotiations associated with a lawsuit filed by the chamber and other business groups"

The Federal Construction Contracting Blog recently stated that opponents of the new rule hope that the delay will allow the Obama administration ample time to evaluate the impact it could have on the world of government contracting.

Since the new rule is the result of an executive order from President Bush, President-elect Obama could make significant changes to the proposed requirements.

If you are a contractor that does federal work, stay tuned to the Construction Law Monitor for more information about the status of this suit, and the status of the E-Verify requirements.


Big Brother Increasing Immigration Pressure on Contractors

At the end of 2007, the regulatory buzz around the construction industry regarded the controversial "No-Match" letters imposing steep fiscal penalties for employers who knowingly employed illegal workers. As reported on our blog back then, the controversy led to litigation, which led to delay, which eventually led to the entire controversy pretty much blowing over.

Except that it’s back.

As per an executive order by President Bush, starting January 14, 2009, most federal contractors and subcontractors will be required to use an E-Verify system to confirm the resident status of its employees.

The Midwest Construction Law Blog has posted a blog post with a great summary on the E-Verify history, controversy and requirements. Read it here. That post also discusses a recent lawsuit filed by the Society for Human Resource Management to prevent its enforcement.

And so here we are again – more controversial regulations aimed at construction businesses, and more uncertainty for contractors as to whether the requirements are indeed required.

On what basis is the executive order being challenged? Here is a quote from the Midwest Construction Law Blog post:

E-Verify was designed to allow U.S. employers to use a federal government database to confirm the work eligibility of applicants for jobs. Critics point out that the system has a high error rate. And some have challenged the Bush administration’s authority to mandate E-Verify for contractors.

"The E-Verify system is far from ready to be mandated on employers. Plus, the authority to mandate it lies with Congress, not a federal agency," commented Michael Aitken, SHRM’s director of government affairs, after the suit was filed on Dec. 23, 2008. "SHRM believes the administration is overreaching its authority by mandating an employment verification program designed by statute to be voluntary."

If you are a contractor that does federal work, stay tuned to the Construction Law Monitor for more information about the status of this suit, and the status of the E-Verify requirements.

How to Become a Qualified Installer of Solar Equipment in Louisiana

A few weeks ago, we posted an article about the tax credits available to homeowners, property owners and developers for installing solar energy equipment in Louisiana (Louisiana the Greenest?  It’s Certainly The Brightest).  Therein, we explained that Louisiana has some of the most impressive incentives in the nation for solar energy installations.

Let’s look at this issue from another angle:  Those who are supplying and installing the solar energy equipment.

The available tax incentives and market demand has increased competition in these installations, and still more organizations are wondering how they can offer solar installation services to their clients.    Since the real advantage to installing solar panels or solar energy equipment is the available tax credits, we’ll focus this blog post on what qualifications the installer must have for its clients to be eligible for state and federal tax credits.

The Louisiana Board of Contractor’s Study Reference Guide for the Electrical Work examination has this within it, giving insight on the certification requirement for those interested in installing this equipment:

Electrical contractors who intend to do photovoltaic panel and windmill installations must, in addition to getting their Electrical Work classification, also obtain independently the classification of “Solar Energy Equipment” and meet other requirements in order for their customers to be eligible for certain state tax credits.For more information about eligibility for the credits, please contact the Louisiana Department of Revenue and Taxation.

In addition to this “Solar Energy Equipment” classification, the Department of Revenue’s Notice of Intent on Income Tax Credits for Wind or Solar Energy Systems (LAC: 61:I:1907) requires the installing contractor to have “a certificate of training in the design and installation of solar energy systems from an industry recognized training entity, Louisiana technical college, or the owner of the residence.”

Who are some industry recognized training entities?   Well, I suppose this is a matter for interpretation, but the following programs should be worthy:

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Another Construction Safety Reminder – Fall at Yankee Stadium

Last week, we posted about the collapse of a pedestrian bridge in Atlanta as a reminder to contractors of the importance of construction safety. Another high profile construction accident occurred this week in New York, as a worker on the new Yankee stadium was hospitalized after a fall from a mobile scaffold.

This is just another reminder to contractors, subcontractors and other tradesman who do dangerous business that safety should be taken seriously. One small fall can cost your project bad press, an OSHA investigation, workers compensation claims and rate increases, insurance battles, and more.

Chris Hill, a construction attorney with Durrette & Bradshaw, published an article recently on his “Construction Law Musings” blog titled: Be Ready In Case Of A Construction Disaster.

Chris’ point?

“If you are unlucky enough to be an owner, architect, engineer, or contractor on a project that results in disaster, you need to get legal counsel, immediately contact your insurance company and have an independent third party evaluate the situation. For further steps, please check out this article I wrote for Business Law Bulletin of Virginia.”

His article in the Business Law Bulletin of Virginia is a great resource for contractors all over the country faced with construction accidents or disasters. More resources can be found at our prior post here.

An Owner’s Perspective on Liens

We frequently post about construction liens from a contractor’s perspective – who are clearly interested in figuring out ways to qualify for the filing of a lien.

What we rarely comment upon is an owner’s perspective, who are concerned with the opposite:  figuring out ways to condemn a lien as improperly filed.

It’s important for those who usually file mechanic’s liens to step back and consider the opposing viewpoint.   There is some value in understanding that upon receipt of a lien, an owner’s will likely have the instinct of wanting to fight it as improper or unfair.

When lien laws are drafted, they are drafted with protection for property owners in mind.  And when contractor boards and other regulatory agencies commit time to lien laws, they are usually focusing on educating the public (i.e. property owners) on what they can do to prevent liens.

A December 2008 article from the Daily Journal of Commerce in Portland, Oregon, stands as an example of this.  In the article titled “Five Questions to Ask About Liens,” the author goes through five questions owners should ask when faced with mechanic’s liens to determine their rights on proceeding forward.

This is not a rare example.   To the contrary, regulatory agencies across the nation who regulate contractors focus a great deal of effort on helping owners understand and overcome improperly filed construction liens.  See the page for Department of Labor & Industries in Washington, or the Contractors State Licensing Board in California.

If your company does wind up filing an improper mechanic’s lien and its disputed by the property owner, a loss in court could require your company to pay penalties, attorneys fees and more.

The point?   It’s important to understand the lien laws in your jurisdiction, and avoid making common errors and mistakes.

Andrea Goldman, a construction attorney in Massachusetts, publishes a great blog about this very issue titled:  Home Contractor v. Homeowner.  She frequently posts on issues that surface in home construction between the property owner and contract that results in litigation or arbitration.

With all of the work across the nation from regulatory agencies attempting to stifle improperly filed mechanics liens, Andrea notes in her blog that mechanic’s liens are so powerful of a collection tool for contractors that even an improperly filed lien can yield non-payment.

In her post the “Strength of Mechanic’s Liens,” Andrea states as follows:

Even if the lien is not done properly, one still has to file an action in court to dissolve it, which requires paying legal fees that are frequently not recoverable.

And regardless of your position on the subject (as a property owner, contractor or regulatory board), and regardless of how right or wrong your position may be, Andrea’s point is clear.   Mechanic’s liens are powerful instruments, and even when they are filed with technical defects, they cause parties to consider the debtor’s claim and contemplate a resolution.