New Law Affects Louisiana Construction Contracts in 2011

A new law spawned by the 2010 Louisiana legislative session will effect construction contracts in the state, but has received relatively little attention.   I speak of Senate Bill 625 (Act 492), which created La. R.S. 9:2780.1 (read the Act and new law here), and provides that certain contract provisions within a construction contract are invalid as a matter of law.

Typically parties are able to contract for just about anything.   The terms of their agreement are the terms of their agreement, and courts are required to enforce them.   That’s the general rule.   One exception is when a state legislature deems a certain contractual provisions invalid as a matter of public policy.  In that instance, parties aren’t allowed to agree to the banned terms.

The new statute highlights two very common contract provisions that are not allowed in construction contracts.   First, a certain type of indemnity provision.  Second, a choice of law provision.

The new law applies to all contracts entered into after January 1, 2011.

Indemnity for Negligence

§2780.1(B) provides as follows:

Any provision…which purports to indemnify, defend or hold harmless, or has the effect of indemnifying, defending or holding harmless, the indemnitee from or against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the indemnitee, an agent or employee of the indemnitee, or a third party over which the indemnitor has no control is contrary to the public policy of this state and is null, void and unenforceable.

This is a big deal for folks in the construction industry.   Contractors and suppliers very frequently enter into complex and lengthy indemnification agreements, and this law will render some of these agreements null and void.

After this law takes effect, any provision indemnifying a party from its own negligence will be null.    Contractors and suppliers in Louisiana, therefore, are not allowed to shift the risk of their own negligence or intentional acts to another party.

Previously, such an indemnification clause was allowed, but the indemnification needed to be clear and exact.   Now, even the clearest and best-written clauses will be invalid.

Choice of Law Provisions

§2780.1(D) provides as follows:

Notwithstanding any contractual provision to the contrary, the laws of the state of Louisiana shall apply to and govern any construction contract to be performed in this state…Any provision…in such contracts which conflicts with the provisions of this Section shall be null, void and unenforceable.

It is common practice for general contractors (especially those coming in from out-of-state) to choose another forum’s laws as applicable to the contract.   Starting January 1, 2011, however, these clauses will be unenforceable.

If a construction project is in Louisiana, the laws of Louisiana shall apply to it.

Savings Clauses

A “Savings Clause” is simply a clause within a contract providing that if another clause is declared invalid or unenforceable for any reasons, the rest of the contract is “saved,” such that only the invalid provision is stricken from the agreement, as opposed to the entire agreement being deemed irrelevant.

Since construction contracts are usually complex and comprehensive, a savings clause is important because it insures that the agreement between the parties will withstand judicial scrutiny, even if one provision is declared invalid.    The new Louisiana laws on indemnification and choice of law provisions highlights the importance of these savings clauses.

If you enter into a contract after the new year, and the contract has one of these newly invalid clauses within it, the whole contract could be deemed null & void if a savings clause isn’t in there.   So, make sure you avoid these provisions, and if you can’t, make sure the savings clause is in the contract.

Bill Bryson’s New Book Has Treasures For Construction Industry

At Home: A Short History of Private LifeI’m a big fan of Bill Bryson’s books.   I first fell in love with his writings by reading A Short History of Nearly Everything.  The book is as advertised.

A couple of weeks ago, Bryson released a book with a less ambitious subject:   At Home:  A Short History of Private Life.   The point here is that Bryson goes through his own English home, examining the history of our normal everyday lives by examining each room and the room’s associated history.

As a general reader, I recommend the book because Bryson is such an enchanting writer, and this book is packed with interesting information.   The book has special interest to folks like me, who are connected in some form with the construction industry.

In At Home, from time to time, Bryson talks about the history of certain construction styles, methods and materials.   We learn about the history of the brick (it’s older than architecture would let on), for example, and why windows aren’t very popular until recent modern times (there was a tax on glass).

So, if you’re in the construction industry or associated with it in any way, and you’re looking for a leisure book to read, put At Home on your list.

Oregon Clarifies Statute of Limitations on Construction Breach of Contract Action As 6 Years…But Opens Door to Negligence Claims.

Two interesting decisions from the Oregon Courts of Appeals in 2008 and 2009 are indirectly related, and of interest to folks in the construction industry.

In the earlier decision, the Oregon court clarified the statute of limitations in a breach of contract claim for construct defects. Surprisingly, because of some ambiguity in two Oregon statutes, it has not been settled whether these suits were to be brought within 6 years from the date of breach, or ten.

The Court in Waxman v. Waxman & Associates, Inc. appears to have settled the rub, holding the claim must be brought within six years from the date of the breach – regardless of when the breach was or should have been discovered. 224 Or. App. 499, 198 P.3d 455 (Or. Ct. App. 2008).

Which leads us to a case the following year before the Oregon Court of Appeals, Abraham v. T. Henry Construction Inc., 230 Or. App. 564, 217 P.3d 212 (2009).

In this case, the plaintiffs brought suit against their contractors for breach of contract (defects) and negligence….8 years after the breach. As we just learned from the Waxman case, therefore, the breach of contract claims were prescribed, and the Abraham court found as such.

Interesting about this case, however, is that the negligence claims were allowed to proceed. This, despite application of the economic loss doctrine.

Typically, the economic loss doctrine will prohibit a tort claim between contracting parties when the claim arises out of a failure to perform contractual obligations. In other words, since negligence is a duty/care claim, one party must breach a standard of care….not simply a contractual obligation.

The plaintiffs in Abraham argued, however, that the contractors had breached a standard of care because it had violated the Oregon Building Code.  The Oregon Court of Appeals agreed that the Oregon Building Code did create a standard of care, and allowed the claim of negligence to proceed.

Reminder: Louisiana Lien Period Starts When The Entire Project is Completed, Not Simply The Claimant’s Work

Lien periods are a funny thing. In some states, they are painfully short, and in others tremendously long. Regardless of the actual period of time available for lien filing, in order to figure out when the lien period ends….it’s important to know when it begins!

In some state (like Washington), the lien period starts when the claimant last furnishes labor and material to the project. So, if the foundation subcontractor last works on January 1st, that’s when his lien period begins. It doesn’t matter if the project as a whole continues for the next ten years.

Circumstances are different in Louisiana, where the lien period starts when the entire project is completed (or abandoned). Using the above example, if a foundation contractor last performs work on January 1st, but the project continues for another ten years, the foundation contractor can file its lien at anytime after he finishes work, all the way through the ten years of construction until a designed amount of time after the entire project is complete.

Louisiana construction lawyers were reminded of this in 2004 when the Louisiana First Circuit decided Nu-Lite Electrical Wholesalers, LLC v. Alfred Palma, Inc., et al., 2003 CA 1167. In that case, this precise issue was presented.

The court – reviewing the definition of “abandonment” and “work” in the Private Works Act and related jurisprudence – held that the clock starts to tick after the entire work is abandoned or substantially completed.

Great Summary of Louisiana E-Discovery Developments

As a technology junkie, I’ve always had an interest in the development of E-Discovery.   The Louisiana Law Blog just posted an outstanding summary of recent e-Discovery developments in Louisiana federal courts.  It’s so impressive that I had to link to it from the Construction Law Monitor:  Recent Developments in E-Discovery in Louisiana.

E-Discovery is an important concept for our clients and those in the construction industry.   Everyone in the industry understands how much documentation and correspondence goes into every project.  So, think about all of this documentation and ask yourself:

How is that documentation created?   On a computer.   How is that correspondence sent?   By email.

The electronic nature of the way we do business and communicate is inescapable.   If a dispute arises and proceeds to litigation, the litigants ought be prepared to produce all of these emails and electronic documents in their native formats (i.e. not on paper!).

To give you a bit of background on the e-Discovery concept, I’ll give a brief explanation and point you to some great resources.

The Explanation:

The 2007 Louisiana legislature made a number of amendments to the Louisiana Rules of Civil Procedure that mirror contemporaneously-made amendments to the Federal Rules of Civil Procedure governing the production of electronic documents and files.   In large part, La. C.C.P. art 1462 governs the situation facing the parties today. Therein, art 1462(A) allows a party to specify in a requests “the form or forms in which information, including electronically stored information, is to be produced.”

If a specific form is not requested, La. C.C.P. art 1462(C) requires that parties shall produce ESI “in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable.

In jurisprudence regarding the FRCP language (substantially similar to Louisiana’s amendments), the form in which files are “ordinarily maintained” is commonly called ‘native format.” A “reasonably usable format” is not paper or PDF printouts of the electronic documents, as such an interpretation has been rejected by the courts. See White v. Graceland Coll. for Lifelong Learning, Inc., 2008 WL 3271924 (D. Kan. Aug 7 2008) (paper print out of PDF is not ‘reasonably usable format’ under FRCP).

In August 2007, the Louisiana Eastern District rejected an argument that the production of ESI in “native format” was overly burdensome. Auto Club Family Insurance Company v. Ahner. 2007 U.S. Dist. Lexis 63809 (E.D. La. 2007). In this case, Magistrate Wilkinson stated he will “not automatically assume that an undue burden or expense may arise simply because electronic evidence is involved.” The magistrate cited the seminal Zubulake decision in support of the observation that “Electronic evidence is frequently cheaper and easier to produce than paper evidence because it can be searched automatically, key words can be run for privilege checks, and the production can be made in electronic form obviating the need for mass photocopying.” Id. citing Zubulake v. USB Warburg, LLC, 217 F.R.D. 309 (S.D.N.Y. 2003).

A plain english definition of the term “native format” can be found on Wikipedia.

Great Resources:

Now, for the resources.   Here are two great places to go when you’re looking for information (or help with) e-Discovery issues:

  • Ernie the Attorney:   A Louisiana lawyer and friend of mine, Ernie has an impressive grasp on e-Discovery law and technology, as he is a leading expert in the country on how lawyers use or should use the PDF.   Check out his blog:  PDF For Lawyers.
  • K&L Gates E-Discovery Blog.   This is the best e-Discovery blog out there, and even has information specific to Louisiana (as well as all the other states).

Washington Court of Appeals Confirms It’s Tough To Argue Around the Model Disclosure Statement Requirements

In previous posts, I’ve written about the requirement for contractors contracting with property owners to provide a Model Disclosure Statement (Requirement in RCW 18.27.114(1)).

A case decided Division III of the Court of Appeals last year addresses a challenge to this act made by a contractor, and highlights just how difficult it is for folks to argue that the Model Disclosure Statement is not required on a qualifying project.

In this case, AWR Construction v. Labor & Industries, a contractor contracted to replace the roof of an apartment building. The owner of the apartment building – while not acting as a contractor on the project – was actually a registered contractor.

The Model Disclosure Statement must be provided whenever a contractor contracts with an owner. It is not required when a contractor is contracting with other contractors, suppliers, or the like.

AWR Construction’s argument here was that the property owner was a registered contractor, and thus, the disclosure requirement did not apply.

While this at first may sound like a clear position, there’s actually a decent justification behind the argument. The Model Disclosure Statement is required for the public’s interest, to disclose certain things to the public that is not known by them…but is known by contractors (i.e. that a lien can be filed against a project by subs, even after payment to the prime).

So, if the purpose of the statute is to disclose this type of information to the public, then why require this disclosure to a registered contractor?

Ordinarily, the disclosure need not be delivered to other contractors. The Court of Appeals found this was not the case, however, when the registered contractor was acting in the role of an owner, and not a contractor – as was the case here.

The disclosure requirement has nothing to do with the parties’ actual registration (or lack thereof), but everything to do with the role of the contractor’s customer. If the client is the owner of the property, the disclosure must be sent.

Therefore:   Send Model Disclosure Statement…or Else!

New Mississippi Resident Preference Law Is Important for Louisiana Contractors Crossing Border

Earlier this year, Mississippi passed into law Senate Bill 2370, amending the resident preference statute for Mississippi public works projects:  Miss. Code Ann. § 31-3-21(3).   The bill is extremely important to Louisiana contractors who do (are want to do) business on public projects in Mississippi.  If you fail to abide, you’re bid will be considered non-responsive.

What Is A “Resident Preference Statute?”

So, you may be wondering…what in the world is a “resident preference statute?”

As we live in a country of independent states, our nation has a rich history of state governments and trade associations fighting very hard to protect the jobs within their state.   And how do you protect those jobs?   You restrict out-of-state folks from coming in and taking those jobs.

One result of this tendency are “resident preference statutes” like they have in Mississippi.   The statute does not prevent out-of-state contractors from bidding on public projects in Mississippi (the Constitution doesn’t allow that), but it does allow the state to give a slight preference to Mississippi contractors.

KeanMiller’s Louisiana Law Blog has a great summary on how these preference statutes work with the following:

Each state has different resident bidder preference laws. Some states require either that a non-resident’s bid amount be reduced by a certain percentage or that a resident’s bid be increased by a certain percentage if a non-resident bidder also bids on the project. Other states require that a resident bidder’s amount be increased only to the same percentage as allowed in a non-resident’s state, if a non-resident bids on the contract. Still other states have no bidder preference laws at all.

What Changed in Mississippi?

Mississippi’s new law only amends a statute that already exists, it doesn’t create a new concept for public bidders.   Previously, it was “mandatory” that a non-resident bidder attach to its bid a copy of their state’s bidder preference laws.    The State of Mississippi wanted to know how your state would treat a Mississippi contractor, so it can determine how to treat you.

The problem was an opinion from the Mississippi Attorney General that a failure to provide the attachment wasn’t enough to reject the out-of-state bid.

The amendment changes that.  The new language is quite specific about the mandatory nature of the requirement, and the consequence for failing to attach your state’s preference laws to the bid:

When a nonresident contractor submits a bid for a public project, he shall attach thereto a copy of his resident state’s current law pertaining to such state’s treatment of nonresident contractors. Any bid submitted by a nonresident contractor which does not include the nonresident contractor’s current state law shall be rejected and not considered for award.

The changes are now in effect, and took effect on July 1, 2010.

Good Resource:    Blog Post on Construction Law Toolbox

Where Do I Find Louisiana’s Law?

Now that you know that the Louisiana preference law must be attached, you’re now likely wondering…where do I find the Louisiana preference law?

It’s really best to consult with a Louisiana attorney who can review the bid materials to ensure that all applicable preference laws are attached.  State laws can be complex, and there may be a preference law for various components of your project.

With that said, here are the basic statutes related to Louisiana’s residence preferences on public works project.   You can click on the statute link to go to the legislature’s website with full text of the statute:

La. R.S. 38:2225: This statute is referred to as providing reciprocal preference.   It requires that if an out-of-state bidder is low, a Louisiana bidder maybe given the job if the home state of the out-of-state bidder gives him a preference in his own state, and the Louisiana bidder is within the margin of that state’s preference for its own state bidders.   (Summary complements of Richard McGimsey, Assistant Attorney General for Louisiana Department of Justice, in “Understanding The Public Bid Law” workshop).

La. R.S. 38:2251:   Relates to preferences for Louisiana products….not Louisiana vendors!   This statute is a bit more complex to summarize here, but you can click on the link and read all the juicy details.

3 Legal Concepts That Are Counter-Intuitive…and Dangerous

Sometimes the best blog posts and legal articles are the simplest.   Take, for example, a post from early October by Joshua Glazov on his Construction Law Today blog, where he simply cites a 1941 quote from US Supreme Court Justice Robert Jackson:

The legal profession, like many another, tends to become over-professionalized.  We forget that the law is the rule for simple and untaught people to live by.  We complicate and over-refine it as a weapon in legal combat until we take it off the ground where people live and into the thin atmosphere of sheer fiction.

— The Struggle for Judicial Supremacy (1941)

Nail on the Head!

This made me think about all the crazy requirements and legal interpretations out there that may go against conventional logic, and I compiled this Top 3 list.

Number One:  Prevailing Wage Determinations

You’re on a state or federal construction project that requires payment of the prevailing wage, and so you go to the books to determine how much you need to pay your employees.   You separate the employees into categories:  electrician, plumber, helper/laborer….  Sounds easy enough, right?  Wrong.

How do you distinguish between someone who is a plumber and someone who is a plumber helper, for example?   While you may make a distinction in your everyday business, that distinction may not be the same as the US Department of Labor or the state agency controlling your project.   Frequently, in fact, it’s not.

Unfortunately, the laws aren’t very helpful to the folks who need to follow them.  That’s because the laws are a bit ambiguous, and requires interpretation.  And from first hand experience, I can tell you that agencies like the US Department of Labor are currently interpreting these requirements very pro-laborer.

Take a plumber, for example, as defined by the U.S. Department of Labor.   Standard Occupational Classification (SOC) §47-2152 defines a plumber as one who does the following:  “Assemble, install, alter, and repair pipelines or pipe systems that carry water, steam, air, or other liquids or gases…”

Compare this to the plumber’s helper (SOC §47-3015) who: “Help plumbers…by performing duties of lesser skill.  Duties include using, supplying or holding materials or tools, and cleaning work area and equipment…”

What exactly is a “lesser skill?”   What if a licensed plumber points to a pipe and asks the other employee “cut right there,” does this make that other employee a helper or a plumber?   I’ve seen the US Department of Labor interpret this as rendering the other employee a “plumber,” and requiring the higher wage.

Number Two:  Lien and Notice Requirements

The lien laws are there to protect folks, but it seems that every state in the Union is a bit conflicted about who the laws are designed to help.   In some states, the law is construed in favor of the lien claimant and against all other parties.  In other states, it’s the opposite.

Perhaps more confusing that this interpretation preference, however, is the notice requirements for the various states.   In some places, notice must be provided by the subcontractors to the property owner, the theory being that the owner might not know the subcontractors are there.  In other places, however, the notice system is completely reversed, requiring the prime contractors to deliver the notice.   Clearly, the owner should know who the prime contractor is!

What makes this very difficult for contractors is that unlike state legislatures and lawyers, the construction industry does business across state lines very frequently.  In fact, some suppliers and contractors do business in every state.   It’s impossible for these contractors to know the highly-technical and complex laws that apply in each state.    The result?   The law is rendered worthless, and not protecting the parties it is designed to protect.

For great discussions about lien and notice laws across the country, check out the Construction Lien Blog.

Number Three:  Pay When Paid Clauses

Contractors and subcontractors all around the country have heard of “pay when paid” clauses, and they frequently find them in their contracts.  Why are they in the contracts?   Because the parties in a construction project understand the payment chain, and they are agreeing to put the risk of non-payment on each project participant.

However, the law in many states has created an interpretation for “pay when paid” clauses that seems counter-intuitive.  In these states (and there are many), a “pay when paid” clause does not allow a contractor to refuse payment to its subs or suppliers after a “reasonable time” has passed since the subs or suppliers work was completed.  In these states, if such an outcome is desire, the parties must enter into a contract with a “pay if paid” clause.

We’ve written about this phenomenon here: Payment Provisions in Construction Contracts.