2011 Fantasy Football League Now Open For Registration

2011 Fantasy Football League with Wolfe Law Group and Zlien

Last year, we had a lot of fun with the Wolfe Law Group / Zlien fantasy football league. Actually, it was so successful we had to open two leagues. Folks have been asking whether we’d have a league set for up 2011, and we’re happy to announce that we are, and the league is now open for registration.

Register early, because we’ll likely fill up. You can view our league and sign up at the following link:

http://football.fantasysports.yahoo.com/league/wolfelaw_zlien

To join our league on Yahoo! Fantasy Sports, you’ll need the League ID (634669) and password (WZ2011).

We’ll conduct a live draft, which is currently scheduled the evening of Wednesday, August 31, 2011, at 7:15 CST, 5:15 PST.

Scott Wolfe Quoted in New Orleans City Business Article About Delays When Paying Subcontractors

Scott Wolfe Jr. Construction LawyerSubcontractor non-payment is something very familiar to me. It’s been written about here on the Construction Law Monitor (especially with regard to how pay when paid clauses affect subcontractor payments), and it’s something my other blog (the Construction Lien Blog) focuses on exclusively in its discussion of mechanic liens.

So it’s no surprise that New Orleans City Business magazine contacted me to discuss how the law can help and hurt subcontractors who are frustrated when waiting for payments to trickle down from the owner.  The article can be found on City Business’ website (subscription required) here:  Subcontractors grow tired of waiting on delayed job payments.

The article’s author, Ben Myers, does a great job of capturing the friction between general contractors and subcontractors on the subject of payment. General contractors complain that getting payment can be complex and time consuming because that’s how money trickles through, and that subcontractors should be taking the risk for their portions of the work.  Subcontractors complain that they are bullied around and “pay when paid” provisions sometimes leave them drowning because of problems the general has completely unrelated to their work.

It’s a real complicated mess – and the article gets both sides on the subject and helps explain the complications.

Common Law Analysis – Pay-if-paid, Pay-when-paid & Liquidating Agreements in Construction Contracts

In a recent decision, Sloan & Company v. Liberty Mutual Insurance Company (“Sloan”), the US Court of Appeals for the Third Circuit has an in depth discussion regarding some technical yet very important clauses found within many construction contracts between general contractor, subcontractors, owner and the surety. Although the court interprets Pennsylvania law, these concepts are good to know for any jurisdiction.

Pay-If-Paid & Pay-When-Paid

The pay-if-paid discussion starts on page 9 and is defined as “a subcontractor gets paid by the general contractor only if the owner pays the general contractor for that subcontractor’s work.” The court goes on to next define pay-when-paid in contrast to the pay-if-paid. “[A] pay-when-paid clause does not establish a condition precedent, but merely creates a timing mechanism for the general contractor’s payment to the subcontractor.”

The basic difference here is pay-if-paid may never happen if the the owner does not pay the general contractor for the work performed by the subcontractor, in theory. But the pay-when-paid acts more as a timing mechanism for the general contractor to pay the subcontractor, regardless of what the owner has paid for.

Generally courts will look to the four corners of the contract between the parties to determine which way to interpret the meaning of the clause. The interesting part of this holding and a common practice in construction contracts is a clause which modifies the pay-if-paid clause to become a pay-when-paid and this was done here by eliminating the condition precedent after a stipulated amount of time.There are many reasons why this may be done but typically many subcontractors will not agree to an absolute pay-if-paid clause, as the end result can place too much of the risk of loss on the subcontractor. Click here for Daniel S. Brennan’s The Construction Contracts Book.

Liquidating Agreement

Another technical term that is not often discussed in construction, yet is present in many construction contracts is the mechanism know as a “liquidating agreement” Sloan pg 16. The Sloan court defines a liquidating agreement clause as a “process by which a general contractor may assert the claims of its subcontractors against the owner.” This is similar to subrogation in the insurance context. Do not confuse a liquidating agreement with liquidated damages. A liquidating agreement clause can act like a lien, in that it gives causes of action to the subcontractor against the owner where there is no privy of contract. Sloan pg 17.

“Liquidating agreements that enable pass-through claims, such as the one in the contract before us, can also serve to limit the subcontractor’s damages to the amount the contractor recovers from the owner. See Carl A. Calvert & Carl F. Ingwalson, Jr., Pass Through Claims and Liquidation Agreements, Constr. Lawyer, Oct. 1998, at 32, 33.Sloan pg 18.

Conclusion

The end result here, is that typically the general contractor bears the risk of loss when the owner does not pay up, but they can use contractual mechanisms to lower that risk and allocate some of it to the subcontractors. Liquidating agreements and pay-if-paid/pay-when-paid clauses, carefully negotiated at the contract phase of construction projects can lead to limiting liability at the end of a project when things do no go as planned. In the Sloan holding, the general contractor did not bear all of the loss but was forced to pay its subs in a proportional manner to the work performed, keeping nothing for itself. Sloan pg 20. Prevent this from happening to your construction company by working through these clauses when forming your next contract.

Further reading: California Pay-if-paid Wm. R. Clarke v. Safeco Insurance (distinguished by other jurisdictions); Pay-when-paid. A google search of these terms will provide a wealth of information. Always consult with an attorney before negotiating contracts in the construction industry no matter how large or small the project.

Louisiana Supreme Court Reverses Bad Decision That Allowed Bidders to Defraud the State

If you recall, on October 19, 2010, I discussed what I believed to be a very poor decision rendered by the Louisiana First Circuit, concluding that when a bidder on a public project defrauds the State, the State is refused any remedies.

Well, apparently the Louisiana Supreme Court agreed with me (for once), because it just reversed the First Circuit’s decision!

On May 10, 2011, the Louisiana Supreme Court decided that the decision rendered by the First Circuit in State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010) was wrong and the case was remanded for trial. This decision by the La. Supreme Court definitely changes things for the better.

Before this decision was rendered, the First Circuit decided that a successful bidder to a public works project in Louisiana could defraud the State by providing an unauthorized surety and, despite the misrepresentation and failing to perform the contract in a specified time, the State would not be entitled to liquidated damages. The reasoning behind the line of thought was that State should have known that the surety was unauthorized thereby making the bidder unresponsive. The First Circuit placed an affirmative duty upon the State alone that was unfair and certainly unduly burdensome.

Now, the Supreme Court has decided that an appeals court does not have the power to make such a determination.

Whether Joint Venture breached the contract; whether Joint Venture’s bid was responsive; whether Joint Venture was the lowest responsible and responsive bidder; whether the State, as opposed to the bidder, had the sole and affirmative duty to determine if Infinity Surety was an authorized surety under the bid form; whether the State could instead reasonably rely on the representations of the bidder and the surety in the bid form; whether the State should have or could have rejected the bid as defective; whether the insurance codes precludes Infinity Surety as an unauthorized insurer from asserting its surety contract is void; and whether the State could have waived any purported defects in the bid bond, are all issues that should be resolved at trial…

These were all factual determinations that were not for the appeals court to decide and should be decided at trial. The La. Supreme Court here very smartly narrowed in on the particular issue that was to be resolved, namely whether the State alleged enough facts to assert a legitimate cause of action against the defendants, rather than allowing the decision of the court below extend its power beyond that which is lawful.

The unnecessary burden placed on the State in public works projects to investigate a surety that is being represented as authorized and fit for the purpose of the contract has been lifted.  In public works projects, the State should be allowed to rely on representations made by the other party that should be made in good faith, a notion that is fundamental to the law of contracts, and this decision properly reflects that.

For Louisiana Contractors Bidding on Public Works Projects: This Case is for You

For all you Louisiana public works contractors out there bidding for public works projects to expand your private business or bidding for public works projects because that’s what you’ve always done – whatever the case may be – the 4th Circuit Court of Appeals is on your side. For cities and states trying to construct public works projects to improve their turf, take notes please.

We’ve written before about what happens in Louisiana when a bidder on a public project violates time requirements under the Louisiana Public Works Act, but what happens when Louisiana or a city within violates time requirements in failing to execute contracts  and notices to proceed with a winning bidder for a public project?

On April 27th of this year, the 4th Circuit Court of Appeals decided in the Wallance C. Drennan, Inc. v. City of New Orleans case, nuances of certain provisions of the Louisiana Public Works Act (La RS 38:2252 and 38:2212) that ultimately address the question above and render the law more stringent for cities and states advertising for public works bids.

In Wallace, the City of New Orleans advertised bids for two different public works projects under the Louisiana Public Works Act to renovate some streets around town. These two projects were to be partially or fully funded by the Louisiana and Federal governments, but financing was not finalized at the time the bids were received. Wallace C. Drennan, Inc. was the contractor that was the lowest responsive bidder and, thus, won both jobs.

However, because the City delayed executing the contracts for the two jobs within the required 45-day time limit from the day it awarded it to Wallace and because it did not thereafter within 30 days issue “Notices to Proceed,” Wallace sued the City for damages due to delay and tardiness under La. R.S. 38:2215 and 38:2212 of the Louisiana Public Works Act, both provisions cited above.

Wallace won on the issue of liability before trial began. The City appealed to the 4th Circuit, arguing that it gave the requisite notice of delay, but they lost again.

Why? Well, La. R.S. 38:2212(B) states that, “in the event the time limit stipulated herein is not applicable [namely the 45-day and 30-day notice requirements] because of…[an] exception [i.e. delayed financing], this fact shall be mentioned.” Ultimately, the City did not “mention this fact,” according to the 4th Circuit.

If a statutory time limit will not apply, in this case for the reason of tentative financing, that fact must be stated within the project specifications and the official advertisements. A reasonable bidder must be lead to believe that there will be a time delay. Because this was not the case in Wallace and the City did not give requisite notice, it lost the appeal.

The City tried to argue, in what was likely a last ditch effort to save itself from losing, that Wallace waived its right to complain about the imprecise notice. But, as is clearly stated in the statute, the applicable provisions are not subject to waiver by the bidder.

What should cities and states furthering public works projects take away from this case? As the Court itself advises, if a situation like this arises regarding the possibility of delayed financing and time delays in general, rejecting all bids for just cause or extending the deadline by mutual consent with the lowest bidder are both wiser routes to take.

It’s important to remember that public bid law and public works law are founded on the notion of public policy; Courts will almost always refuse to take any action inconsistent with these laws, so all builders take note!