by Mark A. Cobb
Beginning this summer, there is a new set of supplementary rules for the arbitration of construction cases. The American Arbitration Association (AAA) promulgated these rules in an attempt to lower participants’ costs and to fast-track certain construction matters.
The new rules do not apply to arbitration claims less than $75,000; similarly, they do not apply to arbitration claims more than $5 million. Thus, the intentions are to make the process more efficient for the middle ground claims. Some of the changes include the following:
- there are schedules (based upon the amount of the claim) which cap the AAA Administration fees
- statements of claims and counterclaims are limited to five pages or less
- amendments to the complaint must be completed within 30 days of the counterclaim (unless the arbitrator extends this time)
- within 3 days of the filing of the Demand for Arbitration, the AAA and the parties will participate in an administrative conference
- the AAA has 2 days following the administrative conference to provide a list of at least 10 potential arbitrators to the parties
- the maximum days for an arbitration hearing is limited to 10 days
- the arbitrators’ study hours are capped at 40 hours
- arbitrators’ study hours have a maximum rate of $350 per hour
- an award must be given within360 days of the date the claim is filed
- total arbitrator fees are capped at $52,000 (not including travel, costs & expenses)
- conference call arbitration fees are capped
- post-hearing reviews fees are capped
- site visit fees are capped (for claims over $1 million, for example, site visits are limited to 8 hours of time at a maximum rate of $350 per hour)
- parties are to provide the name of a representative (other than their attorney) to be included in all communications (it may be an officer, in-house counsel, etc.)
How Do I Claim the Benefits of the AAA Supplemental Rules? If you are interested in taking advantage of the new supplemental arbitration rules for your construction claims, then we suggest that you include a specific provision in your construction contract which states that the fee caps of the supplemental rules will apply to matters originating from your contract.
If you are already involved in an arbitration matter, then the parties to the arbitration may choose to proceed under the supplemental rules by a joint submission to the AAA.
This is just a very general overview of some of the changes which contractors involved in arbitration will see in the future, and it will take some time to determine whether the AAA’s goals of shortening the arbitration process and capping the fees on certain construction claims has been met.
If you have any comments regarding arbitrating claims between $75K and $5M with the new rules, please let us know below.
Mark Cobb is excited about speaking to Atlanta architects and engineers at a Construction Law continuing education seminar sponsored by HalfMoon Education. Mark is speaking on IMPROVING THE PROJECT OUTCOME WITH ACCURATE AND EFFECTIVE CONSTRUCTION CONTRACTING in which he will address the basics of general contract law, the unique aspects of construction contracts and how to avoid non-performance.
One aspect Mark will address are non-payment issues including the filing of a Claim of Lien against the project. Here is a sample of the summary of Georgia’s lien laws which he will present:
Who Can File A Lien?
∙ Architects and Engineers, Surveyors, Foresters
∙ Contractors in privity with the Owner
∙ Subcontractors in privity with the GC
∙ Sub-subcontractors and suppliers if they sent an NTO (and an NTO was required)
∙ Remember: if you do not have a required license, then you do not have the right to file a lien
Why File a Lien?
∙ To secure the money you are owed
∙ To make third parties responsible for the money you are owed (even though you didn’t contract with them)
∙ To apply pressure on those upstream who may be delaying payment
When Would you Consider Filing a Lien?
∙ When you are owed money
Important Things to Know About Liens:
∙ Lien Claimant must have substantially complied with the contract
∙ Lien is (generally) enforceable up to the amount of the improvements actually made
∙ Thanks to legislative efforts on behalf of the AGC Georgia, liens may be for full contract amounts
∙ Contractors who abandon project may not be entitled to file a lien (however, they may recover amount for partial performance under theory of quantum meruit)
∙ A Lien Claimant who ceases work after being told they are not going to be paid can file a lien
Filing Deadlines for Liens:
∙ 90 days from Last Day Worked or 60 days from date of Lien Waiver (whichever is shorter)
∙ Last Day Worked is NOT Invoice Date
∙ Lien must be perfected (“suit filed”) before the first anniversary of the filing of the lien
∙ Liens must be perfected within one year of the date on which they are filed, otherwise, they automatically expire
∙ Liens are perfected by (i) filing a lawsuit against the entity with whom you contracted and (ii) filing a Notice of Filing of Action to Perfect Lien with the clerk of court in the county where the project was located
∙ “Foreclosure” of Liens are generally an additional, separate step to perfecting liens. Unless there is jurisdictional alignment, a lien claimant must wait to seek foreclosure against the owner of the real estate until after they have received a judgment against the entity with whom they original contracted
by Mark A. Cobb
I just read a very insightful and accurate description of what it means to be a contractor:
We design and construct buildings but the reality is we are risk managers. Virtually anyone could design or construct a project if it had no risk. The reality is that owners hire and pay “experienced” designers and contractors to manage project risk. We are risk managers and the better we manage, the better our profit and final product. [emphasis in original].
This description of a contractor’s responsibilities comes from BIM and Virtual Construction: Where is the Money by Damon Socka and Jennifer Lanzetti recently published in Constructor: The Magazine of the Associated General Contractors of America (July / August 2014). This definition reminds us of the realities of working in the construction industry in the 21st century.
As a law firm committed solely to issues related to construction law, we have a very diverse client base. Newer clients are frequently caught off-guard when risk stares them squarely in the face–and that’s why they call us for the first time. When we meet these new owners and project managers, they often comment about the volume of paperwork–they thought that entering the field of construction work would let them spend a lot of time outside working with their hands; instead, they find themselves poring over contracts, drafting emails and letters to address problems, delays or weather-related re-scheduling issues.
Although a contractor’s sole role may not be risk manger, it is a significant part of every project manger’s and every contractor’s (or subcontractor’s) business. The finest of these are able to avoid most of the risks or greatly minimize the risks; when this isn’t possible, then owners, contractors and subcontractor’s engage in a dance to transfer risk from themselves to another party. Here is a short list of ideas that help eliminate, reduce or transfer risk:
- work only with responsible owners
- verify owner’s credit worthiness
- require payment bonds and/or performance bonds (it shows the credit worthiness of your subcontractors)
- build relationships (with GC’s, subcontractors, sureties, banks, project developers, construction lawyers)
- make honesty a hallmark of your work
- written construction contracts should spell out the goals, the responsibilities, the payment, and have a dispute resolution plan waiting in the wings in case it is needed
- use the best subcontractors and suppliers (which may not be the lowest bid)
- keep detailed, daily logs
- run efficient but meaningful weekly meetings
- document subcontractor issues in writing, with photos, etc.
- know your construction contract’s deadlines and communication methods for problems
- take responsibility
- stay on top of payment issues and, if necessary, file materialmen’s liens or make payment bond claims
- if materials are difficult to source, make certain that a back-up source is available
- budget properly for time and money
- pay your bills on time (and pay your subcontractors & suppliers promptly)
- don’t sweat the little stuff
There are many different ways to avoid construction risks or eliminate them completely, please share your favorite tips for reducing risks on construction projects with us by leaving a comment below.
by Mark Cobb
It would be wonderful to live in a world where a handshake or a person’s word meant something. The Georgia Court of Appeals just handed down a verdict in First Bank of Georgia v. Robertson Grading which will make you question whether or not you can trust any body when it comes to being paid on a construction project.
The background is a little longer than we normally put on our blog; however, we believe that it is very important for our readers to understand that the subcontractor lost all his right to payment even though he made regular visits with the construction lender and was (allegedly) repeatedly told that payment would be forthcoming.
R & B Construction (“GC”) was the general contractor / developer of a subdivision in the Richmond County / Augusta, Georgia area. The GC contracted with Robertson Grading (the “Subcontractor”) to pave the new streets. Because the Subcontractor had never worked with the GC before, the Subcontractor requested a list of the GC’s creditors in order to determine the GC’s credit worthiness. After signing the paving subcontractor, the Subcontractor visited one of the credit references and the construction lender First Bank of Georgia (the “Bank”) in order, ostensibly, to make sure there was money available to pay the $400,000 paving contract. Although the bank disputes some of the statement, the Subcontractor’s evidence suggested that the bank representative allegedly advised the Subcontractor two things:
1. The Subcontractor “WOULD GET PAID FOR THE PAVING”; and
2. The bank would notify the Subcontractor if any problems arose with the GC’s account.
The Subcontractor began the paving project and submitted it’s first invoice which exceeded $100,000; when the first invoice wasn’t paid, the Subcontractor returned to the bank and learned two more things:
3. The parties wanted to wait until the paving was complete to issue one check; and
4. The bank representative allegedly said that, ”[w]hen you put the last ton of asphalt down . . . I promise you [,] you will get paid.”
Apparently relying upon the bank’s representative’s statement, the Subcontractor continued its work on the subdivision. Due to some delays, some additional work requested by the GC, and an increase in material cost, the project was completed later than the Subcontractor had advised the bank and a second invoice was sent which exceeded $300,000. With the two outstanding invoices totalling $448,600.65, the Subcontractor contacted the bank when payment wasn’t made immediately. At this point, the Bank informed the Subcontractor:
5. The GC missed it’s most recent interest payment due on the construction loan and that the Bank was not disbursing any further funds on the account.
The grading Subcontractor immediately filed a Mechanics and Materialmen’s Lien pursuant to Georgia’s lien statutes; when the GC subsequently filed bankrptucy, however, it was determined that the Subcontractor’s lien was invalid as it had not been properly “perfected”. Thus, the Subcontractor was limited to pursuing collection of its payment as an unsecured creditor.
PRACTICAL TIP–FILE YOUR LIEN BUT DON’T FORGET TO PERFECT IT: If you are owed money on a Georgia construction project and you file a materialman’s lien, your lien will expire 395 days from the date the lien was filed UNLESS you properly perfect the lien. There are several ways to perfect your lien depending upon the circumstances of the claim; if the lien is not properly perfected, then you will lose your lien rights.
Despite the GC’s bankruptcy, the Bank was allowed to foreclosure upon it’s security interest in the project; eventually, the Bank was able to sell all of the lots and, even, admitted the following:
6. It would not have been possible to sell the subdivision lots without paved streets.
THE TRIAL COURT’S DECISION:
Without a valid construction lien, the Subcontractor had limited recourse in the GC’s bankruptcy and/or the Bank; nonetheless, the Subcontractor attempted to recover from the Bank by bringing a lawsuit for claims based upon (i) promissory estoppel, unjust enrichment, (iii) negligent misrepresentation, and (iv) fraud. The trial court awarded the Subcontractor $448,600.65 in damages plus and additional $149,500 in attorneys fees. The Bank appealed to the Georgia Court of Appeals which reversed the trial court’s decision!
Technically, the Bank appealed the trial court’s denial of the Bank’s motion for a directed verdict. Simply stated, a judge may “direct” the jury to give a certain “verdict” is he or she finds that no reasonable jury could reach a decision to the contrary. Since the trial court judge did not grant the Bank’s motion for a directed verdict, the Bank appealed and won.
Let’s look at the Subcontractor’s claims which the Court of Appeals effectively denied:
Claim # 1: Promissory Estoppel:
What is Promissory Estoppel? In the law of contracts, the doctrine of promissory estoppel states that a promise is enforceable by law when the person making the promise makes a promise another who, in turn, relies on the promise to his or her detriment.
Since the Subcontractor was seeking payment from the Bank, it was, for all practical purposes, relying upon the Bank to be a guarantor of the GC’s debt to the Subcontractor. The Statute of Frauds, however, requires that an agreement by one person (or entity) to take on the debt for another must be in writing. The doctrine of promissory estoppel is an equitable doctrine which can be an exception to the written requirement of the Georgia’s Statute of Fraud. Thus, the Subcontractor agued that it relied upon the Bank’s representative’s statements that the Bank would make sure that Subcontractor was paid for its grading and paving services.
In order to invoke a claim for promissory estoppel, four elements would have to be met:
1. The Bank would have to have made promises;
2. The Bank would have expected the Subcontractor to rely upon those promises;
3. The Subcontractor did reasonably rely upon the promises; and
4. An injustice could be avoided only by enforcing the promise.
The Court of Appeals found, however, that the Subcontractor “failed to establish exclusive or reasonable reliance upon any statement by the Bank.” Although there were several points made to substantiate the Court’s holding, the Court specifically pointed out that the Subcontractor had entered into its subcontract with the GC prior to contacting the bank. Thus, it seems evident that the Subcontractor did not rely upon the Bank’s statement to enter the original contract.
PRACTICAL TIP: It doesn’t matter whether you are a prime contractor, a specialty subcontractor, or a material supplier, you should thoroughly investigate the other party’s credit worthiness BEFORE you sign the contract.
Although this is compelling, it does not address the Subcontractor’s alleged reliance upon the Bank’s statements that they wanted to write one check after the project was completed. The Georgia Court of Appeals wrote:
In addressing this aspect of [the Subcontractor]‘s argument, we begin by noting that it was undisputed between the parties that at the time this second conversation between [the Subcontractor] and the Bank occurred in early September 2007, Robertson Grading believed that the paving work would be completed in two to three weeks’ time, putting the completion date somewhere toward the middle or end of September, and [the Subcontractor] made that representation to the Bank. Nevertheless, [the Subcontractor] testified at trial that the project’s completion was delayed by extra work the company took on to complete the public right-of-way/deceleration lane, all at [the Subcontractor]‘s request, pushing the ultimate completion date to one or two days before November 7, 2007. To sum up, then, [the Subcontractor] made two representations to the Bank in seeking the Bank’s assurance that it would be paid for its work on the project: (1) that, “if everything went according to schedule,” the work would be completed within to two to three weeks …….. and (2) that it would be performing paving work. But as it turns out, neither of these representations by [the Subcontractor] ended up being accurate, and [the Subcontractor] admitted at trial that he did not have any additional meetings with the Bank or otherwise advise it about the work delay or agreement between [the Subcontractor] and [the GC] to expand the scope and expense of the work to include grading-and-shoulder work. Suffice it to say, [the Subcontractor] cannot claim that it reasonably relied upon an assurance of payment by the Bank when it unilaterally changed the very terms upon which that assurance was based. [footnotes omitted, emphasis added].
PRACTICAL TIP: Although this is not addressed in the Court’s decision, the Subcontractor should have considered taking different steps when its first invoice was not paid. Option open to the Subcontractor may have including filing a materialman’s lien in Richmond County, Georgia, stopping work for the GC’s breach (failing to pay), or enter into a side-agreement with the bank.
Claim # 2: Negligent Misrepresentation:
The Subcontractor’s claim that the Bank negligently misrepresented information also failed according to the Court of Appeals. The Court enumerated three elements which the Subcontractor would have to have proven. The three elements of negligent misrepresentation are as follows:
1. The Bank would have to negligently supply false information;
2. The Subcontractor would have to had reasonably relied upon that false information; and
3. The Subcontractor would have to prove economic injury proximately resulting from the Subcontractor’s reliance.
Using the logic developed by the court in denying the Subcontractor’s promissory estoppel claim, the court used similar facts to conclude that the Subcontractor did prove these three elements.
Claim # 3: Unjust Enrichment:
Unjust enrichment is another equitable claim that says that an owner who is “enriched” by another may have to pay “just” compensation. In this case, the Court makes the distinction that the Bank was not the owner who hired the Subcontractor for the paving project; instead, the Bank took title to the real estate pursuant to its loan documents, and, a normal part of the foreclosure process included the improvements which had been made to the real estate (including the paving).
WARNING TO SUBCONTRACTORS: The Subcontractor’s proper remedy, the Court pointed out, was via the “Georgia’s materialman’s statute (which it did, although unsuccessfully due to its failure to perfect that lien).” [emphasis in original].
Consequently, the Court of Appeals agreed with the Bank that the Subcontractor did not have a claim under a theory of the Bank’s unjust enrichment.
This lawsuit is another pertinent reminding for every construction professional who work on or supplies materials to Georgia construction projects. In some ways, this decision confirms that it’s “every man for himself” when it comes to collections; before you rely on assurance from another party, get the promises in writing. Also, although this case does not go into the reasons why the Subcontractor’s materialman’s lien was not perfected, but it is a reminder that every Georgia lien claimant must strictly comply with Georgia’s materialmen’s lien statute and that includes meeting every deadline for filing and perfecting your claim of lien.
What do you think about this decision?
by Mark A. Cobb
If you are a Georgia contractor or subcontractor who uses written contracts (and if you are not using written contracts, you should!), then this blog might save you some legal costs and or headaches. To improve your contracts, just follow the eight simple tips below!
What this blog article is not: Previously, we have written about the best contract terms and the vital contract terms that every construction contract should include. This is not a repeat of that material. This article is not full of legal jargon and nuanced technicalities rather, we are providing your with eight simple–but sound–contract improvements which you are able to apply to your contracts today!
Why we are writing this blog article (in other words, The Problem With Your Contracts)? Regardless whether you are a general contractor or a specialty trade subcontractor, you want to have a successful, problem-free project. A properly written contract can provide great strides to clarifying the project scope and the parties expectations. The construction contract lawyers at the Cobb Law Group regularly review, draft, and negotiate various types of Georgia construction contracts on behalf of their clients. Needless to say, our clients have varying personalities and goals, but we have noticed that a significant number use a “boilerplate” contract that they highjacked several years ago from another contractor or subcontractor. To this template, from time-to-time, they have added other terms which they thought useful and borrowed from other contracts they ran across. Through time, an original boilerplate which may have had some practical use has been cobbled into a hodgepodge of redundancies and contradictions, and these problems can make your contract unenforceable. Thus, we are giving you some very basic tips which you can put into use today and improve, at least a little, your contracts without hiring a lawyer.
Disclaimer About the Use of Any Forms: Although there are some very good and very useful form banks created expressly for the construction industry (such as the AIA Contracts, the EJCDC contracts, the DBIA contracts, and ConsensusDOCS), there really isn’t any “form” that can provide for all of the unique complexities of any specific construction project without substantial modification; thus, we strongly recommend that forms should be viewed only as a starting point, and they must be carefully reviewed and amended to meet the unique needs of the project and the parties. In other words, there is no such thing as a “boilerplate” contract which will work in every situation.
A Word on Readability: Your contracts should be easy to read and easy to understand; if they are not, then you probably need to start-over from scratch. You will see that many of the tips covered in this article suggest making your contract easy to read. Something which is easier to read is more likely to be read and understood which encourages better performance. So, make it a goal to make your contracts more readable.
1. Read Your Contract and Check for Redundancies. Redundancies are repetitions; let me repeat that: redundancies are repetitions. A quality contract should not have redundancies as they take up space and time; and, needless to say, they are unprofessional. More importantly, however, redundancies may open the door for ambiguity or even inconsistencies. Saying more than once that “The Subcontractor acknowledges that he has read the General Contract, all plans and specification, and is familiar therewith” more than once does not make the covenant any truer. If you contract also says “The Subcontractor acknowledges that he has has access to review a copy of the General Contract”), then it may cause some confusion which could be detrimental to your goal of passing the risk to the subcontractor.
2. Read Your Contract for Inconsistencies. Inconsistencies in a construction document also show an unprofessionalism, and they, too, can make your contract meaningless. Consider the following example: Parties to a contract may consent to a a method of resolution in the event of a dispute. If one section of the contract refers to “mediation” whereas another section refers to “arbitration”, then if a dispute occurs, it may be unclear in which forum the resolution should be handled–this might land you in court for resolution!
3. Group Similar Provisions Together. Nobody wants to read a contract (much less interpret a contract) where provisions on the same topic are spread throughout the document. For example, do not have provisions regarding “Payment” at the beginning of the contract, the deadlines regarding the due date for payment applications in the middle of the contract, and a paid-when-paid provision at the end of the contract. Move these provisions closer to each other then, it will be easier to read the contract, in general, and it will be easier to spot redundancies or inconsistencies as well.
4. Use Effective Headings for Each Contract Provision. Headings are a terrific and easy way to make your contract easier to read and, perhaps, increase its enforceability:
First, good heading it makes it easier to locate pertinent provisions (deadlines for giving notice, for example) and it make the contract easier to read as headings are usually either bold or underlined which breaks up the monotony of a standard type.
Second, headings may help the enforceability of a provision. In a recent blog post, we wrote about a subcontract which contained a Signature Provision which attempted to make the signatory to the contract personally liable for its performance. The Georgia Court of Appeals, when rationalizing the terms enforceability stated that the contract included the heading “Signing Individual” in boldface type which further enhanced the term’s clarity and the parties’ intention. Thus, the court continued, that the President of the company “must be charged with knowledge of the Signature Provision, even if he did not read it, and he is therefore bound, individually, to the terms of the Agreement.”
Third, in the event that a contract terms because an issue in a trial, your attorney may consider enlarging the term on a large board as a trial exhibit for the judge or jury to read. Without a heading, this exhibit may be nothing more than a large poster with long sentences filled with legal-ease. A pertinent heading (e.g., “Individual Indemnification”) might resonate more easily with the judge or jury and they may be more easily persuaded to interpret the contract as you intended.
5. Spaces! Just like this article, we tend to suggest that contracts use double-spaces between paragraphs. The other day we were asked to review a contract which did not separate the paragraphs. Page-after-page of unending contract terms quickly became very difficult to read much less make sense of. Thus, it took much-longer to read (time is money), and it required greater concentration. If your contracts look like that one, change them today and save yourself some headaches!
6. Check Your References. When someone cobbles together a contract from different sources, it is important to pay close attendtion that you don’t lose your references. Thus, if your contract says, “then parties shall agree to be bound by arbitration as provided in Article 10. . .” please make certain that Article 10 of your hodged-podged contract is the section dealing with arbitration. Otherwise, it may to used against you if the need arises to interpret the provision.
7. Eliminate Useless Provisions. Longer is not always better–don’t have extraneous provisions. If your contract includes a terms which doesn’t make sense to you; then, it probably doesn’t make sense to the other party and it will likely not make sense to a jury or a judge. You may want to ask your construction contracting lawyer to explain it, but if no one understands it, then it should probably be omitted.
8. Grammar and Spelling Count. You run a success business, and you know proper grammar and how to spell. When a contract is created over time, sentences get cut-and-pasted and letters get cuts off or added accidentally. Unfortunately, a substantive mistake can invalidate the terms of your contract so read it carefully often and correct as necessary. One example we see particularly often is a paragraph that is supposed to end with list of items but fails to include the list. Thus, the paragraph ends, “All subcontractors will adhere to the following policy on all jobsites:” and the policy is not expressed (and, at a minimum) not a part of the contract. Those missing policies are certainly not enforceable and may limit your rights including a right to terminate.
As we stated above, using the same template or form for your Georgia construction project is dangerous; instead, use them as a starting point for negotiations. Having a qualified construction attorney help you draft your “master” documents and assist you with specific provisions as each contract is negotiated may be vital to having a clear, understandable contract. In fact, we encourage our clients to review their master contract at least once a year. Laws changes, courts write decisions, and policies need amendment. If you are looking for a construction contracting attorney to help you review and improve your contracts, please feel free to contact us today!
by Mark A. Cobb
The Court of Appeals of Georgia recently issued their holding in Progressive Electrical Services, Inc. v. Task Force Construction, Inc., and this case interprets some construction contract terms which impact Georgia subcontractors. Specifically, this case gives subcontractors a reason to be concerned about every contract into which they enter unless they have taken the time to thoroughly read and understand every contract provision; in addition, this decision gives general contractors the ability to enforce some contract provisions which may, otherwise, seem onerous to others.
Background and Facts: The basic facts of this case present the all-too-common scenario of a subcontractor not paying its supplier, and, then, a general contractor seeking payment from the subcontractor of the amounts it had to spend resolving the supplier’s claim. Specifically, Task Force Construction was hired as a general contractor to build a public works project in Swainsboro, Georgia; Task Force, in turn, subcontracted the electrical portion of the project to Progressive Electrical. Progressive Electrical purchased their electrical supplies from a supply company. Because this was a public works project, the general contractor posted a payment bond which, essentially, promised that subcontractors and suppliers would receive payment. Unfortunately, Progressive Electrical did not pay its supplier; thus, the supplier made a timely claim for payment under the project’s payment bond. The surety which issued the bond settled the supplier’s claim for over $118,000. The surety, then sought indemnification from the general contractor which, the GC paid. After the general contractor reimbursed the surety, it sought to recover the amount which it paid to surety from its subcontractor, Progressive Electrical.
Although the background and facts may be similar to many other cases, specific provisions in the subcontract executed between the GC and subcontractor resulted in some disastrous consequences for the subcontractor and, probably more importantly, its principal.
Important Legal Issues Addressed by the Georgia Court of Appeals: Although much of the Court’s holding is significant for Georgia’s construction lawyer, today’s blog post, however, will discuss two particular contract terms addressed in Progressive v. Task Force; specifically, we’ll look at how the case addresses the difference between a guaranty and an indemnification and we’ll look at some contract language which, according to the court, binds an owner, officer (or perhaps, an employee) of a company to be personally liable for the company’s performance under the construction contract. Taken together, these two provisions make the officer of the subcontractor personally liable for reimbursing the GC.
CONTRACT PROVISION NUMBER 1:
(Making the Signatory of the Contract Jointly and Severally Liable)
Personal Liability Under the Contract: None of the parties denied that Progressive Electrical had executed its subcontract agreement with Task Force; however, Task Force attempted to recover under its indemnification from Progressive Electrical and its owner. Task Force made this attempt based upon a particular term in the contract between Task Force and Progressive Electrical:
Signing Individual. Each and every individual who signs this [agreement] or any Attachment or exhibit thereto on behalf of [Progressive Electrical] hereby warrants and agrees that such individual is duly authorized 1) to act on behalf of [Progressive Electrical]; 2) to enter this [agreement] on behalf of [Progressive Electrical]; and 3) to bind [Progressive Electrical] to the terms of [the Agreement]. Each and every individual signing on behalf of [Progressive Electrical] also further agrees that, notwithstanding anything contained herein or on any signature line to the contrary, each such individual signing on behalf of [Progressive Electrical], in addition to signing in a representative capacity, is also signing [the agreement] in his or her personal and individual capacity and each such individual signing on behalf of [Progressive Electrical], by signing below, hereby individually and personally agrees to be bound by all of the obligations of [Progressive Electrical] in [the agreement] (including, but not limited to, the Attachments hereto). (Emphasis Supplied in Court’s Decision)
Contract Term Enforceable Against Principal of Subcontractor: When the Court of Appeals read the Signature Provision which purported to bind the signatory individually, the Court held that it was a clear and easily understood contract term. Thus, when the President of Progressive Electrical signed the subcontract agreement, he agreed to be bound by this provision; and, consequently, he personally assumed liability for his company’s obligations under the subcontract.
The Court’s Rational: Neither party disputed the established law in Georgia which holds that, “an agent who, acting within the scope of his authority, enters into contractual relations for a disclosed principal does not bind himself, in the absence of an express agreement to do so.” (Citation and punctuation omitted.) Instead, the Court looked at the Signature Provision, and acknowledged that it contains such an express agreement to bind the subcontractor’s principal individually; thus, when the President executed the agreement, he was signing on behalf of Progressive Electrical and also “individually and personally” he agreed “to be bound by all of the obligations of [Progressive Electrical]” under the parties’ contract, “notwithstanding anything contained [in the agreement] or any signature line to the contrary.” Accordingly, the Court found the language of the Signature Provision to be unambiguous language, and, therefore, the president’s single signature bound him in his individual capacity, along with Progressive Electrical, under the Agreement.
Isn’t This Too Extreme? Both Progressive Electrical and its president argued to the Court that enforcement of this contract term was too extreme. They argued that such a Signature Provision created a trap which allows “unbridled liability to be unleashed on unsuspecting victims.” Unfortunately for the subcontractor and its officer, the Court disagreed with this argument, pointing out the following:
a party to a contract has the duty to read a contract before signing it and by signing, the party is bound by its terms “unless [he] can show that an emergency existed at the time of signing that would excuse [his] failure to read it, or that the opposite party misled [him] by an artifice or device which prevented [him] from reading it, or that a fiduciary or confidential relationship existed between the parties upon which [he] relied in not reading the contract.
Furthermore, the Court pointed out that the Signature Provision included the heading “Signing Individual” in boldface type which further enhanced the term’s clarity and the parties’ intention. Thus, the court continued, that the President of the company “must be charged with knowledge of the Signature Provision, even if he did not read it, and he is therefore bound, individually, to the terms of the Agreement.” (Emphasis supplied.)
CONTRACT PROVISION NUMBER 2:
(Personal Guaranty v. Indemnification)
Indemnification Under the Subcontract: Since the general contractor paid out money to settle the dispute with the unpaid material supplier, the GC sought reimbursement from its subcontractor. The subcontract agreement which Progressive Electrical entered into with Task Force contained the following indemnification provision which was the subject to the court’s interpretation:
[Progressive Electrical agrees in indemnify Task Force] from all claims, losses, fines, penalties, assessments and damages (including but not limited to reasonable attorney’s fees) arising out of [inter alia, Progressive Electrical's] breach of any term [of the agreement], including costs, investigation expenses, expert expenses and attorney’s fees incurred by [Task Force] in the investigation and defense of such claims or allegations.
Georgia Statutes: An “Indemnity Contract” is defined as an agreement between two parties, whereby the one party, the indemnitor, either agrees to indemnify and save harmless the other party, the indemnitee, from loss or damage, or binds the indemnitor to do some particular act or thing, or to protect the indemnitee against liability to, or the claim of, a third party. “Indemnity” means reimbursement, restitution, or compensation. National Bank v. Wright, 77 Ga. App. 272, 48 S.E.2d 306 (1948); in Progressive v. Task Force, the Court of Appeals reminds us that O.C.G.A.§ 10-7-1 states the following:
The contract of suretyship or guaranty is one whereby a person obligates himself to pay the debt of another in consideration of a benefit flowing to the surety or in consideration of credit or indulgence or other benefit given to his principal, the principal in either instance remaining bound therefore. Sureties, including those formerly called guarantors, are jointly and severally liable with their principal unless the contract provides otherwise. There shall be no distinction between contracts of suretyship and guaranty.
Consequently, the Court affirmed that, “An indemnity contract differs from a guaranty in that the former is an original rather than a collateral undertaking and generally undertakes to make good the promisee’s loss resulting from his liability to another rather than from another’s liability to him.” (Citations and punctuation omitted.) Thus, the court held that the subcontract agreement’s indemnity provision was enforceable.
Since this ruling just came down, the parties may be able to appeal the decision; if they do, we will do our best to update this blog article; in the meantime, the holding in Progressive v. Task Force is a stern reminder that before signing any contract, and in particular any construction contract, (i) read the contract thoroughly and (ii) understand the terms–and the potential consequences–of the contract. Otherwise, you might find yourself individually liable for a debt you are not willing to undertake.
In the big, legal field of “commercial collections” there is seldom good news. Even rarer, there is seldom a big benefit to help you get paid. Commercial collections for the construction industry, however, is different–there is some good news and there are some BIG, effective strategies to help you get paid . . . .
Introducing the Materialmen’s Lien (sometimes referred to as construction, subcontractor, contractor or mechanics lien) and/or the Payment Bond Claim!
What are the benefits to filing a Materialmen’s Lien in Georgia and/or making a claim against a Payment Bond? Although liens and payment bonds are completely separate animals with their own advantages and disadvantages, they share a BIG ADVANTAGE: for the subcontractor or the material supplier it is like getting a free GUARANTOR to promise to pay you the money you are owed after the money is owed! This is unthinkable in almost any other collection area. Look at this example:
OWNER hires ABC CONTRACTOR to build something; ABC CONTRACTOR, in turn, hires XYZ SUBCONTRACTOR to perform all of the electrical work on the project. Assuming that XYZ SUBCONTRACTOR fully performed under its contract, but ABC CONTRACTOR breaches its contract with XYZ SUBCONTRACTOR by failing to pay XYZ SUBCONTRACTOR, then, pursuant to standard contract theory (i.e., commercial collections), SYZ SUBCONTRACTOR may pursue collection of the debt from ABC CONTRACTOR (and only from ABC CONTRACTOR). But in the niche area of construction collection, in addition to seeking payment from the contractor, XYZ SUBCONTRACTOR may be able to file either a lien or make a payment bond claim in which case, XYZ SUBCONTRACTOR can look to either OWNER (in the case of a lien) and/or SURETY (in the case of a payment bond). Imagine someone owes you some money, and then after the debt becomes due, you find that a third-party may also be responsible for paying you.
Practical Tip: If you are a supplier or subcontractor who wants to improve your recovery of accounts receivables (AR), then, before you begin work or begin providing materials to the jobsite, try to obtain a personal guarantee from your customer’s owner. That way, if you are not paid, you may be able to seek recovery from (i) your customer such as ABC CONTRACTOR, (ii) your customer’s individual owner, (iii) by using a mechanics liens, the OWNER, and (iv) if there is a payment bond covering the project, then the SURETY. Four potential debtors/guarantors will significantly increase your likelihood of recovery.
Is It as Simple as It Seems? Unfortunately, nothing is entirely simple, but filing a claim of lien in Georgia and making payment bond claims are typically not too difficult nor too expensive. Of course, the lien claimant or the bond claimant must meet several obligations and deadlines in order to pursue their lien rights but most “good” subcontractors and suppliers do this automatically, and less “professional” subcontractors and suppliers, admittedly, seem to have more difficulties. We hope to address some of these issues in future blog posts as well.
What is the Difference Between a Claim of Lien and a Payment Bond Claim? On all privately-owned construction projects in Georgia, those who supply labor, services or materials have basic rights if they do not receive timely payment. On all public works projects (government-owned construction projects) of a certain size in Georgia, those who supply labor, services or materials have rights against the payment bonds. In addition, some private projects are also covered by Payment Bonds in which case, an unpaid subcontractor or supplier may file a construction lien and, concurrently, file a claim against the payment bond (which really increases the ability to recover your AR).
How Do I File a Construction Lien in Georgia? As mentioned briefly above, lien and bond claimants must meet various requirements in order to file a lien. Thus, it is vital to select a Georgia construction lawyer to help you analyze your specific matter and advise you on your collection options. It is important to know that lien and bond claims must be made within 90 days of the last day in which you worked or supplied materials on the project. (It could be a shorter period if you signed a statutorily authorized lien waiver).
It’s Up to You if you Want to Collect Your Money: If you are looking for a construction lawyer to help you file a materialmen’s lien (or make a claim against a payment bond) anywhere within the State of Georgia, please click here to contact us today.
We always enjoy blogging about the good things going on within the construction industry, and this past weekend, we were fortunate enough to have the opportunity to participate in the annual meeting of the Associated General Contractors of Georgia (AGC Georgia). As always, the AGC Georgia staff planed a wonderful family-oriented weekend in Sandestin, Florida, and there were many opportunities to see friends and colleagues, network and meet with other construction professionals, and celebrate the construction industry in Georgia.
The program began with a wonderful dinner opened to attendees, spouses, and children. In addition to delicious food, there were activities for children of all ages. The next morning, AGC Georgia got down to business (literally) with the annual meeting and recognition of participants, sponsors and Georgia’s construction safety awards. The next day included presentation of the AGC Build Georgia Awards. Congratulations to all of the winners!
In addition to the award ceremonies, the speakers throughout the weekend were educational and interesting and included Alan Landes, President and COO of Herzog Contracting Corp who is also the sitting president of the national AGC, a wonderful presentation from the “Chief Impossibility Officer” Joe Turner who combined magic and illusion to introduce useful business skills, and Rick W. Allen a candidate for the US Congress, who, if he wins, will be the only contractor in Congress! It truly was the a great combination of construction, business, awards, networking and relationship building!
Although there were plenty of informal gatherings before and after the official meetings, the final official event was a formal dinner which included one of the highlights of the weekend: the presentation of the “Oscar” of the Georgia construction industry. The SIR Awards recognizes skill, integrity and responsibility in the industry. According to AGC Georgia, this award honor those who consistently demonstrate the following:
Skill: The possession and application of the necessary technical knowledge and practical experience to execute projects in a professional and efficient manner.
Integrity: The character to comply with the spirit and letter of contracts and to handle every transaction with fairness and honor.
Responsibility: The possession and application of the necessary finances, cash or credit, together with the needed equipment and organization to fulfill all commitments promptly and completely.
This year’s recipient was the deserving Gary Young of Young Contracting in Atlanta. Congratulations to Gary for his commitment to the AGC, personal values, and the industry!
Since 1918, AGC has been an advocate for contractors, subcontractors and materialmen, and if you are not involved with your local chapter, we encourage you to consider joining. Next year’s AGC Georgia Annual Meeting is slated for Amelia Island, and the Cobb Law Group is already looking forward to attending!
After two years of hard work, we are pleased to announce that Construction Subcontracting: A Comprehensive Practical and Legal Guide has been published by the American Bar Association (“ABA”), and Mark Cobb is pleased to have been one of the contributors to this amazing new resource (and the only participating attorney from Georgia!)
Although this publication could be useful to many people including construction and credit professionals, it is a book written by subcontractor law attorneys primarily for other attorneys who need to know more about the subject. In some ways, it is intended to begin codifying and identifying those issues unique to specialty trade subcontractors and material suppliers as the new concept of SUBCONTRACTOR LAW becomes more and more recognized by legal professionals, educators, and construction industry professionals.
Construction Subcontracting: A Comprehensive Practical and Legal Guide was the brain-child of Division 9 of the ABA’s Forum on the Construction Industry. Founded in 1976, the Forum has grown to become the largest organization of construction lawyers in the world. It fulfills its mission of “Building the Best Construction Lawyers” and Forum members represent all segments of the industry, including owners, design professionals, contractors, construction managers, integrated design-builders, subcontractors, suppliers, insurers, and sureties. Division 9 is a sub-group of Forum member attorneys who represent and focus on the unique needs of specialty trade contractors and suppliers. The attorneys who are active in Division 9 recognized the lack of a national publication and guide in this burgeoning area of practice. This book remedies this in fulfilling its mission to be “comprehensive”, “practical” and “legal”. The three editors, each of whom are at the top of their profession, chose to divided the text into the following six parts:
- The Subcontract Document
- Subcontract Performance
- Insurance, Bonding, and Licensure
- Special Project Issues
- Other Contracting Arrangements
As you can imagine with a book of this caliber, each section is filled with multiple chapters dedicated to explaining the fundamentals of Subcontractor Law including contractual rights and obligations, Federal and state statutory provisions impacting subcontractors as well as common law issues and remedies affecting construction professionals.
Part One of the book discusses “The Subcontract Document” which includes an examination into subcontract terms commonly used in standard contract templates (such as AIA contracts, ConsensusDocs and others frequently used construction forms) as well as their advantages and disadvantages; this section tears apart the common subcontract terms including flow-down provisions, change orders, insurance, warranties, terminations, and lien waivers. In addition to these (and other) express contract provisions, the section also discusses implied subcontract terms such as covenant of good faith and fair dealing. This important section also addresses the formation of subcontracts from the bid process through final negotiations and includes topics such as Bid Shopping, Bid Padding, Promissory Estoppel Doctrine, Negotiation Strategies and Preparing Fall-Back Provisions.
Part Two discusses “Subcontract Performance” which looks at such diverse subjects as construction scheduling, excusable and non-excusable delays, acceleration and damages as well as tips regarding calculation of damages. This section of the book also includes chapters on payment issues, mechanics and construction liens, change orders and extras as well as issues related to differing site claims, asserting and proving the claims of subcontractors, as well as contract terminations. This lengthy section of the book concludes with the topics of Warranties in Construction Subcontracts (expressed and implied), an analysis of the Spearin Doctrine (i.e., the owner’s implied warranty), Indemnity and Federal Prevailing Wage Law and Project Labor Agreements including the Davis-Bacon Act, Contract Work Hours and Safety Standards Act, and The Copeland Anti-Kickback Act. (Stay tuned for a future blog post in which Mark will provide a detailed summary regarding his contributions to the chapter on Subcontractor payments.)
Part Three addresses the vital topic of “Insurance, Bonding, and Licensure” and includes a detailed analysis of the different types of insurance generally required of subcontractors including General Liability Insurance, Professional Liability Insurance, Builders Risk Insurance, Workers’ Compensation Insurance, Automobile Coverage as well as related issues such as waivers, endorsements and subrogation. This section also provides chapters on surety bond issues, Miller Act and “Little Miller Act”, payment bonds, performance bonds, and mechanics lien discharge bonds. Regarding subcontractor licensure, the book discusses the need for a licenses, the various governing boards and non-compliance with licensure requirements as well as the payment rights for unlicensed subcontractors.
Part Four attacks the difficult topic of “Disputes” including an analysis of typical subcontract provisions such as the Duty to Continue Work Pending a Dispute, Direct Discussion and Escalation; this part also looks at litigation pass-through claims discussing such vital topics as case management, discovery and joint defense agreements; in addition, it looks at alternate dispute resolution methods including mediation, arbitration and dispute avoidance.
Part Five’s “Special Project Issues” takes a look into several interesting and often-overlooked subjects including an analysis of Federal, State and Local Contracting (including discussion on competitive bidding, preference and incentive programs and bid protects); Alternative Project Delivery (such as design-build, Tri-Party Agreements, and Public-Private Partnerships); Green Building issues (including the LEEDS rating systems as well as others rating systems such as Earth Advantage, The Living Building Challenge, DGNB and others as well as the additional project risks associated with green building techniques); finally, this section addresses Globalization and International Projects whether led by foreign contractors working on projects in the United States or US contractors working abroad.
Section Six, the final section, addresses the cutting-edge topic of “Other Contracting Arrangements”, and it includes discussion on “newer” arrangements such as Subconsulting Design Contracts, Design Issues, Supply Contracts and Equipment Leases (including equipment rentals on construction projects), Teaming Arrangements such as joint-venture agreements along with their management, advantages and disadvantages including their role in the federal procurement context.
As you can see, this comprehensive publication is a long-overdue resource for those of us practicing in the field of subcontractor law. It is an amazing “first-step” as this new legal field is accepted and defined by the legal profession, legal educators and construction professionals. Mark Cobb was honoured and thrilled to have been a part of this seminal text in his field, and he greatly enjoyed the ability to work with some of the leading subcontractor law practitioners in the country.
If you are interested in more information regarding this subject or if you would like to obtain your own copy of Construction Subcontracting: A Comprehensive Practical and Legal Guide, then please contact us today. If you would like to purchase your own copy of this useful tool directly from the publisher, please click here > >
If you have provided labor, materials, equipment or other services on a construction project AND you have not received payment, then you may be entitled to file a lien under Georgia’s current lien laws. Determining who may file a lien and when a lien may be filed can be tricky, but filing the correct document and properly providing statutory notice can be even trickier!
The Sad Reality About Filing A Lien Yourself: Until you’ve dealt with Georgia’s lien statutes, many people think that “filing a lien is easy”. They think all that they need to do is fill-out a “lien form” and file it with the court. Unfortunately, that’s not true! There is no short-cut or no “one-size-fits-all” type of lien.
Because Georgia’s lien laws are strictly construed against the lien claimant, even one small mistake can invalidate a claim of lien; consequently, we highly recommend that you engage the services of a qualified Georgia construction attorney. In addition, because liens are clouds upon the title of the real estate against which they are filed, a lien claimant may be responsible for damages to the owner caused by an improper lien. Nonetheless, we believe that it is important that every construction professional has an understanding of the basic lien statutes. Thus, this article is intended to give you as thorough an understanding of Georgia’s mechanics and materialmen’s lien process as possible and will help you better understand your lien rights. Then, you’ll be more informed as to your legal rights and potential pitfalls as you seek an attorney to assist you.
WHO HAS A RIGHT TO FILE A CLAIM OF LIEN?
Not just anyone can file a lien for a past due invoice. Materialmen’s liens greatly improve a subcontractor’s or supplier’s odds of recovery, however, only certain parties providing certain services are entitled to file a lien for nonpayment. Generally speaking, prime contractors, specialty trade subcontractors, sub-subcontractors, and material suppliers who have provided services, labor or materials which have “improved” real estate are entitled to file a claim of lien. In addition, Georgia’s statutes allow architects, registered surveyors, engineers, and manufacturers of machines the right to file liens if they are not paid for their services. Others may also be allowed to file a lien in Georgia, and for more information on the specifics of O.C.G.A. Section 44-14-361, please click here > >
WERE YOU REQUIRED TO SEND A PRELIMINARY NOTICE?
Assuming that you are statutorily authorized to file a lien, you may (or may not!) have had a condition precedent in order to preserve your right to file a lien. If your contract is directly with the project owner, there is no requirement that a preliminary notice is required; if your contract is with the prime contractor, then a preliminary notice is not required. If your contract is with a subcontractor, then you are required to send a Notice to Owner/Notice to General Contractor within the first thirty (30) days that you begin working. These notices should be sent every time you contract with a subcontractor or supplier as they will PRESERVE your right to file a materialmen’s lien if necessary. Failure to timely send the preliminary notices may prevent you from having any lien rights (there are always exceptions, however, so please check with your attorney if you were unable to or failed to send a proper notice). For more information on Georgia’s statutory construction notice scheme, please click here > >
WHAT IS THE DEADLINE TO FILE A LIEN IN GEORGIA?
Even in you are entitled to file a Georgia construction lien, you must meet the deadline for filing a lien. Generally speaking, all liens in Georgia must be filed within 90 days of the last day in which work was actually performed on the jobsite (which is likely not the same day as the invoice date so don’t look at the invoice date in calculating the deadline!) If the potential lien claimant signed a Georgia statutory lien waiver form, then the time period in which a valid lien may be filed may be reduced to either (i) 90 days from the last day worked or (ii) 60 days from the date of the lien waiver–whichever is less!! Please remember that whoever prepares your Georgia lien will need some lead-time to perform the necessary research and prepare all of the proper documents and get it timely filed.
PREPARE YOUR GEORGIA MATERIALMEN’S LIEN:
Many lien claimants attempt to file their own liens as the online forms look “easy”; however, as you frequently find, you “get what you pay for”. The simple parts of the lien include proper identification of the lien claimant which may not be as obvious as you think (e.g., all liens should use a full, legal name such as “ABC SUBCONTRACTING, LLC”) and a description of the services or materials which were supplied. The more difficult aspects of the lien include proper identification of the owner of the real estate (Georgia’s county tax records frequently contain information only on former land owners!) and the legal description of the property to be liened. Generally, listing only a street address on a Georgia lien is not advisable. In fact, in most situations we recommend a limited title search to locate the correct property owner’s name, the metes-and-bounds legal description to the property, and to locate the vesting deed.
Also, Georgia’s lien laws require certain phrases on the lien; if these requirements are not met, then the lien will not be valid even if you do everything else right.
FILING LIENS IN GEORGIA:
We have 159 counties in our state, and your lien must be filed (before the deadline discussed above) in the county where the property to be liened is located. Liens are filed with the Clerk of the Superior Court in the county of the project’s location, and there will be a lien recording fee (which is fairly nominal–between $5 and $10 for the first page of the lien). In addition to filing the claim of lien, we typically suggest cross-referencing the lien to the real estate owner’s vesting document to help increase the odds that the lien will be “found” by those performing title searches.
SERVE NOTICE OF THE LIEN ON THE REAL PROPERTY OWNER:
Georgia’s lien laws require that the owner(s) of the liened real estate be given notice of the filing of the lien within 2 business days of the filing of the lien. We strongly recommend that notice of the filing of the materialmen’s lien be sent via certified mail (that way, you have proof of sending and proof of delivery).
ENFORCE YOUR MECHANIC’S LIEN:
Pursuant to Georgia law, your lien is valid for one year from the date of filing. This “year” gives many lien claimants the opportunity to settle or negotiate payment of their claims with limited attorney time or costs. If payment is not received within the year, however, then you must file a lawsuit against the person or entity with whom your contracted AND a Notice of Filing of Action must be filed within 30 days of the date your lawsuit is filed (and notice given to the owner of the liened property). If you prevail in your lawsuit, then your lien remains enforceable beyond the anniversary of the filing of the lien (this is frequently referred to as “perfecting your lien”). For more information on enforcing a Georgia lien, please click here > >
FORECLOSURE OF A GEORGIA MATERIALMEN’S LIEN:
After you prevail in a lawsuit against the entity which contracted with you for services, labor or material, then you can take the steps necessary to foreclose upon the lien. This gets very complicated, but unless you contract directly with the owner of the real estate, you will likely have to file a second lawsuit to institute foreclosure proceedings. Fortunately, Georgia liens are almost always resolved prior to institution of foreclosure proceedings, but if you find yourself with a valid lien without payment, then you have the option to foreclose the lien and force the sell of the real estate to pay your debt.
Georgia’s mechanics and materialmen’s liens laws are a very useful tool for enforcing payment for the work, materials or services provided by a contractor or a supplier; however, the rules governing the preparing and filing of liens are extremely tricky (we haven’t even discussed the exceptions in this overview!); if you have any questions regarding Georgia’s construction liens or subcontractor liens, please leave us a comment or contact us before your lien rights evaporate.