by Mark A. Cobb
In its December 3, 2013 ruling, the U.S. Supreme Court took a very important stand in favor of subcontractors! For those of us watching Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, et al. closely, we were delighted to see that the Supreme Court upheld the laws of twenty-four states (which impacts every state) to limit the uses of forum-selection clauses in construction contracts.
What is a Forum Selection Clause? Forum selection clauses are very common in all types of contracts as they establish the jurisdiction where a dispute related to the contract will occur. In other words, for example, a California general contractor and a subcontractor from Alabama working on a project in Georgia might agree in their subcontract agreement that any and all disputes related to their contract will be resolved in Georgia as that is the project’s location. This makes sense as both parties were working in Georgia, the building in dispute is in Georgia, many of the witnesses were or are in Georgia, and it involves Georgia real estate.
Do Forum Selection Clauses in Construction Contracts Differ from Forum Selection Contracts in Other Business Agreements? Yes, and that’s the impact of this case. In the most general terms, forum selection clauses in commercial contracts tend to be enforceable. Construction contracts, however, have very significant public policy consideration as well as issues related to state and federal laws. Specifically, many states have enacted statutes which either void or make voidable forum selection clauses in construction contract. States have singled out construction contracts due to public policy related to the situs of the project among other reasons.
Why do Some States Limit the Terms of Forum Selection Clauses? Imagine in the example above regarding the California general contractor, that the contract selected California as the proper jurisdiction for all disputes. It might not be as fair for many reasons including California’s natural tendency to favor its citizens (in the case the general contractor); frequently, the general contractor has deeper pockets than the specialty subcontractor so to require the Alabama subcontractor to enforce its rights in California could be very expensive, the costs to fly witnesses located in the project’s location (Georgia) is time-consuming and expensive, and, frequently, subcontractors have limited opportunity to negotiate the terms of their contracts. Furthermore, and perhaps most importantly, the dispute would involve a construction site or building located in Georgia. Thus, many state legislatures have put limits onto the use of forum selection clauses in construction contracts.
What Happened in the Recent Case Decided by the Supreme Court? In Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas, a Virginia-based general contractor, Atlantic Marine, hired a subcontractor named J-Crew Management, Inc, a Texas corporation, to build a child care facility in Fort Hood, Texas. And, the subcontract between Atlantic Marine and J-Crew contained a forum-selection clause requiring that all disputes “shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.”
J-Crew, in turn, subcontracted some of its work to sub-subcontractors who were located in or near Fort Hood, Texas (very close to the project). All of J-Crew’s work was performed in Texas, and all of the sub-subcontractors work was performed in Texas. At the close of the project, however, J-Crew was owed almost $160,000 even though it had timely completed its work. In order to recover the amount due, J-Crew brought suit against the general contractor in Texas (in the federal district where the project was located). The general contractor, Atlantic Marine, citing the forum-selection clause contained in the construction subcontract, moved to dismiss or transfer J-Crew’s case to federal court in Virginia.
The Trial Court’s Decision: Because the project occurred solely in Texas, the claim arose in Texas, all of the participants had been in Texas, and most of the evidence concerning the claim was located in Texas, the trial court agreed with J-Crew and refused to transfer venue to Virginia. Furthermore, the Texas legislature had enacted a statute which states that construction contracts for improvements to real property located in Texas are “voidable by the party obligated by the contract to perform the construction” if the contract requires litigation in another state.
Federal Appeals Court Upholds State Law: In response to the trial court’s ruling, Atlantic Marine appealed to the Federal Court of Appeals to seek enforcement of the forum-selection clause, but the appeals court agreed with the trial court. Finally, Atlantic Marine appealed to the U.S. Supreme Court, which granted review. The Supreme Court heard oral arguments in the case in October and handed down their ruling this week.
Why The U.S. Supreme Court Upheld the Trial Court’s Decision: The Supreme Court recognized states rights in not overruling the Court of Appeals Decision. And, in fact, the Supreme Court’s holding states that when a federal court considers the forum for a case, “the court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; it may consider only public interests.” By authorizing public policy as a part of a court’s decision to transfer or dismiss a case, the Supreme Court recognized state sovereignty as well as the need for public interest to enforce states laws.
Important Lessons for Subcontractors and Suppliers: Although Atlantic Marine did not render all forum selection clauses in construction contracts unenforceable, it does permit a balance between parties’ rights to contract and public policy. In addition, Atlantic Marine is a great reminder of the importance that even a seemingly insignificant subcontract term can hold in a construction contract. Frequently, forum-selection provisions are buried deep within the “boiler plate” terms of the construction contract; parties entering into contract must pay attention to each of these terms including the forum selection clauses.
Georgia construction attorney Mark Cobb has been asked to be a presenter at the construction law seminar, “CONTRACTOR SURVIVAL 101″, sponsored by the Associated General Contractors (AGC) of Georgia held on Wednesday, December 18, 2013 in Tifton, Georgia.
According to the AGC Georgia’s information brochure, “Construction firms are faced with difficult legal, accounting and insurance issues exacerbated by the shrinking markets and lower profit margins. AGC Georgia has assembled a team of experts in these fields to share professional experiences and answer your questions.”
The seminar is intended to assist construction professionals with some of the important legal and accounting needs faced by the industry. In addition to a question-and-answer session, the following five topics will be the central focus of this seminar:
- Common Sense Surety and Financial Risk Management
- Internal Controls and Best Practices for Contractors
- Tax Law Updates
- Georgia Lien Law
- Sound Practices for Prime Contractors to Implement When Working with Specialty Contractors
Mark Cobb is honored to be a part of this important, educational program and to be leading the discussion on Georgia Lien Law and Sound Practices for Prime Contractors to Implement. In doing so, Mark will be highlighting several important topics such as:
- Understanding Legal Rights
- Georgia’s Statutory Notice Scheme including Notices of Commencement, Notices to Contractors, and Notices to Owners
- Effectiveness and Forms for Interim and Final Lien Waivers and Releases
- Affidavits of Nonpayment
- Private Project Payment Bonds
- Bonding of Specialty Contractors
- Detailed Schedule of Values
- Language in Subcontracts
- Reports from Subcontractors and Suppliers
- Obtaining Proper Paper Work from Specialty Subcontractors
- Confirming Worker’s Compensation Insurance
Contractor Survival 101 is open to everyone, and there is a discount for AGC Georgia members. This educational construction law seminar begins at 10:00 a.m. and will finish at 3:00 p.m. (lunch is included in the registration price). To learn more about the speakers or topics or to download registration information, please view Upcoming Events on the AGC Georgia website by clicking here – - >
In addition, you may contact the Cobb Law Group directly for additional information. We look forward to seeing you there.
Huffington Post journalist, Radley Balko has written a very interesting article for the most recent issue of the American Bar Association’s ABA Journal regarding the evolution of America’s police from friendly public servants to pseudo-military; to read this article, please click here > >
If you would like to read more, the article’s author, Radley Balko, has written a book entitled Rise of the Warrior Cop: The Militarization of America’s Police Forces; if you are interested in reading this click on the following link.
Don’t forget to leave your comments regarding this interesting and important topic.
by Mark A. Cobb
On July 1, most of the 2013 Georgia legislative changes take effect including a very crucial amendment to Georgia’s lien laws.
Earlier, this year, our state legislature approved and our Governor signed in to law, an amendment to the Georgia Mechanics and Materialmen’s Lien Statutes which allows lien claimants the right to include all of their contract costs in their lien amount. Thus, as of today, it is clearer that the law allows lien claimants to include such amounts as pre-judgment interest, general condition costs, mobilization, de-mobilization, and profits in the amount they claim in the form of a lien. Specifically, Part 3 of Article 8 of Chapter 14 of Title 44 of the Official Code of Georgia Annotated, relating to liens of mechanics and materialmen, was amended by revising Code Section 44-14-361, relating to creation of liens and property to which lien attaches. The following is the revised O.C.G.A. Section 44-14-361 (the changes to the current statute are indicated underlined) which takes effect today:
(a) The following persons shall each have a special lien on the real estate, factories, railroads, or other property for which they furnish labor, services, or materials:
(1) All mechanics of every sort who have taken no personal security for work done and material furnished in building, repairing, or improving any real estate of their employers;
(2) All contractors, all subcontractors and all materialmen furnishing material to subcontractors, and all laborers furnishing labor to subcontractors, materialmen, and persons furnishing material for the improvement of real estate;
(3) All registered architects furnishing plans, drawings, designs, or other architectural services on or with respect to any real estate;
(4) All registered foresters performing or furnishing services on or with respect to any real estate;
(5) All registered land surveyors and registered professional engineers performing or furnishing services on or with respect to any real estate;
(6) All contractors, all subcontractors and materialmen furnishing material to subcontractors, and all laborers furnishing labor for subcontractors for building factories, furnishing material for factories, or furnishing machinery for factories;
(7) All machinists and manufacturers of machinery, including corporations engaged in such business, who may furnish or put up any mill or other machinery in any county or who may repair the same;
(8) All contractors to build railroads; and
(9) All suppliers furnishing rental tools, appliances, machinery, or equipment for the improvement of real estate.
(b) Each special lien specified in subsection (a) of this Code section may attach to the real estate of the owner for which the labor, services, or materials are furnished if they are
furnished at the instance of the owner, contractor, or some other person acting for the owner or contractor and shall include the value of work done and materials furnished in any easement or public right of way adjoining said real estate if the work done or materials furnished in the easement or public right of way is for the benefit of said real estate and is within the scope of the owner’s contract for improvements to said real estate.
(c) Each special lien specified in subsection (a) of this Code section shall include the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract, or purchase order subject to subsection (e) of Code Section 44-14-361.1.
(d) Each special lien specified in subsection (a) of this Code section shall include interest on the principal amount due in accordance with Code Section 7-4-2 or 7-4-16.
In addition to this important update to Georgia’s lien laws, most of Georgia’s new statutes also take effect today including the amendment to Georgia’s constitution to allow the state to authorize new charter schools over the objection of local school boards, and a $2,000 increase in the amount of tax-free income married couples filing jointly may claim as an exemption.
Every construction project, whether large or small, comes with risks. Contractors, subcontractors and materialmen worry whether payment will be made; conversely, project owners, developers and general contractors worry that subs and suppliers will properly perform. Fortunately, there are several statutory and common law rights which help alleviate some of these stresses including mechanics and materialmen’s liens, payment bonds and performance bonds.
Payment bonds (sometimes also called surety bonds or construction bonds) and performance bonds are essentially insurance contracts between three parties:
- the Obligee (the project owner which is often a governmental agency)
- the Principal (the purchaser of the policy which is often the general contractor
- the Surety (the underwriter which is usually an insurance company)
Payment bonds offer assurances to those on lower tiers (such as subcontractors and suppliers) that they will be paid for the work or the materials which they supply; performance bonds offer assurance to those on higher tiers (such as owners or prime contractors) that the work will be completed. On private projects, payment bonds and performance bonds are optional; however, on State of Georgia public works projects and federal public works projects, payment bonds and performance bonds may be mandatory.
There are new, additional types of insurance products which are increasingly becoming available. There are several different names by which these new products are known, but two of the more common names are ConstructAssure and Subguard.
These insurance products are sold by the surety to general contracts (so there are only two parties involved), and it functions as subcontractor default insurance which offers protection to the general contractor against unbonded first tier subcontractors. In other words, it can be seen as an indemnification policy wherein the surety agrees to indemnify the general contractor in the event that a subcontractor fails to perform.
As with all insurance policies, there are advantages and disadvantages to their use. Often cited examples of the advantages include the following:
- general contractors appreciate that their indirect losses (office, overhead, mobilization, etc.) as well as their direct losses can be included in the claim;
- the policy may stipulate that indirect costs are a percentage of the direct costs (for example 10% or 20%); thus, the claimant does not have to prove their indirect losses;
- claims are paid quickly which helps the contractor as well as the project;
- the contractors pre-qualify the subcontractors;
- these policies tend to be much less expensive because they have a high deductible (frequently ranging from $250,000 to $1,000,000 whereas there are no deductibles with payment bonds or surety bonding; and
- a policy may be issued for a specific project or it may cover all of a general contractor’s project for a year (or renewal term).
Does These Subcontractor Indemnification Policies Replace Payment Bonds? Most Georgia state and municipal public works projects and most federal public works projects require payment bonds and have set minimum standards for the bonds. Subguard and similar policies do not meet these minimum requirements, thus, public works projects still require payment bonds. This does not, however, preclude a general contractor from having a Subguard policy in place on a public project.
If you have any questions about bonding on private construction projects in Georgia or state or federal projects in Georgia, please feel free to contact the construction bond attorneys at the Cobb Law Group via email or by calling toll free 1-866-960-9539
by Mark Cobb
We are excited to report that earlier this week, Georgia’s Governor Nathan Deal signed HB 434 into law thereby amending our state’s lien statute to allow lien claimants to include the amount due and owing the lien claimant under the terms of an express or implied contract, subcontract, or purchase order as well as interest on the past due balance. We’ve written more extensively about the 2013 amendment to Georgia’s lien laws, but we wanted to follow-up with our readers and let you know that the bill is now law. Thank you Gov. Deal.
If you have any questions regarding the changes to our state’s lien laws or if you have any other questions regarding construction liens, payment bonds, Miller Act claims or construction contracting in Georgia, please contact the lawyers at the Cobb Law Group by email or call us at (866) 960-9539 today!
Did you hear?!
Last week, Georgia Governor Nathan Deal signed a proclamation naming May Georgia’s International Building Safety Month. This is a national campaign to help individuals and businesses understand what it takes to create and sustain safe and sustainable structures. The campaign reinforces the need for adoption of modern, model building codes, a strong and efficient system of code enforcement and a well-trained, professional workforce to build and maintain the system. The materialmen lien law and construction bond lawyers at the Cobb Law Group salute Georgia’s International Building Safety Month!
by Mark Cobb
Every four years, the American Society of Civil Engineers (ASCE) produces a report evaluating the state of America’s infrastructure and grades them on a scale of A+ (great) to F- (lousy), and they recently released their 2013 report card. Their report card covers 16 infrastructure categories and provides information on all 50 states in each of the 16 areas including bridges, drinking water, roads and schools. Sadly, the cumulative national grade (or C.P.A.) was a D+. Although this is abysmal, Georgia’s individual score was slightly higher coming in with a C-.
I don’t know about you, but my parents would not have been happy if I had come home with these grades!
Here’s a breakdown of the 16 categories showing the national performance and Georgia’s performance:
In addition to providing the overview of the infrastructure, the ASCE also pinpoints specific facts which led to the scores. Here are some of the key facts relating to Georgia’s Infrastructure and our future construction possibilities:
- Dams: Georgia’s dam safety program has 7.5 full-time employees that each oversee over 4,000 state regulated dams, 484 of which are considered his hazard dams;
- Drinking Water: Georgia has reported that it has $8.9 billion in drinking water infrastructure improvements needed in the next 20 years;
- Hazardous Waste: Georgia has 15 sites on the National Priorities List;
- Wastewater: Georgia has reported that is needs $89 million in wastewater Infrastructure improvements;
- Bridges: Six percent (6 %) or 878 bridges in Georgia are considered structurally deficient; another 12.7 % or 1,871 bridges in Georgia are considered functionally obsolete;
- Roads: Nineteen percent (19 %) of Georgia’s roads are in poor or mediocre condition; in addition, driving on roads in need of repair costs Georgia motorists $374 million a year in extra vehicle repairs and operating costs which amounts up to $60 per motorist;
- Parks and Recreation: Georgia has an unmet need of $123 million for its parks system; and
- Schools: It is estimated that Georgia schools have $5.2 billion in infrastructure funding needs.
IS THERE ANY GOOD NEWS?! If there is a silver lining to this report, it is the fact that our future depends upon financing and completely a lot of infrastructure improvements in Georgia which means, of course, there should be quite a bit of work for Georgia’s contractors and specialty contractors (and the suppliers to those jobs too!) To see the full report and many more details, please click here; to read more details related to Georgia’s state report card, please click here.
Don’t forget to leave your comments about the state of our infrastructure below:
by Mark A. Cobb
(UPDATED MAY 9, 2013) GOVERNOR SIGNED HB 434 INTO LAW; click here for more information!
We love sharing good news about pending changes to Georgia’s lien laws! A couple of weeks ago, we published a blog post about Georgia 2013 HB 434 which allows Georgia lien claimants to include both general condition costs and accrued interest as a part of their lien claims. At the time our blog entry was published, the Georgia House of Representatives had passed the amendment and the bill was being forwarded to the Senate. Our long-time friend, Senator Jack Murphy sponsored the bill in the Georgia Senate, and, we are pleased to report, the bill passed the Senate unanimously. Consequently, HB 434 has been forwarded to Governor Deal for consideration. Thank you Georgia representatives and senators!
This vital legislation greatly impacts Georgia’s subcontractors and material suppliers. In a recent court decision, a judge ruled that a lien claimant was not allowed to include the whole value of its contract in its lien; thus, for example, the lien claimant was potentially prohibited from included general condition costs, mobilization and demobilization costs, etc. The proposed legislation of Georgia HB 434 attempts to rectify this potentially detrimental court holding by specifically amending Georgia’s lien statute to permit a claim of lien to include the amount due and owing the lien claimant under the terms of an express or implied contract, subcontract, or purchase order as well as interest on the past due balance.
To read the proposed change to Georgia’s Mechanics and Materialmen’s Lien Act found at O.C.G.A. Section 44-14-361, please click here.
The construction attorneys at the Cobb Law Group want to keep you up-to-date on all the laws and cases which affect your rights. Please rely on us with any questions you may have regarding Georgia’s lien laws and payment bond claims. Contact us here.
(UPDATED MAY 9, 2013) GOVERNOR SIGNED HB 434 INTO LAW; click here for more information!
(UPDATED APRIL 10, 2013) TO SEE THE LATEST INFORMATION ON THE PENDING CHANGES TO GEORGIA’S LIEN LAWS, PLEASE SEE OUR FOLLOW-UP BLOG ENTRY BY CLICKING HERE.
As the current session of the Georgia legislature winds down, we want to send our kudos to Rep. Tom Weldon, Wendell Willard and Mike Jacobs for supporting HB 434 which attempts to amend Georgia’s Mechanic’s and Materialmen’s Lien Law. The proposed amendment will allow Georgia’s contractors, specialty subcontractors and material suppliers to specifically include pre-judgment interest, General Condition Costs and other sums due under their contract as lienable items. This proposed bill is in direct response to a recent court decision which negatively impacted construction professionals by excluding General Condition Costs as a lienable item in Georgia.
Specifically, HB 434 amends O.C.G.A. Section 44-14-361 to include the following specially crafted language for new subsection (c):
(c) Each special lien specified in subsection (a) of this Code section shall include:
(1) The amount due and owing the lien claimant under the terms of its contract, subcontract, or purchase order; or
(2) In the absence of a contract, subcontract, or purchase order, the unpaid value of the labor, materials, and services provided by the lien claimant for the improvement of the real estate. Such lien shall include interest on the principal amount due in accordance with applicable law.
To see a copy of HB 343, click here. Currently, the bill is with the Senate Judiciary Committee. We will keep you informed as this issue progresses.