Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov of DLA Piper Law Firm : Design Build Contracts, Construction Bankruptcy

Focusing locally today on my own hometown, this Crain's broadcast offers a sobering forecast for the Chicagoland residential real estate and construction markets.  Do you agree?  Watch the video, vote, and elaborate by posting a comment using the link below below.

 

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Judges to owner: demanding that your contractor foreclose their mechanics lien within 30 days or lose it forever waives your right to require arbitration.

 

The Backstory of Illinois Concrete-I.C.I., Inc. v. Storefitters, Inc.

Unfortunately, the Illinois Appellate Court (Second District) decision in Illinois Concrete-I.C.I., Inc. v. Storefitters, Inc. (PDF) doesn't give us too many background details.  Here's what we can gather: an owner entered into a contract with a contractor to provide some type of construction work for the owner.  The contract had an arbitration clause, presumably one that says that if the owner and the contractor get into a dispute, they must submit the dispute to binding arbitration instead of resorting to the courts.

The owner and the contractor got into a dispute.  The owner didn't pay.  So the contractor recorded a lien against the property they'd worked on.

Under Section 34 of the Illinois Mechanics Lien Act (PDF) an owner (and others too) can serve a written demand on anyone holding a mechanics lien against their property (a "mechanics lien holder") demanding that the mechanics lien holder sue to foreclose their mechanics lien within 30 days (a "Section 34 demand").  And if the mechanics lien claimant doesn't go to the clerk of the court and file their foreclosure complaint before that 30 days expires, the mechanics lien claimant forfeits their lien.

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AuggieV over at Building Green CT reports a Recent Surge In Connecticut Green Building News May Be A Good Sign.  Some of the things he mentions:

• Connecticut tied with Georgia for No. 1 in the fifth annual Global Green USA analysis and ranking of state Qualified Allocation Plans used by state housing finance agencies and guide annual distribution of federal Low-Income Housing Tax Credits

• Reckson (a division of SL Green Realty Corp.) installed a new 100 kilowatt photovoltaic solar panel system on the roof of their facility on Greenwich

• The state of Connecticut and Gateway Community College just broke ground on a $198M campus in downtown New Haven.  It's the largest construction project the state undertaken to date and its first public building designed gold LEED certification. The project is also estimated to employ 350 workers

• Nestle Waters North America announced they will move their headquarters from Greenwich to Stamford in late 2010. The company plans to renovate the new Stamford headquarters for LEED certification. They've already got nine LEED certified facilities. The Connecticut Department of Economic and Community Development is providing a $4M low-interest loan to equip the new building and Nestle Waters is also eligible for up to $5 million in tax credits

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The latest Krahl Construction developments:  Fifth Third Bank and Travelers Casualty and Surety Company of America each sued Krahl Construction's President in federal court last week. 

Fifth Third Bank had loaned money to Krahl before Krahl closed for business earlier this month.  Fifth Third's Complaint (PDF) alleges that Krahl's President personally guaranteed repayment of the loan but hasn't paid as required under the guaranty.

Travelers served as Krahl's surety providing payment and performance bonds on many of Krahl's projects.  With Krahl's closing and assigning their assets for the benefit of creditors, odds are some owners are going make claims under the performance bonds and some subcontractors are going to make claims under the payment bonds.  Travelers's Complaint (PDF) alleges that under an indemnity agreement between Krahl's President and Travelers, the President must reimburse Travelers for money that Travelers pays out to owners and subcontractors under the bonds.  Travelers claims that Krahl's President hasn't paid. 

And to try an ensure that Krahl's President's assets are available to pay future liability under the indemnity agreement, Travelers also asks the judge to enjoin the President from transferring, or encumbering, any of his money or other assets.

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The Question

Reader Gil Anko asked this question on a past post about retainage:

If the contractor fails to request the release of the funds retained, is there a statute of limitations within which contractor must request release of the retainage???

The answer: yes.

How Long Does It Run?

How long is the statute of limitations on a claim for unpaid retainage? Like so many legal questions, the answer is: it depends.  And it depends principally on two things:

• The contract, and
• The law governing the relationship between the working side and the paying side

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A bill (HB2356) was introduced last week in the Arizona State Legislature that, if enacted, will require certain building and construction projects to achieve at least a silver LEED certification.

Bill Summary

Projects that will need to achieve at least a Silver certification:

• Each Major Project of a state agency, including state universities and colleges
• Each Major Project of a school board that receives state funding
• Each private Major Project that receives at least 50% of its funding from the state
• All existing public buildings under energy efficiency retrofitting of at least a 35% share of the total value of the existing building, regardless of whether the retrofitting project qualifies as a Major Project

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Crain's Eddie Baeb reported this morning that the Liquidation Process Starts For Krahl Construction.

Yesterday, the trustee of Krahl's assets, Howard Samuels of Rally Capital Services, LLC, sent this letter to Krahl's creditors announcing his appointment, providing a preliminary introduction to the assignment for the benefit of creditors process (frequently called an "ABC"), and asking Krahl's creditors to submit affidavits identifying their claims against Krahl and the amount of money Krahl owes them. Mr. Samuels's letter also gives a brief breakdown of Krahl's assets and liabilities. Krahl has significant assets, though most are intangible, like Krahl's accounts receivables for work they've provided. For more on recent Krahl Construction developments, go to last week's post announcing Krahl's ABC.

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An anonymous commenter left this question on a past post about the FDIC extending statutes of limitations:

What if the FDIC sells the loan to another bank (not FDIC)? When the purchaser wants to sue to enforce the note, does the statute of limitations for the subsequent note-purchaser begin running on: (a) the the ordinary starting date under state law or (b) the date the FDIC is appointed as receiver for the failed bank?

According to several judicial decisions in the wake of the last financial crisis of the late 80s and early 90s, the answer is: whichever is later. And that's almost always the date the FDIC is appointed as receiver.

The FDIC's transfer of a loan to a private purchaser doesn't change the LP Start Date. The purchaser may defer the LP Start Date just as the FDIC can. The purchaser may also postpone expiration of the limitations period the same as the FDIC can.

With so many banks failing recently, and the FDIC selling so many of their loans, this has become a compelling question. Thanks to our anonymous reader for asking it!

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A bill was introduced in the Washington State Legislature yesterday that will require LEED certification for sales and use tax deferral on select construction projects. If this bill (SB 6598) becomes law, projects will have to achieve a certain level of LEED certification to qualify for deferral of sales and use tax on materials and other components of the work. The higher the project's LEED certification, the greater the amount of sales and use tax that's deferred.

This chart identifies the percentage of sales and use tax each level of certification will deliver:

LEED Certification Level	Percentage of Sales and Use Tax Deferred
Platinum	100%
Gold	75%
Silver	50%
Less Than Silver	25%

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No. 2: Price

Price is No. 2 on the list of ten most important construction contract terms. Sometimes you'll see the price called the "contract price" or the "contract sum." To keep it simple today, we'll just keep it as the "price."

The price makes it to No. 2 because it's another of those few things you must have in a construction contract: one side (a prime contractor, subcontractor, sub-subcontractor, etc.) provides the Work (the "working side") in exchange for the other side paying the price (the "paying side").

There's three common ways to price construction work and many issues that affect each. Today we'll talk about each of the three types of pricing and introduce some of the important issues affecting each. At the end we'll also talk about Schedules of Value, an important price breakdown device that helps you keep track of how, when, and where the price is spent as the Work progresses.

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Serving search warrants earlier this month in a raid on Krahl Construction's headquarters, the FBI seized the Chicago company's computers and files. Several days later, company executives announced the company would shut its doors.

Then today Krahl set up a trust and assigned its assets into the trust for the benefit of its creditors. Howard Samuels of Rally Capital Services LLC will serve as assignee for the benefit of Krahl's creditors to oversee collection of debts owed to Krahl and payment of debts Krahl owes to others in what is akin to a private bankruptcy to wind up the company's affairs. More information is available in the Trust Agreement and Assignment available here.

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No. 1: Identifying the Work

Every construction contract is about building something: the "Work". You can have a construction contract without many of the other nine things on this top ten list, but you can't have one without the Work. That's why identifying the Work tops the list at No.1.

The Work is what the owner pays the prime contractor for, the prime contractor pays their subcontractors for, subcontractors pay their sub-subcontractors for, etc., etc. It's the most important thing one side wants out of the contract. When the contract doesn't identify the Work very well, controversy abounds. At best those controversies stress relationships among the those involved in the project. At worst, as Sir Topham Hatt says, they cause "confusion and delay!" And confusion and delay often lead to claims and disputes.

This post is about improving how you identify your Work, saving time and money, and reducing scope of Work claims and disputes.

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From me and my family to you and yours: have a safe, cheerful, and Merry Christmas!!!

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In the last bank failure post I promised a recap and wrap up on the D'Oench, Duhme doctrine and Section 13(e) of the Federal Deposit Insurance Act. Well, here it is:

• A recap of the D'Oench rule

• A brief explanation why federal judges and Congress created, expanded, and maintain the rule

• Practical observations on how to avoid trouble

Rule Recap

The best recap of the rule in D'Oench, Duhme and Section 13(e) is this paraphrase from Judge Phyllis Kravitch's decision in Baumann v. Savers Federal & Loan Association:

In a lawsuit over the enforcement of an "agreement" originally between a bank and a private party, the private party can't enforce against the bank's receiver any obligation that's isn't specifically memorialized in a written document that the bank's primary regulator would be aware of when examining the bank's records

Interested in more details of how this rule works? Just go to the TOPICS on the right sidebar of this page and click on D'Oench, Duhme.

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