Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

Chris Birk from SuretyBonds.com recently interviewed Green Building Law Update's Chris Cheatham about how green building affects performance bonds and the DC green building law.  The interview is informative and I enjoyed listening.  It's 15 minutes well spent.  Click here to tune-in.

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In presentations I often mention that every construction contract is the beginning of a construction dispute.  The same usually applies to architects agreements and other design contracts too.  With that in mind, I'd like to hear from you.  What terms do you prefer in your contracts for resolving disputes: nothing, mediation, arbitration?  Vote below.  And add a comment to elaborate on your vote...

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The Arizona Supreme Court applied the economic loss rule (the "ELR") to bar a construction related claim for the first time last week. 

Overly simplified, the ELR is a judge-made rule that bars many extra-contractual claims for design and construction defects when those claims seek only damages for the cost to repair or replace defective work, not damages for death, personal injury, or damage to other property.

In Flagstaff Affordable Housing Limited Partnership v. Design Alliance, Inc.  the Justices applied the ELR to deny an owner's claim against their architect for negligent design of an affordable housing project in Flagstaff, Arizona.

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In Building Overrun Cases on the Rise, journalist Ed Hammond at the Financial Times reports that late completion disputes are already rising this year in the UK.  He also mentions:

• With projects started in better times now yielding lower occupancy and returns, owners are more inclined to pursue claims against their contractors
   
• Liquidated damages claims for late completion are rising in frequency and amount
   
• Austere times and pressure on margins are compelling owners and contractors to become more contentious and adversarial
   
• The Construction Products Association predicts a 3% decrease in spending for 2010

Will these tends continue in the in the UK?  Will they cross the Atlantic to North America too?

As construction disputes intensify and relationships become more strained, your contracts will come under more scrutiny.  Are you and your contracts fortified for that?

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In Overcoming the Ugly Factor in Building-Integrated Solar Design, journalist Jennifer Kho reports on how Skidmore Ownings, & Merril and the Rensselaer Polytechnic Institute are collaborating to make solar energy-gathering materials look better.

One source says "most applications thus far are pretty ugly and impede your view."  

While visual elegance may not seem like a serious concern to those determined to generate electricity from the sun, for architects and developers looking to sell or rent properties, looks matter.

The SOM/Rensselaer collaboration is focusing on a dynamic solar facade, a panel composed of glass elements like the one to the right.  In its current design, it's hung on wires that move up and down and twist from side to side to track the sun.  The idea is to produce a system that combines aesthetic appeal with more efficient capturing of the sun's UV radiation.

Engineers and designers recognize that for building owners and operators who must rent and sell property to meet pro formas and satisfy investors and lenders, energy efficiency and government incentives aren't the only factors in the green building calculus.  Like it or not, curb appeal attracts tenants and buyers.  The engineers and designers are addressing that factor too. 

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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.

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