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

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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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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