2010 – Page 2 – Construction Law

General Contractor’s Trust Fund Payments to Subcontractor Were Not Improper

Dec 10 2010

Metro Found. Contractors, Inc. v. Marco Martelli Assocs., Inc., 78 A.D.3d 594, 912 N.Y.S.2d 187 (N.Y. App. Div. 2010)

In Metro Foundation Contractors, the Appellate Division, First Department, denied the plaintiff subcontractor’s motion for summary judgment, finding that fact issues remained as to whether the plaintiff defaulted under the subcontract and as to whether defendant general contractor’s payments to the plaintiff and to vendors were proper. The court did hold that the defendant did not violate New York’s lien law in paying trust funds to the plaintiff and vendors, who were the proper beneficiaries.

Court rules on reasonable amount of collateral that contractor must provide to insurer of construction project

Nov 30 2010

Safeco Ins. Co. v. M.E.S., Inc., No. 09-cv-3312, 2010 WL 4828103 (E.D.N.Y. Nov. 22, 2010)

In Safeco Ins. Co. v. M.E.S., Inc., the court decided which parameters should be considered when determining the amount of collateral to which an insurer of construction projects is entitled. In this case, defendant construction companies executed indemnity agreements with plaintiff insurer. Plaintiff sued to secure collateral under the indemnity agreements, arguing that it was entitled to several million dollars from each defendant as collateral security. Defendants argued that the amounts should be reduced for several reasons, including (i) the fact that the insurer failed to revise its costs estimate to reflect the actual amounts of the subcontract awarded, and (ii) the insurer had several accounts receivable whose proceeds should be used to cover insurer’s costs. The court agreed with the defendants on the first argument but not the second; the court determined the appropriate amount of collateral not by seeking mathematical certainty, but by applying New York’s reasonableness standard to construe the facts and the documentation submitted by the parties.

Surety That Did Not Fully Perform Could Not Succeed to Payment Rights

Nov 30 2010

Mount Vernon City School Dist. v. Nova Cas. Co., 78 A.D.3d 1028, 912 N.Y.S.2d 98 (N.Y. App. Div. Nov. 23, 2010)

In Mount Vernon City School District, the plaintiff school district contracted with the defendant to provide heating, ventilation, and air conditioning work at a middle school. The defendant secured a performance bond from the defendant surety. Ultimately, the contractor failed to complete the work, and the surety refused to perform under the bond. The district sued both the surety and the contractor for breach of contract. The contractor had requested that payment be sent to the state Department of Labor, to be applied to a claim in another school district, and the surety argued that it should succeed to the contractor’s rights under its contract.

The Appellate Division, Second Department, disagreed, holding that the surety was not a fully paying and performing party, and that therefore it did not succeed to the rights of the payment beneficiaries. Furthermore, the court held that the district did not breach the payment terms of the performance bond by paying the money over to the Department of Labor on request. Finally, the court found that the school district was not entitled to attorney’s fees, since nothing in the parties’ agreements provided for such fees.

Contractors Beware: Court Vacates $1 Million Award That Exceeded Government Contract Funding Authorization

Nov 30 2010

By: Carleton O. Strouss, C. G. Bowman & George A. Bibikos, K&L Gates, Harrisburg

The United States Court of Appeals for the Third Circuit recently vacated a $1 million award to a contractor for extra work it performed on a moving services contract because the award would have exceeded the funding authorization of the project owner, Wayne Moving & Storage of New Jersey, Inc. v. The School District of Philadelphia. [1] The case is a cautionary tale for contractors and subcontractors. In it, a subcontractor asserted that it should be paid extra costs that exceeded the project funding authorization. It asserted that representations by the government should estop it from being able to rely on the statutory defense that the funding was not authorized. The Third Circuit concluded that the doctrine of equitable estoppel may be asserted against governmental entities in Pennsylvania. However, in applying the doctrine to the case before it, the Third Circuit found that the contractor seeking compensation from the governmental entity had failed to meet the elements of an estoppel claim. Therefore, it reversed the District Court which had granted the claim and vacated an award in excess of $1 million.

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Court rules against contractor that wrongfully demanded early payment in contradiction of the payment schedule it signed

Nov 25 2010

Remodeling Constr. Serv. v. Minter, 78 A.D.3d 1677, 913 N.Y.S.2d 446 (NY App. Div. 4th Dep’t Nov. 19, 2010)

In Remodeling Constr. Serv. v. Minter, a construction company was denied further payment where it demanded more payment than it was contractually owed. Defendant hired plaintiff construction company to rebuild defendant’s house. The parties agreed in writing that payment would be meted out according to a payment schedule. According to the schedule, the drywall installation was a prerequisite to the fifth payment. After completing all the work necessary to receive the first four payments, and having received the first four payments, plaintiff then refused to install the drywall. Plaintiff refused to continue unless defendant paid plaintiff additional sums. Defendant refused and plaintiff brought suit for breach of contract. The court found that according to the contract, plaintiff was entitled only to the first four payments. The court held that plaintiff breached the contract by refusing to perform and wrongfully demanding the fifth payment. Plaintiff’s claim was dismissed.

K&L Gates Construction and Engineering Practice Secures National First-Tier Ranking in U.S. News “Best Law Firms” Rankings

Sep 15 2010

Global Law firm K&L Gates LLP has earned more first-tier rankings than any other law firm in the inaugural edition of the U.S. News & World Report – Best Lawyers rankings of the “Best Law Firms,” available online at www.usnews.com/bestlawfirms and on newsstands in the coming weeks. Based on surveys of Nearly 9,000 lawyers and more than 9,500 clients throughout the United States, including representatives of every Fortune 100 and more than half of Fortune 1000 companies, the report includes ranking of law firms in almost 40 practice areas and approximately 175 metropolitan and state areas.

Along with its first-tier rankings in surveyed metropolitan and state areas, K&L Gates was also recognized with national first-tier rankings in the Corporate Law, Securities/Capital Markets Law, Mutual Funds Law, Antitrust Law, Employment Law – Management, Private Funds/Hedge Funds Law, and Construction Law categories.

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Going Green: Illinois Adopts Laws Aimed at Promoting Sustainable Development

Sep 01 2010

By: Larry Eiben, K&L Gates, Chicago

The State of Illinois is part of the nationwide trend to codify new construction standards for energy efficient buildings and sustainable development. Illinois has adopted the Illinois Energy Conservation Code, which became effective January 29, 2010 and the Green Buildings Act, which became effective on July 24, 2009. The goals of these laws are to reduce energy consumption, protect the environment, cut pollution and promote sustainable development.

“Agreements to Agree” May Not be Enforceable

Aug 27 2010

By: Todd Reuter, K&L Gates, Spokane/Coeur D’Alene

Spokane Structures, Inc. v. Equitable Inv., LLC, 148 Idaho 616, 226 P.3d 1263 (2010)

"Agreements to agree" may not be enforceable. Here, a contractor signed a one-page document entitled “Design/Build Agreement” that provided that the contractor would “design, engineer, and draft plans in preparation of all documents/drawings required to enable the owner and contractor to agree on a final design and cost of construction to be performed.” The contractor presented a final design plan to the landowner, but the landowner decided not to follow through with the project. The contractor sued for specific performance, trying to force the owner to pay him for work.

Green Building is Big Business and Carries Potentially Big, But Manageable, Liability Risks

Aug 26 2010

By: Josh M. Leavitt, K&L Gates, Chicago

Introduction

While there are those who debate whether green building is effective from an environmental impact point of view, no one seriously debates that it is big business. One researcher reports green expenditures were approximately $10 billion in 2005 and between $36 billion and $49 billion in 2008. Hupp, Recent Trend in Green Buildings Laws: Potential Preemption of Green Building and Whether Retrofitting Existing Buildings Will Reduce Greenhouse Gases and Save the Economy, The Urban Lawyer Vol. 41, No. 3 (Summer 2009). Paul Primavera, Senior Vice President of the Lockton Companies predicts that “within the next three to five years certified green buildings will account for 25 percent of all new construction in the United States. Green Buildings: New Construction Concepts and Risks, (Fall 2009) available at http://www.lockton.com/Insights-And-Publications/White-Papers

Certainly political forces and public awareness are at work, but there is no doubt that the green building explosion has been driven by the belief that it is profitable. The work product of researchers and consultants projecting benefits from green building improvements, the sales representations of green building product manufacturers and public and private incentive programs have fed those expectations. Project owners expect to receive specific and often quantifiable benefits from their investments, including energy savings, reduced overhead and maintenance, more tenant interest, increased lease income, and government incentives (such as tax credits, low-interest loans, density bonuses, zoning waivers, fast-track permitting, and reduced permit fees), and other financial incentives. They also expect less quantifiable benefits such as energized work forces, general goodwill, and marketing benefits.

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K&L Gates Partner Gregory Andre Co-Authors Chapter about Negotiating Construction Contracts

Aug 17 2010

Chicago Partner Gregory Andre, with the help of Associate Michael Roth, made a significant contribution to a recently published resource on construction law by co-authoring a lengthy chapter about negotiating construction contracts. The chapter, aptly entitled “Negotiating Construction Contracts”, provides a detailed discussion of the topic and addresses a myriad of underlying issues, including information to be provided by the owner and the contractor, changes in the work and change orders, delay, claims disputes, default, and many others.

Available from the Illinois Institute of Continuing Legal Education, the 2010 edition of Construction Law: Transactional Considerations can be purchased by clicking here.

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