Staking Your Claim on Federal Jobs: The Contract Disputes Act

Posted on July 6, 2011 by Gregory L. Shelton Leave a comment

Staking Your Claim

By:  Gregory L. Shelton

Shelton Law Carolinas

Contractors dealing directly with the federal government should not be bashful when seeking money, time, or some other contractual relief from the government.  The Contract Disputes Act (“CDA”) permits contractors to make claims against the government, but the claim must be stated clearly and unequivocally to give the contracting officer adequate notice of the basis and amount of the claim.  Adequate notice serves four purposes:  First, it permits the contracting officer to give meaningful, reasoned consideration to the claim; Second, it requires the basis of the claim to be revealed to induce settlement discussions before litigation commences; Third, it allows for adequate identification of the issues should litigation be necessary; and Fourth, it buttresses other CDA claim requirements to ensure the integrity of the overall claims process.

It is unwise to be too coy or clever when making the claim. In Northrop Grumman Computing Systems, Inc. v. U.S., Case No. 07-613C, the U.S. Court of Federal Claims recently held that a contractor that failed to disclose an assignment of certain contract rights failed to provide adequate notice. The contractor carefully drafted its claim to avoid mentioning the assignment, likely to avoid denial of the claim under the Anti-Assignment Act. The court determined that the contractor’s failure to reveal that it was sponsoring the claim of an assignee prevented the contracting officer from giving meaningful consideration “to a host of issues raised by the assignments.”

If you ask the sovereign for money, be clear, unequivocal, and thorough. If your claim does not pass muster under the CDA, sovereign immunity will bar your claim.

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Names Are Important

Posted on June 29, 2011 by Gregory L. Shelton Leave a comment
Courtesy of Charleston Daily Photo

Palmetto “Roses”

By: Gregory L. Shelton

Shelton Law Carolinas

Shakespeare once wrote: “What’s in a name? that which we call a rose; By any other name [is probably a limited purpose LLC with no assets].” OK, the bracketed language is mine, but in the context of construction contracts, listen to me, not Mr. Shakespeare.

One of the most important things you can do when reviewing a construction contract is to check the name of the entity with whom you are dealing. All too often, names are either misspelled or are missing the entity designation (Inc., LLC, LLP, etc.). Getting the name wrong creates an argument over who the parties to the contract actually were.  And arguments cost money. For example, if the “Inc.” is missing, the other party may argue that you contracted with a d/b/a or partnership. So, instead of advancing your case, you end up rummaging through checks, letters, faxes, emails, or other documents looking for proof that you actually dealt with the “Inc.”

Also keep in mind that many entities are formed for a single project or, in some cases, a phase of a project. The roman-numeraled-LLC has traditionally been a risk management tool used by owners, but contractors and subcontractors are following suit.

Finally, potential lien claimants would be wise to confirm that the “Owner” named in the owner-contractor contract actually owns the property. If the entities are different, a subrogated claim of lien on real property will be of very limited utility.

Names are important.

Photo courtesy of Charleston Daily Photo

Government Contracts, NC Law, SC Law , , , , ,

North Carolina Gives Lien Rights to Commercial Real Estate Brokers

Posted on June 23, 2011 by Gregory L. Shelton Leave a comment

By: Gregory L. Shelton

Shelton Law Carolinas

After several years of trying, real estate brokers were given lien rights by the North Carolina General Assembly.  House Bill 174 amends Chapter 44A (the mechanic’s lien law) by adding a Part 4 that gives brokers a lien on commercial real estate to secure commissions.

In the past, contractors and suppliers  expressed concern over the addition of another class of lien claimants, noting that brokers do not furnish labor or materials for the improvement of property. New section 44A-24.14 addresses this concern by providing that the traditional mechanic’s liens “shall be deemed superior in all respects to any lien asserted” under new Part 4.

To enforce their new lien rights, commercial real estate brokers must comply with the statutory requirements, which include having a written contract; serving notice upon the commercial property owner in the manner set forth in the statute; and filing a lawsuit to enforce the lien within 30 days after service of the notice upon the owner.

The new law becomes effective on October 1, 2011 and applies to written agreements signed by or on behalf of the owner after that date.

NC Law

Getting Paid for your Work: Construction Liens and Payment Bonds in North Carolina

Posted on June 3, 2011 by Gregory L. Shelton Leave a comment

By Gregory L. Shelton
Shelton Law Carolinas

(704) 940-9012

The purpose of this pamphlet is to provide a summary of the rights available under North Carolina’s construction lien law.  This pamphlet covers the basics of the lien law and is not intended as a comprehensive guide to North Carolina’s mechanic’s lien law.

What is a lien?

In the context of North Carolina construction projects, a person (or company) who furnishes labor or materials for the improvement of real property has the right to assert a claim against the property to secure payment.  Subcontractors and suppliers may also assert a lien against the construction funds by serving a “Notice of Claim of Lien on Funds.”  Lien rights that are not “perfected” according to specific requirements, and within statutory time limits, will be lost forever.  If you are concerned about losing your lien rights, you should consult a lawyer knowledgeable of the lien law without delay.

A lien that is perfected may ultimately result in the sale of the property by the sheriff to obtain funds to pay for the work.  Such sales are the exception rather than the rule.  In most cases, the lien claimant will be paid in full or in an agreed-upon amount in exchange for canceling the lien.

How Do I Perfect a Lien Upon the Property?

The lien is “perfected” by filing a legal document with the clerk of court in the county where the project is located.   The lien document, called the “Claim of Lien on Real Property,” must correctly describe the property interest involved, the parties to the transaction, and the required information.  The “Claim of Lien on Real Property” is enforceable by the general contractor (defined in the lien law as the party who contracted directly with the owner) or by a party standing in the shoes of the general contractor through subrogation (see section below dealing with subcontractors).  If the “Claim of Lien on Real Property” is incorrect, the court may refuse to enforce it.

To perfect a lien on the project, you must file the “Claim of Lien on Real Property” in the county where the project is located within 120 days of the last day that you (the general contractor) furnished labor or materials to the project.  You must then file a lawsuit to enforce the Claim of Lien on Real Property within 180 days of the last day that you (the general contractor) furnished labor or materials to the project.  In many cases, the claim will be paid or settled before the 180 day deadline to file the lawsuit expires.

How Do I Perfect a Lien Upon Funds?

If you performed work as a subcontractor or supplier of any tier, you may assert a lien upon the contract funds in the hands of the owner, the general contractor, or anyone else above you in the contractual chain.  The lien upon funds is perfected by serving a legal document called a “Notice of Claim of Lien Upon Funds.”  This document, which is served upon the owner, the general contractor, and any other subcontractors above you in the contractual chain, must comply with the statutory requirements, and must be served by the sheriff, by certified mail (return receipt requested), or by an authorized overnight delivery service.

The law requires the recipient of the Notice of Claim of Lien Upon Funds to hold funds sufficient to pay the amount claimed.  A recent decision by the Supreme Court of North Carolina suggests that the recipient may not release any project funds.  If the recipient fails to hold funds after receiving the Notice of Claim of Lien Upon Funds, he may be personally liable to the lien claimant to the extent of the wrongful payment.

May a Subcontractor or Supplier Assert a Lien Upon the Property?

The law permits a subcontractor or supplier to assert a lien upon the property through a legal concept known as “subrogation.”  Through subrogation, the subcontractor or supplier “stands in the shoes” of the general contractor with respect to the direct lien upon property.  For example, if the owner owes the general contractor $10,000, the subcontractor or supplier asserting the subrogated lien may assert a claim of lien upon the property up to $10,000.  To perfect a subrogated lien upon real property, the lien claimant must attach a copy of the Notice of Claim of Lien Upon Funds as an exhibit to the Claim of Lien Upon Real Property, and must satisfy the perfection requirements described above in “How Do I Perfect a Lien Upon the Property?”

Do I Need a Lawyer?

In most cases, a lawyer experienced in preparing and prosecuting lien claims will add value to the process.  North Carolina’s lien law is found the statute books, the case reporters, and the state constitution.  To complicate matters further, North Carolina courts sometimes require strict compliance with the forms and procedures governing the various types of liens.  Finally, if the lien claimant is not a person, a lawyer will be required to perfect a lien upon property because companies may not represent themselves in court.

What is a Payment Bond?

On government projects, and on many private contracts, the owner requires the general contractor to purchase a payment bond.  The payment bond is a contract entered by the general contractor and the surety company which gives subcontractors and suppliers the right to demand payment directly from the surety company.   The surety company owes the subcontractor or supplier (the “Claimant”) an independent duty to investigate the Claimant’s demand for payment.  If the surety company determines that the Claimant is entitled to payment, the surety company must make direct payment to the Claimant.  After making the payment, the surety company can demand that the general contractor reimburse (“indemnify”) the surety company.

How Do I Make a Payment Bond Claim?

The steps you must take to assert a claim against a payment bond are contained in the payment bond and, on government projects, under the laws of North Carolina.  You must obtain a copy of the payment bond to learn the name and address of the surety company and the procedural steps that you must take to preserve your rights.  In many cases, you will not be told that there is a payment bond.  You must ask, in writing, for a copy of the bond.

If you decide to make a claim against a payment bond without the assistance of an attorney, you should pay very careful attention to the numerous notice requirements and deadlines contained in the payment bond and in the applicable statutes.  Surety companies may deny your claim if you fail to satisfy the often confusing technicalities contained in the payment bond.

© Gregory L. Shelton 2011

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I was shocked! surprised! disturbed! bewildered! distressed! outraged! etc.

Posted on May 25, 2011 by Gregory L. Shelton Leave a comment

By: Gregory L. Shelton

Shelton Law Carolinas

(704) 940-9012

When contractual relationships begin to deteriorate, the battle of the letters begins. A good letter will document the facts and circumstances, reference the applicable provisions of the contract, and may or may not suggest a resolution to the dispute. You are part historian, part journalist, with the overriding task of keeping your scope of work on track for the good of the project. Taking this approach usually takes care of the real reason you are writing the letter, whether that be to protect yourself or to convince the recipient to do something or stop doing something. Emotion has its place, but treat it like hot sauce. Too much will spoil the meal.

An astute documenter understands that his audience includes not only the recipient, but the judge, juror, or arbitrator as well. As a general rule, a letter loses something when the author’s disturbed emotional state is the focal point. Feel free to pour your anger and bewilderment out on paper, just don’t send it to the other side.

And declaring your emotional state doesn’t really address liability or fault. I am shocked, for example, when I accidentally hit my thumb with the hammer, disturbed when I open the cable bill, and outraged when I run out of coffee.

NC Law ,

News Flash: Governor Haley Signs the Crossmann Fix Into Law

Posted on May 18, 2011 by Gregory L. Shelton Leave a comment

S. 431 Signed Sealed and Delivered

By: Gregory L. Shelton

Shelton Law Carolinas

(803) 670-0024

Governor Haley signed S. 431 into law yesterday.  Recall from my earlier posts that S. 431 was introduced to address the S.C. Supreme Court’s decision in Crossmann.  In Crossmann, the Supreme Court drastically curtailed coverage for losses arising out of defective work.

The construction industry was understandably alarmed by the court’s ruling, and acted quickly to legislatively “overrule” the Crossmann case.  S. 431 has flown through the process with no notable opposition.  Interestingly, my insurance broker contacts are pleased by the decision.  This may seem counterintuitive, but I suppose its harder to sell a CGL policy to a customer who doesn’t see any value in the product.

Now that S. 431 is the law of the land, contractors, insurance agents, and attorneys can continue on as if Crossmann never happened.

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Builder Beware! NC Court Holds Corporate Officer Personally Liable for Defects

Posted on May 17, 2011 by Gregory L. Shelton Leave a comment

By: Gregory L. Shelton

Shelton Law Carolinas

(704) 940-9012

Time for a pop quiz.

If you are an officer of a general contracting company, and you supervise construction of a home, can you be sued individually for defects discovered by a later purchaser of the home?

If you answered “Yes,” you are correct according to the North Carolina Court of Appeals.  In White v. Collins Building, Inc., 2011 N.C. App. LEXIS 155, 704 S.E.2d 307 (2011), the Court of Appeals held that an officer of a closely held general contracting company could be individually liable to homeowners for the company’s defective work.

Collins Building, Inc., a closely held corporation, contracted with a developer for construction of a beach house. The developer subsequently sold the home to the Whites. After moving in, the Whites began to experience water intrusion through windows and doors during rainstorms. To make matters worse, hot water pipes burst on several occasions, requiring replacement of the home’s hot water pipes.

The Whites sued the president of Collins Building, Inc., claiming that the president negligently supervised the construction. The president argued that he was insulated from liability because he was acting in his capacity as employee of the company.  The Court of Appeals disagreed, stating that individuals are liable for their own negligent acts, including negligently supervising construction work. Following this reasoning, the Court concluded that the Whites did not have to pierce the corporate veil to reach the president.

For more information on the White case, please refer to this recent Change Order article, where I discuss the reasoning and possible consequences of this decision.

NC Law , , ,

Federal Contracting: Don’t Pay to Play?

Posted on May 9, 2011 by Gregory L. Shelton Leave a comment

By: Gregory L. Shelton

Shelton Law Carolinas

(803) 670-0024

The term “reform” is often used in the political realm to describe a systemic change to eradicate corruption, waste, or some other vice. The President is expected to sign an executive order to reform the federal contracting process. Under the executive order, those who wish to sell goods or services to the federal government must list their political donations as a condition to bidding. The executive order would also extend to the donations of certain corporate officers and executives.

Not everyone is excited about the executive order. In her article in last week’s Wall Street Journal, Kimberly A. Strassel labeled the proposed executive order as “not-pay to play,” arguing that companies would face losing out on federal work for donating to the wrong party.

The Obama Administration argues that the executive order would allow taxpayers to see how federal money is spent. The Administration faces several hurdles in making this argument. First, money earned by a contractor and paid by the government under a federal contract is no longer taxpayer money. Second, a report of a company’s or person’s past political contributions does not necessarily indicate how “taxpayer money” may be spent if the bidder is awarded the contract. Third, even recipients of federal grant money are not required to report on their political contributions.

If the President signs off on the reporting requirements, we can expect hardcore politics to spill over into the world of federal procurement. Republicans would probably retaliate in some form or fashion, and the negative consequences of a political dogfight would endure beyond the next election cycle.

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SC House Votes 104 to 0 for Statutory Definition of Occurrence (Addresses Supreme Court’s Crossmann Decision)

Posted on May 6, 2011 by Gregory L. Shelton Leave a comment

Governor Nikki Haley Meeting with Our Group

By: Gregory L. Shelton

Shelton Law Carolinas

(803) 670-0024

Yesterday I had the privilege of walking the halls of the beautifully restored Statehouse in Columbia with a fellow members of the Associated Builders and Contractors of the Carolinas.  Wearing our white hardhats, we made the rounds to meet with our representatives and senators, and watched proceedings from the gallery.

The day really got interesting when we visited the House of Representatives.  As we entered the gallery, the second reading of S431 was underway.  This is the bill intended to clarify the definition of “occurrence” to include “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” and “property damage or bodily injury resulting from faulty workmanship, exclusive of the workmanship itself.”

This language is designed to address the state Supreme Court’s Crossmann decision. In that case, the court held that property damage or bodily injury resulting from defective work was not an “occurrence” for purposes of a CGL insurance.  (See my April 11, 2011 post on Crossmann).

The House voted 104 to 0 in favor of the bill on second reading. The representatives also gave unanimous consent for third reading next Tuesday. Based on yesterday’s vote, all indications are that S431 will sail through third reading in the House and will head back to the Senate for approval of the House’s amendments.

Thanks go to the organizers of our day at the Statehouse, including Doug Carlson, Mike Glavin, Alyssa Cehok, and Julianne Dunning of ABC, and to fellow attorney Jenny Honeycutt of Charleston.

SC Law

NLRB’s General Counsel Moves to Stop Boeing’s North Charleston Assembly Plant

Posted on April 28, 2011 by Gregory L. Shelton Leave a comment

Courtesy of Charleston Daily Photo

By: Gregory L. Shelton

Shelton Law Carolinas

(803) 670-0024

As South Carolina prepares for Boeing’s arrival, the National Labor Relations Board’s acting general counsel has other plans for the company. Upon the request of the International Association of Machinists and Aerospace Workers union, the general counsel filed a complaint against Boeing asserting that Boeing’s decision to open the plant in South Carolina violates the National Labor Relations Act. The general counsel, who under the NLRA acts as a prosecutor, will try to convince the five member NLRB that Boeing’s decision violates the amorphous prohibitions against interfering with, restraining, or coercing employees in participating in their union activities (i.e. striking) and discriminating “in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization.”

In his complaint against Boeing, the general counsel seeks an order requiring Boeing to open the second production line in union-friendly Washington state. South Carolina, by contrast, is a right to work state. The idea of a government administrative body managing a company’s expansion plans may seem outlandish, but the current NLRB is union friendly, and the make-up of the NLRB has been viewed by the current and previous administrations in stark political terms.

An NLRB administrative law judge will hear the case in Seattle on June 14. The decision of the administrative law judge may be appealed to the NLRB in Washington D.C. The NLRB’s decision may be further appealed to a federal court of appeals and then to the federal Supreme Court.

I wish I could tell you how this battle will end, but we live in strange times.

(Note: The South Carolina Department of Commerce provides contact information to subcontractors or suppliers seeking business from the construction of Boeing’s second 787 Dreamliner assembly plant in North Charleston. The construction work is nearing completion).

Photo courtesy of Charleston Daily Photo.

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