The Punch List
Construction and Surety Law News
Spring 2012
Vol. 1
 
We are pleased to bring you the inaugural issue of BrigliaMcLaughlin's "Punch List" - providing insight and analysis on recent trends in the construction, surety, and government contracts industries. 

If you would like more information about any of the topics addressed in this newsletter, please feel free to contact us.
 
Sincerely,
 
BrigliaMcLaughlin, PLLC
BrigliaMcLaughlin's Legislative Watch

 

Green Design and LEED Compliance Mandated for State Buildings in VA: On March 8, 2012, the Virginia General Assembly enacted the High Performance Buildings Act, which will have ramifications for both new construction and renovations on state projects. In an effort to promote sustainable design, the legislation requires state agencies and institutions to conform their projects to the Virginia Energy Conservation and Environmental Standards (VECES) and the U.S. Green Building Council (LEED) green building rating standard. The law applies to any new construction of buildings greater than 5,000 sf or where renovation costs exceed 50% of the value of the building.

 

Maryland Plays "Catch Up" To Virginia And Passes Innovative Delivery P3 Bill: Virginia is known as one of the few states who have been a proverbial "trailblazer" of delivering projects through public-private-partnerships (P3). Last month, the Maryland Senate passed a measure designed to help foster P3s on megaprojects in the state. The bill is not without controversy, as the Senate voted 26-20 in favor of passage. The House of Delegates made some significant changes to the bill earlier this session to allow legal appeals to be heard on an expedited track before the state's intermediate appellate court. Because the bill is similar to Gov. O'Malley's proposal, it is expected to become legislation later this year. While P3s are not new in Maryland (the bill applies retroactively to the State Center project in Baltimore), the legislation is expected to encourage and promote the use of P3s.

  

DC Mechanic's Lien Amendment: On March 27, 2012, the DC Mechanic's Lien Amendment Act of 2012 was adopted, permitting claimants to file a notice of intent to file a lien during the construction of the project or within 90 days of the completion or termination of the project. Once this amendment is signed into law, claimants will no longer need to wait until the end of their work to notice their intent to file a lien.

 

Mechanic's Lien Bill Introduced in VA: On February 10, 2012, House Bill No. 1265 was introduced in the Virginia House of Delegates proposing that all persons claiming a mechanic's lien on a one- or two-family residential dwelling must notify the mechanic's lien agent or owner at least thirty (30) days prior to filing a memorandum of lien. The Virginia Senate continued this bill to 2013 for further review. Both the Associated General Contractors of Virginia, Inc., and the Virginia Chapter of Associated Builders and Contractors, Inc., along with others, came out in force against a prior version of the bill, which required additional notice for all lien claimants. However, House Bill No. 1265 now only applies to residential builders.  The decision to continue consideration on the bill was viewed as a victory for those homebuilders who opposed and lobbied against the measure. 

Virginia Federal Court Strictly Enforces Change Order Requirements -- Subcontractor Unable to Recover its Costs

 

A recent federal court decision serves as an important reminder that adherence to contractual change order provisions is absolutely vital, at least in Virginia, to pursuing a claim for extras.

 

In Carolina Conduit Systems, Inc. v. MasTec North America, the Eastern District of Virginia refused to allow a subcontractor to recover additional sums for excess work and materials that were not submitted in a formal, written change order.

 

MasTec North America entered into a contract with Dominion Virginia Power to relocate and improve existing underground conduit as part of the construction of the Hampton Roads Transit-Norfolk Light Rail. To complete that work, which included the construction of underground duct banks, MasTec subcontracted with Carolina Conduit, an underground specialty construction contractor. However, a formal, written subcontract was not executed between MasTec and Carolina Conduit until four months after Carolina Conduit began its work on the project.

 

Soon after beginning the underground construction, Carolina Conduit encountered problems in the field and determined that the project could not be designed as built. Carolina Conduit was required to construct the duct banks in a horizontal configuration rather than the original vertical configuration specified by the design, which required the use of additional flowable fill. Carolina Conduit's president and project manager met with MasTec employees about that change, and MasTec informed Carolina Conduit "not to worry" about the additional cost of the excess flowable fill because there were plenty of funds available. However, when the subcontract was finally executed four months later, the original vertical duct bank configuration was included in the contract price and scope of work. Six months later, Carolina Conduit's president contacted MasTec again regarding the extra cost of the horizontal duct banks, and was again told "not to worry," that Carolina Conduit would be compensated for the extra costs. At the close of the project, Carolina Conduit sued MasTec for its refusal to pay for the excess flowable fill required for the horizontal duct banks, as well as various other additional expenses incurred by Carolina Conduit.

 

In Carolina Conduit's lawsuit, the court examined the terms of the written subcontract between the parties, and emphasized the subcontract requirements explicitly stating that the fixed subcontract price would include all flowable fill, and that "any additional work outside the original scope of work shall be handled through a change order specifying pricing and/or Unit prices approved by [Dominion Virginia Power]." The court also called attention to the subcontract terms stating that "all material, equipment, tools and labor necessary to complete the project" would be Carolina Conduit's responsibility.

 

In denying Carolina Conduit's claim, the court explained that although the subcontract documents were based on a vertical configuration for the duck banks, which required less flowable fill, Carolina Conduit was still required to submit a written change order per the terms of the subcontract to be paid for the extra flowable fill. Since Carolina Conduit had not submitted any written change orders, Carolina Conduit could not recover for the flowable fill, or any of the other extras it was claiming. MasTec's assurances "not to worry" about the additional costs did not modify the subcontract's requirements for Carolina Conduit to submit a written change order. In conclusion, the court also explained that "Virginia law provides that contractual provisions containing written change order requirements are binding upon the parties to the contract," and that Carolina Conduit could not recover without following those strict requirements.

 

This case emphasizes the principle that subcontractors must comply with the change order provisions of their contracts to ensure payment, even in the face of a bona fide change or oral assurances by the contractor that the subcontractor will be paid for the changed work.     

 

For more information about BrigliaMcLaughlin's construction risk management and litigation practices, click here.

Replacement Subcontractor And Its Surety Held Not Liable For Design-Build Obligations On Maryland Federal Project

 

The disputes at issue in BMAR & Assoc. Inc. v. Midwest Mech. Grp., 2010 WL 10709854 (D. Md. 2010) (slip opinion), stem from a federal project at the Malcolm Grow Medical Center on Andrews Air Force Base, Maryland. After BMAR was selected as the design-build contractor, it subsequently awarded a subcontract to Kroeschell, Inc., to design and install a boiler system. The subcontract consisted of three phases: site investigation, design, and construction. Kroeschell completed the first two phases of the boiler system project and provided the design plan documents to BMAR. Before the third phase began, Kroeschell discovered it could not obtain a bond for the project.

 

Given Kroeschell's "bonding issues," BMAR issued a replacement subcontract to Midwest Mechanical, apparently intending to transfer all of the design responsibilities to Midwest Mechanical. The subcontract, however, clearly and unambiguously stated that Midwest Mechanical was responsible solely for the construction phase of the boiler system designed by Kroeschell. BMAR later sued Midwest Mechanical and its surety, Liberty Mutual, for breach of contract regarding the design.

 

The Court found that the subcontract was clear as to Midwest Mechanical's scope - that it was responsible for the implementation of Kroeschell's design. The Court further found that Liberty Mutual was not liable, underscoring that a surety's liability is coextensive with its principal. Since Midwest Mechanical was not liable for the design, the Court granted summary judgment in favor of Liberty Mutual on the performance bond claim.

 

For more information about BrigliaMcLaughlin's construction risk management and litigation practices, click here.

Significant Changes In Virginia For Surety Bonds On State Projects

 

House Bill No. 1951ER2 has been introduced to amend the Virginia Public Procurement Act, Va. Code 2.2-4336 and 2.2-4337, by raising the threshold when bonds are required for construction contracts.

 

Prior to July 1, 2011, the threshold for requiring bid bonds, payment bonds, and performance bonds, for construction contracts on public projects (excluding transportation projects) was for "contracts in excess of $100,000." As of July 1, 2011, the new threshold is for "contracts in excess of $500,000." However, if the public body does not engage a prequalification of the bidder, the threshold to require bonds for such contracts remains $100,000. On transportation-related projects, the requirement for bonding remains at contracts exceeding $250,000.

 

While eliminating a bond requirement for certain smaller dollar projects may have a modicum of cost savings to the owner, both the surety and subcontractor industries are opposed to these kinds of increased thresholds. For subcontractors, it eliminates the payment protection that a payment bond would provide - and since liens cannot be placed on public work - this is an especially large risk to place on subcontractors. It also puts great risk on the Commonwealth and thus, the taxpayers, because of the number of projects that will go forward with no performance bond in place to guarantee completion if the contractor defaults.

 

For more information about BrigliaMcLaughlin's surety practice, click here.

Articles In This Issue
BrigliaMcLaughlin's Legislative Watch
Virginia Federal Court Strictly Enforces Change Order Requirements
Replacement Subcontractor And Its Surety Held Not Liable For Design-Build Obligations On Maryland Federal Project
Significant Changes In Virginia For Surety Bonds On State Projects

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Firm News:
  
Shannon J. Briglia has again been named a Virginia and D.C. Super Lawyer for her work in construction and surety law.  Ms. Briglia has also been recognized by the 2012 Edition of Chambers USA.    

 

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations and peer evaluations. 

 

Chambers USA ranks the leading firms and lawyers in an extensive range of practice areas throughout America.

 
Upcoming Events:

 

Lauren P. McLaughlin will speak at the regional meeting for American Subcontractors Associates of Metro Washington (ASA of MW) on Integrated Project Delivery (IPD) and Building Information Modeling (BIM). The seminar will be held on

Thursday, May 17, 2012 at the Westwood Country Club in Vienna, Virginia from 11:00 am to 1:00 pm. For more information and to register, please visit the ASA of MW website at: www.dcmsa.com.

 

Shannon J. Briglia and Robert J. Dietz will be presenting a live and interactive telephone seminar for the Virginia CLE on Tuesday, May 22 at 12:00 p.m. titled Tools of the Trade - Mechanic's Liens and Payment Bonds. A telephone replay of the seminar, with a live question and answer segment, will be held on June 6, 2012 at 5:00 p.m. For more information and to register, please visit the Virginia CLE website at: www.vacle.org.

 

Legal Seminars Offered By BrigliaMcLaughlin:

 

BrigliaMcLaughlin provides

in-house legal seminars to many of our clients on lessons learned in litigating complex construction cases, and are available to speak to your employees on topics ranging from the drafting and negotiation of contracts, default and termination, litigation avoidance in a troubled economy, to employment and labor law issues that affect today's workplace.

 

Please contact us to schedule a seminar tailored to the needs of your business.