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. 

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.

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.