May/June 2015 (Issue 3)
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Minnesota Legislature Passes Revised "Responsible Contractor" Statute

 

 

On May 17, 2015, the Minnesota legislature passed a bill amending Minnesota's "Responsible Contractor" statute that  became effective on January 1, 2015. The "Responsible Contractor" statute, found in Minnesota Statute 16C.285, is intended to prevent contractors that have committed unlawful practices from performing public work. The new statute sets up a series of steps that a contractor must take to be considered "responsible." These steps require contractors bidding on a public project to provide the contracting authority with a signed statement under oath verifying that the contractor complies with the minimum criteria identified in the statute.  Under the January 2015 version of the statute, the contractor is currently required to provide this signed statement at the time it bids on a project.  Failure to satisfy this statute will stopcontractors from bidding on and performing public work.

Shortly after the statute was enacted, the construction industry began to complain that the statute imposed significant and unnecessary burdens on contractors who are bidding on publicly-funded projects.  The Minnesota House of Representatives authored and passed a bill (HR1257) on May 13, 2015, that intends to lessen the burdens imposed on contractors by the Responsible Contractor statute.  This bill was introduced to the Senate, and passed on May 17, 2015. 

Among other amendments, the newly-passed bill will update the state's Responsible Contractor statute allowing contractors to submit their documentation proving that they are in compliance with the statute after their bid is accepted, rather than during the bidding process.  This is intended to make the bidding process run smoothly and allow more contractors to bid. 

The newly-passed bill also amended the definition of "Contractor" in Minn. Stat. 16C.285, subdivision 1, to clarify that a "Contractor" means "a prime contractor or subcontractor" and does not include a "design professional or a material supplier."  The bill then goes on to define "design professional" as a business or person who is required to be licensed by Minn. Stat. Sec. 326.02, and who is retained to perform services on a construction project.  The bill also defines "material supplier" as a business or person who delivers and unloads materials to a construction project, but specifically states that this definition does not include suppliers that deliver "mineral aggregate such as sand, gravel, or stone that is incorporated into the work ... by depositing the material substantially in place, directly or through spreaders, from the transporting vehicle."

Other technical amendments to the statute include:  

 

  • Removal of the requirement that a statement verifying compliance with responsible contractor requirements be sworn;
  • Apply the consequences of failing to verify compliance apply to prime contractors, subcontractors and motor carriers;
  • Clarify that a failure to pay statutorily-required wages or penalties under specified circumstances is only considered "repeated" if it involves two or more separate and distinct instances of underpayment in a three-year period; and
  • Provide that, when determining the value of a publicly- owned or financed project and whether the Responsible Contractor provisions should apply, the value of tax-increment financing must be excluded.

The bill was sponsored by Rep. Nick Zerwas (R-Elk River).  The bill passed the House of Representatives, as amended, with a 131-0 vote.  The bill was then sponsored by Sen. Tom Saxhaug (DFL-Grand Rapids), and was passed by the Senate with a 61-0 vote.  The original sponsor of last year's changes to this statute, Rep. Mike Sundin (DFL-Esko), also supports the bill and proposed changes.

A majority of these amendments are effective July 1, 2015, and will apply to all construction contracts entered into based on solicitation documents issued on or after that date.  The amendments to section 16C.285, subdivision 3, clause (1), item (ii), which applies to Department of Revenue and Department of Employment and Economic Development respiration requirements, are effective the day following final enactment and apply to solicitation documents issued on or after January 1, 2015. 

 

Elizabeth S. Poeschl

612.337.9655

[email protected]

 

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In this issue
Minnesota Legislature Passes Revised "Responsible Contractor" Statute
Pending Changes to Legislation Impacting Construction Industry
Case Law Update
Recent Articles
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The words Hello My Name is Change on a green namtag sticker, symbolizing an opportunity for changing and adapting to new challenges and need to react to grow and succeed Pending Changes to Legislation Impacting Construction Industry

 

       

 

Minnesota recently enacted the Anti-Indemnification Statute found at Minn. Stat. Sec. 337.01-.05,

which directly impacts the construction industry.  Since the legislators are not perfect, a bill was recently introduced in the Senate to change the language in this Statute.
 

The Senate Judiciary Committee passed to the Senate floor #SF924 which modifies an important provision in Minnesota's new Anti-Indemnification Statute applying to building and construction contracts.  The old Statute barred Party #1 from requiring Party #2 from agreeing to indemnify Party #1 for its own faults.  The new Statute expanded the law to further bar Party #1 from requiring Party #2 to buy insurance to cover the indemnification of Party #1's own faults.  Minn. Stat. Sec. 337.05.  However, rather than simply expanding the anti-indemnification bar, the legislature also included an exception which allowed Party #1 to require Party #2 to purchase insurance to cover Party #1's own fault under certain circumstances, including purchasing "project specific insurance."  This additional "project specific insurance" language has caused problems because it is vague and ambiguous ----  is not a term of art in the construction or insurance industries.  This ambiguity has led to a significant amount of confusion.  To fix the confusion, the Senate has proposed the following changes to the Statute: 

 

"(c) Paragraph (b) does not affect the validity of a provision that requires a party to provide or obtain workers' compensation insurance, construction performance or payment bonds, or project-specific insurance, including, without limitation, builder's risk policies, or owner or contractor-controlled insurance programs or policies."

 

(stricken = removed, old language. underscored = added, new language.)

 

The bill did not pass out of the Senate this legislative session, and will be taken up again next year.
 

 

Case Law Update:
  

Corval Constructors, Inc. v. FPD Power Development, LLC

 

This case provides an important reminder about drafting and enforcing construction contracts, and overall project management.   In this case, the contractor was not paid for work that it performed with the owner's approval, but without first obtaining signed change orders.  The contractor would have been paid for its work if it had complied with the contract terms and obtained the owner's signature before performing the extra change order work. 

 

This was a unique construction project in which the parties prepared hundreds of change orders.  Many of the change orders were processed in accordance with the contract terms - requiring the owner's signature before the extra work was completed.  Many times, the owner verbally approved change orders and requested that the contractor proceed with the extra work without first signing the change orders.  The owner sometimes paid the contractor for the work associated with the unsigned change orders.  The contractor sued the owner to collect payment on the remaining unsigned change orders. 

 

The contractor argued that it was unfair for the owner to encourage the contractor to perform the extra work without first signing the change order, and then refuse to pay for that extra work.  The contractor also argued that the terms of the contract were modified by the owner's continual failure to follow, and enforce, the terms of the change order provision in the contract.  The owner asked the court to dismiss the contractor's claims, finding that the owner did not owe the contractor additional money because it failed to comply with the contract terms requiring a signed change order before proceeding with the extra work.  The court granted the owner's request and dismissed the contractor's claims. 

 

This case provides a stark reminder that contractors must comply with the terms of their contract in order to collect additional compensation.  This opinion should remind the contractor to (1) pay attention to its contractual obligations; (2) make sure that it understands the steps that it must take to be paid for the additional work; and (3) strictly comply with the contract terms.  This will maximize the contractor's ability to get paid for its work.

 

 

Recent ArticlesArticle

So, What Happens If I Lose?
A Look At The Seldom Discussed World Of Appellate Law

Meagher & Geer attorney, Kathleen Ghreichi, is featured in the article titled,
"So, What Happens If I Lose?", published in the April 2015 issue of Engineering Minnesota. This article focuses on the likelihood and strategy of a successful appeal. 

An appellate and motion specialist, Kathleen joined our firm in 2011. She enjoys working in a broad spectrum of practice areas, including products liability, property, and insurance coverage. She recently spoke about federal motion practice at a Hennepin County Bar Association Continuing Legal Education seminar. She also serves as a volunteer attorney at the Children's Law Center of Minnesota.

Read the article.
  

 

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