Category Archives: construction law

New Jersey Mechanic Lien Guidelines

In the state of New Jersey, liens filed on private property are known as mechanics’ liens . When a New Jersey mechanics lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property. When a New Jersey mechanics lien is filed on a public project, the lien attaches to and secures the funds in the public owner’s hands, prohibiting the owner from releasing that money until the mechanics lien is satisfied.
Contractors, subcontractors, sub-subcontractors, architects, engineers, and suppliers all have lien rights under New Jersey’s Construction Lien Law.
Pre-lien notice requirements exist for some lien claimants. Anyone that does not have a direct contract with the owner should file a Notice of Delivery of Materials and Services with the Owner and Prime Contractor within 20 days of starting work on the Project
New Jersey has different rules for different types of projects.
Construction Liens filed on commercial projects must be filed within 90 days after last day the claimant provided materials or labor to the Project. The filing of a Residential Lien Claim is a two step process. BOTH STEPS MUST BE COMPLETED WITHIN 120 DAYS. Within 60 days of the last furnishing of labor or materials, a lien claimant must file a Notice of Unpaid Balance along with a demand for arbitration. This arbitration has nothing to do with the litigation or resolution of the lien claimant’s underlying claim. It is solely for the purpose of determining whether the lien claimant has the right to file a lien claim. At the conclusion of the arbitration, the lien claimant may file a Construction Lien Claim for the sum of money determined by the arbitrator. Liens on public projects, also known as municipal mechanics’ liens , must be filed within 60 days of when the entire project is completed and accepted by resolution of the public agency. This differs from commercial and residential liens, which have time requirements starting when the work of the claimant, not the project, is completed.
In New Jersey, liens on public projects do not require written contracts. Commercial and Residential Project Liens can only be filed pursuant to a written agreement. This includes claims for change order work. Written agreements do not necessarily have to take the form of traditional contracts signed by both parties. For example, delivery tickets are sufficient.  In New Jersey, a writing evidencing the existence of an agreement is sufficient to allow the filing of a New Jersey mechanics lien claim.

For more information about NJ Mechanic Liens, please visit LienItNow.

Florida’s Mechanics Lien

In Florida, liens filed on private property or on funds relating to a public project are known as Mechanic’s Liens. When a Florida Mechanics Lien is filed with regard to work performed on privately owned property, it attaches to and encumbers the fee simple ownership of property.

Contractors, as well as subcontractors, laborers, certain design professionals, sub-subcontractors and material suppliers can file a Florida mechanics lien. If a company supplies material to a material supplier, they are not eligible to file a Florida construction lien claim. Only those who have a direct contract with the owner can file a Florida mechanics lien if the total price for the improvement is $2,500.00 or less.
Depending on the claimant’s status, a Florida pre-lien notice may be required.  Subcontractors and sub-subcontractors, including materialmen and suppliers who do not have a contract with the owner, are required to provide a Notice to Owner within the earliest of the following periods: within 45 days of commencing work or providing services for the Project or before the date of the owner’s final payment to the contractor who furnished an affidavit stating that all potential lien claimants have been paid.

A Florida claim of lien must be filed within 90 days of the last work performed on the project.
To learn more information about filing a Florida Mechanics Lien, please visit LienItNow.

Does your lawyer know the difference between cement and concrete?

Many construction companies are not aware that there are lawyers that specialize in construction and business development for construction companies. When choosing a lawyer, many often go for the general practitioner that may not know a hammer from a mallet.  An excellent article written by Eugene H. Heady explores this issue and makes a powerful case for finding a lawyer that specializes in construction when construction claims arise.  The text of the article is reprinted here.

“As your business grows it becomes increasingly more important to have available a trusted team of financial and legal advisors.  Including an experienced construction lawyer on your team can go a long way to help keep your projects out of trouble and thus help ensure that your business remains healthy and profitable.
Claims and disputes in the construction industry are commonplace.  On a construction project of any complexity, disputes are often the rule–not the exception.  During the lifetime of most construction companies, it is likely that the company will become embroiled in a claim or dispute that cannot be resolved without the assistance of a lawyer.  While it is best to avoid construction claims and disputes from the beginning of a project, it is important to resolve them quickly and efficiently once they arise.
Avoidance or a quick resolution of disputes is often crucial to the economic success of the project.  Claims and disputes involving construction projects tend to be technically complex and factually intensive.  As a result, arbitration or litigation of construction disputes can be time consuming and costly.
Construction litigation is generally characterized as “complex litigation” because the legal and procedural issues involved are typically very complex.  If you are faced with a construction claim or dispute, it is very important not only to hire a lawyer who knows his or her legal trade but to hire a lawyer who also knows the construction trade—i.e., hire a seasoned construction lawyer.
Hire a seasoned construction lawyer, not a general practitioner.
Your first goal should be to find a lawyer with a thorough knowledge of the construction industry.  Owning a pickup truck and having a law license does not make one a construction lawyer.  Nonetheless, there is no shortage of available lawyers who have handled a few matters for construction companies and later market themselves as “construction attorneys.”  Successfully drafting construction contracts or later litigating, arbitrating, mediating, negotiating or otherwise resolving construction claims and disputes, however, requires that the lawyer have a thorough familiarity with the construction industry and a thorough knowledge of the unique problems that arise on construction projects.
When selecting a construction lawyer, you should consider the following.  Does the lawyer and the lawyer’s firm concentrate on representing participants involved in the construction industry?  Does the lawyer understand the construction business and have experience in helping construction participants avoid and efficiently resolve construction claims and disputes?  Does the lawyer have any practical hands-on experience in the construction industry?  Does the lawyer have a background in construction, engineering or architecture?  Note that while having a technical or construction background is certainly very helpful, many outstanding construction lawyers have never picked up a hammer.  If presented with disputes while the project is ongoing, does the lawyer understand that typically it is critically important to keep the project moving forward while helping to resolve disputes that may threaten to derail the project?  Has the lawyer published, lectured and taught on construction law topics?  Is the lawyer someone whom you can trust and someone with whom you can develop a long term relationship?
Also consider the law firm that the construction lawyer is associated with.  How deep is the law firm’s bench of construction lawyers?  What is the breadth of their experience?  What sub-specialties are they focused on?  Do other members of the law firm have focused experience in particular construction law issues that can be drawn upon if necessary?  If the law firm has an extensive in-house network of construction lawyers, the collective experience and knowledge base of those lawyers can be a tremendous asset to the client.  Have other members of the law firm extensively published, lectured and taught on a wide variety of construction law topics?  Is the law firm, and are its members, actively involved in the construction industry?  Is the law firm, and are its members, actively involved in trade associations?  Does the law firm keep abreast of current legal issues and changes in the law affecting the construction industry?  Is the law firm dedicated to sharing that information with the industry via newsletters, white papers and client alerts?  How long has the law firm been in business?  Does the law firm have an established national practice so that it can support you as your own business grows and expands into other geographical regions?  Is the law firm, and are its members, well-respected by their industry peers?  Has the law firm earned a good, solid national reputation within the construction industry?
Get a seasoned construction lawyer involved early. 
Consider developing a long term professional relationship with an experienced construction lawyer.  A seasoned construction lawyer can be a very important member of your team of valued and trusted advisors.  Most participants in the construction process who have been involved in a contentious claim or dispute will agree that one of the best ways to avoid a claim or dispute is to get a seasoned construction lawyer involved at the very beginning of a project and, certainly, as soon as a claim or dispute arises.
A seasoned construction lawyer can assist and support you in obtaining “quiet” successes by providing thoughtful and experience-based advice and counseling that enable you to achieve your business goals without contentious disputes or protracted litigation.  If litigation or arbitration becomes necessary to resolve a claim or dispute, a seasoned construction lawyer can help you develop parallel strategies to (1) efficiently advance the case toward a court verdict or an arbitration award, and (2) identify and seize upon opportunities to resolve claims and settle disputes early.
On the front end of a project, the construction lawyer can help draft or review contracts and provide sage advice regarding how best to allocate and manage contractual risks.  During the construction phase of a project, the construction lawyer can help guide you through the minefields that often threaten the economic success of a project.  Construction claims and disputes during construction typically involve very short deadlines and strict contractual notice requirements. When a claim or dispute arises, the construction lawyer can help develop strategies for resolving the claim or dispute early or for minimizing the risks going forward. On the back end of a project, the construction lawyer can assist you in: closing out the project; collecting unpaid contract balances; and perfecting lien and bond claims.  In most states, the courts strictly interpret statutes governing mechanics’ and materialmen’s liens and claims against payment and performance bonds.  Courts strictly enforce the relatively short filing deadlines associated with lien and bond claims.  Thus, it is critically important that you do not wait until days before the filing deadline to contact a construction lawyer for assistance.
Initiate a Conflicts Check.  The construction industry is sometimes a small world.  Understand that once you have selected a construction lawyer, there may be existing conflicts or potential conflicts of interest that prevent the selected lawyer from representing you on a particular matter.  For example, the lawyer may already be representing an opposing party.  When you first contact your selected construction lawyer regarding any new matter, you should expect the lawyer to run a “conflicts check” before the lawyer can discuss your case with you.  The purpose of running a conflicts check is to make sure that the law firm does not already represent someone whose interests are opposed to yours.  Thus, before you share any confidential information with the lawyer, be prepared to provide the following information: (1) name of your company and the names of all related business entities; (2) names of all adverse parties with interests opposed to yours; (3) names of all potentially adverse parties; (4) the project name; and (5) the project location.  Once the construction lawyer has reported that there are no conflicts, you will then be free to candidly discuss the facts of your case.
Prepare and organize for the initial conference. 
There are many reasons to hire a construction lawyer.  For example, your objective in hiring a construction lawyer may be to (1) have a contract reviewed or drafted, (2) get an evaluation of a claim or dispute, (3) file a lawsuit or prepare a demand for arbitration, (4) obtain a defense of an action filed against you, (5) initiate a request for mediation, (6) file a lien, (7)  assist in recovering an unpaid contract balance, or (8) to get legal advice about the consequences of a particular course of action.  In any event, be prepared to define and discuss your overall objectives and to clearly communicate what you would like to achieve by involving the construction lawyer.
Organize your files before meeting with your construction lawyer.  Have handy all of the documents, including contracts, subcontracts, or purchase orders, that may be relevant to the issues you would like to discuss.  The quality and completeness of the information that you provide to your lawyer can have a direct impact on the reliability of any predicted outcomes that are discussed.

Building What’s Designed Is In Your Contract – But So Is Pointing Out Design Errors

A basic principle of construction law is the Spearin doctrine: a 1918 United States Supreme Court decision which remains as one of the landmark construction law cases. The Spearin doctrine, set forth in United States v. Spearin (248 U.S. 132), generally stands for the proposition that an owner impliedly warrants the information, plans and specifications which an owner provides to a contractor. As such, the contractor’s liability may be limited if loss or damage occurs solely from insufficiencies or defects in such information, plans and specifications. Conversely, contractors are bound to build according to the plans and specifications, and deviations from the plans and specifications may result in liability even when no defects in the work are present. When the government contracts for supplies to be manufactured or a building constructed in accordance with the government design specifications, there is an implied warranty that if the specifications are followed, a satisfactory product will result.

An important part of the Spearin doctrine relates to damages that are due to the contract if the warranty is breached, i.e., the specifications are defective. In that case, the contractor is entitled to damages equal to the amount reasonably expended in trying to comply with the defective specifications.

However, such liability will only attach if the contractor relies on government “design specifications” and not merely “performance specifications.” Government specifications are considered “design specifications” where (1) the government sets forth in precise detail the materials to be employed and the manner in which the work is to be performed and (2) the contractor is not permitted to deviate from those specifications. (This would generally not apply then to the increasing use of design build project, where the contractor is heavily involved in the design and value engineering of projects). Examples of design specifications include detailed measurements, tolerances, materials, and elaborate instructions on how to perform the contract. By contrast, performance specifications merely set forth an objective to be achieved, and the successful bidder is expected to exercise its ingenuity in selecting the means to achieve that objective.

If a contractor complies with the government’s defective design specifications, the contractor should not be found liable for any ensuing loss arising from those defective specifications and should be able to recover damages equal to the amount expended in trying to comply with the defective specifications.

Minnesota: What contractors need to know about the Contractor Registration Pilot Project

The following article was written by Michael B. Lapicola and Hanna L. Terhaar of Faegre Baker Daniels.

Beginning in July, 2012 and before September 15, 2012, most contractors and subcontractors in the building construction industry will be required to register with the Minnesota Department of Labor and Industry in the Contractor Registration Pilot Project (“Pilot Project”). It will be a violation of the law to contract with or perform construction services for another person without first being registered with the Pilot Project, or to contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project.This Pilot Project replaces the Independent Contractor Exemption Certificate program (“ICEC”) and is intended to establish a simplified framework for determining whether individual building construction workers are employees or independent contractors. The overarching goal of the amended law is to assist state agencies to investigate employee misclassification in the building industry and level the playing field for businesses that appropriately classify their employees.
The Department of Labor and Industry, along with the Department of Employment and Economic Development and the Department of Revenue, will assess whether the information obtained through the Pilot Project is useful in enforcing laws related to misclassification of employees. The current law provides for a two-year trial period, after which the Pilot Project will either be extended by the Legislature or abandoned. In the meantime, it is important for contractors in Minnesota to understand their obligations under the new law, to avoid penalties and unintentional violations.
Who Needs to Register
The law requires that anyone who performs “public or private sector commercial or residential building construction or improvement services” must register with the Pilot Project. Several exceptions apply:

  1. Contractors not involved in building construction (such as road contractors) do not need to register.
  2. You do not need to register with the Pilot Project if your only role in building construction or improvement services is to manufacture, supply or sell products, materials or merchandise.
  3. You do not need to register with the Pilot Project if your only role in building construction or improvement is related to landscaping services, whether or not the services are provided as part of a contract for the building construction or improvement services.
  4. Anyone with a current license, certificate, or registration under chapter 299M or 326B does not need to register (this includes some licensed fire protection contractors, potable water piping system contractors, those holding a journeyman certificate, multipurpose potable water piping system installer certificate, certain electrical certificates, plumbing and water conditioning certificates, high pressure piping certifications, licensed boiler inspectors and elevator operators). If you are unsure whether a license or certificate you hold falls within this category, review the license to see whether it is authorized under Minnesota Statute 299M or 326B, or contact the Minnesota Department of Labor and Industry at (651) 284-5074.
  5. Anyone who has given a bond to the state under Section 326B.197 or 326B.46 does not need to register (if you have a bond with the state for gas, heating, ventilation, cooling, air conditioning, fuel burning, plumbing or refrigeration work, this exception may apply to you).
  6. No employees need to register, as long as their employer is in compliance with employment laws at the time the construction services were performed.
  7. Architects and professional engineers do not need to register (if you are unsure whether this exception applies to you, consult Minnesota Statute 326.02, subdivisions 2 and 3).
  8. School districts and technical colleges do not need to register.
  9. People providing construction services on a volunteer basis (like Habitat for Humanity or Builders Outreach Foundation) do not need to register.
  10. Anyone exempt from licensing under 326B.805 (this includes individuals who would need to be licensed as residential building contractors, residential remodelers or residential roofers but are exempt from licensure because their gross annual receipts do not exceed $15,000) does not need to register.
  11. If you currently hold a certificate under the ICEC program, you will not need to register with the new Pilot Project until your ICEC certificate expires.

If you perform building construction services in Minnesota and none of the eleven exceptions above apply to you, you need to register with the Pilot Project before September 15, 2012. Registration with the Pilot Project does not relieve you of any other licensing, registration, or certification requirements – you will still need to maintain all applicable licenses and certifications.
How to Register for the Pilot Project
The Online Registration Process
Registration will occur through a website, and will be free of charge. The website will process registration applications and promptly issue registration certificates electronically to successful applicants. The Department of Labor and Industry is hoping to have the website available for registration beginning July 1st, but it is possible the website may not be up and running until later in July. When it is available, there will be a link to the registration website displayed prominently on the Department of Labor and Industry homepage.
What Information is Needed for Registration
Anyone registering as an individual, owner, or part-owner will need the following information (remember that employees do not need to register, as their employers will register for them):

  • Your full legal name and job title at your business
  • Your business address (both the designated address and the physical address, if they are different), email address and phone number
  • What percentage you own of your business (So, if you own your business equally with one other person, your percentage will be 50%. If you are registering as an individual, i.e. not a business owner, you will not need this information.)
  • Your Social Security number
  • Your Minnesota tax identification number, if you have one
  • Your federal employer identification number, if you have one
  • Your business filings with the Minnesota Secretary of State, if you have any
  • A statement as to whether or not you have any employees (see the section entitled “Employee Classification of Independent Contractors,” below, if you are unsure whether your workers will be considered employees or independent contractors). You will not need to enter personal information (such as names or social security numbers) The names of any other people with an ownership interest in your business, and the percentage of the interest owned by each person (If your business is a publicly traded corporation, you do not need the names of shareholders with less than ten percent ownership.)
  • Documentation of compliance with workers’ compensation and unemployment insurance laws (If you have employees, as defined by the statute and explained below, you may need to carry workers’ compensation and unemployment insurance for these employees. You will not be able to register with the Pilot Project if you are not in compliance with applicable insurance laws.)

You will need to sign the application and certify that you have reviewed it and determined that the information you have provided is true and accurate. You will enter your name on the website electronically, but this certification will be considered a legal signature.
You must remain registered while providing construction services for another person. Registration with the Pilot Project is free. Your registration will be good for the duration of the two-year trial period but may need to be renewed later if the Pilot Project is extended by the legislature.
If the structure, legal form, or ownership of your business changes, the new business or owner will need to submit a new registration. The registration cannot be transferred to another person. You will also need to update any information submitted on your original registration (such as address or phone number) within 15 days of any change. Information changes can be provided electronically on the registration website.
Public and Private Information
The public website will include certificates of registration with the registered person’s legal business name, including any assumed name, as filed with the secretary of state. The certificates will also show the person’s business address (as entered on the application), the effective date of the registration and the expiration date. The statute states that any other data or documentation submitted to the commissioner for registration is private or nonpublic data.
Avoiding Statutory Violations
It is illegal under the new law to:

  • Contract with or perform construction services for another person without first being registered with the Pilot Project (unless you are exempt from registration)
  • Contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project (unless they are exempt from registration)[1]
    • This means you must check the registration status of anyone you contract with or pay to perform construction services. The registration certificates will be available online so you can verify that any subcontractors are registered before you contract with or pay them for their services. All payments to an unregistered person for construction services on a single project site shall be considered a single violation, which means you will not receive a violation for every payment you make to an unregistered person, but rather you could receive one violation per unregistered person per project
    • If a person is registered at the time you enter into a contract but becomes unregistered during the project, it will not be considered a violation to contract with or pay that person, so long as they were registered when the contract was created. This means that you will be safe under the law if you check the registration status of all your subcontractors or workers when you contract with them—you do not need to re-check registration status throughout the project to ensure they are still registered.
  • Hold yourself out as an independent contractor unless you meet the new law’s definition of an independent contractor
  • Require any individual through coercion, misrepresentation or fraudulent means to adopt independent contractor status or form a business entity (e.g. forcing someone to form an LLC or become an independent contractor is a violation of the law)
  • Knowingly misrepresent or misclassify an individual as an independent contractor

Penalties and Consequences
The maximum penalty for failure to register is $2,000, but the commissioner “shall forgive the penalty if the person registers within 30 days of the date of the penalty order.” This means that any penalty you receive for failing to register with the Pilot Project will be waived if you complete your registration within 30 days of receiving the penalty order.
Penalties for other violations (like contracting with or paying an unregistered person, or holding yourself out as an independent contractor without satisfying the requirements) appear to carry the same potential penalties as any other licensing violation, which means that the commissioner may issue an administrative order to any person who the commissioner determines has committed a violation of the law. The administrative order may require the person to correct the violation, may require the person to cease and desist from committing the violation and/or may assess monetary penalties. The commissioner may issue to each person a monetary penalty of up to $10,000 for each violation of applicable law committed by the person. Existing law also states that the commissioner may order that part or all of the monetary penalty will be forgiven if the person to whom the order is issued demonstrates to the commissioner by the 31st day after the order is issued that the person has corrected the violation or has developed a correction plan acceptable to the commissioner. The law also allows for failure to correct a violation (as required by an order) to be considered contempt of court.[2] Finally, violating the law could lead to suspension or revocation of your registration or license if you have one.[3]
Note that the commissioner has a great deal of discretion in issuing fines or other penalties, and because this law is new, it is difficult to know at this time what fines or penalties should be expected for violations.
Employee Classification of Independent Contractors
The goal of the Pilot Project is to make it easier for employers and government agencies to determine whether workers are independent contractors or employees, and to deter misclassification between these categories. In an effort to clarify the status of a particular worker, the new law articulates nine factors which must be met for a worker to qualify as an independent contractor.
The nine factors are:

  1. Maintains a separate business with the individual’s own office, equipment, materials, and other facilities;
  2. (i) Holds or has applied for a federal employer identification number or (ii) has filed business or self-employment income tax returns with the IRS if the individual has performed services in the previous year;
  3. Is operating under contract to perform specific services in return for specific amounts of money and under which the worker controls the means of performing the services;
  4. Is incurring the main expenses related to the services that the worker is performing under the contract;
  5. Is responsible for the satisfactory completion of the services that the worker has contracted to perform and would be liable for a failure to complete the services;
  6. Receives compensation directly for the services performed under the contract on a commission or per-job or competitive bid basis and not on any other basis;
  7. May realize a profit or suffer a loss under the contract to perform services
  8. Has continuing or recurring business liabilities or obligations; and
  9. The success or failure of the individual’s business depends on the relationship of business receipts to expenditures.

The “and” before the final factor indicates that all nine factors must be met in order for an individual worker to qualify as an independent contractor. Owning your own business or LLC does not automatically qualify you as an independent contractor. Owners and partial owners of businesses must satisfy the nine factors, and must also submit invoices in the name of the business entity. If you do not satisfy the nine factors and submit invoices in the name of your business entity, you will be considered an employee rather than an independent contractor, regardless of LLC (or other business entity) status. This also means your employer will need to satisfy any applicable requirements for unemployment and workers’ compensation insurance, along with any other laws related to employees.
Tax Withholding Requirement Repealed
The new law also eliminates the existing two percent tax withholding requirement for contractors, effective for payments made after June 30, 2012.