Volume: 19, Issue: 7 - 04/15/2021
Construction contracts with an unlicensed contractor are, in most states, null and void. (The contractor may or may not be able to recover payment on equitable grounds.) The purpose is to protect the public by depriving unlicensed contractors of any rights under an improper contract. It comes as a surprise, then, to find a situation in which the nullity of a contract worked to the benefit of an unlicensed contractor.
This case is accompanied by two federal appeals cases, one dealing with pre-existing liens and the other a performance bond. Read more.
A joint venture in which one member was not a licensed contractor could not be considered a licensed contractor. A construction contract awarded to the joint venture was null and void. The project owner could not enforce the indemnification clause in the contract against the contractor.
A construction lender insured the title to its collateral, the project real estate. But the lender agreed to eliminate coverage for mechanic’s lien rights for issues prior to the policy date. As a result, the lender had no coverage for the precise factor that caused it to incur a $4.9 million loss on its loan.
A performance bond on a design/build contract did not cover damages covered by professional liability insurance. However, indemnification agreements between the surety and the owners of a construction company were not tied exclusively to that bond and did not contain the same exclusion. The surety was entitled to indemnification against any good faith disbursement it had deemed expedient.
Volume: 19, Issue: 6 - 03/31/2021
Construction contracts frequently stipulate remedies available in the event of a contractor default. Are all these remedies available to the non-breaching party or must that party elect a single, most advantageous remedy and be satisfied with that? This issue is addressed this week along with another case that deals with enforcement of bond rights against a bond where the contractor name on the bond differs from the one on the construction contract. Read more.
Remedies under a subcontract were cumulative and did not require an election of remedy. A breaching subcontractor that had forfeited the subcontract balance could also be held liable for defective work under a warranty clause, even if the warranty award was over and above the subcontract balance.
The same individual signed a bid, a construction contract, and a performance bond as CEO of a company using three slightly different names. The surety was aware, however, of the use of multiple names and could not use the discrepancy to avoid responsibility under the bond.
Volume: 19, Issue: 5 - 03/15/2021
A specification is “proprietary” if it calls out a particular brand or is written in a manner that specifies only one brand can satisfy its requirements. Proprietary specifications are not favored in public construction contracting because they restrict competition and arguably drive up the cost of construction. However, public project owners sometimes resent their inability to specify exactly what they want. This issue's first case involves a contract where the government incorrectly refused to consider an alternative.
The other two cases involve payment issues. The first case challenges the level of detail required in a mechanic's lien and the second case addresses a subcontractor's failure to pursue payment before contract retainage was released. Read more.
Where a specified characteristic could be satisfied by only one commercial producer, the specification was proprietary. The government was obligated under the Material and Workmanship clause to consider substitute products that were functionally equivalent and equal in quality. When the government simply insisted on compliance with its specification, the contractor was entitled to its increased cost of performance. It did not matter that the government had not intended to use a proprietary spec.
A statement of amount owed, required under a mechanic’s lien statute, did not need detailed itemization because the contract was for a fixed price, not time and materials. The lien was enforceable despite the lack of itemization.