The Third District Court of Appeal recently held that completion under the mechanics lien statute requires actual completion of the work of improvement, meaning completion of the entire structure or scheme of improvement as a whole, in Picerne Construction Corp. v. Castellino Villas (Feb. 18, 2016, C071197).* In doing so, the Court resolved an ambiguity developed through case law by acknowledging the abrogation of authority that permitted completion to be found where only “trivial imperfections” to the work of improvement remained.
On August 30, 2016, Governor Brown signed into law AB 1793, which amends the requirements under Business & Professions Code § 7031 for a contractor to establish “substantial compliance” with state contractor licensing requirements. AB 1793 amends section 7031 by deleting the requirement that to establish substantial compliance, a contractor must show it did not know and reasonably should not have known that it was not licensed at the time it began performing the construction work or contract at issue. The amendments are to become effective January 1, 2017.
The American Arbitration Association (“AAA”) issued revised Construction Industry Arbitration Rules which took effect July 1, 2015. There are significant changes in the new rules which are intended to make the arbitration process more efficient and cost-effective. The changes include several completely new rules which provide expanded authority to the arbitrator to control the course of the arbitration. For example, the new rules provide: Continue Reading
Public agencies have little, if any, discretion when awarding public contracts because they are required to award the contract to the lowest bidder, subject to certain minimum qualifications. These limitations are designed to protect the public and its financial interests, not the bidders. Losing bidders typically can contest the award only by challenging the bid itself via bid protest, or the bidding process. Continue Reading
Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill, LLP (Cal. Supreme Court., 07/03/2014, S208173)
On July 3, 2014, the California Supreme Court decided the much watched case Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill, LLP. The court held that the “principal architect” “owes a duty of care to future homeowners in the design of a residential building . . . even when they do not actually build the project or exercise control over construction.” (Emph. added.)
California has enacted several statues, effective January 1, 2014, which will likely increase contractors’ and subcontractors’ exposure to claims for prevailing wage violations on public works projects. Under the Prevailing Wage Law, Cal. Labor Code § 1720 et seq., contractors and subcontractors working on public works are required to pay the wages prevailing in the locality, and to comply with several record-keeping and employee work schedule requirements. Violations of the law subject a contractor or subcontractor to claims for unpaid prevailing wages, and a variety of assessments and penalties. The recently-enacted California statutory provisions increase the time period in which the claims for violations of the Prevailing Wage Law may be brought, increase the scope of remedies available to private entities seeking to enforce the Prevailing Wage Law, establish deadlines for the Director of the Department of Industrial Relations to issue coverage determinations as to whether a project qualifies as a public work under the Law, and generally increase the risk of liability under the Law.
A California Appellate Court recently clarified the burden of proof for an insurance company seeking contribution from another insurance company in settlement of a construction defect action. When a company involved in construction is sued for allegedly causing property damage to the building or structure it built (i.e. a construction defect), the company typically turns to its commercial general liability insurance policy. Depending on the nature of the defect claim the construction company may have more than one policy that could potentially provide coverage. Different insurance carriers may respond to their insured’s tender in different ways. When one carrier agrees to defend and indemnify its insured from a claim potentially covered by another carrier, but the second carrier refuses to cover, the first might settle the claim and then seek a court ruling that the second provide “equitable contribution” to the settlement amount paid. In that situation, what does the settling carrier have to show? That the claim was absolutely and certainly with in the coverage of the second insurance policy?
The amount of a mechanic’s lien in California is generally the lesser of: 1) the reasonable value of the work; or 2) the price agreed upon in the lien claimant’s contract. But does the same measure apply if a lien defendant was not a party to the contract? In Appel v. Superior Court of Los Angeles County, 214 Cal. App. 4th 329 (2013), the appellate court clarified that the same measure does apply.
Contractors usually assume that the statutory prohibition on submitting “false claims” refers to inflated invoices, phony change order costs, and the like. However the courts are giving the relevant statutes a broader meaning which public works contractors should take into account. For example, the United States Ninth Circuit Court of Appeals recently ruled that a bidder for a government contract that is found to have knowingly underbid the contract may have liability under the federal False Claims Act (“FCA”). In Hooper v. Lockheed Martin Corporation, 688 F.3d 1037 (9th Cir. 2012), Lockheed was the successful bidder for a contract with the Air Force to automate and modernize software and hardware used to support U.S. space launch operations. The contract was structured as a reimbursable cost plus “award fee” contract, where the contractor would be paid its costs of performing the work, plus “award fees” given at periodic intervals based on overall performance, including factors such as “spending less money than estimated.” Id. at 1041. Because the extent of the work required was uncertain, bidders were to submit their estimated costs of performing the work. Lockheed initially submitted a bid of $439.2 million, and later submitted a “Best and Final Offer” of $432.7 million. Id. at 1042. After the award, the government paid Lockheed more than $900 million for its work.
The California Supreme Court recently ruled that developers – by including an arbitration provision under the Federal Arbitration Act (FAA) in Homeowners’ Association Covenants, Conditions and Restrictions (“CC&R’s”) – may require that construction defect actions be resolved through arbitration rather than by jury trial. In Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, 55 Cal. 4th 223 (2012), California’s high court ruled that such provisions are consistent with the Davis-Stirling Act and that the homeowners’ associations can be bound by the arbitration provision in the recorded CC&R’s.