It is industry standard in California for owners of a construction project to make monthly payments to a contractor for work it has completed, less a certain percentage that is withheld as a guarantee of future satisfactory performance. This withholding is called a retention. Contractors generally pass these withholdings on to their subcontractors via a retention clause in the subcontract. Under such clause, if a subcontractor fails to complete its work or correct deficiencies in its work, the owner and the general contractor may use the retention to bring the subcontractor’s work into conformance with the requirements of the contract. Continue Reading
As of January 1, 2018, direct contractors in California who make or take a contract “for the erection, construction, alteration, or repair of a building, structure, or other private work” are jointly and severally liable with their subcontractors for any unpaid wages, fringe benefits and other benefit payments or contributions owed to wage claimants. Governor Brown approved AB 1701 on October 14, 2017. The new law puts the onus on direct contractors to not only monitor their own payroll practices, but to ensure that their subcontractors and lower tier subcontractors are engaging in proper payroll practices. Continue Reading
Contractors may benefit in making a small equity investment in the projects they construct. The financial benefit can arise from the investment itself and from improved understanding and communication with the owner during construction itself.
In the past, it was not unusual for construction companies to make small equity investments in the projects they worked on. For example, a construction company building a power plant would take a 5% equity interest in the project. By taking a financial stake in the project, contractors planned to protect their business interest in the project. That was the theory, anyway. Many of these investments did not provide the good returns; often-times the return was negative. While the construction company’s management was great at operating the construction business, it was not so great when it came to the financing business. So the idea went out of fashion. Continue Reading
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?