A recent California case may force engineering, procurement and construction companies doing business with foreign suppliers to reconsider—and maybe rewrite—their contracts. In Rockefeller Technology Investments (Asia) VII v. Changzhou SinoType Technology Co., Ltd., the California Court of Appeal held that parties may not contract around the formal service requirements of the Convention on the Service Abroad of Judicial and Extrajudicial Documents, commonly referred to as the Hague Service Convention. The decision could have profound implications for international business.
Continue Reading EPC Contractors Procuring from Foreign Companies need to Reconsider their Contracts

On May 14, 2018, the California Supreme Court issued its opinion in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., No. S231549, slip. op. (Cal. Sup. Ct. May 14, 2018). In it, the Court narrowly construed the “good faith” exception to the general rule that a direct contractor must make retention payments to its subcontractors within 10 days of receiving any retention payment. The exception provides that “[i]f a good faith dispute exists between the direct contractor and a subcontractor, the direct contractor may withhold from the retention to the subcontractor an amount not in excess of 150 percent of the estimated value of the disputed amount.” Cal. Civ. Code section 8814(c).
Continue Reading It’s All a Matter of [Statutory] Construction: Supreme Court Narrowly Interprets the Good Faith Dispute Exception to Prompt Payment Requirements in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co.

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 “Good Faith” May Not Be Good Enough: California Supreme Court to Decide When General Contractors Can Withhold Retention

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 Direct Contractors In California Should Take Steps Now To Reduce Exposure For Unpaid Wages By Subcontractors

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 Contractors May Benefit by Taking Equity in the Project They are Constructing

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.
Continue Reading Picerne Construction Corp. v. Castellino Villas (Feb. 18, 2016, C071197)

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.
Continue Reading AB 1793 Amends Requirements for Contractors to Establish Substantial Compliance With State Contractor Licensing Requirements

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 Revised Construction Industry Arbitration Rules Adopted by American Arbitration Association

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 Second-Lowest Bidder for Public Contracts May Sue Lowest Bidder Who Paid Less Than Prevailing Wages

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.)…

Continue Reading Principal Architects on Residential Projects Liable for Construction Defects Outside Their Control; Developers and Owners May Pay the Price