FREE 15 MIN. WEBINAR ON BEING PROACTIVE REGARDING YOUR LIEN RIGHTS

Posted on June 29, 2014June 29, 2014 by Edward Garber

Check out a free 15 minute webinar on July 16, 2014 beginning at 12pm on being proactive regarding your construction lien rights http://bit.ly/1mJmoKm.

IMPORTANT BULLET POINTS FOR PAYMENT BONDS ON FLORIDA PUBLIC PROJECTS (FLA. STAT. s. 255.05)

Posted on June 28, 2014June 28, 2014 by Edward Garber

Contractors that work on Florida state and local government construction projects (non-FDOT projects) must be familiar with Florida Statute s. 255.05. This statute governs the payment bond (and performance bond) the general contractor is required to provide for public projects in excess of $200,000. (No payment bond is statutorily required for projects in the amount of $100,000 or less and the public body has discretion waiving the bond requirement for projects in the amount of $200,000 or less.)

Here are important bullet points regarding payment bonds for public projects required by s. 255.05:

The general contractor (hired by the public body) is required to execute and record the payment bond (and performance bond) in the public records where the project is located. Fla. Stat. s. 255.05(1).

The public body is not supposed to make payment to the contractor until it receives a certified copy of the recorded bond. Fla. Stat. s. 255.05(1)(b).

The bond must state on the front page the “name, principal business address, and phone number of the contractor, the surety, the owner of the property being improved and, if different from the owner, the contracting public entity.” Fla. Stat. s. 255.05(1)(a). The bond should also contain reference to s. 255.05 and contain reference to the notice and time limitation provisions in subsections (2) and (10) (as referenced in subsequent bullet points). Fla. Stat. s. 255.05(6). Notwithstanding, the payment bond “shall be construed and deemed statutory payment bonds…and such bonds shall not under any circumstances be converted into common law bonds.” Fla. Stat. s. 255.05(4).

Any provision in payment bonds issued after October 1, 2012 that “further restricts the classes of persons protected by the bond, which restricts the venue of any proceeding relating to such bond, which limits or expands the effective duration of the bond, or which adds conditions precedent to the enforcement of a claim against the bond beyond those provided in this section is unenforceable.” Fla. Stat. s. 255.05(1)(e).

“A claimant, except a laborer, who is not in privity with the contractor shall, before commencing or not later than 45 days after commencing to furnish labor, services, or materials for the prosecution of the work, furnish the contractor with a written notice that he or she intends to look to the bond for protection.” Fla. Stat. s. 255.05(2)(a)(2). This is the same notice of intent to look to the bond required by those not in privity with the general contractor that have issued payment bonds on private projects (see https://floridaconstru.wpengine.com/serving-preliminary-lien-payment-bond-notices-on-private-projects/). Note, however, that the timing of serving this notice would be different if the payment bond were issued on an FDOT project (see https://floridaconstru.wpengine.com/payment-bonds-and-preliminary-notice-requierments-for-florida-department-of-transportation-fdot-projects/).

A claimant not in privity with the general contractor shall serve a written notice of nonpayment on the contractor and surety no later than 90 days after final furnishing. Fla. Stat. s. 255.05(2)(a)(2). The notice must specify the portion of the nonpayment amount designated as retainage. Id. Note, however, that this requirement differs from payment bonds for private projects where all claimants are required to serve the notice of nonpayment even if in privity with the general contractor. Here, only those claimants not in privity with the general contractor need to serve the written notice of nonpayment.

A claimant has one year from final furnishing to file an action on the payment bond. Fla. Stat. s. 255.05(10). However, there is an exception for retainage:

“An action for recovery of retainage must be instituted against the contractor or the surety within 1 year after the performance of the labor or completion of delivery of the materials or supplies; however, such an action may not be instituted until one of the following conditions is satisfied:

(a) The public entity has paid out the claimant’s retainage to the contractor, and the time provided under s. 218.735 or s. 255.073(3) for payment of that retainage to the claimant has expired;

(b) The claimant has completed all work required under its contract and 70 days have passed since the contractor sent its final payment request to the public entity; or

(c) At least 160 days have passed since reaching substantial completion of the construction services purchased, as defined in the contract, or if not defined in the contract, since reaching beneficial occupancy or use of the project.

(d) The claimant has asked the contractor, in writing, for any of the following information and the contractor has failed to respond to the claimant’s request, in writing, within 10 days after receipt of the request:

1. Whether the project has reached substantial completion, as that term is defined in the contract, or if not defined in the contract, if beneficial occupancy or use of the project has occurred.

2. Whether the contractor has received payment of the claimant’s retainage, and if so, the date the retainage was received by the contractor.

3. Whether the contractor has sent its final payment request to the public entity, and if so, the date on which the final payment request was sent.

If none of the conditions described in paragraph (a), paragraph (b), paragraph (c), or paragraph (d) is satisfied and an action for recovery of retainage cannot be instituted within the 1-year limitation period set forth in this subsection, this limitation period shall be extended until 120 days after one of these conditions is satisfied.”

Now, what happens if the recorded bond does not specifically reference s. 255.05 or the notice and time provisions of the statute as required by the statute in s. 255.05(6)? This issue was decided by the Florida Supreme Court in American Home Assur. Co. v. Plaza Materials Corp., 908 So.2d 360, 370 (Fla. 2005), where the Court held:

“[W]e conclude that the notice and time limitation provisions of section 255.05(2) may be enforceable, even where the statutory payment bond at issue does not contain reference to those notice and time limitation provisions in accordance with section 255.05(6). Once the claimant upon the bond makes a prima facie showing that the bond is facially deficient within the context of the statute and establishes by a preponderance of the evidence that the claimant did not have actual notice of the provision, the surety is estopped from attempting to enforce those provisions.”

In other words, the bond is not going to be converted into a common law bond which would deem the required notice provisions unenforceable. This showing by a claimant is actually a challenging hurdle to overcome, especially for a claimant that performs work on public projects and should know the notice requirements for public payment bonds!

Now, what happens if the bond is not recorded in the public records? The same holding and potential hurdle would likely apply. See Ardaman & Associates, Inc. v. Travelers Cas. And Sur. Co. of America, 2009 WL 161203 (N.D.Fla. 2009) (relying on the Florida Supreme Court’s decision in American Home Assur. to find that a payment bond not recorded on an FDOT project pursuant to Florida Statute s. 337.18 should be subject to the same analysis).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PAYMENT BONDS AND PRELIMINARY NOTICE REQUIREMENTS FOR FLORIDA DEPARTMENT OF TRANSPORTATION (FDOT) PROJECTS

Posted on June 21, 2014June 21, 2014 by Edward Garber

Payment and performance bonds for Florida Department of Transportation (“FDOT”) projects are governed under Florida Statute s. 337.18. These bonds are statutorily required for contract prices greater than $250,000 and the FDOT can waive the bond requirement for projects with a contract price of $250,000 or less if it determines the project will not endanger the public health, safety, or property. (Payment bonds and performance bonds for other public projects, or non-FDOT projects, are governed under Florida Statute s. 255.05, and will not be specifically discussed in this posting.)

Section 337.18 contains the following relevant provisions applicable to FDOT payment bonds:

(1)(b) Before beginning any work under the contract, the contractor shall maintain a copy of the payment and performance bond required under this section at its principal place of business and at the job-site office, if one is established, and the contractor shall provide a copy of the payment and performance bond within 5 days after receiving a written request for the bond. A copy of the payment and performance bond required under this section may also be obtained directly from the department by making a request pursuant to chapter 119. A claimant has a right of action against the contractor and surety for the amount due him or her, including unpaid finance charges due under the claimant’s contract. The action may not involve the department in any expense.

(1)(c) A claimant, except a laborer, who is not in privity with the contractor shall, before commencing or not later than 90 days after commencing to furnish labor, materials, or supplies for the prosecution of the work, furnish the contractor with a notice that he or she intends to look to the bond for protection. A claimant who is not in privity with the contractor and who has not received payment for his or her labor, materials, or supplies shall deliver to the contractor and to the surety written notice of the performance of the labor or delivery of the materials or supplies and of the nonpayment. The notice of nonpayment may be served at any time during the progress of the work or thereafter but not before 45 days after the first furnishing of labor, services, or materials, and not later than 90 days after the final furnishing of the labor, services, or materials by the claimant or, with respect to rental equipment, not later than 90 days after the date that the rental equipment was last on the job site available for use. An action by a claimant, except a laborer, who is not in privity with the contractor for the labor, materials, or supplies may not be instituted against the contractor or the surety unless both notices have been given.

(1)(d) An action must be instituted by a claimant, whether in privity with the contractor or not, against the contractor or the surety on the payment bond or the payment provisions of a combined payment and performance bond within 365 days after the final acceptance of the contract work by the department.

(1)(e) When a contractor has furnished a payment bond pursuant to this section, he or she may, when the department makes any payment to the contractor, serve a written demand on any claimant who is not in privity with the contractor for a written statement under oath of his or her account showing the nature of the labor or services performed to date, if any; the materials furnished; the materials to be furnished, if known; the amount paid on account to date; the amount due; and the amount to become due, if known, as of the date of the statement by the claimant. Any such demand to a claimant who is not in privity with the contractor must be served on the claimant at the address and to the attention of any person who is designated to receive the demand in the notice to the contractor served by the claimant. The failure or refusal to furnish the statement does not deprive the claimant of his or her rights under the bond if the demand is not served at the address of the claimant or directed to the attention of the person designated to receive the demand in the notice to contractor.The failure to furnish the statement within 60 days after the demand, or the furnishing of a false or fraudulent statement, deprives the claimant who fails to furnish the statement, or who furnishes the false or fraudulent statement, of his or her rights under the bond.

(1)(f) The bonds provided for in this section are statutory bonds. The provisions of s.255.05 are not applicable to bonds issued pursuant to this section.

The application of s. 337.18 was discussed in Ardaman & Associates, Inc. v. Travelers Cas. and Sur. Co. of America, 2009 WL 161203 (N.D.Fla. 2009), that involved a FDOT bridge restoration project. FDOT hired the design-builder to replace damaged structures on a dual bridge that spanned Escambia Bay. The design-builder hired the engineering firm and the engineering firm engaged a geotechnical engineer. The geotechnical engineer sued for payment for services performed under the engineer that hired it as well as additional services it performed pursuant to an oral agreement directly with the design-builder.

The design-builder and its surety moved to dismiss the bond claim because the geotechnical engineer was supposed to serve its notice of intent to look to the bond pursuant to Fla. Stat. s. 337.18(1)(c) no later than 90 days after it commenced work and it did not serve this statutory notice until two years after it commenced work. The geotechnical engineer countered that it did not have to serve the statutory notice of intent to look to the bond on the design-builder because (a) it entered into an oral agreement to perform additional services with the design-builder and, thus, was not required to serve the preliminary notice since it became in privity of contract with the design-builder and (b) the bond was never recorded in the official records and, therefore, the surety should be estopped from enforcing any statutory preliminary notice requirement. (At the time of this lawsuit the statute required the bond to be recorded; this recording requirement has subsequently been removed from the statute and is no longer required for FDOT payment bonds.)

The Northern District disagreed with the geotechnical engineer’s first argument that the engineer did not need to serve the preliminary notice for the work it performed directly under the engineer that hired it. The statute required the geotechnical engineer to serve the preliminary notice for this work since it was not in direct privity with the design-builder (contractor) when it performed this work. In other words, the failure of the geotechnical engineer to serve this preliminary notice would deprive it of amounts it was seeking against the payment bond for work it directly performed under the engineer that hired it.

The Northern District further disagreed with the geotechnical engineer’s second argument that the engineer did not need to serve the required preliminary notice because the bond was never recorded. (Although, as shown above in the statutory language, this recording requirement has been removed for FDOT payment bonds, it is still a requirement for payment bonds for other Florida public projects issued pursuant to s. 255.05.) The Northern District held that the geotechnical engineer must allege (and ultimately prove) that its failure to timely serve the preliminary notice was caused by the design-builder’s failure to record the bond in the public records. (Notably, this burden of proof is very, very challenging, especially for an entity that has performed public construction work and knows a payment bond is a requirement.)

Finally, the geotechnical engineer, as another argument to overcome its failure to timely serve the preliminary notice, contended that the payment bond should be deemed a common law bond because it was not properly recorded. If the bond was deemed a common law bond than statutory notice requirements and time limitations would not be strictly construed. The Northern District disagreed with this argument and held that the payment bond at-issue specifically referenced section 337.18 and the statute specifically states that the bond is a statutory bond.

Valuable take-aways:

Do not neglect serving your preliminary notice to enforce your bond rights. Know that the requirements of a FDOT project are different than other public projects governed under Florida Statute s. 255.05. The key is to know that preliminary notice needs to be served and serve it immediately. Work with your notice company or counsel to ensure the required preliminary notice is correctly served based on the construction project you are undertaking. For more information on a preliminary notice company and preliminary notice requirements for private projects, please see: https://floridaconstru.wpengine.com/serving-preliminary-lien-payment-bond-notices-on-private-projects/.

The best course of action is really never to argue that a statutory payment bond for a public project is a common law bond. It presents a challenging hurdle for the claimant. Indeed, section 255.05 (again, for non-FDOT public projects) provides that “such bonds shall not under any circumstances be converted into common law bonds.” Fla. Stat. s. 255.05(4). Interestingly, and for whatever reason, s. 337.18 does not contain this added language although it does provide that the bonds provided per this section are statutory bonds.

The provisions of s. 255.05 are not applicable to the FDOT payment bond issued pursuant to s. 337.18. While the court may look to cases interpreting s. 255.05 for guidance, the fact remains that the statute explicitly distinguishes itself from the s. 255.05 bond requirements. Be aware of this when performing a FDOT project.

SERVING PRELIMINARY LIEN / PAYMENT BOND NOTICES ON PRIVATE PROJECTS

Posted on June 19, 2014June 19, 2014 by Edward Garber

Subcontractors and suppliers need to know the preliminary notices (such as a Notice to Owner for liens or Notice to Contractor for payment bonds) that need to be served to preserve their lien or payment bond rights on private projects.

A. Obtaining a Copy of the Notice of Commencement

The first thing a potential lienor should do is obtain the Notice of Commencement for the project (or any Amended Notice of Commencement). The Notice of Commencement will be recorded in the official records where the project is located and will provide a potential lienor with a description of the real property, the owner’s information, the contractor’s information, the construction lender’s information, whether the contractor has a payment bond (which should be recorded with the Notice of Commencement), and persons other than the owner that the Notice to Owner needs to be served on.

B. Preliminary Notices for Liens- the Notice to Owner

If there is no payment bond recorded with the Notice of Commencement, then the potential lienor knows it wants to preserve its lien rights. Entities not in privity of contract with the owner will need to serve a Notice to Owner. The Notice to Owner must set “forth the lienor’s name and address, a description sufficient for identification of the real property, and the nature of the services or materials furnished or to be furnished.” Fla. Stat. s. 713.06(2). A statutory form is included in Florida’s Lien Law (Florida States Chapter 713) and set forth at the bottom of this posting. Importantly, the Notice to Owner must be served by the potential lienor “before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials.” Fla. Stat. s. 713.06(2). The key is that the Notice to Owner must be served within 45 days of the entity’s initial furnishing. For instance, a supplier’s initial furnishing is when the materials arrive on site. However, a supplier of specially fabricated material’s initial furnishing is when the supplier started fabrication irrespective of when the materials arrived on site. A company supplying construction rental equipment’s initial furnishing is when the rental equipment arrived on site. And, a subcontractor’s initial furnishing is when it first starts to furnish labor, services, or materials for the project. Again, there is no reason to delay serving the Notice to Owner – it should be served immediately as a matter of course.

A copy of the Notice to Owner should be served on the contractor if the potential lienor was not hired by the contractor in addition to the potential lienor’s customer’s customer. In other words: “A sub-subcontractor or a materialman to a subcontractor must serve a copy of the notice on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor shall serve the notice to owner on the subcontractor [potential lienor’s customer’s customer] if the materialman knows the name and address of the subcontractor.” Fla. Stat. 713.06(2). (Lien rights, however, are not automatic in that the further removed an entity is from the owner may impact whether or not that entity has lien rights. For example, a sub-sub-subcontractor does not have lien rights and a supplier to a supplier is not going to have lien rights. On the other hand, sub-subcontractors will have lien rights and a supplier to a sub-subcontractor should also have lien rights.)

C. Preliminary Notices for Payment Bonds-the Notice to Contractor and the Notice of Nonpayment

Now, if there is a payment bond in place, the owner’s property is exempt from liens and the entities should look to the payment bond for payment. In this case, entities not in privity of contract with the general / prime contractor “before beginning or within 45 days after beginning to furnish labor, materials, or supplies…shall serve the contractor with notice in writing that the lienor will look to the contractor’s bond for protection on the work.” Fla. Stat. s. 713.23(1)(c). Similar to the Notice to Owner, this Notice to Contractor of the potential lienor’s intent to look to the bond must be served within 45 days of initial furnishing. A statutory form for this notice is also included in Florida’s Lien Law and further set forth at the bottom of this posting. Importantly, if a lienor is unsure and/or wants to preserve both lien and payment bond rights the lienor can combine the Notice to Owner form with the Notice to Contractor form by calling the Notice to Owner form “NOTICE TO OWNER/NOTICE TO CONTRACTOR.” This is actually common as it kills two birds with one stone in the event the lienor is unsure and wants to preserve both lien and bond rights.

However, unlike perfecting a lien claim, potential lienors looking to recover under a payment bond for a private project must serve a Notice of Nonpayment to the contractor and payment bond surety within 90 days of finial furnishing at the project. (As it relates primarily to subcontractors, “The failure of a lienor to receive retainage sums not in excess of 10 percent of the value of labor, services, or materials furnished by the lienor is not considered a nonpayment requiring the service of the notice provided under this paragraph. Fla. Stat. s. 713.23(1)(d).) This Notice of Nonpayment even needs to be served by the subcontractor/supplier in privity of contract with the general contractor (even though the preliminary Notice to Contractor does not need to be served by the subcontractor/supplier in privity of contract with the general contractor). Final furnishing refers to the last date the lienor furnished labor, services or materials (excluding warranty or punchlist work). With respect to companies that furnish rental equipment, this final furnishing date is measured from the last date the rental equipment was on the project site and available for use.

Understanding the specific preliminary notices that need to be served and the timing of these notices is important to ensure that a subcontractor, supplier, etc. is properly preserving their lien or bond rights.

D. Preliminary Notice Companies

There are numerous companies that cost effectively assist subcontractors and suppliers with serving preliminary notices as a matter of course based on the information provided by the subcontractor and supplier. This is important to ensure the company preserves lien and bond rights!

One such emerging company that can assist with the generation, preparation and service of preliminary notices is FileMyPrelim (www.filemyprelim.com) with its cool, innovative web-based platform called PrelimTracker (www.prelimtracker.com). FileMyPrelim and PrelimTracker have developed a preliminary notice service and tracking platform that adapts to a construction industry that is evolving with the generation and transmission of electronic documentation. What is really cool is that by using FileMyPrelim, the lienor’s data is stored and tracked with PrelimTracker. Because these preliminary notices (whether it is a Notice to Owner, Notice to Contractor, etc.) are linked to PrelimTracker, the general contractor, the owner, and even the owner’s construction lender can universally track those entities that served the preliminary notices jointly on this web-based platform. By doing this, the general contractor, owner, and lender are all on the same page to ensure that those entities that preserved lien rights are properly transmitting releases of lien in consideration of progress payments (so that their lien rights are released through a specified date) and that a final release of lien is given in consideration of final payment to that lienor. In fact, PrelimTracker can generate the lienor’s release of lien based on the information provided by the lienor and transmit it electronically with a secure electronic signature. This allows all of the lienor’s releases to be stored and tracked in a platform accessible to the project team. Even if a lien could not be recorded against the owner’s project because the general contractor furnished a payment bond, PrelimTracker could track the preliminary notices from lienors served through FileMyPrelim preserving payment bond rights to ensure the general contractor is obtaining releases of lien from those entities. (Keep in mind, PrelimTracker provides value as it pulls data compiled in FileMyPrelim to report critical lien related documents.) Check out the website links to learn more about this emerging technology that can serve as a beneficial tool to the entire project team.

E. Preliminary Notice Forms

Preliminary Notice for Liens

WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.

UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.

TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.

NOTICE TO OWNER

To (Owner’s name and address)

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

(General description of services or materials) for the improvement of the real property identified as (property description) under an order given by____________.

Florida law prescribes the serving of this notice and restricts your right to make payments under your contract in accordance with Section 713.06, Florida Statutes.

IMPORTANT INFORMATION FOR

YOUR PROTECTION

Under Florida’s laws, those who work on your property or provide materials and are not paid have a right to enforce their claim for payment against your property. This claim is known as a construction lien.

If your contractor fails to pay subcontractors or material suppliers or neglects to make other legally required payments, the people who are owed money may look to your property for payment, EVEN IF YOU HAVE PAID YOUR CONTRACTOR IN FULL.

PROTECT YOURSELF:

–RECOGNIZE that this Notice to Owner may result in a lien against your property unless all those supplying a Notice to Owner have been paid.

–LEARN more about the Construction Lien Law, Chapter 713, Part I, Florida Statutes, and the meaning of this notice by contacting an attorney or the Florida Department of Business and Professional Regulation.

(Lienor’s Signature)

(Lienor’s Name)

(Lienor’s Address)

Copies to: (Those persons listed in Section 713.06(2)(a) and (b), Florida Statutes)

Preliminary Notices for Payment Bonds

NOTICE TO CONTRACTOR

To (name and address of contractor)

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

(general description of services or materials) for the improvement of the real property identified as (property description) under an order given by (lienor’s customer) .

This notice is to inform you that the undersigned intends to look to the contractor’s bond to secure payment for the furnishing of materials or services for the improvement of the real property.

(name of lienor)

(signature of lienor or lienor’s representative)

(date)

(lienor’s address)

NOTICE OF NONPAYMENT

To (name of contractor and address)

(name of surety and address)

The undersigned notifies you that he or she has furnished (describe labor, services, or materials) for the improvement of the real property identified as (property description) The amount now due and unpaid is $___.

(signature and address of lienor)

CGL POLICIES AND THE EXCLUSION FOR POLLUTANTS

Posted on June 16, 2014June 16, 2014 by Edward Garber

Owners, contractors, and subcontractors, etc. need to understand the liability insurance coverage they maintain so that in event of a claim relating to bodily injury or property damage they know whether there is potential coverage for the claim. Not only does this include understanding the exclusions in the policies, but also understanding endorsements that may further restrict or modify coverage.

CGL policies contain a pollution exclusion that excludes environmental pullutants / contaminants (as it has been referred to as an absolute pollution exclusion). If an entity requires the type of insurance to cover potential environmental liabilities, there is pollution liability insurance that can be procured, but this is separate from the CGL policy.

Although not a construction dispute, the recent case of Endurance American Specialty Ins. Co. v. Savits-Daniel Travel Centes, Inc., 2014 WL 2600071 (S.D.Fla. 2014), illustrates the general application of the pollution exclusion in a personal injury situation. In this case, a woman was at a bar and was exposed to pepper spray causing her to fall and fatally hit her head. Her estate sued the owner of the premises and the owner tendered the claim to its CGL carrier. The carrier denied coverage and an action for declaratory relief ensued to determine whether the CGL carrier was responsible for a duty to defend and indemnify. The issue in the case was whether the pepper spray constituted a pollutant; if it was a pollutant, then bodily injury arising out of the pepper spray pollutant was excluded from coverage.

The policy contained the following language (common to CGL policies):

2. Exclusions This insurance does not apply to:

* * * *

f. Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.

* * * *

SECTION V—DEFINITIONS

* * * *

15. “Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

In addition, there was an endorsement that further restricted coverage known as the “Mold, Fungus, Bacteria, Virus, and Organic Pathogen Exclusion:”

ENDORSEMENT

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE FORM

MOLD, FUNGUS, BACTERIA, VIRUS AND ORGANIC

PATHOGEN EXCLUSION

It is hereby agreed that this policy shall not apply:

1. to “bodily injury”, “property damage”, or “personal and advertising injury”;

2. to damages for devaluation of property or for the taking, use or acquisition or interference with the rights of others in property or air space;

3. to any loss, cost or expense, including but not limited to fines and penalties, arising out of any governmental direction or request, or any private party or citizen action, that an insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize “organic pathogens”; or

4. to any “suit” or administrative or regulatory procedure or process in which an insured may be involved as a party;

arising, directly or indirectly, or in concurrence or in any sequence out of or in any way relating to actual, alleged or threatened existence, discharge, dispersal, release or escape of “organic pathogens,” whether or not such actual, alleged or threatened existence, discharge, dispersal, release or escape is sudden, accidental or gradual in nature.

This insurance shall not apply to any “bodily injury”, “property damage”, “personal and advertising injury”, loss, cost or expense arising out of or in any way related to any form of “organic pathogens,” whether or not such actual, alleged or threatened existence, discharge, dispersal, release or escape is intentionally caused, or whether or not such injury, damage, devaluation, cost or expense is expected or intended from the standpoint of the insured.

“Organic pathogen” means any organic irritant or contaminant, including but not limited to mold, fungus, bacteria or virus, including but not limited to their byproducts, such as mycotoxins, mildew, or biogenic aerosols.

The Southern District agreed with the CGL insurer based on the exclusionary pollution language in the policy that pepper spray was a pollutant excluded from coverage.

Check your CGL policy and corresponding endorsements. You will see the pollution exclusion. During construction, there are certainly pollution / environmental risks that would require a contractor to obtain such insurance to cover and address these risks. The objective is know the risks you need covered and the policies you have in place to ensure you are being covered for those risks.

FEDERAL CONTRACTING AND COMPLIANCE WITH THE CONTRACT DISPUTES ACT

Posted on June 8, 2014June 8, 2014 by Edward Garber

Federal Acquisition Regulation 52.233-1 (48 CFR 52.233-1) contains a dispute clause that is incorporated into prime contracts for federal construction projects. This regulation is set forth at the bottom of this article and provides that the prime contract is subject to the Contract Disputes Act (41 U.S.C. s. 7101 en seq.). The Contract Disputes Act is a vital part of federal contracting.

The Contact Disputes Act—containing similar language to FAR 52.233-1—requires prime contractors to submit claims relating to the prime contract in writing to the contracting officer for a decision within six years after the accrual of the claim. 41 USC s. 7103 (a). Claims of more than $100,000 need to contain a certification that:

“(A) the claim is made in good faith;

(B) the supporting data are accurate and complete to the best of the contractor’s knowledge and belief;

(C) the amount requested accurately reflects the contract adjustment for which the contractor believes the Federal Government is liable; and

(D) the certifier is authorized to certify the claim on behalf of the contractor.”

41 USC s. 7103(b).

(It is imperative that the prime contractor not misrepresent or fraudulently submit a certified claim as it could expose the contractor to liability. 41 USC s. 7103(c).)

The contracting officer will then render a decision for claims of $100,000 or less within “sixty days from the contracting officer’s receipt of a written request from the contractor that a decision be rendered within that period.” 41 USC s. 7103(f)(1). With respect to claims of more than $100,000, the contracting officer “shall, within 60 days of receipt of a submitted certified claim…(A) issue a decision; or (B) notify the contractor of the time within which a decision will be issued.” 41 USC s. 7103(f)(2). If the contracting officer notifies the prime contractor that it needs more time to render a decision, which is not uncommon, he/she is simply required to issue a decision within a reasonable period of time factoring in the size and complexity of the claim with the back-up information submitted by the prime contractor. 41 USC s.7103(f)(3). “Failure by a contracting officer to issue a decision on a claim within the required time is deemed to be a decision by the contracting officer denying the claim and authorizes an appeal or action on the claim….However, the tribunal concerned may, at its option, stay the proceedings of the appeal or action to obtain a decision by the contracting officer.” 41 USC s. 7103(f)(5).

Once the contracting officer renders a decision on the claim, this decision is final unless the prime contractor (i) appeals the decision to the applicable agency board within 90 days from the date of receipt of the contracting officer’s decision or (ii) initiate an action in the United States Court of Federal Claims within twelve months from the date of receipt of the contracting officer’s decision. 41 USC s. 7104.

The opinion in The Hanover Insurance Company v. U.S., 2014 WL 2192148 (Fed.Cl. 2014), illustrates the importance for prime contractors to comply with the Contract Disputes Act and corresponding Federal Acquisition Regulation 52.233-1 (governing disputes and incorporated into the prime contracts) prior to instituting litigation against the federal government.

In this case, the United States Army Corps of Engineers (“Corps”) engaged a prime contractor to perform work for an Everglades upgrade project. The Corps default terminated the prime contractor due to issues pertaining to the prime contractor’s dewatering plan. The Corps made a demand on the prime contractor’s performance bond surety to either complete the balance of the unperformed contract work or tender a new contractor to complete the contract work. The Corps also denied claims the prime contractor submitted for additional costs relating to the dispute over the dewatering plan (that ultimately led to the default termination). The performance bond surety tendered a completion contractor and executed a tender and release agreement with the Corps that obligated the surety to pay the Corps many millions of dollars which represented the difference between the amount to be paid to the completion contractor to complete the contract work minus the unpaid balance of the original prime contractor’s contract. The tender and release agreement provided that the prime contractor and surety could ultimately challenge the Corps’ default termination.

Subsequently, the prime contractor and its surety filed separate complaints against the federal government in the Court of Federal Claims challenging the default termination. Ultimately, the prime contractor wanted the Corps’ default termination converted into a termination for convenience; this would, in turn, result in the federal government reimbursing the surety the many millions the surety tendered plus other related costs incurred by the contractor in the performance of the project. (The prime contractor also sued the federal government to recover its costs tied to the claims it submitted to the Corps relating to the dewatering dispute that the Corps denied.) These lawsuits were all consolidated.

The federal government moved to dismiss the claims for monetary damages asserted by the prime contractor and surety challenging the default termination. The federal government’s motion was based on the prime contractor and surety’s failure to comply with the Contract Disputes Act. The Court of Federal Claims explained:

“The CDA [Contract Disputes Act] provides that in the event of a dispute between a contractor and the government ‘relating to a contract,’ all contractor claims are to be submitted in writing to the contracting officer for decision and all government claims are to be the subject of a contracting officer decision. A claim [under Federal Acquisition Regulation 52.233-1(c)] is ‘a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to [the] contract.’ Upon receipt of a claim, the contracting officer must issue a written decision containing his or her reasoning for the outcome and advising the contractor of its right to appeal. If a contracting officer fails to issue a decision ‘within the period required’ by the statute, the failure is deemed to be a decision denying the claim. The decision of the contracting officer is final unless the contractor makes an authorized appeal. A valid claim, a contracting officer’s decision or deemed denial, and a proper appeal are all jurisdictional requirements under the CDA [to file a complaint in the Court of Federal Claims].”

The Hanover Insurance Company, supra, at *4 (internal citations omitted).

Neither the prime contractor nor its performance bond surety submitted a claim to the contracting officer due to the default termination in accordance with the Contract Disputes Act. Based on this failure, the federal government argued that the Court of Federal Claims did not have proper jurisdiction to hear the merits of the dispute. The Court of Federal Claims agreed and dismissed the claims for lack of jurisdiction stating:

“In the absence of a final contracting officer decision regarding termination for convenience costs or other money damages related to the default termination,

whether premised on a contractor claim or on a government claim, the court must dismiss the claims for money damages…. This ruling, however, does not foreclose Hanover and Lodge from pursuing these claims. To the contrary, by dismissing these claims for lack of jurisdiction, the court is removing the obstacle preventing the contracting officer from entertaining plaintiffs’ claims for default termination-related money damages.”

The Hanover Insurance Company, supra, at *7.

In other words, the prime contractor and surety will need to submit a written claim, await the contracting officer’s obvious denial of the claim, and then re-institute the action in the Court of Federal Claims based on the denial.

Since the contracting officer’s decision converting a default termination into a termination for convenience seems fairly transparent, the prime contractor and surety argued, as they should, that it would be futile to comply with the Contract Disputes Act when the contracting officer is going to obviously deny the claim. Notwithstanding this transparent fact, the Court of Federal Claims relied on case law where a prime contractor sitting in a similar default termination situation was required to submit a claim pursuant to the Contract Disputes Act challenging the default termination in order for the Court of Federal Claims to have jurisdiction.

48 CFR 52.233-1

(a) This contract is subject to 41 U.S.C. chapter 71, Contract Disputes.

(b) Except as provided in 41 U.S.C. chapter 71, all disputes arising under or relating to this contract shall be resolved under this clause.

(c) Claim, as used in this clause, means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract. However, a written demand or written assertion by the Contractor seeking the payment of money exceeding $100,000 is not a claim under 41 U.S.C. chapter 71 until certified. A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim under 41 U.S.C. chapter 71. The submission may be converted to a claim under 41 U.S.C. chapter 71, by complying with the submission and certification requirements of this clause, if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

(d)(1) A claim by the Contractor shall be made in writing and, unless otherwise stated in this contract, submitted within 6 years after accrual of the claim to the Contracting Officer for a written decision. A claim by the Government against the Contractor shall be subject to a written decision by the Contracting Officer.

(d)(2)(i) The Contractor shall provide the certification specified in paragraph (d)(2)(iii) of this clause when submitting any claim exceeding $100,000.

(ii) The certification requirement does not apply to issues in controversy that have not been submitted as all or part of a claim.

(iii) The certification shall state as follows: “I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the Contractor believes the Government is liable; and that I am authorized to certify the claim on behalf of the Contractor.”

(3) The certification may be executed by any person authorized to bind the Contractor with respect to the claim.

(e) For Contractor claims of $100,000 or less, the Contracting Officer must, if requested in writing by the Contractor, render a decision within 60 days of the request. For Contractor-certified claims over $100,000, the Contracting Officer must, within 60 days, decide the claim or notify the Contractor of the date by which the decision will be made.

(f) The Contracting Officer’s decision shall be final unless the Contractor appeals or files a suit as provided in 41 U.S.C. chapter 71.

(g) If the claim by the Contractor is submitted to the Contracting Officer or a claim by the Government is presented to the Contractor, the parties, by mutual consent, may agree to use alternative dispute resolution (ADR). If the Contractor refuses an offer for ADR, the Contractor shall inform the Contracting Officer, in writing, of the Contractor’s specific reasons for rejecting the offer.

(h) The Government shall pay interest on the amount found due and unpaid from (1) the date that the Contracting Officer receives the claim (certified, if required); or (2) the date that payment otherwise would be due, if that date is later, until the date of payment. With regard to claims having defective certifications, as defined in (FAR) 48 CFR 33.201, interest shall be paid from the date that the Contracting Officer initially receives the claim. Simple interest on claims shall be paid at the rate, fixed by the Secretary of the Treasury as provided in the Act, which is applicable to the period during which the Contracting Officer receives the claim and then at the rate applicable for each 6–month period as fixed by the Treasury Secretary during the pendency of the claim.

(i) The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.

LIEN RIGHTS FOR SPECIALLY FABRICATED MATERIALS

Posted on June 6, 2014June 6, 2014 by Edward Garber

Specially fabricated materials are those materials that are specially manufactured, designed, or fabricated for a particular project and are not materials that can be universally used on all projects. Specially fabricated materials have been described as those materials “not generally suited for nor readily adaptable to use in a like improvement.” Odolite Industries, Inc. v. Millman Const. Co., Inc., 501 So.2d 655, 656 (Fla. 3d DCA 1987) (quotation omitted). For instance, the Florida Supreme Court in Stunkel v. Gazebo Landscaping Design, Inc., 660 So.2d 623, 625 n.2 (Fla. 1995), noted that trees the owner specifically selected for a project were not specially fabricated because they could be used on other projects; whereas, in Lehigh Structural Steel Co. v. Joseph Langer, Inc., 43 So.2d 335, 338 (Fla. 1949), the Court noted that structural steel fabricated for a specific building was specially fabricated materials. (Notably, furnishing specially fabricated materials does not include “design work, submittals, or the like preliminary to actual fabrication of the materials.” Fla. Stat. s. 713.01(13).)

Preserving lien rights under Florida’s Lien Law for specially fabricated materials is different than other materials (or non-specially fabricated materials).

Because specially fabricated materials are specifically fabricated for a particular project, these materials do NOT have to be actually incorporated into the project for the supplier / fabricator to have lien rights. Aquatic Management, Inc. v. Paramount Engineering, Inc., 977 So.2d 600 (Fla. 4^th DCA 2007). If the materials are not specially fabricated, the materials do need to be actually incorporated into the project. Id. This is a major difference.

And, because specially fabricated materials do not have to be actually incorporated for a supplier / fabricator to have lien rights for those materials, a notice to owner / intent to look to the payment bond (if there is a payment bond) needs to be served within 45 days from the start of actual fabrication and NOT from when the materials are actually delivered to the job site (since the materials do not actually have to be delivered and incorporated for lien rights for these materials). See Odolite Industries, 501 So.2d at 656; Fla. Stat. 713.01(13). This means that a supplier of specially fabricated materials not in privity with the contractor needs to absolutely serve its notice to owner immediately and no later than 45 days from when fabrication begins.

Also, if the supplier / fabricator is owed money: “Materials specially fabricated at a place other than the site of the improvement for incorporation but not so incorporated and the contract price or value thereof shall be separately stated in the claim of lien.” Fla. Stat. s. 713.08(1)(c).