DESIGN-BUILD PROJECT DELIVERY IN FLORIDA (AND LICENSING EXEMPTIONS)

imagesUnder a design-build project delivery, typically the general contractor contracts with the owner to be responsible for both the design and construction of the project.  This benefits the owner because if there is a design or construction issue–whether causing an increase in budget, a defect, or a delay–the owner can point to the contractor since it is the entity responsible for both disciplines.  This benefits the contractor (in addition to the owner) because it is now working closely with the design professional so their interests are aligned and the contractor can have more control over value engineering or cost savings implementation and obtaining answers to requests for information or approvals to submittals and shop drawings.  Since the contractor is fully accountable for both the design and construction, it is working closely and collaborating with the design professionals to improve the efficiency in the construction process. Furthermore, since the contractor is responsible for the design, it has more flexibility fast-tracking the construction in phases even though the complete design is not finalized.  By fast-tracking the construction and overlapping the construction with the design, the contractor is ideally in a position to efficiently meet scheduling and production requirements.

 

 

A contractor is able to offer and perform design-build services because there is an exemption under the required licensing statutes for a contractor, architect, and engineer that allow these entities to negotiate / contract for design-build work as long as they are engaging a licensed professional to perform those tasks in which they are not licensed.  For instance, a contractor is exempt from the requirement of being a licensed architect when contracting and offering design-build work as long as the contractor engages a licensed architect to perform the design. This is set forth in Florida Statute s. 481.229(3) that provides:

 

Notwithstanding the provisions of this part, a general contractor who is certified or registered pursuant to the provisions of chapter 489 is not required to be licensed as an architect when negotiating or performing services under a design-build contract as long as the architectural services offered or rendered in connection with the contract are offered and rendered by an architect licensed in accordance with this chapter.”

 

 

Similarly, while less common, an architect or engineer is exempt from the requirement of being a licensed contractor when contracting and offering design-build work as long as these design professionals engage a licensed contractor to perform the construction.  This is set forth in Florida Statute s. 489.103(16) that provides:

 

 ”An architect or landscape architect licensed pursuant to chapter 481 or an engineer licensed pursuant to chapter 471 who offers or renders design-build services which may require the services of a contractor certified or registered pursuant to the provisions of this chapter, as long as the contractor services to be performed under the terms of the design-build contract are offered and rendered by a certified or registered general contractor in accordance with this chapter.” 

 

Despite these exemptions, recently the Florida Board of Architecture and Interior Design in Diaz & Russell Corp. v. Department of Business and Professional Regulation,  39 Fla. L. Weekly D 1125a (Fla. 3d DCA 2014), charged a general contractor for improperly performing services as an architect (when it was not a licensed architect) simply because the general contractor was offering design-build services.  Basically, the Florida Board of Architecture maintained that the contractor needed to identify the designated architect in its proposal to the owner offering the architectural services.  On appeal, the Third District Court of Florida correctly reversed this ruling because there is nothing that requires the contractor to identify the architect or engineer at the time of the proposal / contract just like there is nothing requiring the architect or engineer to identify the contractor at the time of the proposal / contract.  The statutory exemption would simply require the contractor to engage a licensed architect to perform the design, which was not an issue in this case because the contractor properly hired an architect to prepare the design.

 

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.

ENFORCEABILITY OF CONTRACT AS A WHOLE TO BE DETERMINED BY ARBITRATOR AND NOT A BASIS TO VACATE ARBITRATION AWARD

untitledArbitration is a form of dispute resolution that parties elect in their contracts.  With respect to construction contracts, the arbitration provision may provide that the parties will submit their dispute to the American Arbitration Association.  A benefit to arbitration is that the dispute will be decided by an arbitrator or panel of arbitrators that theoretically have expertise in the subject matter of the dispute.  A downside is that there is no great avenue to appeal or vacate an arbitrator’s award (absent very limited circumstances) even if a party believes the arbitrator misapplied the law.

 

An example of this downside can be found in The Village of Dolphin Commerce Center, LLC v. Construction Service Solutions, LLC, 39 Fla. L. Weekly D1065a (Fla. 3d DCA 2014), where an owner hired a contractor to construct a warehouse. At the time of contract, the contractor was not licensed.  The contractor became licensed after the execution of the contract.  The contractor proceeded with construction and, due to a payment dispute, recorded a construction lien.  The contractor also filed a demand for arbitration with the American Arbitration Association pursuant to its contract. The owner answered the demand for arbitration and asserted as a defense that the contract was unenforceable pursuant to Florida Statute s. 489.128 which provides, “As a matter of public policy, contracts entered into…by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.”   Section 489.128 further provides that, “[i]f a contract is rendered unenforceable under this section, no lien or bond claim shall exist in favor of the unlicensed contractor….”

 

The owner further filed a lawsuit in circuit court asking the court to declare that that the contractor’s claim of lien was unenforceable since the contractor was unlicensed at the time of contract.  The contractor asserted a counterclaim (although it is uncertain what claims were asserted) and moved to compel arbitration; the circuit court stayed the action and compelled the parties to arbitrate the dispute.

 

During arbitration, the owner never objected to the arbitrator’s jurisdiction to rule on whether the contractor’s lack of license at the time of contract prevented it from enforcing the contract and the construction lien. “The rules of the American Arbitration Association specifically state that any objection to the panel hearing an issue must be submitted with the answering statement or it is determined that the panel will have jurisdiction.”  The Village at Dolphin Commerce Center, supra.

 

The contractor prevailed in the arbitration and moved to enforce the arbitration award in circuit court.  The owner moved to vacate the award based on the unenforceability of the contract and lien under s. 489.128 (because the contractor was not properly licensed at the time of its contract with the owner).  The trial court affirmed the arbitration award and the owner appealed.

 

The issue on appeal was whether the arbitrator had jurisdiction to determine the enforceability of the contract and the lien pursuant to s. 489.128.   The Third District held that it did:

 

“[T]he issue of enforceability was submitted to the panel and neither party objected.  As such, based on the AAA [American Arbitration Association] rules, the panel had jurisdiction to determine the issue.  To ask the trial court to revisit the issue would require the trial court to step into an appellate position.   The Florida Arbitration Statutes do not provide for such.  Pursuant to section 682.13, Florida Statutes, the authority of the trial court to vacate an arbitration award is very narrow.”

The Village at Dolphin Commerce Center, supra.

 

 

The Third District, relying primarily on the United States Supreme Court’s decision in Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204 (2006), as well as other Florida appellate decisions, maintained that when a party is challenging the legality / enforceability of a contract as a whole (versus only the arbitration provision), that determination MUST go to the arbitrator and not the court.  For this reason, the Court held, “Those cases make clear that a trial or appellate court’s view that an arbitration panel wrongly decided the issue of illegality of a contract, and specifically illegality of a contract under section 489.128, is not a basis to vacate an arbitration award.” The Village at Dolphin Commerce Center, supra.

 

 

imagesA3FNB0L2Now, there are interesting take-aways from this ruling that need to be considered: 

 

    • If a party is arguing that a contract that contains an arbitration provision is unenforceable as a whole (such as being unenforceable because the contractor was not licensed at the time of contract), that determination should go to the arbitrator and not the court.   Yet, even the Third District noted that the Fourth District in Jupiter Medical Center, Inc. v. Visiting Nurse Association of Florida, Inc., 72 So.3d 184 (Fla. 4th DCA 2011), entered a ruling that conflicted with the United States Supreme Court (and, thus, the instant ruling) by stating: “If [a] contract is found to be illegal, a prior arbitration will not prevent the trial court from vacating the award.”  The Village at Dolphin Commerce Center, supra, quoting Jupiter Medical Center, Inc., 72 So.3d at 186.  How should this be reconciled with the instant ruling?  If a party in arbitration under the rules of the American Arbitration Association wants to preserve its argument that the arbitrator does not have jurisdiction to rule on the enforceability of the contract and lien under s. 489.128, it needs to (a) timely object to the arbitrator’s jurisdiction in accordance with the American Arbitration Association’s rules to ensure this argument is not waived and (b) hope that the court agrees with the Fourth District’s ruling in Jupiter Medical Center that a court can vacate an arbitration award if a contract is found to be illegal.  More than likely, however, the court will do exactly what the Third District did in The Village at Dolphin Commerce Center by holding that the arbitrator has the authority to determine the enforceability of a contract when the legality of the contract is be challenged as whole.

 

    • If a party wants to have the ability to appeal a ruling, particularly a ruling that involves a potentially incorrect application of the law, that party should NOT agree to a contract that contains an arbitration provision.  There is no discussion in this case (and the appellate court likely did not know) why the arbitration panel overlooked the fact that the contractor was not properly licensed and/or the reasons it found that s. 489.128 did not apply.  It did appear from the opinion, however, that the contractor was not properly licensed at the time of the contract and that s. 489.128 should have applied.

 

    • Determine whether the party being hired is licensed at the time of contract. Also, if a party is required to be licensed at the time of contract, it should get licensed in order to avoid having the other party to the contract argue that the contract and/or lien is unenforceable.

 

    • Recently, I discussed the Second District Court’s opinion in Snell v. Mott’s Contracting Services, Inc., 39 Fla. L. Weekly D1053a (Fla. 2d DCA), where the Court held that the contractor’s lien was unenforceable because the contractor did not timely enforce the lien in court after receiving a Notice of Contest of Lien.  (See http://www.floridaconstructionlegalupdates.com/dont-forget-to-timely-foreclose-the-construciton-lien-in-court/).   There is no discussion in The Village at Dolphin Commerce Center whether the contractor ever moved to foreclose its lien in court. Most likely, it asserted a lien foreclosure action in its counterclaim against the owner in court that was stayed pending the arbitration.  However, if it did not, then there would remain an issue as to how the lien is enforceable if it was not timely foreclosed on in court.

 

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.

 

MAKE SURE CONSTRUCTION LIENS ARE PROPERLY PREPARED AND DO NOT CONTAIN ERRORS

UnknownIf a construction lien is improperly filed or contains errors, an owner will try to capitalize on the improper filing or errors in order to get the lien discharged from his property. This is what an owner should do, although he should not lose sight over the difference between a ministerial error in the lien that you do not bank your entire defense on versus a truly substantive error under Florida’s Lien Law that could give the owner leverage in the dispute (e.g., not recording the claim of lien within 90 days from final furnishing, a subcontractor/supplier not serving a notice to owner, a lien from an unlicensed contractor, or a lien that includes improper amounts for nonlienable items).

 

The recent case of Premier Finishes, Inc. v. Maggirias, 2013 WL 5338052 (Fla. 2d DCA 2013), illustrates an error in a lien (that appears ministerial at first glance) that resulted in the lien being discharged by the trial court. However, although not discussed in the opinion, this case addresses much more than an error in a lien, but an interesting licensing issue.

 

In this case, a contractor was engaged to build a house. The contractor entered into the contract under a fictitious name. However, from reviewing the case, it does not appear that the fictitious name was a registered fictitious name, nor does it appear that the fictitious name was registered as a licensed contractor. Rather, it was simply an acronym used by the licensed contractor.

 

A payment dispute arose when the owner terminated the contractor, and the contractor recorded a claim of lien and moved to foreclose the lien. However, the lien was recorded and lawsuit initiated by the contractor and not the fictitious name that entered into the contract. The owner argued that the contractor was not a proper lienor and therefore the lien should be discharged because it was not the entity that actually entered into the contract. The trial court agreed.

 

On appeal through a petition for a writ of certiorari, the Second District reversed for two main reasons.

 

First, the Court held that a contract entered into under a fictitious name is enforceable (even if that fictitious name is not properly registered). See Fla. Stat. 869.09(9). The Court explained: “[I]f Premier Finishes [contractor] was the real entity using the fictitious name when entering into the contract, it is the actual party to the contract or the contractor…and is entitled to proceed with a claim of lien against the Owner.” Premier Finishes, 2013 WL 5338052 at *3.

 

Second, under Florida’s Lien Law, a ministerial error does not invalidate a lien unless the owner can show he was prejudiced by the error. See Fla. Stat. 713.08(4). The owner will have to show how he was adversely affected / prejudiced by the error, which would require an evidentiary hearing and can be quite challenging to prove.

 

Now, what is interesting about this case is whether there was any argument that the lien should be unenforceable because the fictitious entity that signed the contract was an unlicensed contractor (assuming this is the case). Under Florida Statute s. 489.128, contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor. Thus, an unlicensed contractor cannot properly lien. Instead of the focus being on the error in the lien due to the lien being recorded by the contractor instead of the fictitious entity, the argument could center on the fact that the contract was entered into by an unlicensed contractor and, therefore, the contract and corresponding lien are not enforceable. Perhaps, the owner plans on raising this argument to establish prejudice.

 

While the contractor can certainly raise arguments to address the fact that the fictitious name is properly licensed since the contractor that owns the fictitious name is properly licensed, a contractor that is required to be licensed by the state (e.g., general contractor, mechanical contractor, electrical contractor, plumbing contractor, etc.) is technically supposed to register and identify the fictitious name it is doing business under. See Fla. Stat. 489.119.  Although, notably, there is an older case, Martin Daytona Corp. v. Strickland Const. Services, 881 So.2d 686 (Fla. 5th DCA 2004), that held that a subcontractor’s failure to obtain a license under its fictitious name did not render the contract unenforceable. However, this case was decided under a previous version of Florida Statute s. 489.128 and, importantly, the current version of this statute likely would not have applied to this case since the subcontractor (a mason) is not required to obtain a state license like a general contractor. It is uncertain how this case would be decided under current law.

 

The key is to double check your liens to ensure they are accurate and do not contain errors. Naturally, it is always a good thing to work with an attorney to prepare your lien so that if you know that if an error will likely exist you can game plan accordingly.  For example, if you entered into contracts in the name of an unregistered fictitious name, the decision in Premier Finishes can support your argument that the fictitious name would not render the contract or lien unenforceable especially if the fictious name is used by a properly licensed contractor.  Also, contractors needs to be sure they maintain proper licenses to remove any argument that the contract or lien is unenforceable. Keep in mind that under the law, a contract with an unlicensed contractor is unenforceable one-way by the unlicensed contractor; the other party to the contract can still seek recourse.

 

 

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.

MORE ON THE HARSH REALITIES OF CONTRACTORS NOT BEING PROPERLY LICENSED

UnknownPreviously, we posted an article about the Florida’s court’s decision in Earth Trades, Inc. v. T&G Corp., 2013 WL 264440 (Fla. 2013), which demonstrates the huge risk an unlicensed contractor undertakes by entering into a contract based on Florida Statute s. 489.128 that would render contracts by the unlicensed contractor unenforceable in law or equity.

 

Well, unfortunately for the unlicensed contractor, there are more harsh realities further demonstrated by the Fourth District Court of Appeal’s ruling in Home Construction Management, LLC v. Comet, Inc., 2013 WL 440101 (Fla. 4th DCA 2013). This case references Florida Statute s. 768.0425 which provides in material part: “In any action against a contractor for injuries sustained resulting from the contractor’s negligence, malfeasance, or misfeasance, the consumer shall be entitled to three times the actual compensatory damages sustained in addition to costs and attorney’s fees if the contractor is neither certified as a contractor by the state nor licensed as a contractor pursuant to the laws of the municipality or county within which she or he is conducting business.”

 

In Home Construction Management, an owner hired an unlicensed contractor to complete the construction of a residence. Due to issues that are not discussed in the case, the owner sued the contractor for treble damages pursuant to s. 768.0425 and recovered a judgment against the unlicensed contractor (although the appellate court found that the representative of the unlicensed contractor–likely the person that signed the contract–was not a specific party to the contract and could not be liable for treble damages).

 

Besides the unlicensed contractor being unable to enforce its contract in any way, shape, or form in the event they are not paid, they could expose themselves to treble damages under s. 768.0425 (in addition to having to pay back all funds it received as an unlicensed contractor since a party cannot profit from an illegality). Statute 768.0425 is potentially extremely harsh because this statute would extend to contractors that do not necessarily need to be licensed by the state, but need to be licensed by a local jurisdiction in which they are performing work!!!  Thus, ensuring proper licensure is important to any contractor performing work, regardless of whether that work requires a license by Florida’s Construction Industry Licensing Board.

 

 

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.